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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-21 compared with 2023-02-22 · 639 added, 752 removed, 2170 unchanged (39% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of fuel, foreign currency exchange rates and interest rates as discussed below.

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of aircraft fuel, foreign currency exchange rates and interest rates as discussed below.

The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes.

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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.

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dollar value of foreign currency-denominated transactions.

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

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

We do not currently have a foreign currency hedge program.

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

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

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

We had variable-rate debt instruments representing 30% of our total long-term debt at December 31, 2023.

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Additionally, the fair value of fixed-rate debt would have decreased by approximately $700 million for AAG and $460 million for American.

On July 27, 2017, the U.K.

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

The discontinuation date for submission and publication of rates for certain tenors of USD LIBOR (1-month, 3-month, 6-month, and 12-month) was subsequently extended by the ICE Benchmark Administration (the administrator of LIBOR) until June 30, 2023.

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

While the U.S.

In connection with the phase-out of LIBOR as a reference rate in June 2023, the U.S.

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

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

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

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

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

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

(calculated based on repurchase agreements backed by treasury securities).

Prior to the discontinuation of LIBOR, we amended substantially all of our LIBOR-based financing arrangements to transition them to successor rates, primarily Term SOFR.

We cannot predict the extent to which Term SOFR will gain widespread acceptance as a replacement for LIBOR, the consequences of the replacement of LIBOR on financial markets generally or on our business, financial condition or results of operations specifically, and our transition to successor rates could cause the amount of interest payable on our long-term debt to be different or higher than expected.

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

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

Sufficiency of audit evidence over realizability of tax operating loss and other carryforwards

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

Deferred tax assets are recognized related to tax operating loss and other carryforwards that will reduce future taxable income.

Sufficiency of audit evidence over the realizability of tax net operating loss and other carryforwards

As discussed in Notes 1(j) and 6 to the consolidated financial statements, the Company had $4.2 billion of tax net operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2023.

Deferred tax assets are recognized related to tax net operating loss and other carryforwards that will reduce future taxable income.

The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of the deferred tax assets, will not be realized.

In evaluating the need for a valuation allowance, management considers all available positive and negative evidence.

We identified the evaluation of the sufficiency of audit evidence over the realizability of tax operating loss and other carryforwards as a critical audit matter.

Evaluating the sufficiency of audit evidence required subjective auditor judgment in order to assess the extent of procedures performed in assessing the realizability of the tax operating loss and other carryforwards.

We identified the evaluation of the sufficiency of audit evidence over the realizability of the federal tax net operating loss and other carryforwards as a critical audit matter.

Evaluating the sufficiency of audit evidence required subjective auditor judgment in order to assess the extent of procedures performed in assessing the realizability of the federal tax net operating loss and other carryforwards.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s deferred tax asset valuation allowance process, including controls related to the realizability of tax operating loss and other carryforwards.

We evaluated positive and negative evidence used in assessing whether the tax operating loss and other carryforwards were more likely than not to be realized in the future.

We evaluated positive and negative evidence used in assessing whether the federal tax net operating loss and other carryforwards were more likely than not to be realized in the future.

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

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

We assessed the sufficiency of audit evidence obtained over the realizability of the tax operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

We assessed the sufficiency of audit evidence obtained over the realizability of the federal tax net operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

We have served as the Company’s auditor since 2014.

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Interest expense, net ( 2,145 ) ( 1,962 ) ( 1,800 )

Other income, net 325 293 154

Other income (expense), net ( 359 ) 325 293

Total nonoperating expense, net ( 1,913 ) ( 1,421 ) ( 1,489 )

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Net income (loss) $ 822 $ 127 $ ( 1,993 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 2,254 2,298 2,335

Debt extinguishment costs 267 3 31

Special items, net non-cash 41 226 52

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Share-based compensation 102 78 98

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

Other, net ( 205 ) ( 37 ) 16

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Increase in other assets ( 11 ) ( 775 ) ( 402 )

Increase (decrease) in accounts payable and accrued liabilities 585 461 ( 626 )

Increase in accounts payable and accrued liabilities 873 585 461

Increase (decrease) in air traffic liability ( 545 ) 658 1,454

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Increase (decrease) in other liabilities ( 285 ) ( 18 ) 139

Net cash provided by (used in) operating activities 2,173 704 ( 6,543 )

Net cash provided by operating activities 3,803 2,173 704

Cash flows from investing activities:

Capital expenditures, net of aircraft purchase deposit returns ( 2,596 ) ( 2,546 ) ( 208 )

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

Proceeds from sale-leaseback transactions 86 181 665

Proceeds from sale of property and equipment 61 193 351

Proceeds from sale of property and equipment and sale-leaseback transactions 230 147 374

Sales of short-term investments 8,861 14,972 13,923

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Proceeds from issuance of long-term debt 4,822 1,069 12,190

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

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

Proceeds from issuance of equity — — 460

Dividend payments — — ( 43 )

Other financing activities ( 310 ) 52 ( 19 )

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Net loss — — — ( 1,993 ) ( 1,993 )

Other comprehensive loss, net — — ( 772 ) — ( 772 )

Issuance of PSP1 Warrants (see Note 1(b))

Issuance of Treasury Loan Warrants (see Note 1(b))

Issuance of 1,603,554 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

— ( 15 ) — — ( 15 )

Issuance of 129,490,000 shares of AAG common stock pursuant to public stock offerings, net of offering costs

1 1,686 — — 1,687

Issuance of 68,561,487 shares of AAG common stock pursuant to an at-the-market offering, net of offering costs

1 868 — — 869

Equity component of convertible debt issued, net of tax and offering costs — 320 — — 320

Purchase and retirement of 6,378,025 shares of AAG common stock

— ( 145 ) — — ( 145 )

Dividends declared on AAG common stock ($ 0.10 per share)

— — — ( 43 ) ( 43 )

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

Share-based compensation expense — 91 — — 91

Balance at December 31, 2020 6 6,894 ( 7,103 ) ( 6,664 ) ( 6,867 )

Net loss — — — ( 1,993 ) ( 1,993 )

Other comprehensive income, net — — 1,161 — 1,161

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— ( 18 ) — — ( 18 )

Settlement of single-dip unsecured claims held in DCR and retirement of 259,878 shares of AAG common stock

Settlement of single-dip unsecured claims held in Disputed Claims Reserve (DCR) and retirement of 259,878 shares of AAG common stock

— ( 1 ) — — ( 1 )

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

Net income — — — 822 822

Other comprehensive loss, net — — ( 309 ) — ( 309 )

Issuance of 3,630,731 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

1 ( 23 ) — — ( 22 )

Share-based compensation expense — 102 — — 102

Settlement of single-dip unsecured claims held in DCR — 4 — — 4

Balance at December 31, 2023 $ 7 $ 7,374 $ ( 4,894 ) $ ( 7,689 ) $ ( 5,202 )

See accompanying notes to consolidated financial statements.

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

In connection with the PSP Agreements entered into with Treasury, we were required to comply with the relevant provisions of the CARES Act, the PSP Extension Law, and the ARP, which included the requirement that funds provided pursuant to these programs be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, the requirement that certain levels of commercial air service be maintained, provisions that prohibited the repurchase of AAG common stock and the payment of common stock dividends as well as provisions that restrict the payment of certain executive

As of December 31, 2023, all of these provisions have expired.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

compensation.

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

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

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

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

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

In connection with entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

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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.

(d) Investments

Short-term investments primarily include debt securities and are classified as available-for-sale and stated at fair value.

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

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

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

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Equity investments for which we do not have significant influence are recorded at fair value or at cost, if fair value is not readily determinable, with adjustments for observable changes in price or impairments (referred to as the measurement alternative).

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

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

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

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(e) Restricted Cash and Short-term Investments

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

Kennedy International Airport (JFK).

We have restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations and collateral associated with the AAdvantage Financing.

(f) Accounts Receivable, Net

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Capitalized software 5 – 10 years

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

Total mainline and regional depreciation and amortization expense was $ 2.3 billion for each of the years ended December 31, 2023, 2022 and 2021.

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

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Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable.

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

We determine if an arrangement is a lease at inception.

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Finance leases are included in property and equipment, current maturities of long-term debt and finance leases and long-term debt and finance leases, net of current maturities, on our consolidated balance sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date , in determining the present value of lease payments.

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

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

Where applicable, we allocate the consideration in the capacity purchase agreements to the lease and non-lease components using their estimated relative standalone prices.

See Note 11(b) for additional information on our capacity purchase agreements .

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Customer relationships and tradenames are fully amortized.

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

We recorded amortization expense related to these intangible assets of $ 7 million for the year ended December 31, 2023 and $ 41 million for each of the years ended December 31, 2022 and 2021.

We expect to record annual amortization expense for these intangible assets as follows (in millions):

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Indefinite-Lived Intangible Assets

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

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

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

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

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

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

Based upon our annual assessment, there were no indefinite-lived intangible asset impairments in 2023.

We had $ 1.9 billion of indefinite-lived intangible assets on our consolidated balance sheets as of December 31, 2023 and 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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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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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.

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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Contract Balances

Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on our consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on our consolidated balance sheets.

Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and non-air travel awards, reported as loyalty program liability on our consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on our consolidated balance sheets.

(In millions)

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

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

As of December 31, 2023, our current loyalty program liability was $ 3.5 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

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

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

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

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

For 2023, $ 5.3 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2022.

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

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

(n) Maintenance, Materials and Repairs

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

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

(o) Selling Expenses

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Advertising costs are expensed as incurred.

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

Advertising expense was $ 114 million for the year ended December 31, 2023 and $ 105 million for each of the years ended December 31, 2022 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

Certain awards have performance conditions that must be achieved prior to vesting and are expensed based on the expected achievement at each reporting period.

The majority of our stock awards are time vested restricted stock units, and the fair value of such awards is based on the market price of the underlying shares of AAG common stock on the date of grant.

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(q) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net on our consolidated statements of operations.

Foreign currency gains and losses are recorded as part of other income (expense), net within total nonoperating expense, net on our consolidated statements of operations.

For the years ended December 31, 2023, 2022 and 2021, respectively, foreign currency losses were $ 30 million, $ 38 million and $ 4 million.

(r) Other Operating Expenses

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

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

(s) Regional Expenses

Our regional carriers provide scheduled air transportation under the brand name “American Eagle.” The American Eagle carriers include our wholly-owned regional carriers as well as third-party regional carriers.

Our regional carrier arrangements are in the form of capacity purchase agreements.

Our regional carrier arrangements are in the form of capacity purchase agreements with our third-party regional partners and similar arrangements with our wholly-owned regional affiliates.

Expenses associated with American Eagle operations are classified as regional expenses on the consolidated statements of operations.

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2023 2022 2021

Fleet impairment (1)

Labor contract expenses (1)

$ 989 $ — $ —

Severance expenses (2)

Fleet impairment (3)

Litigation reserve adjustments — 37 ( 19 )

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— — ( 4,162 )

Severance expenses (3)

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

Labor contract expenses (4)

Other operating special items, net ( 41 ) 7 7

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PSP Financial Assistance (4)

— ( 539 ) ( 444 )

Regional pilot retention program (5)

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Operating special items, net 979 198 ( 4,455 )

Mark-to-market adjustments on equity and other investments, net (6)

Debt refinancing, extinguishment and other, net (6)

Mark-to-market adjustments on equity and other investments, net (7)

Nonoperating special items, net 362 74 60

Income tax special items, net — ( 9 ) —

(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 for 2023 included costs associated with headcount reductions in certain corporate functions.

Severance expenses for 2021 included 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.

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

Fleet impairment for 2021 and 2020 included charges resulting from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

In 2021, we retired our remaining Embraer 140 fleet resulting in a non-cash write down of these regional aircraft.

In 2020, we retired our entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a $ 1.5 billion non-cash write down of mainline and regional aircraft and associated spare parts and $ 109 million in cash charges primarily for impairment of ROU assets and lease return costs.

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.

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

See Note 1(b) for further information.

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

(4) Labor contract expenses primarily related to one-time charges due to the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers (TWU-IAM Association) for our maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

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

(6) Debt refinancing and extinguishment costs in 2023 primarily included cash charges for premiums paid in connection with the early repayment of debt.

See Note 4 for further information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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Basic EPS $ 1.26 $ 0.20 $ ( 3.09 )

Net income (loss) $ 822 $ 127 $ ( 1,993 )

Interest expense on 6.50 % convertible senior notes

Net income (loss) for purposes of computing diluted EPS $ 868 $ 127 $ ( 1,993 )

3 unchanged sentences

Dilutive effect of certain PSP Warrants and Treasury Loan Warrants 2,499 3,198 —

Assumed conversion of 6.50 % convertible senior notes

Diluted weighted average common shares outstanding 719,669 655,122 644,015

3 unchanged sentences

2023 2022 2021

Restricted stock unit awards 4,371 3,987 3,420

6.50 % convertible senior notes

— 61,728 61,728

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

In addition, certain shares underlying our PSP Warrants and Treasury Loan Warrants for the years ended December 31, 2023, 2022 and 2021, were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive.

1 unchanged sentence

Long-term debt included on our consolidated balance sheets consisted of (in millions):

2013 Term Loan Facility, variable interest rate of 6.14 %, installments through 2025 (a)

2013 Term Loan Facility, variable interest rate of 8.60 %, installments through February 2028 (a)

$ 990 $ 1,752

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

December 2016 Term Loan Facility (a)

2014 Term Loan Facility, variable interest rate of 7.32 %, installments through January 2027 (a)

2023 Term Loan Facility, variable interest rate of 8.87 %, installments beginning in December 2024 through June 2029 (a)

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

1 unchanged sentence

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

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

7.25 % senior secured notes, interest only payments until due in February 2028 (b)

8.50 % senior secured notes, interest only payments until due in May 2029 (b)

5.50 % senior secured notes, installments through April 2026 (c)

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

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

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

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

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

AAdvantage Term Loan Facility, variable interest rate of 10.43 %, installments through April 2028 (c)

Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 2.88 % to 5.90 %, averaging 3.60 %, maturing from 2024 to 2034

Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.55 % to 8.90 %, averaging 6.98 %, maturing from 2024 to 2035 (d)

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

27,526 30,043

PSP1 Promissory Note, interest only payments until due in April 2030 (g)

PSP2 Promissory Note, interest only payments until due in January 2031 (g)

PSP3 Promissory Note, interest only payments until due in April 2031 (g)

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

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

5.000 % senior notes

PSP1 Promissory Note, interest only payments until due in April 2030 (e)

PSP2 Promissory Note, interest only payments until due in January 2031 (e)

PSP3 Promissory Note, interest only payments until due in April 2031 (e)

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

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

Total long-term debt 32,759 35,289

6 unchanged sentences

April 2016 Revolving Facility 446

Short-term Revolving and Other Facilities 220

Other short-term facility 49

Total $ 2,862

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

As of December 31, 2023, American had $ 49 million of available borrowing base under a cargo receivables facility that is set to expire in December 2024.

As a result of the below amendments to the 2013, 2014 and April 2016 Revolving Facilities, the aggregate commitments under these facilities will be $ 2.8 billion through October 11, 2024, and thereafter through October 13, 2026, such aggregate commitments will decrease to $ 2.2 billion.

Secured financings, including revolving credit and other facilities, are collateralized by assets, consisting primarily of aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots, certain receivables, certain intellectual property and certain loyalty program assets.

2 unchanged sentences

Total $ 32,759

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

(a) 2013 and 2014 Credit Facilities, April 2016 Revolving Facility and 2023 Term Loan Facility

2013 Credit Facilities

In November 2019, American and AAG entered into the Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (as previously amended, the 2013 Credit Agreement;

the revolving credit facility established thereunder, the 2013 Revolving Facility;

the term loan facility established thereunder, the 2013 Term Loan Facility;

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

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

The Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015, as amended (the 2013 Credit Agreement), includes a revolving credit facility (the 2013 Revolving Facility) and term loan (the 2013 Term Loan Facility), collectively referred to as the 2013 Credit Facilities.

In February 2023, American and AAG 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 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.

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

Additionally, the Seventh Amendment transitioned the benchmark interest rate from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR).

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

As of December 31, 2023, the margin elected was 2.75 %.

In March 2023, American and AAG entered into the Eighth Amendment to the 2013 Credit Agreement, pursuant to which American extended the maturity of certain commitments under the 2013 Revolving Facility.

The Eighth Amendment also amended certain other terms of the 2013 Credit Agreement, including certain covenants and transitioned the benchmark interest rate from LIBOR to SOFR.

T he 2013 Revolving Facility bears interest at a base rate (subject to a floor of 1.00 %) plus an applicable margin of 2.25 %, 2.50 % or 2.75 %, depending on AAG’s public corporate rating, or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American, plus the SOFR adjustment applicable to such interest period (with such SOFR rate plus SOFR adjustment being subject to a floor of 0.00 %) plus an applicable margin of 3.25 %, 3.50 % or 3.75 %, depending on AAG’s public corporate rating.

Additionally, as a result of the Eighth Amendment, through October 11, 2024, the aggregate commitments under the 2013 Revolving Facility will be $ 736 million, and thereafter through October 13, 2026, such aggregate commitments will decrease to $ 563 million.

As of December 31, 2023, there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

2014 Credit Facilities

In November 2019, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement;

the revolving credit facility established thereunder, the 2014 Revolving Facility;

the term loan facility established thereunder, the 2014 Term Loan Facility;

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

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

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

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

The Amended and Restated Credit and Guaranty Agreement, dated as of April 20, 2015, as amended (the 2014 Credit Agreement), includes a revolving credit facility (the 2014 Revolving Facility) and term loan (the 2014 Term Loan Facility), collectively referred to as the 2014 Credit Facilities.

In March 2023, American and AAG entered into the Ninth Amendment to the 2014 Credit Agreement, pursuant to which American extended the maturity of certain commitments under the 2014 Revolving Facility.

The Ninth Amendment also amended certain other terms of the 2014 Credit Agreement including the requirements for delivery of appraisals and certain other covenants and transitioned the benchmark interest rate for the 2014 Revolving Facility and the 2014 Term Loan Facility from LIBOR to SOFR.

T he 2014 Revolving Facility bears interest at the same base rate and applicable margin as the 2013 Revolving Facility, as noted above in “ 2013 Credit Facilities.” The 2014 Term Loan Facility bears interest at a base rate (subject to a floor of 1.00 %) plus an applicable margin of 0.75 % or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American, plus the SOFR adjustment applicable to such interest period (with such SOFR rate plus SOFR adjustment being subject to a floor of 0.00 %) plus an applicable margin of 1.75 %.

As of December 31, 2023, the margin elected was 1.75 %.

Additionally, a s a result of the Ninth Amendment, through October 11, 2024, the aggregate commitments under the 2014 Revolving Facility will be $ 1.6 billion, and thereafter through October 13, 2026, such aggregate commitments will decrease to $ 1.2 billion.

As of December 31, 2023, there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.

April 2016 Revolving Facility

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

the revolving credit facility established thereunder, the April 2016 Revolving Facility), which increased the total aggregate commitments under the April 2016 Revolving Facility to $ 450 million from $ 300 million.

In addition, certain lenders party to the April 2016 Credit Agreement extended the maturity date of a substantial portion of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023.

In March 2023, American and AAG entered into the Sixth Amendment to the Credit and Guaranty Agreement, dated as of April 29, 2016 (the April 2016 Credit Agreement), which includes a revolving credit facility (the April 2016 Revolving Facility).

Pursuant to the Sixth Amendment, American extended the maturity of certain commitments under the April 2016 Revolving Facility.

The Sixth Amendment also amended certain other terms under the April 2016 Credit Agreement including the requirements for delivery of appraisals and certain other covenants and transitioned the benchmark interest rate for the April 2016 Revolving Facility from LIBOR to SOFR.

The April 2016 Revolving Facility bears interest at the same base rate and applicable margin as the 2013 Revolving Facility, as noted above in “ 2013 Credit Facilities.” Additionally, a s a result of the Sixth Amendment, through October 11, 2024, the aggregate commitments under the April 2016 Revolving Facility will be $ 446 million, and thereafter through October 13, 2026, such aggregate commitments will decrease to $ 342 million.

As of December 31, 2023, there were no borrowings outstanding under the April 2016 Revolving Facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

December 2016 Credit Facilities

In December 2016, American and AAG entered into the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 (as amended, the December 2016 Credit Agreement;

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

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

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

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

2013 Credit Facilities 2014 Credit Facilities

2013 Term Loan 2013

Revolving Facility 2014 Term Loan 2014

Facility April 2016

Aggregate principal issued

or credit facility availability

(in millions) $ 1,919 $ 736 $ 1,280 $ 1,631 $ 446

Principal outstanding or

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

Maturity date June

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

The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to 1.00 % of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates.

2023 Term Loan Facility

In December 2023, American and AAG entered into a credit and guaranty agreement (the 2023 Credit Agreement) that provided for a term loan facility (the 2023 Term Loan Facility) in an aggregate principal amount of $ 1.1 billion, maturing in June 2029.

Loans made under the 2023 Term Loan Facility bear interest at a base rate (subject to a floor of 1.00 %) plus an applicable margin of 2.50 % or, at American’s option, the SOFR rate for a tenor of one, three or six months (or if agreed by the relevant lenders, any other tenor), depending on the interest period selected by American (subject to a floor of 0.00 %), plus an applicable margin of 3.50 %.

As of December 31, 2023, the margin elected was 3.50 %.

The net proceeds from the 2023 Term Loan Facility, together with the net proceeds from the private offering of the 8.50 % Senior Secured Notes (as defined below) and cash on hand, were used to redeem all of the outstanding 11.75 % Senior Secured Notes in December 2023.

Other Terms of the 2013 and 2014 Credit Facilities, April 2016 Revolving Facility and 2023 Term Loan Facility

The term loans under the 2013 Credit Facilities and 2014 Credit Facilities (collectively referred to as the Credit Facilities) and the 2023 Term Loan Facility are repayable in annual installments, in an amount equal to 1.00 % of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates.

Voluntary prepayments may be made by American at any time.

2 unchanged sentences

The 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility are each subject to an undrawn annual fee of 0.750 %.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Subject to certain limitations and exceptions, the Credit Facilities, April 2016 Revolving Facility and 2023 Term Loan Facility are secured by collateral, including certain spare parts, slots, route authorities, simulators and leasehold rights.

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

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

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

American’s obligations under the Credit Facilities, April 2016 Revolving Facility and 2023 Term Loan Facility are guaranteed by AAG, and such guarantee is AAG’s senior unsecured obligations (all of the collateral is owned by American, and AAG has not granted a security interest in any assets to secure any of the foregoing obligations).

The Credit Facilities, April 2016 Revolving Facility and 2023 Term Loan Facility contain events of default customary for similar financings, including cross default and cross-acceleration to other material indebtedness.

(b) Senior Secured Notes

1 unchanged sentence

In June 2020, American issued $ 2.5 billion aggregate principal amount of 11.75 % senior secured notes due 2025 (the 11.75 % Senior Secured Notes) at a price equal to 99 % of their aggregate principal amount.

The 11.75 % Senior Secured Notes bear interest at a rate of 11.75 % per annum (subject to increase if the collateral coverage ratio described below is not met).

Interest on the 11.75 % Senior Secured Notes is payable semiannually in arrears on January 15 and July 15 of each year, which began on January 15, 2021.

The 11.75 % Senior Secured Notes will mature on July 15, 2025.

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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

In December 2023, American redeemed all of its outstanding 11.75 % Senior Secured Notes using net proceeds from the offering of the 8.50 % Senior Secured Notes (as defined below), together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand.

In connection with the early redemption of the 11.75 % Senior Secured Notes, in the fourth quarter of 2023, American recorded a $ 186 million cash special charge for the make-whole premium paid and a $ 19 million non-cash special charge to write off unamortized debt issuance costs and debt discount.

10.75 % Senior Secured Notes

5 unchanged sentences

The IP Notes are secured by a first lien security interest on certain intellectual property of American, including the “American Airlines” trademark and the “aa.com” domain name in the United States and certain foreign jurisdictions (the IP Collateral), and a second lien on certain slots related to American’s operations at New York LaGuardia and Ronald Reagan Washington National airports and certain other assets (the LGA/DCA Collateral and together with the IP Collateral, the 10.75 % Senior Secured Notes Collateral).

Subject to certain conditions, American will be permitted to incur up to $ 4.0 billion of additional pari passu debt and unlimited second lien debt secured by the IP Collateral securing the IP Notes.

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

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

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

1 unchanged sentence

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

7.25 % Senior Secured Notes

On February 15, 2023, as part of the 2013 Term Loan Facility Refinancing, American issued $ 750 million aggregate principal amount of 7.25 % senior secured notes due 2028 (the 7.25 % Senior Secured Notes) in a private offering.

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

The 7.25 % Senior Secured Notes Collateral also secures, on a first lien, pari passu basis with the 7.25 % Senior Secured Notes, the 2013 Credit Facilities under the 2013 Credit Agreement.

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

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

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

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

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

8.50 % Senior Secured Notes

On December 4, 2023, American 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.

The 8.50 % Senior Secured Notes were issued at par and bear interest at a rate of 8.50 % per annum (subject to increase if the collateral coverage ratio described below is not met).

Interest on the 8.50 % Senior Secured Notes is payable semiannually in arrears on May 15 and November 15 of each year, beginning on May 15, 2024.

The 8.50 % Senior Secured Notes will mature on May 15, 2029.

The obligations of American under the 8.50 % Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG.

The net proceeds from the 8.50 % Senior Secured Notes, together with 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 December 2023.

The 8.50 % Senior Secured Notes were issued pursuant to an indenture, dated as of December 4, 2023 (the 8.50 % Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee and collateral agent.

The 8.50 % Senior Secured Notes are American’s senior secured obligations and are secured on a first lien basis by security interests in certain assets, rights and properties that American uses to provide non-stop scheduled air carrier services between (a) certain airports in the United States and (b) certain airports in Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea and Switzerland (collectively, the 8.50 % Senior Secured Notes Collateral).

The 8.50 % Senior Secured Notes Collateral also secures, on a first lien, pari passu basis with the 8.50 % Senior Secured Notes, the 2023 Term Loan Facility.

American may redeem the 8.50 % Senior Secured Notes, in whole at any time or in part from time to time prior to November 15, 2025, at a redemption price equal to 100 % of the principal amount of the 8.50 % Senior Secured Notes to be redeemed, plus a “make-whole” premium, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

At any time on or after November 15, 2025, American may redeem all or any of the 8.50 % Senior Secured Notes in whole at any time, or in part from time to time, at the redemption prices described in the 8.50 % Senior Secured Notes Indenture, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

In addition, at any time prior to November 15, 2025, American may redeem up to 40 % of the original aggregate principal amount of the 8.50 % Senior Secured Notes (calculated after giving effect to any issuance of additional notes) with the net cash proceeds of certain equity offerings, at a redemption price equal to 108.50 % of the aggregate principal amount of the 8.50 % Senior

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Secured Notes to be redeemed, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

In addition, during each twelve-month period beginning on December 4, 2023 and ending on or prior to November 15, 2025, American may redeem up to 10 % of the original aggregate principal amount of the 8.50 % Senior Secured Notes at a redemption price of 103 % of the principal amount thereof, plus any accrued and unpaid interest thereon to, but excluding, the applicable date of redemption.

Twice per year, American is required to deliver an appraisal of the 8.50 % Senior Secured Notes Collateral and an officer’s certificate demonstrating the calculation of a collateral coverage ratio in relation to the 8.50 % Senior Secured Notes Collateral (the 8.50 % Senior Secured Notes Collateral Coverage Ratio) as of the date of delivery of the appraisal for the applicable period.

If the 8.50 % Senior Secured Notes Collateral Coverage Ratio is less than 1.6 to 1.0 as of the date of delivery of the appraisal for the applicable period, then, subject to a cure period in which additional collateral can be provided or debt repaid such that American meets the required 8.50 % Senior Secured Notes Collateral Coverage Ratio, American will be required to pay special interest in an additional amount equal to 2.0 % per annum of the principal amount of the 8.50 % Senior Secured Notes until the 8.50 % Senior Secured Notes Collateral Coverage Ratio is established to be at least 1.6 to 1.0.

On March 24, 2021 (the AAdvantage Financing Closing Date), American and AAdvantage Loyalty IP Ltd., a Cayman Islands exempted company incorporated with limited liability and an indirect wholly-owned subsidiary of American (Loyalty Issuer and, together with American, the AAdvantage Issuers), completed the offering of $ 3.5 billion aggregate principal amount of 5.50 % Senior Secured Notes due 2026 (the 2026 Notes) and $ 3.0 billion aggregate principal amount of 5.75 % Senior Secured Notes due 2029 (the 2029 Notes, and together with the 2026 Notes, the AAdvantage Notes).

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

The AAdvantage Notes are fully and unconditionally guaranteed by the SPV Guarantors and AAG.

Concurrent with the issuance of the AAdvantage Notes, the AAdvantage Issuers, as co-borrowers, entered into a term loan credit and guaranty agreement, dated March 24, 2021, providing for a $ 3.5 billion term loan facility (the AAdvantage Term Loan Facility and collectively with the AAdvantage Notes, the AAdvantage Financing) and pursuant to which the full $ 3.5 billion of term loans (the AAdvantage Loans) were drawn on the AAdvantage Financing Closing Date.

The AAdvantage Loans are fully and unconditionally guaranteed (together with the AAdvantage Note Guarantees, the AAdvantage Guarantees) by the SPV Guarantors and AAG.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Subject to certain permitted liens and other exceptions, the AAdvantage Notes, AAdvantage Loans and AAdvantage Guarantees provided by the SPV Guarantors are secured by a first-priority security interest in, and pledge of, various agreements with respect to the AAdvantage program (the AAdvantage Agreements) (including all payments thereunder) and certain IP Licenses, certain deposit accounts that will receive cash under the AAdvantage Agreements, certain reserve accounts, the equity of each of Loyalty Issuer and the SPV Guarantors and substantially all other assets of Loyalty Issuer and the SPV Guarantors including American’s rights to certain data and other intellectual property used in the AAdvantage program (subject to certain exceptions) (collectively, the AAdvantage Collateral).

Subject to certain permitted liens and other exceptions, the AAdvantage Notes, AAdvantage Loans and AAdvantage Guarantees provided by the SPV Guarantors are secured by a first-priority security interest in, and pledge of, various agreements with respect to the AAdvantage program (the AAdvantage Agreements) (including all payments thereunder) and certain intellectual property licenses, certain deposit accounts that will receive cash under the AAdvantage Agreements, certain reserve accounts, the equity of each of Loyalty Issuer and the SPV Guarantors and substantially all other assets of Loyalty Issuer and the SPV Guarantors including American’s rights to certain data and other intellectual property used in the AAdvantage program (subject to certain exceptions) (collectively, the AAdvantage Collateral).

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

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The 2026 Notes will mature on April 20, 2026, and the 2029 Notes will mature on April 20, 2029.

The outstanding principal on the 2026 Notes will be repaid in quarterly installments of $ 292 million on each AAdvantage Payment Date, beginning on July 20, 2023.

The outstanding principal on the 2026 Notes will be repaid in quarterly installments of $ 292 million on each AAdvantage Payment Date, which began in July 2023.

The outstanding principal on the 2029 Notes will be repaid in quarterly installments of $ 250 million on each AAdvantage Payment Date, beginning on July 20, 2026.

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The scheduled maturity date of the AAdvantage Loans under the AAdvantage Term Loan Facility is April 20, 2028.

The AAdvantage Loans bear interest at a variable rate equal to LIBOR (but not less than 0.75 % per annum), plus a margin of 4.75 % per annum, payable on each AAdvantage Payment Date.

The outstanding principal on the AAdvantage Loans will be repaid in quarterly installments of $ 175 million, on each AAdvantage Payment Date beginning with the AAdvantage Payment Date in July 2023.

The outstanding principal on the AAdvantage Loans will be repaid in quarterly installments of $ 175 million, on each AAdvantage Payment Date, which began in July 2023.

These amortization payments (as well as those for the AAdvantage Notes) will be subject to the occurrence of certain early amortization events, including the failure to satisfy a minimum debt service coverage ratio at specified determination dates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Prepayment of some or all of the AAdvantage Loans outstanding under the AAdvantage Term Loan Facility is permitted, although payment of an applicable premium is required as specified in the AAdvantage Term Loan Facility.

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Certain other events, including the occurrence of a change of control with respect to AAG and certain AAdvantage Collateral sales exceeding a specified threshold, will also trigger mandatory repurchase or mandatory prepayment provisions under the AAdvantage Indenture and the AAdvantage Term Loan Facility, respectively.

2021-1 Aircraft EETCs

In November 2021, American created two pass-through trusts which issued $ 960 million aggregate face amount of Series 2021-1 Class A and Class B EETCs (the 2021-1 Aircraft EETCs) in connection with the financing of 26 aircraft previously delivered or originally scheduled to be delivered to American through September 2022 (the 2021-1 Aircraft).

In 2021, $ 94 million of the proceeds had been used to purchase equipment notes issued by American in connection with the financing of five aircraft under the 2021-1 Aircraft EETCs, all of which was used to repay existing indebtedness.

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

2021-1 Aircraft EETCs

Series A Series B

Aggregate principal issued $ 758 million $ 202 million

Fixed interest rate per annum 2.875 % 3.95 %

Maturity date July 2034 July 2030

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

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

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

(f) Special Facility Revenue Bonds

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

The construction project is expected to be fully completed in early 2023 and is estimated to cost $ 439 million, of which $ 298 million was funded with proceeds of the special facility revenue bonds issued by the New York Transportation Development Corporation (NYTDC) on behalf of American in June 2020 (the 2020 JFK Bonds) and approximately $ 84 million of which was funded with proceeds of the approximately $ 150 million of special facility revenue bonds NYTDC issued in June 2021 (the 2021 JFK Bonds).

American is required to pay debt service on the 2021 JFK Bonds through payments under a loan agreement with NYTDC (as amended), and American and AAG guarantee the 2021 JFK Bonds.

American continues to pay debt service on the outstanding bonds issued by NYTDC on behalf of American in 2016 and 2020 (the 2016 and 2020 JFK Bonds) and American and AAG continue to guarantee the 2016 and 2020 JFK Bonds.

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

The 2021 JFK Bonds, in aggregate, were priced at par value.

The gross proceeds from the issuance of the 2021 JFK Bonds were approximately $ 150 million.

Of this amount, $ 4 million was used to fund the costs of issuance of the 2021 JFK Bonds, $ 62 million was used to fund the redemption of the 2016 and 2020 JFK Bonds due August 2021, with the remaining amount of proceeds received held in restricted cash and short-term investments on the consolidated balance sheet and to be used to finance a portion of the cost of the renovation and expansion of Terminal 8.

The 2021 JFK Bonds are comprised of term bonds, $ 70 million of which bear interest at 2.25 % per annum and mature on August 1, 2026, and $ 80 million of which bear interest at 3.00 % per annum and mature on August 1, 2031.

As of December 31, 2022, $ 72 million of proceeds funded by the issuance of the 2020 and 2021 JFK Bonds are included in restricted cash and short-term investments on the accompanying consolidated balance sheet.

(g) PSP Promissory Notes

In June 2023, American and AAdvantage Loyalty IP Ltd.

entered into the First Amendment to the AAdvantage Term Loan Facility pursuant to which the benchmark interest rate transitioned from LIBOR to SOFR, effective July 1, 2023.

As a result, the AAdvantage Term Loan Facility bears interest at a base rate (subject to a floor of 0.00 %) plus an applicable margin of 3.75 % or, at American’s option, the SOFR rate for a tenor of three months, plus a 0.26161 % credit spread adjustment (with such SOFR rate plus SOFR adjustment being subject to a floor of 0.75 %) and an applicable margin of 4.75 %.

As of December 31, 2023, the margin elected was 4.75 %.

Other than the foregoing, the terms of the AAdvantage Term Loan Facility remain substantially unchanged.

(d) Equipment Loans and Other Notes Payable Issued in 2023

In 2023, American entered into agreements under which it borrowed $ 1.1 billion in connection with the financing of certain aircraft.

Debt incurred under these agreements matures in 2032 through 2035 and bears interest at fixed and variable rates (comprised of SOFR plus an applicable margin) averaging 7.15 % as of December 31, 2023.

(e) PSP Promissory Notes

As partial compensation to the U.S.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

(h) 6.50 % Convertible Senior Notes

(f) 6.50 % Convertible Senior Notes

In June 2020, AAG completed the public offering of $ 1.0 billion aggregate principal amount of AAG’s 6.50 % convertible senior notes due 2025 (the Convertible Notes).

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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In addition, following certain corporate events that occur prior to the maturity date or upon AAG’s issuance of a notice of redemption, AAG will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or during the related redemption period in certain circumstances by a specified number of shares of AAG common stock as described in the Convertible Notes Indenture.

AAG will not have the right to redeem the Convertible Notes prior to July 5, 2023.

AAG did not have the right to redeem the Convertible Notes prior to July 5, 2023.

On or after July 5, 2023 and on or before the 20th scheduled trading day immediately before the maturity date, AAG may redeem the Convertible Notes, in whole or in part, if the last reported sale price of AAG common stock has been at least 130 % of the conversion price then in effect on (1) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date AAG sends the related redemption notice;

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Net carrying amount $ 990 $ 984

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

Accordingly, our unamortized debt discount as of January 1, 2021 was reduced by $ 389 million, increasing the liability and decreasing the effective interest rate on the Convertible Notes from approximately 20 % at December 31, 2020 to approximately 7 % at December 31, 2021.

The effective interest rate for the Convertible Notes was 7 % for each of the years ended December 31, 2023, 2022, and 2021.

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

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We may settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

(i) Unsecured Senior Notes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(g) Unsecured Senior Notes

3.75 % Senior Notes

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Other Financing Activities

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

As of December 31, 2022, AAG had issued guarantees covering approximately $ 18.3 billion of American’s secured debt (and interest thereon), including the Credit Facilities, the AAdvantage Financing, certain EETC financings and $ 1.1 billion of American’s special facility revenue bonds (and interest thereon).

During the year ended December 31, 2023, we repurchased $ 552 million of secured and unsecured notes in the open market.

In connection with the repurchase of these secured and unsecured notes in the open market, American recorded $ 57 million of cash special charges for premiums paid and $ 6 million of non-cash special charges to write off unamortized debt issuance costs and debt discounts.

As of December 31, 2023, AAG had issued guarantees covering approximately $ 17.5 billion of American’s secured debt (and interest thereon), including the Credit Facilities, 2023 Term Loan Facility, the AAdvantage Financing, certain EETC financings and special facility revenue bonds.

Certain Covenants

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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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

revolving credit facilities, and our AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing.

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

Facilities 2014 Credit

Specifically, we are required to meet certain collateral coverage tests for our Credit Facilities, April 2016 Revolving Facility, 2023 Term Loan Facility, 7.25 % Senior Secured Notes, 8.50 % Senior Secured Notes and 10.75 % Senior Secured Notes, as described below:

Facilities 7.25 % Senior Secured Notes

Facilities April 2016

Revolving Facility 10.75 % Senior Secured Notes

Revolving Facility 2023 Term Loan Facility 8.50 % Senior Secured Notes

10.75 % Senior Secured Notes

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

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

LTV as of Last Measurement Date 34.2 % 16.4 % Not Applicable 25.9 % 6.9 %

Collateral Description Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate all services between the U.S.

and South America Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S.

and European Union (including London Heathrow) Generally, certain spare parts Generally, certain DCA slots, certain LGA slots, certain simulators and certain leasehold rights and, in the case of the IP Notes, certain intellectual property of American Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S.

and the Caribbean, Central America and various other countries

Frequency of Appraisals of Appraised Collateral Semi-Annual Annual

Collateral Description Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S.

and South America and New Zealand Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S.

and European Union (including London Heathrow) Generally, certain spare parts Generally, certain slots, route authorities and airport gate leasehold rights used by American to operate certain services between the U.S.

and Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea and Switzerland Generally, certain DCA slots, certain LGA slots, certain simulators and certain leasehold rights and, in the case of the IP Notes, certain intellectual property of American

At December 31, 2023, we were in compliance with the applicable collateral coverage tests as of the most recent measurement dates.

We lease certain aircraft and engines, including aircraft under capacity purchase agreements.

As of December 31, 2022, we operated 722 leased aircraft, with remaining terms ranging from less than one year to 11 years.

As of December 31, 2023, we operated 737 leased aircraft, including seven aircraft in temporary storage and 237 aircraft leased under capacity purchase agreements, with remaining terms ranging from less than one year to 10 years.

At each airport where we conduct flight operations, we have agreements, generally with a governmental unit or authority, for the use of passenger, operations and baggage handling space as well as runways and taxiways.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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Financing cash flows from finance leases 265 190 126

Non-cash transactions:

ROU assets acquired through operating leases 1,483 1,386 917

Property and equipment acquired through finance leases 46 180 11

Operating lease conversion to finance lease 107 102 5

Finance lease conversion to operating lease 3 — —

Gain on sale leaseback transactions, net 12 2 25

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Long-term lease obligations $ 6,452 $ 375

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

As of December 31, 2023, we had additional operating lease commitments that have not yet commenced of approximately $ 669 million for five Boeing 787 Family aircraft scheduled to be delivered in 2024 with lease terms of 10 years.

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

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Statutory income tax provision (benefit) $ 235 $ 39 $ ( 535 )

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

State, local and foreign income tax provision (benefit), net of federal tax effect 22 — ( 37 )

Book expenses not deductible for tax purposes 38 22 23

Change in valuation allowance 3 — —

Other, net 1 ( 2 ) ( 6 )

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Deferred tax assets:

Operating loss and other carryforwards $ 4,679 $ 4,612

Net operating loss and other carryforwards $ 4,238 $ 4,679

Loyalty program liability 1,774 1,809

Leases 1,758 1,819

Pensions 474 941

Postretirement benefits other than pensions 179 214

Pension benefits 434 474

Postretirement benefits other than pension benefits 274 179

Rent expense 84 130

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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

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

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Assets Measured at Fair Value on a Recurring Basis

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e.

an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.

Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy.

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The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets.

Our short-term investments, restricted cash and restricted short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities.

Our short-term investments, restricted cash and restricted short-term investments classified as Level 2 utilize significant observable inputs, other than quoted prices in active markets, for valuation of these securities.

No changes in valuation techniques or inputs occurred during the year ended December 31, 2023.

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Repurchase agreements 450 — 450 —

government and agency obligations 100 — 100 —

7,000 818 6,182 —

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(2) Our short-term investments as of December 31, 2023 mature in one year or less.

(3) Restricted cash and short-term investments primarily include collateral held to support workers' compensation obligations, collateral associated with the payment of interest for the AAdvantage Financing and money market funds to be used to finance a substantial portion of the cost of the renovation and expansion of Terminal 8 at JFK.

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

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

(3) Restricted cash and short-term investments primarily include collateral held to support workers' compensation obligations and collateral associated with the payment of interest for the AAdvantage Financing.

Restricted short-term investments mature in one year or less except for $ 218 million as of December 31, 2023.

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

See Note 8 for further information on our equity investments.

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If our long-term debt was measured at fair value, it would have been classified as Level 2 except for $ 3.7 billion as of December 31, 2023 and December 31, 2022, which would have been classified as Level 3 in the fair value hierarchy.

The fair value of the Convertible Notes, which would have been classified as Level 2, was $ 1.1 billion and $ 1.4 billion as of December 31, 2022 and December 31, 2021, respectively.

The fair value of the Convertible Notes, which would have been classified as Level 2, was $ 1.1 billion as of December 31, 2023 and December 31, 2022.

The carrying value and estimated fair value of our long-term debt, including current maturities, were as follows (in millions):

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Long-term debt, including current maturities $ 32,396 $ 32,310 $ 34,903 $ 32,569

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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

Our equity investments ownership interest and carrying value were:

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Our equity investments ownership interest and carrying value were as follows:

Ownership Interest Carrying Value (in millions)

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China Southern Airlines Fair Value 1.5 % 1.5 % 115 176

Other investments (a)

Other investments (1)

Various 186 212

Total $ 541 $ 610

(a) Other investments

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

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

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

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

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

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

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

(1) Primarily includes our investment in JetSMART Holdings Limited, which is accounted for under the equity method, and our investments in GOL and Vertical, which are each accounted for at fair value.

Employee Benefit Plans

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

Effective January 1, 2021, health coverage under our retiree medical benefit program that is currently provided to certain retirees age 65 and over who retired prior to November 1, 2012, transitioned from a self-insured plan to a fully-insured Medicare Advantage plan.

Benefits coverage has not been reduced and cost shared has not changed as a result of this transition.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Benefit Obligations, Fair Value of Plan Assets and Funded Status

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2022 and 2021:

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and funded status as of December 31, 2023 and 2022:

Pension Benefits Retiree Medical and

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Interest cost 758 556 55 30

Actuarial gain (1), (2)

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

507 ( 4,563 ) 92 ( 167 )

Special termination benefits (3)

Plan amendments (3)

Other — — — 3

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Employer contributions (4)

Settlements — ( 1 ) — —

Benefit payments ( 894 ) ( 869 ) ( 84 ) ( 74 )

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Funded status at end of period $ ( 1,979 ) $ ( 2,153 ) $ ( 1,192 ) $ ( 773 )

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

(2) The 2022 and 2021 retiree medical and other postretirement benefits actuarial gain primarily relates to the change in our weighted average discount rate assumption and, in 2021, plan experience adjustments.

(3) During the first quarter of 2021, we remeasured our retiree medical and other postretirement benefits to account for enhanced healthcare benefits provided to eligible team members who opted into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic.

As a result, during 2021, we recognized a $ 139 million special charge for these enhanced healthcare benefits and increased our postretirement benefits obligation by $ 139 million.

(4) In January 2021, we made $ 241 million in contributions to our pension plans, including a contribution of $ 130 million for the 2020 calendar year that was permitted to be deferred to January 4, 2021 as provided under the CARES Act.

(1) The 2023 and 2022 pension actuarial loss (gain) primarily relates to the change in our weighted average discount rate assumption.

(2) The 2023 and 2022 retiree medical and other postretirement benefits actuarial loss (gain) primarily relates to the change in our weighted average discount rate assumption and, in 2023, the change in health care cost assumptions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(3) As of September 30, 2023, we remeasured our retiree medical and other postretirement benefits to account for enhanced retirement benefits provided to our mainline pilots pursuant to the new collective bargaining agreement ratified in August 2023.

As a result, we increased our postretirement benefits obligation by $ 339 million, which was included as a component of prior service cost in accumulated other comprehensive loss.

(4) In 2023, we made required contributions of $ 69 million to our defined benefit pension plans.

Balance Sheet Position

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Total liabilities $ 1,979 $ 2,153 $ 1,192 $ 773

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Pension Benefits Retiree Medical and

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Fair value of plan assets 12,431 11,884 133 133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Net Periodic Benefit Cost (Income)

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Special termination benefits — — — — — 139

Settlements — — 12 — — —

Amortization of:

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Net periodic benefit cost (income) $ ( 34 ) $ ( 395 ) $ ( 314 ) $ 21 $ ( 10 ) $ 132

The service cost component of net periodic benefit cost (income) is included in operating expenses, the cost for the special termination benefits is included in special items, net and the other components of net periodic benefit cost (income) are included in nonoperating other income, net on our consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The service cost component of net periodic benefit cost (income) is included in operating expenses, the cost for the special termination benefits is included in special items, net and the other components of net periodic benefit cost (income) are included in nonoperating other income (expense), net on our consolidated statements of operations.

The following actuarial assumptions were used to determine our benefit obligations and net periodic benefit cost (income) for the periods presented:

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Minimum Contributions

We are required to make minimum contributions to our defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and various other laws for U.S.

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

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

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

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

Based on current funding assumptions, we have minimum required contributions of $ 284 million for 2024 including contributions to defined benefit pension plans for our wholly-owned subsidiaries.

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

Benefit Payments

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Retiree medical and other postretirement benefits 138 144 150 150 148 674

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

The objectives of our investment policies are to:

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This strategic allocation seeks to balance the potential benefit of improving the funded position with the potential risk that the funded position would decline.

The current strategic target asset allocation is as follows:

Asset Class/Sub-Class Allowed Range

The current strategic target asset allocation with the corresponding allowed range is as follows:

Asset Class/Sub-Class Target Allocation Allowed Range

Equity 61 % 30 % - 85 %

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Small/Mid 5 % 0 % - 10 %

International 10 % - 25 %

International Large 13 % 5 % - 25 %

International Small/Mid 3 % 0 % - 10 %

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Fixed Income 39 % 15 % - 70 %

Long Duration 15 % - 45 %

High Yield and Emerging Markets 0 % - 10 %

Fixed Income 30 % 15 % - 60 %

Private Income 9 % 0 % - 20 %

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Such programs are subject to market risk and counterparty risk.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

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260 3,238 — 3,498 227 2,917 — 3,144

Other, net (4)

( 6 ) 348 84 426 74 278 75 427

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

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

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

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

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

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

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

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

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

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

As of December 31, 2023, the pension plan’s master trust has future funding commitments to these limited partnerships of approximately $ 1.3 billion, most of which are expected to be called over the next five years .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Changes in fair value measurements of Level 3 investments during the years ended December 31, 2023 and 2022, were as follows (in millions):

Balance at beginning of year $ 75 $ 58

Actual gain on plan assets:

Actual gain (loss) on plan assets:

Relating to assets still held at the reporting date ( 9 ) 1

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Defined Contribution and Multiemployer Plans

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

The costs associated with our defined contribution plans were $ 1.1 billion, $ 949 million and $ 920 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

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

Profit Sharing Program

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

For the year ended December 31, 2023, we accrued $ 261 million for this program, which will be distributed to employees in the first quarter of 2024.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Accumulated Other Comprehensive Loss

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Postretirement

Benefits Unrealized Loss on Investments Income Tax

Benefits Unrealized Gain (Loss) on Investments Income Tax

(Provision) (1)

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Amounts reclassified from AOCI Affected line items on the

consolidated statements of

consolidated statements of operations

Year Ended December 31,

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Amortization of pension, retiree medical and other postretirement benefits:

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

Actuarial loss 97 146 Nonoperating other income, net

Prior service cost $ 9 $ 11 Nonoperating other income (expense), net

Actuarial loss 56 97 Nonoperating other income (expense), net

Total reclassifications for the period, net of tax $ 65 $ 108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Amounts allocated to other comprehensive income (loss) for income taxes will remain in AOCI until we cease all related activities, such as termination of the pension plan.

Commitments, Contingencies and Guarantees

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Our purchase deposits held by all manufacturers totaled $ 760 million and $ 613 million as of December 31, 2023 and 2022, respectively.

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

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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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.

See Note 5 for information regarding this operating lease commitment.

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

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

$ 4.7 billion in 2024, $ 2.0 billion in 2025, $ 1.4 billion in 2026, $ 150 million in 2027, $ 124 million in 2028 and $ 843 million in 2029 and thereafter.

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As of December 31, 2023, American’s capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2024 to 2032, with rights of American to extend the respective terms of certain agreements.

As of December 31, 2022, American’s minimum obligations under its capacity purchase agreements with third-party regional carriers are as follows (approximately, in millions):

As of December 31, 2023, American’s minimum obligations under its capacity purchase agreements with third-party regional carriers are expected to be as follows (approximately, in millions):

2024 2025 2026 2027 2028 2029 and Thereafter Total

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments in Note 5.

Los Angeles International Airport (LAX)

From time to time, airports where we have operations engage in construction projects, often substantial, that result in new or improved facilities that are ultimately funded through increases in the rent and other occupancy costs payable by airlines using the airport.

From time to time, airports engage in construction projects, often substantial, that result in new or improved facilities that are ultimately funded through increases in the rent and other occupancy costs payable by airlines operating at the airport.

Unlike this construction and funding model, we are managing a project at LAX where we have legal title to the assets during construction.

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The project will also include renovated break rooms, multi-use meeting rooms and team gathering spaces throughout the terminals to support our team members at LAX.

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

As each phase is completed and ready for use, the assets will be sold and transferred to LAWA, including the site improvements and non-proprietary improvements.

As we control the assets during construction, they are recognized on our balance sheet until the assets are sold and transferred to LAWA.

As of December 31, 2022, we have incurred approximately $ 579 million in costs relating to the LAX modernization project, of which $ 241 million were incurred in 2022 and have been included within operating property and equipment on our consolidated balance sheets and included within airport construction projects, net of reimbursements on our consolidated statements of cash flows.

As of December 31, 2022, we have sold and transferred $ 176 million of non-proprietary improvements to LAWA, of which $ 44 million occurred during 2022.

For non-proprietary improvements which are not yet ready for use, any cash payments received from LAWA will be reflected as a financial liability.

As of December 31, 2022, we have received $ 141 million in cash proceeds for non-proprietary improvements which are not yet ready for use, and therefore have not been sold and transferred back to LAWA.

These proceeds are currently included in other accrued liabilities and noncurrent other liabilities on our consolidated balance sheet and are reflected as financing activities on our consolidated statement of cash flows.

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

The renovation projects at Terminal 8 include:

(i) the reconfiguration or elimination of certain existing gates and the construction of widebody gates, (ii) the construction of approximately 51,000 square feet of new terminal building space and the refurbishment of 73,300 square feet of existing terminal space, (iii) the expansion of the baggage system capacity of Terminal 8, (iv) improvements to the premium passenger lounges, check-in and, potentially, security access areas, and (v) bathroom refreshment, new signage, and other upgrades.

The construction project is substantially complete and remaining construction on the baggage handling system expansion and bathroom refurbishments are expected to be fully completed in early 2023.

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

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

As each phase is completed and ready for use, the assets will be sold and transferred to LAWA, including the site improvements and other non-proprietary improvements.

As we control the assets during construction, they are recognized on our consolidated balance sheets within operating property and equipment until the assets are sold and transferred to LAWA.

As of December 31, 2023, we have incurred $ 862 million in costs relating to the LAX modernization project, of which $ 283 million were incurred in 2023.

Cash paid for non-proprietary improvements are included within other investing activities on our consolidated statements of cash flows.

In addition, as of December 31, 2023, we have sold and transferred $ 346 million of non-proprietary improvements to LAWA, of which $ 170 million occurred during 2023.

For non-proprietary improvements which are not yet ready for use, any cash payments received from LAWA will be reflected as a financial liability included within noncurrent other liabilities on our consolidated balance sheets and reflected as other

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

financing activities on our consolidated statements of cash flows.

As of December 31, 2023, $ 53 million of cash proceeds received for non-proprietary improvements were not yet ready for use, and therefore have not been sold and transferred back to LAWA.

(d) Off-Balance Sheet Arrangements

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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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(e) Legal Proceedings

Private Party Antitrust Action Related to Passenger Capacity.

We, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc.

and, in the case of litigation filed in Canada, Air Canada, were named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity.

lawsuits were consolidated in the Federal District Court for the District of Columbia (the DC Court).

On June 15, 2018, we reached a settlement agreement with the plaintiffs in the amount of $ 45 million to resolve all class claims in the U.S.

That settlement was approved by the DC Court on May 13, 2019, however three parties who objected to the settlement have appealed that decision to the United States Court of Appeals for the District of Columbia.

We believe these appeals are without merit and intend to vigorously defend against them.

Private Party Antitrust Action Related to the Merger.

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

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

The complaint named as defendants US Airways Group, US Airways, Inc., AMR Corporation and American, alleged that the effect of the merger of US Airways Group and AMR Corporation (the Merger) may be to create a monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture.

On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger.

On August 29, 2018, the Bankruptcy Court denied in part defendants' motion for summary judgment, and fully denied plaintiffs' cross-motion for summary judgment.

The parties' evidentiary cases were presented before the Bankruptcy Court in a bench trial in March 2019 and the parties submitted proposed findings of fact and conclusions of law and made closing arguments in April 2019.

On January 29, 2021, the Bankruptcy Court published its decision finding in our favor.

On March 25, 2022, the U.S.

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

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

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

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

Government Antitrust Action Related to the Northeast Alliance.

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

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

District Court for the District of Massachusetts alleging that American and JetBlue violated U.S.

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

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

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

A decision is expected in the first quarter of 2023.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Also on September 21, 2021, the United States Department of Transportation (DOT) published a Clarification Notice relating to the agreement that had been reached between the DOT, American, and JetBlue in January 2021, at the conclusion of the DOT’s review of the NEA (DOT Agreement).

The DOT Clarification Notice stated, among other things, that the DOT Agreement remains in force during the pendency of the DOJ action against the NEA and, while the DOT retains independent statutory authority to prohibit unfair methods of competition in air transportation, the DOT intends to defer to the DOJ to resolve the antitrust concerns that the DOJ has identified with respect to the NEA.

The DOT simultaneously published a Notice Staying Proceeding in relation to a complaint by Spirit Airlines, Inc.

regarding the NEA, pending resolution of the DOJ action described above.

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

On May 19, 2023, the U.S.

District Court for the District of Massachusetts issued an order permanently enjoining American and JetBlue from continuing and further implementing the NEA.

In June 2023, JetBlue delivered a notice of termination of the NEA, effective July 29, 2023, and the carriers have commenced wind-down activities to accommodate mutual customers.

Following written submissions by the parties and a hearing on July 26, 2023, the U.S.

District Court for the District of Massachusetts entered a Final Judgment and Order Entering Permanent Injunction on July 28, 2023.

The parties are complying with the terms of the Final Judgment and Order Entering Permanent Injunction, including winding down activities related to the NEA.

American filed a notice of appeal to the U.S.

Court of Appeals for the First Circuit on September 25, 2023, and American’s opening brief was filed on December 6, 2023.

Private Party Antitrust Actions Related to the Northeast Alliance.

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

On December 5, 2022 and December 7, 2022, two private party plaintiffs filed putative class action antitrust complaints against American and JetBlue in the U.S.

District Court for the Eastern District of New York alleging that American and JetBlue violated U.S.

antitrust law in connection with the previously disclosed NEA.

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

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

On February 2, 2023 and February 15, 2023, private party plaintiffs filed two additional putative class action antitrust complaints against American and JetBlue in the U.S.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

Court for the District of Massachusetts and the U.S.

District Court for the Eastern District of New York, respectively.

In March 2023, American filed a motion in the U.S.

District Court for the District of Massachusetts case asking to transfer the case to the U.S.

District Court for the Eastern District of New York and consolidate it with the cases pending in that venue.

District Court for the District of Massachusetts granted that motion.

The remaining cases were consolidated with the other actions in the Eastern District of New York.

In June 2023, the private party plaintiffs filed a second amended consolidated complaint, followed by a third amended complaint filed in August 2023.

In September 2023, American, together with JetBlue, filed a motion to dismiss the third amended complaint, and that motion remains pending.

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

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The terms of these contracts vary and the potential exposure under these indemnities cannot be determined.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

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

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As of December 31, 2023, the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are $ 520 million and the current carrying amount of the associated operating lease liability in the accompanying consolidated balance sheet is $ 321 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

(g) Credit Card Processing Agreements

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The imposition of holdback requirements would reduce our liquidity.

(h) Labor Negotiations

(h) Labor Contracts

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 (CBA), 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.

As of December 31, 2023, we employed approximately 132,100 active full-time equivalent (FTE) employees, of which 28,900 were employed by our wholly-owned regional subsidiaries.

Of the total active FTE employees, 87 % are covered by collective bargaining agreements (CBAs) with various labor unions and 48 % are covered by CBAs that are currently amendable or that will become amendable within one year.

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

Of the total active FTE employees, 87 % are covered by CBAs with various labor unions and 34 % are covered by CBAs that are currently amendable or that will become amendable within one year.

In January 2024, mainline passenger service employees represented by the CWA-IBT ratified a new five-year agreement.

The CBA covering our flight attendants is now amendable.

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

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Non-cash investing and financing activities:

Equity investments $ 12 $ 88 $ —

ROU assets acquired through operating leases $ 1,180 $ 1,483 $ 1,386

Property and equipment acquired through debt, finance leases and other 317 46 180

Finance leases converted to operating leases 42 3 —

Operating leases converted to finance leases 5 107 102

Settlement of bankruptcy obligations 4 — ( 1 )

Deferred financing costs paid through issuance of debt — — 17

Equity investments — 12 88

Supplemental information:

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Share-based Compensation

The 2013 AAG Incentive Award Plan (the 2013 Plan) provides that awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right.

The 2013 Plan initially authorized the grant of awards for the issuance of up to 40 million shares.

Any shares underlying awards granted under the 2013 Plan that are forfeited, terminate or are settled in cash (in whole or in part) without the delivery of shares will again be available for grant.

In May 2023, the stockholders of AAG approved the 2023 Incentive Award Plan (the 2023 Plan).

The 2023 Plan replaces and supersedes AAG’s 2013 Incentive Award Plan (the 2013 Plan).

No further awards will be granted under the 2013 Plan;

however, the terms and conditions of the 2013 Plan will continue to govern any outstanding awards granted thereunder.

The 2023 Plan provides that an award may be in the form of a stock option, including an incentive stock option and nonqualified stock option, stock appreciation right, restricted stock, restricted stock unit, performance bonus award, performance stock unit, other stock or cash-based award and dividend equivalent to eligible individuals.

The 2023 Plan authorizes the grant of awards for the issuance of 17.2 million shares less any shares granted under the 2013 Plan after March 22, 2023, the date the Board of Directors of AAG approved the 2023 Plan.

Any shares underlying awards granted under the 2023 Plan or 2013 Plan that are forfeited, terminate or are settled in cash (in whole or in part) without the delivery of shares will again be available for grant under the 2023 Plan.

For the years ended December 31, 2023, 2022 and 2021, we recorded $ 102 million, $ 78 million and $ 98 million, respectively, of share-based compensation costs principally in salaries, wages and benefits expense on our consolidated statements of operations.

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Restricted Stock Unit Awards (RSUs)

The majority of our RSUs have service conditions (time vested primarily over three years ).

We have granted RSUs with service conditions (time vested primarily over three years ) and performance conditions.

The grant-date fair value of these RSUs is equal to the market price of the underlying shares of AAG common stock on the date of grant.

The expense for these RSUs is recognized on a straight-line basis over the vesting period for the entire award.

For time vested awards, the expense is recognized on a straight-line basis over the vesting period for the entire award.

For awards with performance conditions, the expense is recognized based on the expected achievement at each reporting period.

RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

RSU award activity for all plans for the years ended December 31, 2023, 2022 and 2021 is as follows:

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Outstanding at December 31, 2023 14,235 $ 15.18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

As of December 31, 2023, there was $ 127 million of unrecognized compensation cost related to RSUs.

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Valuation and Qualifying Accounts (in millions)

Balance at Beginning of Year Additions Charged to Statement of Operations Accounts Deductions Balance at

Balance at Beginning

of Year Additions Charged to Statement of Operations Accounts Deductions

and Other Balance at

Allowance for obsolescence of spare parts

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Year ended December 31, 2021 490 177 ( 33 ) 634

Subsequent Events

2013 Term Loan Facility Refinancing

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

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

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

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

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

7.25 % Senior Secured Notes

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

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

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

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC .

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

Further, if certain change of control transactions occur, each holder of 7.25 % Senior Secured Notes may require American to repurchase the 7.25 % Senior Secured Notes in whole or in part at a repurchase price of 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to but not including the repurchase date.

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

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

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Sufficiency of audit evidence over realizability of tax operating loss and other carryforwards

As discussed in Notes 1(j) and 5 to the consolidated financial statements, American had $4.5 billion of tax operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2022.

Deferred tax assets are recognized related to tax operating loss and other carryforwards that will reduce future taxable income.

Sufficiency of audit evidence over the realizability of tax net operating loss and other carryforwards

As discussed in Notes 1(j) and 5 to the consolidated financial statements, American had $4.0 billion of tax net operating loss and other carryforwards, which are recorded as deferred tax assets at December 31, 2023.

Deferred tax assets are recognized related to tax net operating loss and other carryforwards that will reduce future taxable income.

American provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of the deferred tax assets, will not be realized.

In evaluating the need for a valuation allowance, management considers all available positive and negative evidence.

We identified the evaluation of the sufficiency of audit evidence over the realizability of tax operating loss and other carryforwards as a critical audit matter.

We identified the evaluation of the sufficiency of audit evidence over the realizability of the federal tax net operating loss and other carryforwards as a critical audit matter.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to American’s deferred tax asset valuation allowance process, including controls related to the realizability of tax operating loss and other carryforwards.

We evaluated positive and negative evidence used in assessing whether the tax operating loss and other carryforwards were more likely than not to be realized in the future.

We evaluated positive and negative evidence used in assessing whether the federal tax net operating loss and other carryforwards were more likely than not to be realized in the future.

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

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

We assessed the sufficiency of audit evidence obtained over the realizability of the tax operating loss and other carryforwards by evaluating the cumulative results of the audit procedures.

We have served as American’s auditor since 2014.

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Interest expense, net ( 2,206 ) ( 1,872 ) ( 1,642 )

Other income, net 324 292 155

Other income (expense), net ( 359 ) 324 292

Total nonoperating expense, net ( 1,487 ) ( 1,199 ) ( 1,316 )

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Net income (loss) $ 1,188 $ 338 $ ( 1,777 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 2,198 2,238 2,282

Debt extinguishment costs 267 1 31

Special items, net non-cash 41 226 52

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Share-based compensation 97 75 95

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

Other, net ( 216 ) ( 48 ) ( 2 )

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Decrease (increase) in accounts receivable 104 ( 636 ) ( 290 )

Decrease (increase) in other assets ( 744 ) ( 370 ) 42

Increase (decrease) in accounts payable and accrued liabilities 549 335 ( 619 )

Increase in other assets ( 2 ) ( 744 ) ( 370 )

Increase in accounts payable and accrued liabilities 828 549 335

Increase (decrease) in air traffic liability ( 545 ) 658 1,454

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Increase (decrease) in other liabilities ( 263 ) ( 8 ) 650

Net cash provided by (used in) operating activities 1,329 3,190 ( 1,429 )

Net cash provided by operating activities 3,706 1,329 3,190

Cash flows from investing activities:

Capital expenditures, net of aircraft purchase deposit returns ( 2,542 ) ( 2,489 ) ( 169 )

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

Proceeds from sale-leaseback transactions 86 181 665

Proceeds from sale of property and equipment 61 192 351

Proceeds from sale of property and equipment and sale-leaseback transactions 230 147 373

Sales of short-term investments 8,861 14,972 13,923

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Proceeds from issuance of long-term debt 4,822 1,069 10,209

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

Other financing activities ( 287 ) 75 ( 119 )

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Net loss — — — ( 1,777 ) ( 1,777 )

Other comprehensive loss, net — — ( 771 ) — ( 771 )

Other comprehensive income, net — — 1,153 — 1,153

Share-based compensation expense — 95 — — 95

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

Net loss — — — ( 1,777 ) ( 1,777 )

Net income — — — 338 338

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

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Net income — — — 1,188 1,188

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

Other comprehensive loss, net — — ( 309 ) — ( 309 )

Share-based compensation expense — 97 — — 97

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

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

(1) As partial compensation to the U.S.

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

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

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

In connection with the PSP Agreements entered into with Treasury, AAG and the Subsidiaries were required to comply with the relevant provisions of the CARES Act, the PSP Extension Law, and the ARP, which included the requirement that funds provided pursuant to these programs be used exclusively for the continuation of payment of eligible employee wages, salaries and benefits, the prohibition against involuntary furloughs and reductions in employee pay rates and benefits, the requirement that certain levels of commercial air service be maintained, provisions that prohibited the repurchase of AAG common stock and the payment of common stock dividends as well as provisions that restrict the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

payment of certain executive compensation.

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

repurchase of AAG common stock and the payment of common stock dividends as well as provisions that restrict the payment of certain executive compensation.

As of December 31, 2023, all of these provisions have expired.

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

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

In connection with AAG’s entry into the Treasury Loan Agreement, on the Treasury Loan Closing Date, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury.

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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

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

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

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

Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures

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

American is currently evaluating how the adoption of this standard will impact its reportable segment disclosures.

Income Taxes (Topic 740) Improvements to Income Tax Disclosures

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

American is currently evaluating how the adoption of this standard will impact its income tax disclosures.

(d) Investments

Short-term investments primarily include debt securities and are classified as available-for-sale and stated at fair value.

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

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

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

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There have been no credit losses.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

Equity investments are accounted for under the equity method if American is able to exercise significant influence over an investee.

Equity investments for which American does not have significant influence are recorded at fair value or at cost, if fair value is not readily determinable, with adjustments for observable changes in price or impairments (referred to as the measurement alternative).

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

(e) Restricted Cash and Short-term Investments

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

Kennedy International Airport (JFK).

American has restricted cash and short-term investments related primarily to collateral held to support workers’ compensation obligations and collateral associated with the AAdvantage Financing.

(f) Accounts Receivable, Net

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Capitalized software 5 – 10 years

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

Total mainline and regional depreciation and amortization expense was $ 2.2 billion for each of the years ended December 31, 2023 and 2022 and $ 2.3 billion for the year ended December 31, 2021.

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

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Fair value reflects management’s best estimate including inputs from published pricing guides and bids from third parties as well as contracted sales agreements when applicable.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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

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

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

See Note 10(b) for additional information on its capacity purchase agreements .

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American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets.

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

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

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

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Customer relationships and tradenames are fully amortized.

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

American recorded amortization expense related to these intangible assets of $ 7 million for the year ended December 31, 2023 and $ 41 million for each of the years ended December 31, 2022 and 2021.

American expects to record annual amortization expense for these intangible assets as follows (in millions):

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Indefinite-Lived Intangible Assets

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

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

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

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

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

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

Based upon American’s annual assessment, there were no indefinite-lived intangible asset impairments in 2023.

American had $ 1.9 billion of indefinite-lived intangible assets on its consolidated balance sheets as of December 31, 2023 and 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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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 American’s historical data.

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

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

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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 American’s 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, American applies 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, American applies the deferred revenue method.

Mileage credits earned through travel

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

American sells mileage credits to participating airline partners and non-airline business partners, including American’s co-branded credit card partners, under contracts with 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.

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

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Contract Balances

American’s significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on American’s consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on American’s consolidated balance sheets.

American’s significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and non-air travel awards, reported as loyalty program liability on American’s consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on American’s consolidated balance sheets.

(In millions)

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

As of December 31, 2023, American’s current loyalty program liability was $ 3.5 billion and represents American’s current estimate of revenue expected to be recognized in the next 12 months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

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

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

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

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

For 2023, $ 5.3 billion of revenue was recognized in passenger revenue that was included in American’s air traffic liability at December 31, 2022.

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

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

(n) Maintenance, Materials and Repairs

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

(o) Selling Expenses

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Advertising costs are expensed as incurred.

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

Advertising expense was $ 114 million for the year ended December 31, 2023 and $ 105 million for each of the years ended December 31, 2022 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.

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

Certain awards have performance conditions that must be achieved prior to vesting and are expensed based on the expected achievement at each reporting period.

The majority of American’s stock awards are time vested restricted stock units, and the fair value of such awards is based on the market price of the underlying shares of AAG common stock on the date of grant.

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(q) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net on American’s consolidated statements of operations.

Foreign currency gains and losses are recorded as part of other income (expense), net within total nonoperating expense, net on American’s consolidated statements of operations.

For the years ended December 31, 2023 , 2022 and 2021, respectively, foreign currency losses were $ 30 million, $ 38 million and $ 4 million.

(r) Other Operating Expenses

(s) Regional Expenses

American's regional carriers provide scheduled air transportation under the brand name “American Eagle.” The American Eagle carriers include AAG's wholly-owned regional carriers as well as third-party regional carriers.

American's regional carrier arrangements are in the form of capacity purchase agreements.

American's regional carrier arrangements are in the form of capacity purchase agreements with its third-party regional partners and similar arrangements with AAG’s wholly-owned regional affiliates.

Expenses associated with American Eagle operations are classified as regional expenses on the consolidated statements of operations.

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2023 2022 2021

Fleet impairment (1)

Labor contract expenses (1)

$ 989 $ — $ —

Severance expenses (2)

Fleet impairment (3)

Litigation reserve adjustments — 37 ( 19 )

1 unchanged sentence

— — ( 4,162 )

Severance expenses (3)

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

Labor contract expenses (4)

Other operating special items, net ( 41 ) 7 7

1 unchanged sentence

PSP Financial Assistance (4)

— ( 539 ) ( 444 )

Fleet impairment (3)

1 unchanged sentence

Operating special items, net 971 193 ( 4,518 )

Mark-to-market adjustments on equity and other investments, net (5)

Debt refinancing, extinguishment and other, net (5)

Mark-to-market adjustments on equity and other investments, net (6)

Nonoperating special items, net 362 72 60

Income tax special items, net — ( 9 ) —

(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 for 2023 included costs associated with headcount reductions in certain corporate functions.

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

Fleet impairment for 2021 and 2020 included charges resulting from the retirement of certain aircraft earlier than planned driven by the severe decline in air travel due to the COVID-19 pandemic.

In 2021, American retired its remaining Embraer 140 fleet resulting in a non-cash write down of these regional aircraft.

In 2020, American retired its entire Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a $ 1.5 billion non-cash write down of mainline and regional aircraft and associated spare parts and $ 109 million in cash charges primarily for impairment of ROU assets and lease return costs.

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.

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

See Note 1(b) for further information.

(4) Labor contract expenses primarily related to one-time charges due to the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers (TWU-IAM Association) for American’s maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.

(5) Debt refinancing and extinguishment costs in 2023 primarily included cash charges for premiums paid in connection with the early repayment of debt.

See Note 3 for further information.

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

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Long-term debt included on American’s consolidated balance sheets consisted of (in millions):