What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-22 · 144 added, 161 removed, 348 unchanged (47% of the section changed)

9 unchanged sentences

Total operating revenues 52,788 48,971 3,817 7.8

Aircraft fuel and related taxes 13,791 6,792 6,999 nm (2)

Aircraft fuel and related taxes 12,257 13,791 (1,534) (11.1)

Salaries, wages and benefits 14,580 12,972 1,608 12.4

Total operating expenses 49,754 47,364 2,390 5.0

Operating income (loss) 1,607 (1,059) 2,666 nm

Pre-tax income (loss) 186 (2,548) 2,734 nm

Income tax provision (benefit) 59 (555) 614 nm

Net income (loss) 127 (1,993) 2,120 nm

Pre-tax income (loss) – GAAP $ 186 $ (2,548) $ 2,734 nm

Operating income 3,034 1,607 1,427 88.8

Pre-tax income 1,121 186 935 nm (2)

Income tax provision 299 59 240 nm

Net income 822 127 695 nm

Pre-tax income – GAAP $ 1,121 $ 186 $ 935 nm

Adjusted for:

1 unchanged sentence

1,341 272 1,069 nm

Pre-tax income (loss) excluding net special items $ 458 $ (6,943) $ 7,401 nm

Pre-tax income excluding net special items $ 2,462 $ 458 $ 2,004 nm

(1) See Part II, Item 6.

1 unchanged sentence

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

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

Pre-tax income and net income were $186 million and $127 million, respectively, in 2022.

This compares to 2021 pre-tax loss and net loss of $2.5 billion and $2.0 billion, respectively.

The year-over-year improvement in our pre-tax income, on a GAAP basis, was driven by the continued strength in demand for air travel and a 21.3% increase in capacity as compared to 2021.

This resulted in record passenger revenue for 2022 which was offset in part by higher aircraft fuel and related taxes, due to a 73.0% increase in the average price per gallon of aircraft fuel as well as increases in other operating expenses from increased capacity.

The 2021 period also included the recognition of $4.4 billion of net pre-tax special credits, principally related to PSP Financial Assistance.

See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for details on the components of pre-tax net special items.

Excluding the effects of pre-tax net special items, pre-tax income was $458 million in 2022 and pre-tax loss was $6.9 billion in 2021.

The year-over-year improvement in our pre-tax income excluding pre-tax net special items was primarily due to record passenger revenue in 2022, offset in part by higher aircraft fuel and related taxes and increases in other operating expenses, as described above.

Pre-Tax Income and Net Income

Pre-tax income and net income were $1.1 billion and $822 million, respectively, in 2023.

This compares to 2022 pre-tax income and net income of $186 million and $127 million, respectively.

The year-over-year improvement in our pre-tax income on a GAAP basis was driven primarily by higher passenger revenue and lower fuel costs.

Continued strength in demand for air travel and a 7.6% increase in revenue passenger miles (RPMs) as compared to 2022 contributed to record passenger revenue in 2023.

Aircraft fuel costs were lower primarily due to a 16.3% decrease in the average price per gallon of aircraft fuel as compared to 2022.

The increase to pre-tax income was partially offset by increases in certain operating expenses including salaries, wages and benefits costs, primarily as a result of the ratification of a new collective bargaining agreement with our mainline pilots, as described below.

The 2023 period also included $1.3 billion of pre-tax net special items, principally related to one-time charges resulting from the new collective bargaining agreement.

Excluding the effects of pre-tax net special items, pre-tax income was $2.5 billion and $458 million in 2023 and 2022, respectively.

The year-over-year improvement in our pre-tax income excluding pre-tax net special items was primarily due to record passenger revenue in 2023 and lower fuel costs, offset in part by increases in certain operating expenses including salaries, wages and benefits, as described above.

In May 2023, American and the Allied Pilots Association, the union representing our mainline pilots, reached an agreement in principle on a new collective bargaining agreement, which was ratified in August 2023.

This four-year agreement provides wage rate increases, including an initial wage rate increase of 21% effective as of January 1, 2023,

quality-of-life benefits and other benefit-related items.

The additional compensation for the 2023 period prior to contract ratification as a result of the higher wage rates was recorded within salaries, wages and benefits in the consolidated statements of operations in the second and third quarters of 2023.

The agreement also included a provision for a one-time payment upon ratification.

In 2023, one-time charges resulting from the ratification of this new agreement were recorded as mainline operating special items, net in the consolidated statement of operations, including the one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million.

The one-time payment and the additional compensation were principally paid in 2023, with remaining payments expected to be paid in the first quarter of 2024.

In 2023, we reported total operating revenues of $52.8 billion, an increase of $3.8 billion, or 7.8%, as compared to 2022.

Passenger revenue was $48.5 billion, an increase of $3.9 billion, or 8.8%, as compared to 2022.

The increase in passenger revenue in 2022 was primarily due to a 33.5% increase in revenue passenger miles (RPMs), driven by the continued strength in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in a 7.6 point increase in passenger load factor to 82.9% in 2022, and a 28.1% increase in passenger yield.

In 2022, cargo revenue was $1.2 billion, a decrease of $81 million, or 6.2%, as compared to 2021, primarily due to a 5.3% decrease in cargo ton miles driven by the discontinuation of our cargo-only flying and lower demand.

The increase in passenger revenue in 2023 was primarily due to a 7.6% increase in RPMs, driven by the continued strength in demand for air travel, resulting in an 83.5% load factor.

Cargo revenue decreased $421 million, or 34.1%, in 2023 as compared to 2022, primarily due to a 29.4% decrease in cargo yield and a 6.7% decrease in cargo ton miles driven by lower demand and increased air freight capacity globally.

Other operating revenue increased $294 million, or 9.3%, in 2023 as compared to 2022, driven primarily by higher revenue associated with our loyalty program.

During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.

Our total revenue per available seat mile (TRASM) was 18.82 cents in 2022, a 35.1% increase as compared to 13.93 cents in 2021, driven principally by the increase in passenger revenue as described above.

In 2022, aircraft fuel expense totaled $13.8 billion, an increase of $7.0 billion as compared to 2021.

This increase was primarily driven by a 73.0% increase in the average price per gallon of aircraft fuel including related taxes to $3.54 in 2022 from $2.04 in 2021 and a 17.4% increase in gallons of fuel consumed due to increased capacity.

Our total revenue per available seat mile (TRASM) was 19.01 cents in 2023, a 1.0% increase as compared to 18.82 cents in 2022.

In 2023, aircraft fuel expense totaled $12.3 billion, a decrease of $1.5 billion, or 11.1%, as compared to 2022.

This decrease was primarily driven by a 16.3% decrease in the average price per gallon of aircraft fuel including related taxes to $2.96 in 2023 from $3.54 in 2022, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.

As of December 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.

Our current policy is not to enter into transactions to hedge our fuel consumption, although we review this 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.

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:

We remain committed to actively managing our cost structure, which we believe is necessary in an industry in which economic prospects are heavily dependent upon two variables we cannot control:

general economic conditions and the price of fuel.

Our 2022 CASM was 18.20 cents, an increase of 26.2%, from 14.42 cents in 2021.

This increase in CASM was primarily driven by higher aircraft fuel and related taxes in 2022, as described above, and the recognition of $4.5 billion of operating net special credits in 2021 principally related to PSP Financial Assistance.

Our 2022 CASM excluding net special items and fuel was 12.83 cents, a decrease of 3.8%, from 13.33 cents in 2021.

Our 2023 CASM was 17.92 cents, a decrease of 1.6%, from 18.20 cents in 2022.

This decrease in CASM was primarily driven by lower aircraft fuel costs in 2023, as described above, offset by higher salaries, wages and benefits costs associated with the ratification of a new collective bargaining agreement with our mainline pilots, as described above.

Our 2023 CASM excluding net special items and fuel was 13.15 cents, an increase of 2.5%, from 12.83 cents in 2022, which was primarily driven by higher salaries, wages and benefits costs associated with the ratification of a new collective bargaining agreement with our mainline pilots, as described above.

For a reconciliation of total operating CASM to total operating CASM excluding net special items and fuel, see Part II, Item 6.

Selected Consolidated Financial Data – “Reconciliation of GAAP to Non-GAAP Financial Measures.”

As of December 31, 2022, we had $12.0 billion in total available liquidity, consisting of $9.0 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.

As of December 31, 2023, we had $10.4 billion in total available liquidity, consisting of $7.6 billion in unrestricted cash and short-term investments and $2.9 billion in total undrawn capacity under revolving credit and other short-term facilities.

During 2023, we completed the following financing transactions (see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information):

• repaid in full approximately $1.2 billion outstanding balance under, and terminated, the December 2016 Term Loan Facility;

• received $866 million in proceeds from enhanced equipment trust certificates (EETCs);

• repurchased $349 million of unsecured notes in the open market;

• issued $205 million of equipment loans and other notes payable in connection with the financing of certain aircraft.

• refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility (the 2013 Term Loan Facility Refinancing) through the combination of (i) the issuance of $750 million in aggregate principal amount of 7.25% senior secured notes due 2028 (the 7.25% Senior Secured Notes) and (ii) the entry into the Seventh Amendment to the 2013 Credit Agreement, pursuant to which the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility was extended to February 2028 from June 2025;

• extended the maturity of certain commitments under the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility to October 2026;

• issued $1.0 billion aggregate principal amount of 8.50% senior secured notes due 2029 (the 8.50% Senior Secured Notes) in a private offering and entered into the 2023 Credit Agreement that provides for a term loan facility (the 2023 Term Loan Facility) in an aggregate principal amount of $1.1 billion.

The net proceeds from the offering of the 8.50% Senior Secured Notes, together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand were used to redeem all of American’s outstanding 11.75% senior secured notes due 2025 (the 11.75% Senior Secured Notes);

• issued $1.1 billion of equipment loans and other notes payable in connection with the financing of certain aircraft;

• repurchased $552 million of secured and unsecured notes in 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.

35 unchanged sentences

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

Excludes nine mainline and 69 regional aircraft in temporary storage as of December 31, 2022 as follows:

nine Boeing 737-800, 40 Embraer 145, 19 Bombardier CRJ 700, six Embraer 170 and four Bombardier CRJ 900.

Excluded from the aircraft count above are 77 regional aircraft in temporary storage as of December 31, 2023 as follows:

57 Embraer 145, 11 Bombardier CRJ 700, six Bombardier CRJ 900 and three Embraer 170.

Operating Revenues

13 unchanged sentences

Passenger revenue $ 48,512 8.8% 7.6% 6.7% 0.6pts 1.2% 2.0%

Passenger revenue increased $18.5 billion, or 71.0%, in 2022 from 2021 primarily due to a 33.5% increase in RPMs, driven by the continued strength in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in a 7.6 point increase in passenger load factor to 82.9% in 2022, and a 28.1% increase in passenger yield.

Cargo revenue decreased $81 million, or 6.2%, in 2022 from 2021 primarily due to a 5.3% decrease in cargo ton miles driven by the discontinuation of our cargo-only flying and lower demand.

Passenger revenue increased $3.9 billion, or 8.8%, in 2023 from 2022 primarily due to continued strength in demand for air travel, resulting in a 7.6% increase in RPMs and an 83.5% load factor in 2023.

Cargo revenue decreased $421 million, or 34.1%, in 2023 from 2022 primarily due to a 29.4% decrease in cargo yield and a 6.7% decrease in cargo ton miles driven by lower demand and increased air freight capacity globally.

Other operating revenue increased $294 million, or 9.3%, in 2023 from 2022 driven primarily by higher revenue associated with our loyalty program.

During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.

Total operating revenues in 2022 increased $19.1 billion, or 63.9%, from 2021 and our TRASM increased 35.1% to 18.82 cents in 2022 from 13.93 cents in 2021, driven principally by the increase in passenger revenue as described above.

Total operating revenues in 2023 increased $3.8 billion, or 7.8%, from 2022 driven primarily by the increase in passenger revenue as described above.

Our TRASM was 19.01 cents in 2023, a 1.0% increase as compared to 18.82 cents in 2022.

Operating Expenses

2 unchanged sentences

(In millions, except percentage changes)

Aircraft fuel and related taxes $ 13,791 $ 6,792 $ 6,999 nm

Aircraft fuel and related taxes $ 12,257 $ 13,791 $ (1,534) (11.1)

Salaries, wages and benefits 14,580 12,972 1,608 12.4

8 unchanged sentences

Total operating expenses $ 49,754 $ 47,364 $ 2,390 5.0

Total operating expenses increased $16.4 billion, or 53.1%, in 2022 from 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.

In 2021, total operating expenses also included $4.5 billion of net operating special credits principally related to PSP Financial Assistance.

See further discussion of operating special items, net below.

Aircraft fuel and related taxes increased $7.0 billion in 2022 from 2021 primarily driven by a 73.0% increase in the average price per gallon of aircraft fuel including related taxes to $3.54 in 2022 from $2.04 in 2021 and a 17.4% increase in gallons of fuel consumed due to increased capacity.

Salaries, wages and benefits increased $1.2 billion, or 9.8%, in 2022 from 2021 primarily due to an increase in average mainline full-time equivalent employees in 2022 as compared to 2021.

Regional expenses increased $1.2 billion, or 36.9%, in 2022 from 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 2021 period also included the recognition of $539 million of PSP Financial Assistance as a regional operating special credit.

See further discussion of operating special items, net below.

Maintenance, materials and repairs increased $705 million, or 35.6%, in 2022 from 2021 primarily due to increased capacity and an increase in the volume of engine overhauls where expense is incurred as maintenance is performed.

Selling expenses increased $717 million, or 65.3%, in 2022 from 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues.

Other operating expenses increased $1.4 billion, or 35.8%, in 2022 from 2021 primarily as a result of increased aircraft food and catering, crew travel, passenger accommodation and ground and cargo handling expenses driven by the increase in flight operations as well as certain general and administrative expenses.

Additional detail regarding changes in our operating expenses is as follows:

Aircraft fuel and related taxes decreased $1.5 billion, or 11.1%, in 2023 from 2022 primarily due to a 16.3% decrease in the average price per gallon of aircraft fuel including related taxes to $2.96 in 2023 from $3.54 in 2022, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.

Salaries, wages and benefits increased $1.6 billion, or 12.4%, in 2023 from 2022 primarily driven by higher wage rates associated with the ratification of a new collective bargaining agreement with our mainline pilots.

Regional expenses increased $258 million, or 5.9%, in 2023 from 2022 primarily due to increased costs at our wholly-owned regional carriers, including pay rate increases and higher costs for maintenance, materials and repairs driven by an increase in the volume of engine overhauls.

Maintenance, materials and repairs increased $581 million, or 21.6%, in 2023 from 2022 primarily due to increased costs for engine overhauls and airframe heavy checks driven by higher volume, flight hours and cost of materials.

Other rent and landing fees increased $198 million, or 7.3%, in 2023 from 2022 primarily due to rate increases at certain airports, incremental engine leases and higher landing fees.

Selling expenses remained flat in 2023 from 2022 primarily due to a decrease in commissions expense, offset primarily by higher credit card fees driven by the overall increase in passenger revenues.

Other operating expenses increased $584 million, or 10.8%, in 2023 from 2022 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Operating Special Items, Net

1 unchanged sentence

(In millions)

Labor contract expenses (1)

Severance expenses (2)

Fleet impairment (3)

Litigation reserve adjustments — 37

PSP Financial Assistance (2)

Severance expenses (3)

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

Other operating special items, net (41) 7

Mainline operating special items, net 971 193

PSP Financial Assistance (2)

Regional pilot retention program (4)

Fleet impairment (1)

Severance expenses (3)

Other operating special items, net 5 —

Regional operating special items, net 8 5

Operating special items, net $ 979 $ 198

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

(1) Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with our mainline pilots, including a one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million.

(2) Severance expenses included costs associated with headcount reductions in certain corporate functions.

(3) Fleet impairment 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 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 programs established by the U.S.

See Note 1(b) to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information.

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

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

Nonoperating Results

4 unchanged sentences

Interest expense, net (2,145) (1,962) (183) 9.3

Other income, net 325 293 32 10.9

Other income (expense), net (359) 325 (684) nm

Total nonoperating expense, net $ (1,913) $ (1,421) $ (492) 34.6

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

Interest expense, net increased in 2022 compared to 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021 and higher interest expense on our variable-rate debt instruments as a result of increased interest rates, offset in part by debt repayments.

Interest income increased $375 million in 2023 compared to 2022 primarily as a result of higher returns on our short-term investments.

Interest expense, net increased $183 million, or 9.3%, in 2023 compared to 2022 primarily due to higher interest rates on our variable-rate debt instruments, offset in part by debt repayments.

In 2023, other nonoperating expense, net primarily included $362 million of net special charges principally associated with debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $32 million of non-service related pension and other postretirement benefit plan income.

In 2022, other nonoperating income, net primarily included $424 million of non-service related pension and other postretirement benefit plan income, offset in part by $74 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments.

In 2021, other nonoperating income, net included $337 million of non-service related pension and other postretirement benefit plan income, offset in part by $60 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments and non-cash charges associated with debt refinancings and extinguishments.

The decrease in non-service related pension and other postretirement benefit plan income in 2023 as compared to 2022 is principally due to an increase in interest cost for the pension and other postretirement benefit obligations driven by higher discount rates and a decrease in expected return on pension plan assets from a reduction in plan assets.

In 2023, we recorded an income tax provision of $299 million with an effective rate of approximately 27%, which was substantially non-cash.

2 unchanged sentences

We also had approximately $5.5 billion of NOL carryforwards to reduce future state taxable income at December 31, 2023, which will expire in taxable years 2023 through 2043 if unused.

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

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

See Note 6 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes.

10 unchanged sentences

Total operating revenues $ 52,784 $ 48,965 $ 3,819 7.8

Passenger revenue increased $18.5 billion, or 71.0%, in 2022 from 2021 primarily due to an increase in RPMs, driven by the continued strength in demand for air travel domestically and in the Atlantic and Latin America regions, resulting in an increase in passenger load factor in 2022, and an increase in passenger yield.

Cargo revenue decreased $81 million, or 6.2%, in 2022 from 2021 primarily due to a decrease in cargo ton miles driven by the discontinuation of American’s cargo-only flying and lower demand.

Passenger revenue increased $3.9 billion, or 8.8%, in 2023 from 2022 primarily due to continued strength in demand for air travel, resulting in an increase in RPMs and an increase in load factor in 2023.

Cargo revenue decreased $421 million, or 34.1%, in 2023 from 2022 primarily due to decreases in cargo yield and cargo ton miles driven by lower demand and increased air freight capacity globally.

Other operating revenue increased $296 million, or 9.3%, in 2023 from 2022 driven primarily by higher revenue associated with American’s loyalty program.

During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.

Total operating revenues in 2022 increased $19.1 billion, or 63.9%, from 2021 driven principally by the increase in passenger revenue as described above.

Total operating revenues in 2023 increased $3.8 billion, or 7.8%, from 2022 driven primarily by the increase in passenger revenue as described above.

Operating Expenses

2 unchanged sentences

(In millions, except percentage changes)

Aircraft fuel and related taxes $ 13,791 $ 6,792 $ 6,999 nm

Aircraft fuel and related taxes $ 12,257 $ 13,791 $ (1,534) (11.1)

Salaries, wages and benefits 14,572 12,965 1,607 12.4

8 unchanged sentences

Total operating expenses $ 49,715 $ 47,312 $ 2,403 5.1

Total operating expenses increased $16.5 billion, or 53.4%, in 2022 from 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.

In 2021, total operating expenses also included $4.5 billion of net operating special credits principally related to PSP Financial Assistance.

See further discussion of operating special items, net below.

Salaries, wages and benefits increased $1.2 billion, or 9.8%, in 2022 from 2021 primarily due to an increase in average mainline full-time equivalent employees in 2022 as compared to 2021.

Regional expenses increased $1.2 billion, or 39.7%, in 2022 from 2021 primarily due to contractual rate increases with American's third-party regional carriers.

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

See further discussion of operating special items, net below.

Selling expenses increased $717 million, or 65.3%, in 2022 from 2021 primarily due to higher credit card fees and commission expense driven by the overall increase in passenger revenues.

Additional detail regarding changes in American’s operating expenses is as follows:

Regional expenses increased $274 million, or 6.3%, in 2023 from 2022 primarily due to contractual rate increases with American’s regional carriers.

Other rent and landing fees increased $198 million, or 7.3%, in 2023 from 2022 primarily due to rate increases at certain airports, incremental engine leases and higher landing fees.

Selling expenses remained flat in 2023 from 2022 primarily due to a decrease in commissions expense, offset primarily by higher credit card fees driven by the overall increase in passenger revenues.

Other operating expenses increased $583 million, or 10.8%, in 2023 from 2022 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.

Operating Special Items, Net

1 unchanged sentence

(In millions)

Labor contract expenses (1)

Severance expenses (2)

Fleet impairment (3)

Litigation reserve adjustments — 37

PSP Financial Assistance (2)

Severance expenses (3)

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

Other operating special items, net (41) 7

Mainline operating special items, net $ 971 $ 193

PSP Financial Assistance (2)

Fleet impairment (1)

Regional operating special items, net — (512)

Operating special items, net $ 193 $ (4,518)

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

(1) Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with American’s mainline pilots, including a one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million.

(2) Severance expenses included costs associated with headcount reductions in certain corporate functions.

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

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

Fleet impairment for 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 programs established by the U.S.

See Note 1(b) to American’s Consolidated Financial Statements in Part II, Item 8B for further information.

Nonoperating Results

4 unchanged sentences

Interest expense, net (2,206) (1,872) (334) 17.8

Other income, net 324 292 32 11.3

Other income (expense), net (359) 324 (683) nm

Total nonoperating expense, net $ (1,487) $ (1,199) $ (288) 24.0

Interest income increased in 2022 compared to 2021 primarily as a result of higher returns on American’s short-term investments and related party receivables from AAG.

Interest expense, net increased in 2022 compared to 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021 and higher interest expense on American’s variable-rate debt instruments as a result of increased interest rates, offset in part by debt repayments.

Interest income increased $729 million in 2023 compared to 2022 primarily as a result of higher returns on American’s short-term investments and related party receivables from AAG.

Interest expense, net increased $334 million, or 17.8%, in 2023 compared to 2022 primarily due to higher interest rates on American’s variable-rate debt instruments and related party payables from AAG’s wholly-owned subsidiaries, offset in part by debt repayments.

In 2023, other nonoperating expense, net primarily included $362 million of net special charges principally associated with debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $33 million of non-service related pension and other postretirement benefit plan income.

In 2022, other nonoperating income, net primarily included $423 million of non-service related pension and other postretirement benefit plan income, offset in part by $72 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments.

In 2021, other nonoperating income, net included $335 million of non-service related pension and other postretirement benefit plan income, offset in part by $60 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments and non-cash charges associated with debt refinancings and extinguishments.

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

3 unchanged sentences

American also had approximately $5.3 billion of NOL carryforwards to reduce future state taxable income at December 31, 2023, which will expire in taxable years 2023 through 2043 if unused.

In 2021, American recorded an income tax benefit of $500 million at an effective rate of approximately 22%, which was substantially non-cash.

In 2022, American recorded an income tax provision of $116 million at an effective rate of approximately 26%, which was substantially non-cash.

See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes.

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The amounts involved may be material.

For further information regarding our debt repurchases for the year ended 2022, see Note 4 to AAG's Condensed Consolidated Financial Statements in Part II, Item 8A.

For further information regarding our debt repurchases for the year ended December 31, 2023, see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

Certain Covenants

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

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

Additionally, certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine enhanced equipment trust certificates (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.

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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.

For further information regarding our debt covenants, see Note 4 to AAG’s

Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

For further information regarding our debt covenants, see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.

Sources and Uses of Cash

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Operating Activities

Our net cash provided by operating activities was $2.2 billion and $704 million in 2022 and 2021, respectively, a $1.5 billion year-over-year increase.

In 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 $6.2 billion compared to 2021 primarily due to a return to profitability.

Our net cash provided by operating activities was $3.8 billion and $2.2 billion in 2023 and 2022, respectively, a $1.6 billion year-over-year increase due to higher profitability and cash provided by working capital management.

Investing Activities

Our net cash provided by investing activities was $636 million in 2022 as compared to net cash used in investing activities of $6.0 billion in 2021.

Our net cash used in investing activities was $502 million in 2023 as compared to net cash provided by investing activities of $636 million in 2022.

Our principal investing activities in 2023 included $2.6 billion of capital expenditures, which primarily related to the purchase of 17 Boeing 737-8 MAX aircraft, ten Airbus A321neo aircraft, seven Embraer 175 aircraft, seven Bombardier CRJ 900 aircraft and 28 spare engines.

These cash outflows were offset in part by $1.5 billion in net sales of short-term investments and $230 million of proceeds from the sale of property and equipment and sale-leaseback transactions.

Our principal investing activities in 2022 included $3.7 billion in net sales of short-term investments.

These cash inflows were offset in part by $2.5 billion of capital expenditures, which primarily related to the purchase of 24 Airbus A321neo aircraft and 12 spare engines, and $321 million of equity investments, principally related to GOL.

Additionally, we incurred $360 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.

Our principal investing activities in 2021 included $5.5 billion in net purchases of short-term investments as well as a $401 million increase in restricted short-term investments primarily related to collateral associated with the AAdvantage Financing and collateral held to support workers’ compensation obligations.

We had capital expenditures of $208 million, net of aircraft purchase deposit returns of $996 million, which expenditures principally related to the harmonization of interior configurations across the mainline fleet and the purchase of two Airbus A321neo aircraft.

Additionally, we incurred $204 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 $193 million of proceeds from the sale of property and equipment principally related to the disposition of retired aircraft and $181 million of proceeds primarily from aircraft sale-leaseback transactions.

Financing Activities

Our net cash used in financing activities was $2.6 billion in 2022 as compared to net cash provided by financing activities of $5.3 billion in 2021.

Our net cash used in financing activities was $3.2 billion and $2.6 billion in 2023 and 2022, respectively.

Our principal financing activities in 2023 included $2.9 billion in net repayments of debt and finance lease obligations primarily due to scheduled debt repayments.

In February 2023, we refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility through the combination of (i) issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes and (ii) extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility.

In December 2023, we issued $1.0 billion aggregate principal amount of the 8.50% Senior Secured Notes and entered into the 2023 Term Loan Facility in an aggregate principal amount of $1.1 billion.

The net proceeds of the 8.50% Senior Secured Notes, together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand, were used to redeem all of the outstanding 11.75% Senior Secured Notes.

In addition, we borrowed $1.1 billion in connection with the financing of certain aircraft and repurchased $552 million of secured and unsecured notes in the open market.

Our principal financing activities in 2022 included $3.8 billion in repayments of debt and finance lease obligations, consisting of $2.2 billion of scheduled debt repayments including the repayment of $401 million in connection with the maturity of our 5.000% unsecured notes, the $1.2 billion prepayment of the December 2016 Term Loan Facility and the repurchase of $349 million of unsecured notes in the open market.

These cash outflows were offset in part by $1.1 billion of long-term debt proceeds, consisting of $866 million from the issuance of equipment notes related to the 2021-1 Aircraft EETCs and $205 million in connection with the financing of certain aircraft.

Our principal financing activities in 2021 included $12.2 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 $7.3 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 and $550 million of outstanding loans under the Treasury Loan Agreement as well as $2.9 billion in scheduled debt repayments.

In addition, we had $209 million of deferred financing cost cash outflows.

These cash outflows were offset in part by $1.1 billion of long-term debt proceeds, consisting of $866 million from the issuance of equipment notes related to EETCs and $205 million in connection with the financing of certain aircraft.

Operating Activities

American’s net cash provided by operating activities was $1.3 billion and $3.2 billion in 2022 and 2021, respectively, a $1.9 billion year-over-year decrease.

American had a $2.9 billion net decrease year-over-year in intercompany cash receipts principally from AAG's financing transactions.

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

Excluding the PSP Financial Assistance and the net decrease in AAG's financing transactions, American's operating cash flows increased $5.2 billion compared to 2021 primarily due to a return to profitability.

American’s net cash provided by operating activities was $3.7 billion and $1.3 billion in 2023 and 2022, respectively, a $2.4 billion year-over-year increase due to higher profitability and cash provided by working capital management.

Investing Activities

American’s net cash provided by investing activities was $693 million in 2022 as compared to net cash used in investing activities of $5.9 billion in 2021.

American’s net cash used in investing activities was $449 million in 2023 as compared to net cash provided by investing activities of $693 million in 2022.

American’s principal investing activities in 2023 included $2.5 billion of capital expenditures, which primarily related to the purchase of 17 Boeing 737-8 MAX aircraft, ten Airbus A321neo aircraft, seven Embraer 175 aircraft, seven Bombardier CRJ 900 aircraft and 28 spare engines.

These cash outflows were offset in part by $1.5 billion in net sales of short-term investments and $230 million of proceeds from the sale of property and equipment and sale-leaseback transactions.

American’s principal investing activities in 2022 included $3.7 billion in net sales of short-term investments.

Additionally, American incurred $360 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.

American’s principal investing activities in 2021 included $5.5 billion in net purchases of short-term investments as well as a $401 million increase in restricted short-term investments primarily related to collateral associated with the AAdvantage Financing and collateral held to support workers’ compensation obligations.

American had capital expenditures of $169 million, net of aircraft purchase deposit returns of $996 million, which expenditures principally related to the harmonization of interior configurations across the mainline fleet and the purchase of two Airbus A321neo aircraft.

Additionally, American incurred $204 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 $192 million of proceeds from the sale of property and equipment principally related to American's disposition of retired aircraft and $181 million of proceeds primarily from aircraft sale-leaseback transactions.

Financing Activities

American’s net cash used in financing activities was $1.8 billion in 2022 as compared to net cash provided by financing activities of $2.8 billion in 2021.

American’s net cash used in financing activities was $3.2 billion and $1.8 billion in 2023 and 2022, respectively.

American’s principal financing activities in 2023 included $2.9 billion in net repayments of debt and finance lease obligations primarily due to scheduled debt repayments.

In February 2023, American refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility through the combination of (i) issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes and (ii) extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility.

In December 2023, American issued $1.0 billion aggregate principal amount of the 8.50% Senior Secured Notes and entered into the 2023 Term Loan Facility in an aggregate principal amount of $1.1 billion.

In addition, American borrowed $1.1 billion in connection with the financing of certain aircraft and repurchased $539 million of secured notes in the open market.

American’s principal financing activities in 2022 included $3.0 billion in repayments of debt and finance lease obligations, consisting of $1.8 billion of scheduled debt repayments and the $1.2 billion prepayment of the December 2016 Term Loan Facility.

American’s principal financing activities in 2021 included $10.2 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 $7.3 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 and $550 million of outstanding loans under the Treasury Loan Agreement and $2.9 billion in scheduled debt repayments.

In addition, American had $207 million of deferred financing cost cash outflows.

For further information regarding our commitments, see the Notes to AAG’s Consolidated Financial Statements in Part II, Item 8A and the Notes to American’s Consolidated Financial Statements in Part II, Item 8B at the referenced footnotes below.

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

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

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

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

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Letters of Credit and Other

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

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

As of December 31, 2023, we had $318 million of letters of credit and surety bonds securing various obligations, of which $94 million is collateralized with our restricted cash.

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

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

Additionally, the amounts in the table exclude five Boeing 787 Family

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.

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In January 2024, we made $280 million of required pension contributions.

(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.

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

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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.

For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (such as 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.

See Part I, Item 1A.

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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.

Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions, and the amounts involved may be material.

OTHER INFORMATION

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We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements.

See the “ Basis of Presentation and Summary of Significant Accounting Policies ” included in Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Item 8A and 8B, respectively, for additional discussion of the application of these estimates and other accounting policies.

See the “ Basis of Presentation and Summary of Significant Accounting Policies ” included in Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for additional discussion of the application of these estimates and other accounting policies.

Passenger Revenue

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

The contract duration of passenger tickets is generally one year.

The majority of tickets sold are nonrefundable.

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

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

The estimate for tickets expected to expire unused is generally based on an analysis of our historical data and other current applicable factors such as policy changes.

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

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

While the contract duration of passenger tickets is generally one year, in response to the COVID-19 pandemic, we extended the contract duration for certain tickets to September 30, 2022, principally those tickets which were issued in 2020 and 2021.

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

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

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

Loyalty Revenue

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This program awards mileage credits to passengers who fly on American, any one world airline or other partner airlines, or by using the services of other program participants, such as our co-branded credit cards, and certain hotels and car rental companies.

Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as other non-air travel awards such as hotels and rental cars.

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

Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as non-air travel awards such as hotels and rental cars.

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

Mileage credits earned through travel

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

The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar fares as those used to settle award redemptions.

The estimated selling price of mileage credits is adjusted for an estimate of mileage credits that will not be redeemed using a statistical model based on historical redemption patterns to develop an estimate of the likelihood of future redemption.

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

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

Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale.

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

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

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

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Expected rate of return on plan assets (2)

(1) When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements.

(1) When establishing the discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements.

Lowering the discount rate by 50 basis points as of December 31, 2023 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $740 million and $40 million, respectively, and decrease estimated 2024 pension and retiree medical and other postretirement benefits expense by approximately $5 million and $1 million, respectively.

(2) The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% fixed income securities, 24% U.S.

fixed income securities, 24% U.S.

stocks, 24% private investments, 16% developed international stocks and 6% emerging market stocks.

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Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 2023 would increase estimated 2024 pension expense and retiree medical and other postretirement benefits expense by approximately $60 million and $1 million, respectively.

Annually, we review and revise certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates.

The net effect of changing this assumption for the pension plans resulted in a decrease of $4.6 billion in the projected benefit obligation at December 31, 2022.

The net effect of changing this assumption for retiree medical and other postretirement benefits plans resulted in a decrease of $183 million in the accumulated postretirement benefit obligation at December 31, 2022.

Annually, we review and revise certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates and health care costs.

The net effect of changing these assumptions for the pension plans resulted in an increase of $546 million in the projected benefit obligation at December 31, 2023.

The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an increase of $89 million in the accumulated postretirement benefit obligation at December 31, 2023.

See Note 9 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 8 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans.

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Accounting Standards Update (ASU) 2023-07:

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

Deferral of the Sunset Date of Topic 848

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

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

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

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

Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures

This standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in this update are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted.

We are currently evaluating how the adoption of this standard will impact our reportable segment disclosures.

Income Taxes (Topic 740) Improvements to Income Tax Disclosures

This standard enhances transparency of income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, as well as improvements to the effectiveness and comparability of other income tax disclosures.

The amendments in this update are effective for annual periods beginning after December 15, 2024, and early adoption is permitted.

We are currently evaluating how the adoption of this standard will impact our income tax disclosures.

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-K

Item 7. Management’s Discussion and Analysis