American Airlines Group Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of AAG’s and American’s Annual Report on Form 10-K for the year ended December 31, 2022 (the 2022 Form 10-K). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of AAG and American, but rather updates disclosures made in the 2022 Form 10-K. Financial Overview 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 March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Passenger revenue $ 11,103 $ 7,818 $ 3,285 42.0 Cargo revenue 223 364 (141) (38.7) Other operating revenue 863 717 146 20.4 Total operating revenues 12,189 8,899 3,290 37.0 Aircraft fuel and related taxes 3,167 2,502 665 26.6 Salaries, wages and benefits 3,281 3,154 127 4.1 Total operating expenses 11,751 10,622 1,129 10.6 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) 28 160 (132) (82.0) Pre-tax income (loss) excluding net special items $ 45 $ (1,926) $ 1,971 nm (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 (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. 38 T able of Contents Revenue 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. Fuel 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. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices. Other Costs We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel. 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. Liquidity 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; and 39 T able of Contents • 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 We sometimes use financial measures that are derived from the condensed consolidated financial statements but that are not presented in accordance with accounting principles generally accepted in the U.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. The following table presents the reconciliation of pre-tax income (loss) (GAAP measure) to pre-tax income (loss) excluding net special items (non-GAAP measure). Management uses this non-GAAP financial measure to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance. Three Months Ended March 31, 2023 2022 (In millions) Reconciliation of Pre-Tax Income (Loss) Excluding Net Special Items: Pre-tax income (loss) – GAAP $ 17 $ (2,086) Pre-tax net special items (1) : Operating special items, net 13 157 Nonoperating special items, net 15 3 Total pre-tax net special items 28 160 Pre-tax income (loss) excluding net special items $ 45 $ (1,926) (1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items. 40 T able of Contents Additionally, the table below presents the reconciliation of total operating costs (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel. Management uses total operating costs excluding net special items and fuel and CASM excluding net special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude 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 March 31, 2023 2022 Reconciliation of CASM Excluding Net Special Items and Fuel: (In millions) Total operating expenses – GAAP $ 11,751 $ 10,622 Operating net special items (1) : Mainline operating special items, net (13) (157) Aircraft fuel and related taxes (3,167) (2,502) Total operating expenses, excluding net special items and fuel $ 8,571 $ 7,963 Total available seat miles (ASM) 65,006 59,533 (In cents) CASM 18.08 17.84 Operating net special items per ASM (1) : Mainline operating special items, net (0.02) (0.26) Aircraft fuel and related taxes per ASM (4.87) (4.20) CASM, excluding net special items and fuel 13.18 13.38 (1) See Note 2 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items. 41 T able of Contents AAG’s Results of Operations Operating Statistics 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 March 31, Increase 2023 2022 Revenue passenger miles (millions) (a) 52,014 44,290 17.4% Available seat miles (millions) (b) 65,006 59,533 9.2% Passenger load factor (percent) (c) 80.0 74.4 5.6pts Yield (cents) (d) 21.35 17.65 20.9% Passenger revenue per available seat mile (cents) (e) 17.08 13.13 30.1% Total revenue per available seat mile (cents) (f) 18.75 14.95 25.4% Fuel consumption (gallons in millions) 965 894 7.9% Average aircraft fuel price including related taxes (dollars per gallon) 3.28 2.80 17.3% Total operating cost per available seat mile (cents) (g) 18.08 17.84 1.3% Aircraft at end of period (h) 1,464 1,453 0.8% Full-time equivalent employees at end of period 130,800 127,000 3.0% (a) Revenue passenger mile (RPM) – A basic measure of sales volume. One RPM represents one passenger flown one mile. (b) Available seat mile (ASM) – A basic measure of production. One ASM represents one seat flown one mile. (c) Passenger load factor – The percentage of available seats that are filled with revenue passengers. (d) Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs. (e) Passenger revenue per available seat mile (PRASM) – Passenger revenue divided by ASMs. (f) Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs. (g) Total operating cost per available seat mile (CASM) – Total operating expenses divided by ASMs. (h) Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. 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. 42 T able of Contents Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Operating Revenues Three Months Ended March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Passenger $ 11,103 $ 7,818 $ 3,285 42.0 Cargo 223 364 (141) (38.7) Other 863 717 146 20.4 Total operating revenues $ 12,189 $ 8,899 $ 3,290 37.0 This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics: Increase vs. Three Months Ended March 31, 2022 Three Months Ended March 31, 2023 RPMs ASMs Load Factor Passenger Yield PRASM (In millions) Passenger revenue $ 11,103 17.4% 9.2% 5.6pts 20.9% 30.1% 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. 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. 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 March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Aircraft fuel and related taxes $ 3,167 $ 2,502 $ 665 26.6 Salaries, wages and benefits 3,281 3,154 127 4.1 Regional expenses 1,142 1,052 90 8.6 Maintenance, materials and repairs 712 617 95 15.4 Other rent and landing fees 708 678 30 4.4 Aircraft rent 344 353 (9) (2.5) Selling expenses 438 332 106 31.8 Depreciation and amortization 486 492 (6) (1.2) Mainline operating special items, net 13 157 (144) (91.4) Other 1,460 1,285 175 13.5 Total operating expenses $ 11,751 $ 10,622 $ 1,129 10.6 43 T able of Contents 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 Three Months Ended March 31, 2023 2022 (In millions) Severance expenses (1) $ 21 $ — Fleet impairment (2) — 149 Other operating special items, net (8) 8 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. Nonoperating Results Three Months Ended March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Interest income $ 125 $ 8 $ 117 nm Interest expense, net (540) (463) (77) 16.6 Other income (expense), net (6) 92 (98) nm Total nonoperating expense, net $ (421) $ (363) $ (58) 16.0 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. 44 T able of Contents 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. Income Taxes 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. See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes. American’s Results of Operations Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Operating Revenues Three Months Ended March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Passenger $ 11,103 $ 7,818 $ 3,285 42.0 Cargo 223 364 (141) (38.7) Other 862 714 148 20.8 Total operating revenues $ 12,188 $ 8,896 $ 3,292 37.0 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 March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Aircraft fuel and related taxes $ 3,167 $ 2,502 $ 665 26.6 Salaries, wages and benefits 3,280 3,152 128 4.0 Regional expenses 1,143 1,023 120 11.8 Maintenance, materials and repairs 712 617 95 15.4 Other rent and landing fees 708 678 30 4.4 Aircraft rent 344 353 (9) (2.5) Selling expenses 438 332 106 31.8 Depreciation and amortization 484 492 (8) (1.5) Mainline operating special items, net 13 157 (144) (91.4) Other 1,460 1,286 174 13.5 Total operating expenses $ 11,749 $ 10,592 $ 1,157 10.9 45 T able of Contents Significant changes in the components of American’s 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 $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. 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 $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 Three Months Ended March 31, 2023 2022 (In millions) Severance expenses (1) $ 21 $ — Fleet impairment (2) — 149 Other operating special items, net (8) 8 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 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. Nonoperating Results Three Months Ended March 31, Increase (Decrease) Percent Increase (Decrease) 2023 2022 (In millions, except percentage changes) Interest income $ 231 $ 11 $ 220 nm Interest expense, net (550) (424) (126) 29.7 Other income (expense), net (6) 95 (101) nm Total nonoperating expense, net $ (325) $ (318) $ (7) 1.9 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. 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. 46 T able of Contents 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. 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. Income Taxes American is a member of AAG’s consolidated federal and certain state income tax returns. 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. See Note 5 to American’s Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes. Liquidity and Capital Resources Liquidity At 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): AAG American March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Cash $ 452 $ 440 $ 443 $ 429 Short-term investments 11,041 8,525 11,039 8,523 Undrawn facilities 2,877 3,033 2,877 3,033 Total available liquidity $ 14,370 $ 11,998 $ 14,359 $ 11,985 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, legal and contractual restrictions and other factors. The amounts involved may be material. 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. 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 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. 47 T able of Contents Sources and Uses of Cash AAG Operating Activities 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 $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 $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). American Operating Activities 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 $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 $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. 48 T able of Contents 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. Commitments Significant Indebtedness 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 March 31, 2023, we had definitive purchase agreements for the acquisition of the following aircraft (1) : Remainder of 2023 2024 2025 2026 2027 Total Airbus A320neo Family — 2 22 29 5 58 Boeing 737 MAX Family 17 22 28 21 — 88 787 Family 3 11 10 4 5 33 Total 20 35 60 54 10 179 (1) Delivery schedule represents our best estimate as of the date of this report as described in footnote (d) to the “Contractual Obligations” table below. Actual delivery dates are subject to change, which could be material, based on various potential factors including production delays by the manufacturer and regulatory concerns. We also have agreements for 47 spare engines to be delivered in 2023 and beyond. 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. Off-Balance Sheet Arrangements An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us. There have been no material changes in our off-balance sheet arrangements as discussed in our 2022 Form 10-K. 49 T able of Contents Contractual Obligations 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. Payments Due by Period Remainder of 2023 2024 2025 2026 2027 2028 and Thereafter Total American Long-term debt: Principal amount (a), (c) $ 2,529 $ 3,532 $ 6,119 $ 4,497 $ 4,532 $ 8,400 $ 29,609 Interest obligations (b), (c) 1,317 1,669 1,396 825 534 573 6,314 Finance lease obligations 197 201 137 113 71 93 812 Aircraft and engine purchase commitments (d) 1,242 2,516 4,219 3,245 1,008 65 12,295 Operating lease commitments (e) 1,479 1,728 1,434 1,169 979 4,544 11,333 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 (h) 3,977 2,861 1,549 546 128 925 9,986 Total American Contractual Obligations 12,385 15,029 17,299 12,268 8,669 17,200 82,850 AAG Parent and Other AAG Subsidiaries Long-term debt: Principal amount (a) — — 1,500 — — 3,746 5,246 Interest obligations (b) 61 121 143 147 176 544 1,192 Finance lease obligations 5 10 — — — — 15 Operating lease commitments 16 15 11 10 5 29 86 Minimum pension obligations (g) 2 2 2 2 2 8 18 Total AAG Contractual Obligations $ 12,469 $ 15,177 $ 18,955 $ 12,427 $ 8,852 $ 21,527 $ 89,407 (a) Amounts represent contractual amounts due. 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 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, 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) 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 50 T able of Contents 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. (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 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 (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. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 5 and Note 4 to AAG’s and American’s Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions. Critical Accounting Policies and Estimates For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2022 Form 10-K.