ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American
Eagle, our airline operates an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries, principally from our hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and
Washington, D.C. In 2016, approximately 199 million passengers boarded our mainline and regional flights.
We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation, to building the best employee relations in the industry and to
providing returns for our stockholders. In January 2017, we were named the 2017 Airline of the Year by
Air Transport World
, which cited the integration work related to the Merger, our operational and customer service improvements and the
investments we are making in our product.
Operational Highlights
During 2016, we made significant investments related to our integration and to continue to improve our product
offerings and operational performance.
Integration Accomplishments
|
|
|
Integrated all mainline pilots and our mainline fleet into a single scheduling system, allowing us to schedule pilots and aircraft seamlessly
across the network regardless of which
pre-Merger
airline they came from
|
|
|
|
Reached interim agreements with the
TWU-IAM
that allows our mainline mechanics and ramp personnel to
be able to work together and be cross-utilized. Additionally, we ratified five-year JCBAs for dispatchers, flight crew training instructors, simulator pilot instructors and flight simulator engineers
|
|
|
|
Completed the painting of all US Airways mainline aircraft in the American livery. Repainting of former US Airways Express regional jets is
expected to be finished in
mid-2017
|
Investments in Our Product and
Operations
|
|
|
Invested approximately $4.4 billion in new aircraft, including 55 new mainline and 42 new regional aircraft. As a result of our ongoing
fleet renewal program, we have the youngest fleet of the major U.S. network carriers
|
|
|
|
Hired additional personnel and invested in new equipment and technology to support our operations. In the fourth quarter of 2016, we achieved
our best monthly completion factor,
on-time
performance, and baggage handling performance since the Merger
|
|
|
|
Redesigned our AAdvantage
®
loyalty program to award mileage credits based on the price of tickets purchased, enabling elite members to earn even more miles based on their status level. During
2016, the AAdvantage
®
program was named Best Elite Program in the Americas by the Freddie Awards
|
|
|
|
Introduced Premium Economy, a new class of service on international flights with more legroom, wider seats, and enhanced meal service and
amenity kits
|
|
|
|
Made several other customer experience improvements including the reintroduction of free snacks in the main cabin, the launch of complimentary
in-flight
entertainment and the redesign and upgrade of many Admirals Club lounges
|
50
Investments in our People
|
|
|
Instituted a profit sharing program across all of our workgroups that pays 5% of our
pre-tax
profit
excluding special items ($314 million was accrued in 2016)
|
|
|
|
Announced industry-leading pay packages for pilots at our wholly-owned regional airlines Envoy, PSA and Piedmont in order to attract and
retain the best pilots
|
Financial Overview
The U.S. Airline Industry
In 2016, the
U.S. airline industry benefited from lower fuel prices. However, the reductions in fuel costs were offset by year-over-year declines in revenue. Both domestic and international markets were impacted by competitive capacity growth. International
markets were also impacted by macroeconomic softness and foreign currency weakness.
Jet fuel prices
closely follow the price of Brent crude oil. On average, the price of Brent crude oil per barrel was approximately 17% lower in 2016 as compared to 2015. The average daily spot price for Brent crude oil during 2016 was $44 per barrel as compared to
an average daily spot price of $52 per barrel during 2015. On a daily basis, Brent crude oil prices fluctuated during 2016 between a high of $55 per barrel to a low of $26 per barrel, and closed the year on December 31, 2016 at $55 per barrel.
While jet fuel prices have declined year-over-year as described above, uncertainty exists regarding the
economic conditions driving these declines. See Part I, Item 1A. Risk Factors
Downturns in economic conditions could adversely affect our business
and
Our business is very dependent on the price and
availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and
liquidity.
AAGs 2016 Results
The selected financial data presented below is derived from AAGs audited consolidated financial statements
included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Mainline and regional passenger revenues
|
|
$
|
34,579
|
|
|
$
|
35,512
|
|
|
$
|
(933
|
)
|
|
|
(2.6
|
)
|
Cargo and other operating revenues
|
|
|
5,601
|
|
|
|
5,478
|
|
|
|
123
|
|
|
|
2.3
|
|
Total operating revenues
|
|
|
40,180
|
|
|
|
40,990
|
|
|
|
(810
|
)
|
|
|
(2.0
|
)
|
Mainline and regional aircraft fuel and related taxes
|
|
|
6,180
|
|
|
|
7,456
|
|
|
|
(1,276
|
)
|
|
|
(17.1
|
)
|
Salaries, wages and benefits
|
|
|
10,890
|
|
|
|
9,524
|
|
|
|
1,366
|
|
|
|
14.4
|
|
Total operating expenses
|
|
|
34,896
|
|
|
|
34,786
|
|
|
|
110
|
|
|
|
0.3
|
|
Operating income
|
|
|
5,284
|
|
|
|
6,204
|
|
|
|
(920
|
)
|
|
|
(14.8
|
)
|
Pre-tax
income
|
|
|
4,299
|
|
|
|
4,616
|
|
|
|
(317
|
)
|
|
|
(6.9
|
)
|
Income tax provision (benefit)
|
|
|
1,623
|
|
|
|
(2,994
|
)
|
|
|
4,617
|
|
|
|
nm
|
|
Net income
|
|
|
2,676
|
|
|
|
7,610
|
|
|
|
(4,934
|
)
|
|
|
(64.8
|
)
|
|
|
|
|
|
Pre-tax
income
|
|
$
|
4,299
|
|
|
$
|
4,616
|
|
|
$
|
(317
|
)
|
|
|
(6.9
|
)
|
Adjusted for: Total
pre-tax
special items
(1)
|
|
|
772
|
|
|
|
1,674
|
|
|
|
(902
|
)
|
|
|
(53.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income excluding special items
|
|
$
|
5,071
|
|
|
$
|
6,290
|
|
|
$
|
(1,219
|
)
|
|
|
(19.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
(1)
|
See Part II, Item 6. Selected Consolidated Financial Data
Reconciliation of GAAP to
Non-GAAP
Financial Measures
and Note 2 to AAGs consolidated financial statements in Part II, Item 8A for details on the components of special items.
|
Net Income and
Pre-Tax
Income
We realized net income of $2.7 billion in 2016. This compares to $7.6 billion of net income in 2015, which
included a special $3.0 billion
non-cash
tax benefit, as we reversed the valuation allowance on our deferred tax assets, which include our federal and state NOLs. As a result of the reversal of the
valuation allowance, we recorded a $1.6 billion provision for income taxes in 2016, which is substantially
non-cash
due to the utilization of NOLs. Accordingly, amounts reported in 2016 for income tax
provision and net income are not comparable to 2015. Therefore,
pre-tax
income and
pre-tax
income excluding special items provides a more meaningful year-over-year
comparison. The exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to financial measures presented by other major airlines.
Management uses
pre-tax
income excluding special items to evaluate our financial performance.
We realized
pre-tax
income of $4.3 billion and $4.6 billion in 2016 and 2015, respectively. Excluding the effects of
pre-tax
special items,
pre-tax
income was $5.1 billion and $6.3 billion in 2016 and 2015, respectively. Our 2016
pre-tax
results on both a GAAP basis and excluding
pre-tax
net special items were impacted by a decline in revenues due to lower yields. Salaries, wages and benefits
costs were higher in 2016, driven by our new labor contracts and the addition of an employee profit sharing program; however, these increases were substantially offset by a year-over-year decline in fuel costs.
For reconciliation of
pre-tax
and net income excluding special items to
their comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated Financial Data
Reconciliation of GAAP to
Non-GAAP
Financial Measures.
Revenue
In 2016, we reported operating revenues of $40.2 billion, a decrease of $810 million, or 2.0%, as compared to 2015. Mainline and regional passenger revenues were $34.6 billion, a
decrease of $933 million, or 2.6%, as compared to 2015. The decline in mainline and regional passenger revenues was due to lower yields driven by competitive capacity growth, macroeconomic softness outside of the United States and foreign
currency weakness. This decline was offset in part by an increase in other operating revenues primarily due to our new
co-branded
credit card agreements which became effective in the third quarter of 2016. Our
mainline and regional total revenue per available seat mile (TRASM) was 14.70 cents in 2016, a 3.7% decrease as compared to 15.25 cents in 2015.
Fuel
Our mainline and regional fuel
expense totaled $6.2 billion in 2016, which was $1.3 billion, or 17.1%, lower as compared to 2015. This decrease was driven by a 17.6% decrease in the average price per gallon of fuel to $1.42 in 2016 from $1.72 in 2015.
As of December 31, 2016, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption.
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. 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.
52
Other Costs
We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose
economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel.
Our 2016 mainline CASM was 11.94 cents, a decrease of 0.8%, from 12.03 cents in 2015. The decrease was primarily driven by lower fuel costs, offset in part by higher salaries, wages and benefits
associated with new labor contracts and the addition of an employee profit sharing program.
Our 2016
mainline CASM excluding special items and fuel was 9.54 cents, an increase of 6.1%, from 8.99 cents in 2015, which was primarily driven by higher salaries, wages and benefits as described above.
For a reconciliation of mainline CASM excluding special items and fuel, see Part II, Item 6. Selected Consolidated
Financial Data
Reconciliation of GAAP to
Non-GAAP
Financial Measures.
Liquidity and Stockholder Returns
As of
December 31, 2016, we had approximately $8.8 billion in total available liquidity, consisting of $6.4 billion in unrestricted cash and investments and $2.4 billion in undrawn revolving credit facilities. We also had approximately
$638 million in restricted cash.
During 2016, we returned $4.6 billion to our stockholders,
including quarterly dividend payments of $224 million and the repurchase of $4.4 billion of common stock, or 119.8 million shares. Since our capital return program commenced in
mid-2014,
we have
returned more than $9.6 billion to stockholders including $646 million in quarterly dividends and $9.0 billion in share repurchases, or 228.4 million shares. In January 2017, our Board of Directors approved a new
$2.0 billion share repurchase authorization that will expire December 31, 2018 and declared a dividend of $0.10 per share to be paid to stockholders of record as of February 13, 2017.
We have taken advantage of historically low interest rates to finance our fleet renewal program. During 2016 to
finance new aircraft deliveries, we issued an aggregate principal amount of $2.8 billion in Enhanced Equipment Trust Certificate (EETC) equipment notes at an average fixed interest rate of 3.63%, as well as $1.8 billion in other equipment
notes, which bear interest at fixed and variable rates of LIBOR plus margin, averaging 2.96% at December 31, 2016. Additionally, we refinanced certain higher cost debt. See Note 5 to AAGs Consolidated Financial Statements in Part II, Item
8A for additional information on our debt obligations.
As a result of the foregoing factors, we
currently have a higher debt level and fewer unencumbered assets than our peers. Accordingly, we believe it is important to retain liquidity levels higher than our network peers given our overall leverage as well as to protect against an adverse
economic shock. Our current plan is to maintain minimum total available liquidity of $7.0 billion. We were well above that minimum level at December 31, 2016.
53
AAGs Results of Operations
Operating Statistics
The table below
sets forth selected operating data for the years ended December 31, 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
2016-2015
|
|
|
Increase
(Decrease)
2015-2014
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Mainline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions)
(a)
|
|
|
199,014
|
|
|
|
199,467
|
|
|
|
195,651
|
|
|
|
(0.2
|
)%
|
|
|
2.0
|
%
|
Available seat miles (millions)
(b)
|
|
|
241,734
|
|
|
|
239,375
|
|
|
|
237,522
|
|
|
|
1.0
|
%
|
|
|
0.8
|
%
|
Passenger load factor (percent)
(c)
|
|
|
82.3
|
|
|
|
83.3
|
|
|
|
82.4
|
|
|
|
(1.0
|
)pts
|
|
|
0.9
|
pts
|
Yield (cents)
(d)
|
|
|
14.02
|
|
|
|
14.56
|
|
|
|
15.74
|
|
|
|
(3.7
|
)%
|
|
|
(7.5
|
)%
|
Passenger revenue per available seat mile (cents)
(e)
|
|
|
11.55
|
|
|
|
12.13
|
|
|
|
12.97
|
|
|
|
(4.8
|
)%
|
|
|
(6.5
|
)%
|
Operating cost per available seat mile (cents)
(f)
|
|
|
11.94
|
|
|
|
12.03
|
|
|
|
13.42
|
|
|
|
(0.8
|
)%
|
|
|
(10.4
|
)%
|
Aircraft at end of period
|
|
|
930
|
|
|
|
946
|
|
|
|
983
|
|
|
|
(1.7
|
)%
|
|
|
(3.8
|
)%
|
Fuel consumption (gallons in millions)
|
|
|
3,596
|
|
|
|
3,611
|
|
|
|
3,644
|
|
|
|
(0.4
|
)%
|
|
|
(0.9
|
)%
|
Average aircraft fuel price including related taxes (dollars per gallon)
|
|
|
1.41
|
|
|
|
1.72
|
|
|
|
2.91
|
|
|
|
(18.2
|
)%
|
|
|
(40.7
|
)%
|
Full-time equivalent employees at end of period
|
|
|
101,500
|
|
|
|
98,900
|
|
|
|
94,400
|
|
|
|
2.6
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
Total Mainline and Regional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passenger miles (millions)
(a)
|
|
|
223,477
|
|
|
|
223,010
|
|
|
|
217,870
|
|
|
|
0.2
|
%
|
|
|
2.4
|
%
|
Available seat miles (millions)
(b)
|
|
|
273,410
|
|
|
|
268,736
|
|
|
|
265,657
|
|
|
|
1.7
|
%
|
|
|
1.2
|
%
|
Passenger load factor (percent)
(c)
|
|
|
81.7
|
|
|
|
83.0
|
|
|
|
82.0
|
|
|
|
(1.3
|
)pts
|
|
|
1.0
|
pts
|
Yield (cents)
(d)
|
|
|
15.47
|
|
|
|
15.92
|
|
|
|
17.04
|
|
|
|
(2.8
|
)%
|
|
|
(6.5
|
)%
|
Passenger revenue per available seat mile (cents)
(e)
|
|
|
12.65
|
|
|
|
13.21
|
|
|
|
13.97
|
|
|
|
(4.3
|
)%
|
|
|
(5.4
|
)%
|
Total revenue per available seat mile (cents)
(g)
|
|
|
14.70
|
|
|
|
15.25
|
|
|
|
16.05
|
|
|
|
(3.7
|
)%
|
|
|
(5.0
|
)%
|
Aircraft at end of period
|
|
|
1,536
|
|
|
|
1,533
|
|
|
|
1,549
|
|
|
|
0.2
|
%
|
|
|
(1.0
|
)%
|
Fuel consumption (gallons in millions)
|
|
|
4,347
|
|
|
|
4,323
|
|
|
|
4,332
|
|
|
|
0.5
|
%
|
|
|
(0.2
|
)%
|
Average aircraft fuel price including related taxes (dollars per gallon)
|
|
|
1.42
|
|
|
|
1.72
|
|
|
|
2.91
|
|
|
|
(17.6
|
)%
|
|
|
(40.7
|
)%
|
Full-time equivalent employees at end of period
(h)
|
|
|
122,300
|
|
|
|
118,500
|
|
|
|
113,300
|
|
|
|
3.2
|
%
|
|
|
4.6
|
%
|
(a)
|
Revenue passenger mile (RPM) A basic measure of sales volume. One RPM represents one passenger flown one mile.
|
(b)
|
Available seat mile (ASM) A basic measure of production. One ASM represents one seat flown one mile.
|
(c)
|
Passenger load factor The percentage of available seats that are filled with revenue passengers.
|
(d)
|
Yield A measure of airline revenue derived by dividing passenger revenue by RPMs.
|
(e)
|
Passenger revenue per available seat mile (PRASM) Passenger revenues divided by ASMs.
|
(f)
|
Operating cost per available seat mile (CASM) Operating expenses divided by ASMs.
|
(g)
|
Total revenue per available seat mile (TRASM) Total revenues divided by total mainline and regional ASMs.
|
(h)
|
Regional full-time equivalent employees only include our wholly-owned regional airline subsidiaries, Envoy, Piedmont and PSA.
|
54
Results of Operations 2016 Compared to 2015
We realized net income of $2.7 billion in 2016. This compares to $7.6 billion of net income in 2015, which
included a special $3.0 billion
non-cash
tax benefit as we reversed the valuation allowance on our deferred tax assets, which include our federal and state NOLs. As a result of the reversal of the
valuation allowance, we recorded a $1.6 billion provision for income taxes in 2016, which is substantially
non-cash
due to the utilization of NOLs. Accordingly, amounts reported in 2016 for income tax
provision and net income are not comparable to 2015.
We realized
pre-tax
income of $4.3 billion and $4.6 billion in 2016 and 2015, respectively. Excluding the effects of
pre-tax
net special items,
pre-tax
income was $5.1 billion and $6.3 billion in 2016 and 2015, respectively. For reconciliation of
pre-tax
and net income excluding special items to their
comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated Financial Data
Reconciliation of GAAP to
Non-GAAP
Financial Measures
.
Our 2016
pre-tax
results on both a GAAP basis and excluding
pre-tax
net special items were impacted by a decline in revenues due to lower yields. Salaries, wages and benefits costs were higher in 2016, driven by our new labor contracts and the addition of an employee profit
sharing program; however, these increases were substantially offset by a year-over-year decline in fuel costs.
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Mainline passenger
|
|
$
|
27,909
|
|
|
$
|
29,037
|
|
|
$
|
(1,128
|
)
|
|
|
(3.9
|
)
|
Regional passenger
|
|
|
6,670
|
|
|
|
6,475
|
|
|
|
195
|
|
|
|
3.0
|
|
Cargo
|
|
|
700
|
|
|
|
760
|
|
|
|
(60
|
)
|
|
|
(7.9
|
)
|
Other
|
|
|
4,901
|
|
|
|
4,718
|
|
|
|
183
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,180
|
|
|
$
|
40,990
|
|
|
$
|
(810
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues in 2016 decreased $810 million, or 2.0%, from 2015
driven by lower passenger revenues offset in part by higher other revenue. Our mainline and regional TRASM was 14.70 cents in 2016, a 3.7% decrease as compared to 15.25 cents in 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
vs.
Year Ended December 31, 2015
|
|
|
|
Year
Ended
December 31,
2016
|
|
|
Passenger
Revenue
|
|
|
RPMs
|
|
|
ASMs
|
|
|
Load
Factor
|
|
|
Passenger
Yield
|
|
|
PRASM
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline passenger
|
|
$
|
27,909
|
|
|
|
(3.9
|
)%
|
|
|
(0.2
|
)%
|
|
|
1.0
|
%
|
|
|
(1.0
|
)pts
|
|
|
(3.7
|
)%
|
|
|
(4.8
|
)%
|
Regional passenger
|
|
|
6,670
|
|
|
|
3.0
|
%
|
|
|
3.9
|
%
|
|
|
7.9
|
%
|
|
|
(3.0
|
)pts
|
|
|
(0.9
|
)%
|
|
|
(4.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenues
|
|
$
|
34,579
|
|
|
|
(2.6
|
)%
|
|
|
0.2
|
%
|
|
|
1.7
|
%
|
|
|
(1.3
|
)pts
|
|
|
(2.8
|
)%
|
|
|
(4.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenues declined $933 million, or 2.6%, in 2016 from 2015
driven by a 2.8% decrease in yield due to competitive capacity growth, macroeconomic softness outside of the United States and foreign currency weakness.
Cargo revenue decreased $60 million, or 7.9%, in 2016 from 2015 driven primarily by a decrease in domestic and international freight yields.
55
Other revenue primarily includes revenue associated with our loyalty
program, baggage fees, ticketing change fees, airport clubs and inflight services. Other revenue increased $183 million, or 3.9%, in 2016 from 2015 driven by an increase in loyalty program revenue. In 2016 and 2015, other revenues associated with
our loyalty program were $2.1 billion and $1.9 billion, respectively, of which $1.9 billion and $1.7 billion, respectively, related to the marketing component of mileage sales and other marketing related payments. This year-over-year increase was
due to our new co-branded credit card agreements which became effective in the third quarter of 2016. See Note 1(i) to AAGs Consolidated Financial Statements in Part II, Item 8A for additional information on the loyalty program.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Aircraft fuel and related taxes
|
|
$
|
5,071
|
|
|
$
|
6,226
|
|
|
$
|
(1,155
|
)
|
|
|
(18.5
|
)
|
Salaries, wages and benefits
|
|
|
10,890
|
|
|
|
9,524
|
|
|
|
1,366
|
|
|
|
14.4
|
|
Maintenance, materials and repairs
|
|
|
1,834
|
|
|
|
1,889
|
|
|
|
(55
|
)
|
|
|
(2.9
|
)
|
Other rent and landing fees
|
|
|
1,772
|
|
|
|
1,731
|
|
|
|
41
|
|
|
|
2.4
|
|
Aircraft rent
|
|
|
1,203
|
|
|
|
1,250
|
|
|
|
(47
|
)
|
|
|
(3.8
|
)
|
Selling expenses
|
|
|
1,323
|
|
|
|
1,394
|
|
|
|
(71
|
)
|
|
|
(5.0
|
)
|
Depreciation and amortization
|
|
|
1,525
|
|
|
|
1,364
|
|
|
|
161
|
|
|
|
11.8
|
|
Special items, net
|
|
|
709
|
|
|
|
1,051
|
|
|
|
(342
|
)
|
|
|
(32.6
|
)
|
Other
|
|
|
4,525
|
|
|
|
4,374
|
|
|
|
151
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses
|
|
|
28,852
|
|
|
|
28,803
|
|
|
|
49
|
|
|
|
0.2
|
|
Regional expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
1,109
|
|
|
|
1,230
|
|
|
|
(121
|
)
|
|
|
(9.8
|
)
|
Other
|
|
|
4,935
|
|
|
|
4,753
|
|
|
|
182
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional operating expenses
|
|
|
6,044
|
|
|
|
5,983
|
|
|
|
61
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
34,896
|
|
|
$
|
34,786
|
|
|
$
|
110
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $34.9 billion in 2016, an increase of
$110 million, or 0.3%, from 2015. The increase in operating expenses was due to higher salaries, wages and benefits driven by new labor contracts and the addition of an employee profit sharing program; however, these costs were substantially
offset by a year-over-year decline in fuel costs. See detailed explanations below relating to changes in mainline operating costs per ASM.
56
Mainline Operating Costs per ASM
The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special
items and aircraft fuel and related taxes for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(In cents, except percentage changes)
|
|
Mainline CASM:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
2.10
|
|
|
|
2.60
|
|
|
|
(19.3
|
)
|
Salaries, wages and benefits
|
|
|
4.51
|
|
|
|
3.98
|
|
|
|
13.2
|
|
Maintenance, materials and repairs
|
|
|
0.76
|
|
|
|
0.79
|
|
|
|
(3.9
|
)
|
Other rent and landing fees
|
|
|
0.73
|
|
|
|
0.72
|
|
|
|
1.4
|
|
Aircraft rent
|
|
|
0.50
|
|
|
|
0.52
|
|
|
|
(4.7
|
)
|
Selling expenses
|
|
|
0.55
|
|
|
|
0.58
|
|
|
|
(6.0
|
)
|
Depreciation and amortization
|
|
|
0.63
|
|
|
|
0.57
|
|
|
|
10.7
|
|
Special items, net
|
|
|
0.29
|
|
|
|
0.44
|
|
|
|
(33.2
|
)
|
Other
|
|
|
1.87
|
|
|
|
1.83
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM
|
|
|
11.94
|
|
|
|
12.03
|
|
|
|
(0.8
|
)
|
Special items, net
|
|
|
(0.29
|
)
|
|
|
(0.44
|
)
|
|
|
(33.2
|
)
|
Aircraft fuel and related taxes
|
|
|
(2.10
|
)
|
|
|
(2.60
|
)
|
|
|
(19.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline operating costs per ASM, excluding special items and aircraft fuel and related taxes
(1)
|
|
|
9.54
|
|
|
|
8.99
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We believe that the presentation of mainline CASM excluding fuel is useful to investors because both the cost and availability of fuel are
subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and that is more
comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.
|
Significant changes in the components of mainline operating cost per ASM are as follows:
|
|
|
Aircraft fuel and related taxes per ASM decreased 19.3% primarily due to an 18.2% decrease in the average price per gallon of fuel to $1.41 in
2016 from an average price per gallon of $1.72 in 2015.
|
|
|
|
Salaries, wages and benefits per ASM increased 13.2% primarily due to increased costs associated with new labor contracts and the addition of
an employee profit sharing program.
|
|
|
|
Selling expenses per ASM decreased 6.0% primarily due to lower credit card and booking fees.
|
|
|
|
Depreciation and amortization per ASM increased 10.7% primarily due to the effect of purchased aircraft deliveries in connection with our
fleet renewal program.
|
57
Operating Special Items, Net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Merger integration costs
(1)
|
|
$
|
514
|
|
|
$
|
826
|
|
Fleet restructuring costs
(2)
|
|
|
177
|
|
|
|
210
|
|
Mark-to-market
adjustments for bankruptcy
obligations and other
|
|
|
25
|
|
|
|
(53
|
)
|
Other operating charges (credits), net
|
|
|
(7
|
)
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating special items, net
|
|
|
709
|
|
|
|
1,051
|
|
Regional operating special items, net
(3)
|
|
|
14
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total operating special items, net
|
|
$
|
723
|
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Merger integration costs included charges related to information technology,
re-branding
of aircraft,
airport facilities and uniforms, alignment of labor union contracts, professional fees, relocation, training and severance, and in 2015, also included share-based compensation related to awards granted in connection with the Merger that fully vested
in December 2015.
|
(2)
|
Fleet restructuring costs included the acceleration of aircraft depreciation, impairments, remaining lease payments and lease return costs for
aircraft currently grounded or expected to be grounded earlier than planned.
|
(3)
|
Regional operating special items, net are included within other regional operating expenses and principally related to Merger integration
costs.
|
Regional Operating Expenses
Total regional expenses increased $61 million, or 1.0%, in 2016 as compared to 2015. The year-over-year
increase was primarily due to a $182 million, or 3.8%, increase in other regional operating expenses driven by increased capacity. This was offset in part by a $121 million, or 9.8%, decrease in fuel costs. The decrease in fuel costs was
driven primarily by a 14.5% decline in the average price per gallon of fuel to $1.48 in 2016 from $1.73 in 2015, offset in part by a 5.5% increase in gallons of fuel consumed. See Note 1 to AAGs Consolidated Financial Statements in Part II,
Item 8A for further information on regional expenses.
Nonoperating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Interest income
|
|
$
|
63
|
|
|
$
|
39
|
|
|
$
|
24
|
|
|
|
60.9
|
|
Interest expense, net of capitalized interest
|
|
|
(991
|
)
|
|
|
(880
|
)
|
|
|
(111
|
)
|
|
|
12.6
|
|
Other, net
|
|
|
(57
|
)
|
|
|
(747
|
)
|
|
|
690
|
|
|
|
(92.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
$
|
(985
|
)
|
|
$
|
(1,588
|
)
|
|
$
|
603
|
|
|
|
(38.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our short-term investments in each period consisted of highly liquid investments
that provided nominal returns. Interest income increased $24 million, or 60.9%, principally due to a 50 basis point increase in average yields in 2016 as compared to 2015.
Interest expense, net of capitalized interest increased in 2016 primarily due to issuances of
aircraft-related
financings associated with our fleet renewal program.
58
In 2016, other nonoperating expense, net primarily included
$49 million of net special charges consisting of debt issuance and extinguishment costs associated with bond and term loan refinancings. Net foreign currency gains were nominal in 2016.
In 2015, other nonoperating expense, net primarily included a $592 million special charge to write off all of
the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela. We also incurred $159 million of net foreign currency losses. The foreign currency losses in 2015 were
driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in Latin American and European markets.
Income Taxes
In 2016, we recorded a
$1.6 billion provision for income taxes at an effective rate of approximately 38%, which was substantially
non-cash
as we utilized our NOLs. Substantially all of our income before income taxes is
attributable to the United States. At December 31, 2016, we had approximately $10.5 billion of gross NOLs to reduce future federal taxable income, substantially all of which are expected to be available for use in 2017.
In 2015, we reversed $3.0 billion of the valuation allowance on our deferred tax assets, which resulted in a
special
non-cash
tax benefit recorded in our consolidated statement of operations.
See Note 6 to AAGs Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes.
Results of Operations 2015 Compared to 2014
We realized net income of $7.6 billion in 2015, which included a special $3.0 billion
non-cash
tax benefit as we reversed the valuation allowance on
our deferred tax assets, which include our federal and state NOLs. We realized net income of $2.9 billion in 2014. As a result of the valuation allowance reversal, amounts reported in 2015 for income tax benefit and net income are not
comparable to 2014.
We realized
pre-tax
income of
$4.6 billion and $3.2 billion in 2015 and 2014, respectively. Excluding the effects of
pre-tax
net special items,
pre-tax
income was $6.3 billion and
$4.2 billion in 2015 and 2014, respectively. For reconciliation of
pre-tax
and net income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6. Selected Consolidated
Financial Data
Reconciliation of GAAP to
Non-GAAP
Financial Measures
.
Our 2015
pre-tax
results on both a GAAP basis and excluding
pre-tax
net special items were impacted by substantially
lower fuel costs in 2015 as compared to 2014, offset in part by a decline in revenues driven by lower yields.
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Mainline passenger
|
|
$
|
29,037
|
|
|
$
|
30,802
|
|
|
$
|
(1,765
|
)
|
|
|
(5.7
|
)
|
Regional passenger
|
|
|
6,475
|
|
|
|
6,322
|
|
|
|
153
|
|
|
|
2.4
|
|
Cargo
|
|
|
760
|
|
|
|
875
|
|
|
|
(115
|
)
|
|
|
(13.1
|
)
|
Other
|
|
|
4,718
|
|
|
|
4,651
|
|
|
|
67
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,990
|
|
|
$
|
42,650
|
|
|
$
|
(1,660
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Total operating revenues in 2015 decreased $1.7 billion, or 3.9%,
from 2014 principally driven by lower passenger revenues. Our mainline and regional TRASM was 15.25 cents in 2015, a 5.0% decrease as compared to 16.05 cents in 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
vs.
Year Ended December 31, 2014
|
|
|
|
Year
Ended
December 31, 2015
|
|
|
Passenger
Revenue
|
|
|
RPMs
|
|
|
ASMs
|
|
|
Load
Factor
|
|
|
Passenger
Yield
|
|
|
PRASM
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline passenger
|
|
$
|
29,037
|
|
|
|
(5.7
|
)%
|
|
|
2.0
|
%
|
|
|
0.8
|
%
|
|
|
0.9 pts
|
|
|
|
(7.5
|
)%
|
|
|
(6.5
|
)%
|
Regional passenger
|
|
|
6,475
|
|
|
|
2.4
|
%
|
|
|
6.0
|
%
|
|
|
4.4
|
%
|
|
|
1.2 pts
|
|
|
|
(3.3
|
)%
|
|
|
(1.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenues
|
|
$
|
35,512
|
|
|
|
(4.3
|
)%
|
|
|
2.4
|
%
|
|
|
1.2
|
%
|
|
|
1.0 pts
|
|
|
|
(6.5
|
)%
|
|
|
(5.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenues declined $1.6 billion, or 4.3%, in 2015 from 2014
driven by a 6.5% decrease in yield due to competitive growth in certain domestic markets, including Dallas/Fort Worth, international weakness resulting from foreign currency devaluation relative to the U.S. dollar, lower fuel surcharges and economic
softness in Latin America, particularly in Brazil and Venezuela.
Cargo revenue decreased
$115 million, or 13.1%, in 2015 from 2014 driven primarily by a decrease in international freight yields.
Other revenue primarily includes revenue associated with our loyalty program, baggage fees, ticketing change fees, airport clubs and inflight services. In 2015 and 2014, other revenues associated
with our loyalty program were each $1.9 billion and $1.9 billion, respectively, of which $1.7 billion and $1.6 billion, respectively, related to the marketing component of mileage sales and other marketing related payments. See Note 1(i) to
AAGs Consolidated Financial Statements in Part II, Item 8A for additional information on the loyalty program.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Aircraft fuel and related taxes
|
|
$
|
6,226
|
|
|
$
|
10,592
|
|
|
$
|
(4,366
|
)
|
|
|
(41.2
|
)
|
Salaries, wages and benefits
|
|
|
9,524
|
|
|
|
8,508
|
|
|
|
1,016
|
|
|
|
11.9
|
|
Maintenance, materials and repairs
|
|
|
1,889
|
|
|
|
2,051
|
|
|
|
(162
|
)
|
|
|
(7.9
|
)
|
Other rent and landing fees
|
|
|
1,731
|
|
|
|
1,727
|
|
|
|
4
|
|
|
|
0.2
|
|
Aircraft rent
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,394
|
|
|
|
1,544
|
|
|
|
(150
|
)
|
|
|
(9.8
|
)
|
Depreciation and amortization
|
|
|
1,364
|
|
|
|
1,295
|
|
|
|
69
|
|
|
|
5.4
|
|
Special items, net
|
|
|
1,051
|
|
|
|
800
|
|
|
|
251
|
|
|
|
31.3
|
|
Other
|
|
|
4,374
|
|
|
|
4,118
|
|
|
|
256
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses
|
|
|
28,803
|
|
|
|
31,885
|
|
|
|
(3,082
|
)
|
|
|
(9.7
|
)
|
Regional expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
1,230
|
|
|
|
2,009
|
|
|
|
(779
|
)
|
|
|
(38.8
|
)
|
Other
|
|
|
4,753
|
|
|
|
4,507
|
|
|
|
246
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional operating expenses
|
|
|
5,983
|
|
|
|
6,516
|
|
|
|
(533
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
34,786
|
|
|
$
|
38,401
|
|
|
$
|
(3,615
|
)
|
|
|
(9.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $34.8 billion in 2015, a decrease of
$3.6 billion, or 9.4%, from 2014. The decrease in operating expenses was primarily due to substantially lower aircraft fuel costs, offset
60
in part by higher salaries, wages and benefits driven by new labor contracts. See detailed explanations below relating to changes in mainline operating costs per ASM.
Mainline Operating Costs per ASM
The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special
items and aircraft fuel and related taxes for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(In cents, except percentage changes)
|
|
Mainline CASM:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
2.60
|
|
|
|
4.46
|
|
|
|
(41.7
|
)
|
Salaries, wages and benefits
|
|
|
3.98
|
|
|
|
3.58
|
|
|
|
11.1
|
|
Maintenance, materials and repairs
|
|
|
0.79
|
|
|
|
0.86
|
|
|
|
(8.6
|
)
|
Other rent and landing fees
|
|
|
0.72
|
|
|
|
0.73
|
|
|
|
(0.5
|
)
|
Aircraft rent
|
|
|
0.52
|
|
|
|
0.53
|
|
|
|
(0.8
|
)
|
Selling expenses
|
|
|
0.58
|
|
|
|
0.65
|
|
|
|
(10.5
|
)
|
Depreciation and amortization
|
|
|
0.57
|
|
|
|
0.55
|
|
|
|
4.6
|
|
Special items, net
|
|
|
0.44
|
|
|
|
0.34
|
|
|
|
30.3
|
|
Other
|
|
|
1.83
|
|
|
|
1.73
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline CASM
|
|
|
12.03
|
|
|
|
13.42
|
|
|
|
(10.4
|
)
|
Special items, net
|
|
|
(0.44
|
)
|
|
|
(0.34
|
)
|
|
|
30.3
|
|
Aircraft fuel and related taxes
|
|
|
(2.60
|
)
|
|
|
(4.46
|
)
|
|
|
(41.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline operating costs per ASM, excluding special items and aircraft fuel and related taxes
(1)
|
|
|
8.99
|
|
|
|
8.63
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We believe that the presentation of mainline CASM excluding fuel is useful to investors because both the cost and availability of fuel are
subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and that is more
comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.
|
Significant changes in the components of mainline operating cost per ASM are as follows:
|
|
|
Aircraft fuel and related taxes per ASM decreased 41.7% primarily due to a 40.7% decrease in the average price per gallon of fuel to $1.72 in
2015 from an average price per gallon of $2.91 in 2014.
|
|
|
|
Salaries, wages and benefits per ASM increased 11.1% primarily due to increased costs associated with new pilot, flight attendant and customer
service and reservation agent joint collective bargaining agreements.
|
|
|
|
Maintenance, materials and repairs per ASM decreased 8.6% primarily due to fewer engine overhauls in 2015, driven by our fleet renewal
program.
|
|
|
|
Selling expenses per ASM decreased 10.5% primarily due to lower contractually negotiated rates for certain commissions and booking fees as
well as lower revenues in 2015.
|
|
|
|
Other operating expenses per ASM increased 5.4% in 2015 as compared to 2014 primarily due to increases in crew travel and certain information
technology projects, as well as enhancements to our aircraft food and catering offerings.
|
61
Operating Special Items, Net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(In millions)
|
|
Merger integration costs
(1)
|
|
$
|
826
|
|
|
$
|
732
|
|
Fleet restructuring costs
(2)
|
|
|
210
|
|
|
|
88
|
|
Mark-to-market
adjustments for bankruptcy
obligations and other
|
|
|
(53
|
)
|
|
|
81
|
|
Net gain on slot transactions
|
|
|
|
|
|
|
(265
|
)
|
Charge to revise estimates of certain aircraft residual values
|
|
|
|
|
|
|
81
|
|
Other operating charges, net
|
|
|
68
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating special items, net
|
|
|
1,051
|
|
|
|
800
|
|
Regional operating special items, net
(3)
|
|
|
29
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total operating special items, net
|
|
$
|
1,080
|
|
|
$
|
824
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Merger integration costs included charges related to information technology, alignment of labor union contracts, professional fees, severance,
relocation and training,
re-branding
of aircraft, airport facilities and uniforms and share-based compensation related to awards granted in connection with the Merger that fully vested in December 2015.
|
(2)
|
Fleet restructuring costs included the acceleration of aircraft depreciation, impairments, remaining lease payments and lease return costs for
aircraft currently grounded or expected to be grounded earlier than planned.
|
(3)
|
Regional operating special items, net are included within other regional operating expenses and consisted primarily of a $24 million
charge due to a new pilot labor contract at our Envoy regional subsidiary.
|
Regional Operating
Expenses
Total regional expenses decreased $533 million, or 8.2%, in 2015 as compared to
2014. The year-over-year decrease was primarily due to a $779 million, or 38.8%, decrease in fuel costs, offset in part by a $246 million, or 5.4%, increase in other regional operating expenses. The average price per gallon of fuel
decreased 40.9% to $1.73 in 2015 from $2.92 in 2014. The increase in other regional operating expenses was principally due to increased flying under capacity purchase agreements. See Note 1 to AAGs Consolidated Financial Statements in Part II,
Item 8A for further information on regional expenses.
Nonoperating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Interest income
|
|
$
|
39
|
|
|
$
|
31
|
|
|
$
|
8
|
|
|
|
26.0
|
|
Interest expense, net of capitalized interest
|
|
|
(880
|
)
|
|
|
(887
|
)
|
|
|
7
|
|
|
|
(0.8
|
)
|
Other, net
|
|
|
(747
|
)
|
|
|
(181
|
)
|
|
|
(566
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
$
|
(1,588
|
)
|
|
$
|
(1,037
|
)
|
|
$
|
(551
|
)
|
|
|
53.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our short-term investments in each period consisted of highly liquid investments
that provided nominal returns.
In 2015, other nonoperating expense, net primarily included a
$592 million special charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela. We also incurred $159 million of net foreign
62
currency losses. The foreign currency losses in 2015 were driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in Latin American and European
markets.
In 2014, other nonoperating expense, net primarily included $114 million of net foreign
currency losses, including a $43 million special charge for Venezuelan foreign currency losses and $56 million of special charges primarily due to early debt extinguishment costs related to the prepayment of our 7.50% senior secured notes
and other indebtedness. The foreign currency losses in 2014 were driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in the Latin American market.
Income Taxes
In 2015, we reversed $3.0 billion of the valuation allowance on our deferred tax assets, which resulted in a special
non-cash
tax benefit recorded in our
consolidated statement of operations.
In 2014, we recorded a $330 million provision for income
taxes, which included $346 million of special tax charges. During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. As a result, a special $330 million
non-cash
tax provision was recorded, which is the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts.
See Note 6 to AAGs Consolidated Financial Statements in Part II, Item 8A for additional information on income
taxes.
Americans Results of Operations
Results of Operations 2016 Compared to 2015
American realized net income of $2.8 billion in 2016. This compares to $8.1 billion of net income in 2015, which included a special $3.5 billion
non-cash
tax benefit as American reversed the valuation allowance on its deferred tax assets, which include its federal and state NOLs. As a result of the reversal of the valuation allowance, American recorded
a $1.7 billion provision for income taxes in 2016, which is substantially
non-cash
due to the utilization of NOLs. Accordingly, amounts reported in 2016 for income tax provision and net income are not
comparable to 2015.
American realized
pre-tax
income of
$4.4 billion and $4.7 billion in 2016 and 2015, respectively. Americans 2016
pre-tax
income was impacted by a decline in revenues due to lower yields. Salaries, wages and benefits costs were
higher in 2016, driven by Americans new labor contracts and the addition of an employee profit sharing program; however, these increases were substantially offset by a year-over-year decline in fuel costs.
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Mainline passenger
|
|
$
|
27,909
|
|
|
$
|
29,037
|
|
|
$
|
(1,128
|
)
|
|
|
(3.9
|
)
|
Regional passenger
|
|
|
6,670
|
|
|
|
6,475
|
|
|
|
195
|
|
|
|
3.0
|
|
Cargo
|
|
|
700
|
|
|
|
760
|
|
|
|
(60
|
)
|
|
|
(7.9
|
)
|
Other
|
|
|
4,884
|
|
|
|
4,666
|
|
|
|
218
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,163
|
|
|
$
|
40,938
|
|
|
$
|
(775
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues in 2016 decreased $775 million, or 1.9%, from 2015
driven by lower passenger revenues offset in part by higher other revenue.
63
Total passenger revenues declined $933 million, or 2.6%, in 2016
from 2015 driven by a decrease in yield due to competitive capacity growth, macroeconomic softness outside of the United States and foreign currency weakness.
Cargo revenue decreased $60 million, or 7.9%, in 2016 from 2015 driven primarily by a decrease in domestic and international freight yields.
Other revenue primarily includes revenue associated with Americans loyalty program, baggage fees, ticketing
change fees, airport clubs and inflight services. Other revenue increased $218 million, or 4.7%, in 2016 from 2015 driven by an increase in loyalty program revenue. In 2016 and 2015, other revenues associated with Americans loyalty program
were $2.1 billion and $1.9 billion, respectively, of which $1.9 billion and $1.7 billion, respectively, related to the marketing component of mileage sales and other marketing related payments. This year-over-year increase was due to Americans
new co-branded credit card agreements which became effective in the third quarter of 2016. See Note 1(i) to Americans Consolidated Financial Statements in Part II, Item 8B for additional information on the loyalty program.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Aircraft fuel and related taxes
|
|
$
|
5,071
|
|
|
$
|
6,226
|
|
|
$
|
(1,155
|
)
|
|
|
(18.5
|
)
|
Salaries, wages and benefits
|
|
|
10,881
|
|
|
|
9,514
|
|
|
|
1,367
|
|
|
|
14.4
|
|
Maintenance, materials and repairs
|
|
|
1,834
|
|
|
|
1,889
|
|
|
|
(55
|
)
|
|
|
(2.9
|
)
|
Other rent and landing fees
|
|
|
1,772
|
|
|
|
1,731
|
|
|
|
41
|
|
|
|
2.4
|
|
Aircraft rent
|
|
|
1,203
|
|
|
|
1,250
|
|
|
|
(47
|
)
|
|
|
(3.8
|
)
|
Selling expenses
|
|
|
1,323
|
|
|
|
1,394
|
|
|
|
(71
|
)
|
|
|
(5.0
|
)
|
Depreciation and amortization
|
|
|
1,525
|
|
|
|
1,364
|
|
|
|
161
|
|
|
|
11.8
|
|
Special items, net
|
|
|
709
|
|
|
|
1,051
|
|
|
|
(342
|
)
|
|
|
(32.6
|
)
|
Other
|
|
|
4,532
|
|
|
|
4,378
|
|
|
|
154
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses
|
|
|
28,850
|
|
|
|
28,797
|
|
|
|
53
|
|
|
|
0.2
|
|
Regional expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
1,109
|
|
|
|
1,230
|
|
|
|
(121
|
)
|
|
|
(9.8
|
)
|
Other
|
|
|
4,900
|
|
|
|
4,722
|
|
|
|
178
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional operating expenses
|
|
|
6,009
|
|
|
|
5,952
|
|
|
|
57
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
34,859
|
|
|
$
|
34,749
|
|
|
$
|
110
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $34.9 billion in 2016, an increase of
$110 million, or 0.3%, from 2015. The increase in operating expenses was due to higher salaries, wages and benefits driven by new labor contracts and the addition of an employee profit sharing program; however, these costs were substantially
offset by a year-over-year decline in fuel costs.
Significant changes in the components of mainline
operating expenses are as follows:
|
|
|
Aircraft fuel and related taxes decreased 18.5% primarily due to an 18.2% decrease in the average price per gallon of fuel to $1.41 in 2016
from an average price per gallon of $1.72 in 2015.
|
|
|
|
Salaries, wages and benefits increased 14.4% primarily due to increased costs associated with new labor contracts and the addition of an
employee profit sharing program.
|
|
|
|
Selling expenses decreased 5.0% primarily due to lower credit card and booking fees.
|
64
|
|
|
Depreciation and amortization increased 11.8% primarily due to the effect of purchased aircraft deliveries in connection with Americans
fleet renewal program.
|
Operating Special Items, Net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Merger integration costs
(1)
|
|
$
|
514
|
|
|
$
|
826
|
|
Fleet restructuring costs
(2)
|
|
|
177
|
|
|
|
210
|
|
Mark-to-market
adjustments for bankruptcy
obligations and other
|
|
|
25
|
|
|
|
(53
|
)
|
Other operating charges (credits), net
|
|
|
(7
|
)
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating special items, net
|
|
|
709
|
|
|
|
1,051
|
|
Regional operating special items, net
(3)
|
|
|
13
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total operating special items, net
|
|
$
|
722
|
|
|
$
|
1,069
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Merger integration costs included charges related to information technology,
re-branding
of aircraft,
airport facilities and uniforms, alignment of labor union contracts, professional fees, relocation, training and severance, and in 2015, also included share-based compensation related to awards granted in connection with the Merger that fully vested
in December 2015.
|
(2)
|
Fleet restructuring costs included the acceleration of aircraft depreciation, impairments, remaining lease payments and lease return costs for
aircraft currently grounded or expected to be grounded earlier than planned.
|
(3)
|
Regional operating special items, net are included within other regional operating expenses and principally related to Merger integration
costs.
|
Regional Operating Expenses
Total regional expenses increased $57 million, or 1.0%, in 2016 as compared to 2015. The year-over-year
increase was primarily due to a $178 million, or 3.8%, increase in other regional operating expenses driven by increased capacity. This was offset in part by a $121 million, or 9.8%, decrease in fuel costs. The decrease in fuel costs was
driven primarily by a 14.5% decline in the average price per gallon of fuel to $1.48 in 2016 from $1.73 in 2015, offset in part by a 5.5% increase in gallons of fuel consumed. See Note 1 to Americans Consolidated Financial Statements in Part
II, Item 8B for further information on regional expenses.
Nonoperating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Interest income
|
|
$
|
104
|
|
|
$
|
49
|
|
|
$
|
55
|
|
|
|
nm
|
|
Interest expense, net of capitalized interest
|
|
|
(906
|
)
|
|
|
(796
|
)
|
|
|
(110
|
)
|
|
|
13.8
|
|
Other, net
|
|
|
(59
|
)
|
|
|
(774
|
)
|
|
|
715
|
|
|
|
(92.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
$
|
(861
|
)
|
|
$
|
(1,521
|
)
|
|
$
|
660
|
|
|
|
(43.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americans short-term investments in each period consisted of highly liquid
investments that provided nominal returns. Interest income increased $55 million principally due to a 50 basis point increase in average yields in 2016 as compared to 2015.
65
Interest expense, net of capitalized interest increased in 2016
primarily due to issuances of aircraft-related financings associated with Americans fleet renewal program.
In 2016, other nonoperating expense, net primarily included $49 million of net special charges consisting of debt issuance and extinguishment costs associated with bond and term loan
refinancings. Net foreign currency gains were nominal in 2016.
In 2015, other nonoperating expense, net
primarily included a $592 million special charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela. American also incurred
$159 million of net foreign currency losses. The foreign currency losses in 2015 were driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in Latin American and European markets.
Income Taxes
In 2016, American recorded a $1.7 billion provision for income taxes at an effective rate of approximately 37%, which was substantially
non-cash
as
American utilized its NOLs. Substantially all of Americans income before income taxes is attributable to the United States. At December 31, 2016, American had approximately $11.3 billion of gross NOLs to reduce future federal taxable
income, substantially all of which are expected to be available for use in 2017.
In 2015, American
reversed $3.5 billion of the valuation allowance on its deferred tax assets, which resulted in a special
non-cash
tax benefit recorded in Americans consolidated statement of operations.
See Note 4 to Americans Consolidated Financial Statements in Part II, Item 8B for additional information on
income taxes.
Results of Operations 2015 Compared to 2014
American realized net income of $8.1 billion in 2015, which included a special $3.5 billion
non-cash
tax benefit as American reversed the valuation allowance on its deferred tax assets, which include its federal and state NOLs. American realized net income of $2.9 billion in 2014. As a result of the
valuation allowance reversal, amounts reported in 2015 for income tax benefit and net income are not comparable to 2014.
American realized
pre-tax
income of $4.7 billion and $3.3 billion in 2015 and 2014, respectively. Americans 2015
pre-tax
income was impacted by substantially lower fuel costs in 2015 as compared to 2014, offset in part by a decline in revenues driven by lower yields.
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Mainline passenger
|
|
$
|
29,037
|
|
|
$
|
30,802
|
|
|
$
|
(1,765
|
)
|
|
|
(5.7
|
)
|
Regional passenger
|
|
|
6,475
|
|
|
|
6,322
|
|
|
|
153
|
|
|
|
2.4
|
|
Cargo
|
|
|
760
|
|
|
|
875
|
|
|
|
(115
|
)
|
|
|
(13.1
|
)
|
Other
|
|
|
4,666
|
|
|
|
4,677
|
|
|
|
(11
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,938
|
|
|
$
|
42,676
|
|
|
$
|
(1,738
|
)
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues in 2015 decreased $1.7 billion, or 4.1%, from 2014
principally driven by lower passenger revenues.
66
Total passenger revenues declined $1.6 billion, or 4.3%, in 2015
from 2014 driven by a decrease in yield due to competitive growth in certain domestic markets, including Dallas/Fort Worth, international weakness resulting from foreign currency devaluation relative to the U.S. dollar, lower fuel surcharges and
economic softness in Latin America, particularly in Brazil and Venezuela.
Cargo revenue decreased
$115 million, or 13.1%, in 2015 from 2014 driven primarily by a decrease in international freight yields.
Other revenue primarily includes revenue associated with Americans loyalty program, baggage fees, ticketing change fees, airport clubs and inflight services. In 2015 and 2014, other revenues
associated with Americans loyalty program were $1.9 billion and $1.9 billion, respectively, of which $1.7 billion and $1.6 billion, respectively, related to the marketing component of mileage sales and other marketing related payments. See
Note 1(i) to Americans Consolidated Financial Statements in Part II, Item 8B for additional information on the loyalty program.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Aircraft fuel and related taxes
|
|
$
|
6,226
|
|
|
$
|
10,592
|
|
|
$
|
(4,366
|
)
|
|
|
(41.2
|
)
|
Salaries, wages and benefits
|
|
|
9,514
|
|
|
|
8,499
|
|
|
|
1,015
|
|
|
|
11.9
|
|
Maintenance, materials and repairs
|
|
|
1,889
|
|
|
|
2,051
|
|
|
|
(162
|
)
|
|
|
(7.9
|
)
|
Other rent and landing fees
|
|
|
1,731
|
|
|
|
1,727
|
|
|
|
4
|
|
|
|
0.2
|
|
Aircraft rent
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,394
|
|
|
|
1,544
|
|
|
|
(150
|
)
|
|
|
(9.8
|
)
|
Depreciation and amortization
|
|
|
1,364
|
|
|
|
1,301
|
|
|
|
63
|
|
|
|
4.8
|
|
Special items, net
|
|
|
1,051
|
|
|
|
783
|
|
|
|
268
|
|
|
|
34.2
|
|
Other
|
|
|
4,378
|
|
|
|
4,186
|
|
|
|
192
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating expenses
|
|
|
28,797
|
|
|
|
31,933
|
|
|
|
(3,136
|
)
|
|
|
(9.8
|
)
|
Regional expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
1,230
|
|
|
|
2,009
|
|
|
|
(779
|
)
|
|
|
(38.8
|
)
|
Other
|
|
|
4,722
|
|
|
|
4,468
|
|
|
|
254
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional operating expenses
|
|
|
5,952
|
|
|
|
6,477
|
|
|
|
(525
|
)
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
34,749
|
|
|
$
|
38,410
|
|
|
$
|
(3,661
|
)
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses were $34.7 billion in 2015, a decrease of
$3.7 billion, or 9.5%, from 2014. The decrease in operating expenses was primarily due to substantially lower aircraft fuel costs, offset in part by higher salaries, wages and benefits driven by new labor contracts.
Significant changes in the components of mainline operating expenses are as follows:
|
|
|
Aircraft fuel and related taxes decreased 41.2% primarily due to a 40.7% decrease in the average price per gallon of fuel to $1.72 in 2015
from an average price per gallon of $2.91 in 2014.
|
|
|
|
Salaries, wages and benefits increased 11.9% primarily due to increased costs associated with new pilot, flight attendant and customer service
and reservation agent joint collective bargaining agreements.
|
|
|
|
Maintenance, materials and repairs decreased 7.9% primarily due to fewer engine overhauls in 2015, driven by Americans fleet renewal
program.
|
67
|
|
|
Selling expenses decreased 9.8% primarily due to lower contractually negotiated rates for certain commissions and booking fees as well as
lower revenues in 2015.
|
Operating Special Items, Net
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(In millions)
|
|
Merger integration costs
(1)
|
|
$
|
826
|
|
|
$
|
732
|
|
Fleet restructuring costs
(2)
|
|
|
210
|
|
|
|
88
|
|
Mark-to-market
adjustments for bankruptcy
obligations and other
|
|
|
(53
|
)
|
|
|
60
|
|
Net gain on slot transactions
|
|
|
|
|
|
|
(265
|
)
|
Charge to revise estimates of certain aircraft residual values
|
|
|
|
|
|
|
81
|
|
Other operating charges, net
|
|
|
68
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Total mainline operating special items, net
|
|
|
1,051
|
|
|
|
783
|
|
Regional operating special items, net
(3)
|
|
|
18
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total operating special items, net
|
|
$
|
1,069
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Merger integration costs included charges related to information technology, alignment of labor union contracts, professional fees, severance,
relocation and training,
re-branding
of aircraft, airport facilities and uniforms and share-based compensation related to awards granted in connection with the Merger that fully vested in December 2015.
|
(2)
|
Fleet restructuring costs included the acceleration of aircraft depreciation, impairments, remaining lease payments and lease return costs for
aircraft currently grounded or expected to be grounded earlier than planned.
|
(3)
|
Regional operating special items, net are included within other regional operating expenses and principally related to Merger integration
costs.
|
Regional Operating Expenses
Total regional expenses decreased $525 million, or 8.1%, in 2015 as compared to 2014. The year-over-year
decrease was primarily due to a $779 million, or 38.8%, decrease in fuel costs, offset in part by a $254 million, or 5.7%, increase in other regional operating expenses. The average price per gallon of fuel decreased 40.9% to $1.73 in 2015
from $2.92 in 2014. The increase in other regional operating expenses was principally due to increased flying under capacity purchase agreements. See Note 1 to Americans Consolidated Financial Statements in Part II, Item 8B for further
information on regional expenses.
Nonoperating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Increase
(Decrease)
|
|
|
Percent
Increase
(Decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
(In millions, except percentage changes)
|
|
Interest income
|
|
$
|
49
|
|
|
$
|
32
|
|
|
$
|
17
|
|
|
|
51.7
|
|
Interest expense, net of capitalized interest
|
|
|
(796
|
)
|
|
|
(847
|
)
|
|
|
51
|
|
|
|
(6.1
|
)
|
Other, net
|
|
|
(774
|
)
|
|
|
(183
|
)
|
|
|
(591
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
$
|
(1,521
|
)
|
|
$
|
(998
|
)
|
|
$
|
(523
|
)
|
|
|
52.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americans short-term investments in each period consisted of highly liquid
investments that provided nominal returns.
68
In 2015, other nonoperating expense, net primarily included a
$592 million special charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela. American also incurred $159 million of net
foreign currency losses. The foreign currency losses in 2015 were driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in Latin American and European markets.
In 2014, other nonoperating expense, net primarily included $114 million of net foreign currency losses,
including a $43 million special charge for Venezuelan foreign currency losses and $56 million of special charges primarily due to early debt extinguishment costs related to the prepayment of Americans 7.50% senior secured notes and
other indebtedness. The foreign currency losses in 2014 were driven primarily by the strengthening of the U.S. dollar relative to other currencies, principally in the Latin American market.
Income Taxes
In 2015, American reversed $3.5 billion of the valuation allowance on its deferred tax assets, which resulted in a special
non-cash
tax benefit recorded
in Americans consolidated statement of operations.
In 2014, American recorded a $320 million
provision for income taxes, which included $344 million of special tax charges. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. As a result, a special
$328 million
non-cash
tax provision was recorded, which is the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of Americans fuel hedging
contracts.
See Note 4 to Americans Consolidated Financial Statements in Part II, Item 8B for
additional information on income taxes.
Liquidity and Capital Resources
Liquidity
As of December 31, 2016, AAG had approximately $8.8 billion in total available liquidity and $638 million in restricted cash and short-term investments. Additional detail of our
available liquidity is provided in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAG
|
|
|
American
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cash
|
|
$
|
322
|
|
|
$
|
390
|
|
|
$
|
310
|
|
|
$
|
364
|
|
Short-term investments.
|
|
|
6,037
|
|
|
|
5,864
|
|
|
|
6,034
|
|
|
|
5,862
|
|
Undrawn revolving credit facilities
|
|
|
2,425
|
|
|
|
2,425
|
|
|
|
2,425
|
|
|
|
2,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available liquidity
|
|
$
|
8,784
|
|
|
$
|
8,679
|
|
|
$
|
8,769
|
|
|
$
|
8,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources and Uses of Cash
AAG and American
2016 Compared to 2015
Operating Activities
AAGs net cash provided by operating activities was $6.5 billion and $6.2 billion in
2016 and 2015, respectively. While AAGs profitability was lower in 2016 as compared to 2015, cash provided by operating activities increased $275 million driven by certain payments received related to our new
co-branded
credit card agreements that became effective in the third quarter of 2016.
69
Americans net cash provided by operating activities was
$1.8 billion and $2.6 billion in 2016 and 2015, respectively, a year-over-year decrease of $837 million. We have the ability to move funds freely between our subsidiaries to support our cash requirements. The decline in
Americans operating cash flows from 2016 to 2015 was primarily due to intercompany transfers of cash from American to AAG in order to fund higher share repurchases in 2016. Additionally, in 2015, Americans operating cash flows included
the proceeds from the $500 million issuance of AAGs 4.625% senior notes, which also contributed to the year-over-year decline in operating cash flows. These declines were offset in part by the cash payments related to credit card
agreements discussed above.
Investing Activities
AAGs net cash used in investing activities was $5.7 billion and $5.6 billion in 2016 and 2015,
respectively. Americans net cash used in investing activities was $5.6 billion in each of 2016 and 2015.
AAG and Americans principal investing activities in 2016 each included expenditures of $5.7 billion for property and equipment, primarily 97 newly delivered aircraft, including 25 Airbus
A321 aircraft, 24 Embraer 175 aircraft, 20 Boeing
737-800
aircraft, 18 Bombardier CRJ900 aircraft, eight Boeing 787 aircraft and two Boeing 777 aircraft. We also had net purchases of $149 million of
short-term investments.
AAG and Americans principal investing activities in 2015 included
expenditures of $6.2 billion and $6.1 billion, respectively, for property and equipment, primarily 114 newly delivered aircraft and eight spare engines, including 38 Airbus A320 family aircraft, 24 Embraer 175 aircraft, 20 Bombardier
CRJ900 aircraft, 17 Boeing
737-800
aircraft, 13 Boeing 787 aircraft and two Boeing 777 aircraft and the purchase of five Boeing 757 aircraft previously being leased. These cash outflows were offset in part by
$391 million in net sales of short-term investments.
Financing Activities
AAGs net cash used in financing activities was $894 million and $1.3 billion in 2016 and 2015,
respectively. Americans net cash provided by financing activities was $3.8 billion and $2.4 billion in 2016 and 2015, respectively.
AAG and Americans principal financing activities in 2016 each included proceeds of $7.7 billion from the issuance of debt, including the $2.8 billion issuance of EETCs by American,
the $2.3 billion provided under the April 2016 and December 2016 Credit Facilities, the issuance of $844 million of special facility revenue refunding bonds related to JFK and an additional $1.8 billion borrowed in connection with the
financing of certain aircraft. These cash inflows were offset in part by debt repayments of $3.8 billion by AAG and American, primarily including the repayment of approximately $588 million and $970 million in remaining principal of
the 2013 Citicorp Credit Facility Tranche
B-2
and Tranche
B-1
term loans, respectively, and the refunding of approximately $1.0 billion of special facility revenue
bonds related to JFK. In addition, AAG had cash outflows of $4.5 billion in share repurchases and $224 million in dividend payments.
AAG and Americans principal financing activities in 2015 included proceeds from the issuance of debt of $5.0 billion and $4.5 billion, respectively, including the $2.3 billion
issuance of EETCs by American, the $500 million issuance of 4.625% senior notes by AAG and other aircraft-related financings. These cash inflows were offset in part by debt repayments of $2.2 billion by AAG and American, including the
$400 million repayment of Americans AAdvantage loan with Citibank. In addition, AAG had cash outflows of $3.8 billion in share repurchases and $278 million in dividend payments.
70
2015 Compared to 2014
Operating Activities
AAGs net cash provided by operating activities was $6.2 billion and $3.1 billion in 2015 and 2014, respectively. The increase was primarily due to increased profitability driven by
substantially lower fuel costs. In addition, a decrease in pension contributions from $810 million in 2014 to $6 million in 2015 contributed to increased operating cash flows. Our 2015 profitability was negatively affected by a
$592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.
Americans net cash provided by operating activities was $2.6 billion in each of 2015 and 2014. Cash
flows were generated from increased profitability, driven by substantially lower fuel costs and a decrease in pension contributions, which were offset in part by Americans funding of AAGs share repurchase activities. Americans 2015
profitability was negatively affected by a $592 million charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.
Investing Activities
Net cash used in investing activities was $5.6 billion and $2.9 billion in 2015 and 2014, respectively, for both AAG and American.
AAG and Americans principal investing activities in 2015 included expenditures of $6.2 billion and
$6.1 billion, respectively, for property and equipment, primarily 114 newly delivered aircraft and eight spare engines, including 38 Airbus A320 family aircraft, 24 Embraer 175 aircraft, 20 Bombardier CRJ900 aircraft, 17 Boeing
737-800
aircraft, 13 Boeing 787 aircraft and two Boeing 777 aircraft and five Boeing 757 aircraft previously being leased. These cash outflows were offset in part by $391 million in net sales of short-term
investments.
AAG and Americans principal investing activities in 2014 each included expenditures
of $5.3 billion for property and equipment, primarily 70 newly delivered aircraft, including 25 Airbus A320 family aircraft, 20 Boeing
737-800
aircraft, 16 Bombardier CRJ900 aircraft, six Boeing 777
aircraft, and three Airbus A330 aircraft, the purchase of aircraft previously leased, including nine Airbus A320 family aircraft, three Airbus A330 aircraft and three Boeing 777 aircraft, as well as
pre-delivery
deposits for certain aircraft on order. These cash outflows were offset in part by $1.8 billion in net sales of short-term investments and $307 million in proceeds from the sale of DCA
slots.
Financing Activities
AAGs net cash used in financing activities was $1.3 billion and $315 million in 2015 and 2014,
respectively. Americans net cash provided by financing activities was $2.4 billion and $143 million in 2015 and 2014, respectively.
AAG and Americans principal financing activities in 2015 included proceeds from the issuance of debt of $5.0 billion and $4.5 billion, respectively, including the $2.3 billion
issuance of EETCs by American, the $500 million issuance of 4.625% senior notes by AAG and other aircraft-related financings. These cash inflows were offset in part by debt repayments of $2.2 billion by AAG and American, including the
$400 million repayment of Americans AAdvantage loan with Citibank. In addition, AAG had cash outflows of $3.8 billion in share repurchases and $278 million in dividend payments.
AAG and Americans principal financing activities in 2014 included proceeds from the issuance of debt of
$3.3 billion and $2.6 billion, respectively, including the $1.5 billion issuance of EETCs by American, $1.5 billion of proceeds from the issuance of the 5.50% senior notes by AAG and the term
71
loan under the 2014 Credit Facilities, as well as $811 million of proceeds from sale-leaseback transactions related to the financing of 20 Boeing
737-800
aircraft. These cash inflows were offset in part by debt repayments of $3.1 billion by AAG and $3.0 billion by American, including the $1.0 billion prepayment of Americans 7.50%
senior secured notes and the $366 million prepayment of certain airport facility revenue bonds. In addition, AAG had cash outflows of $1.1 billion in share repurchases and $144 million in dividend payments.
Credit Ratings
The following table details our credit ratings as of December 31, 2016:
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|
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S&P
Local Issuer
Credit
Rating
|
|
Fitch
Issuer Default
Credit Rating
|
|
Moodys
Corporate
Family Rating
|
AAG
|
|
BB-
|
|
BB-
|
|
Ba3
|
American.
|
|
BB-
|
|
BB-
|
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*
|
*
|
The credit agency does not rate this category for this entity.
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A decrease in our credit ratings could cause our borrowing costs to increase, which would increase our interest
expense and could affect our net income, and our credit ratings could adversely affect our ability to obtain additional financing. If our financial performance or industry conditions worsen, we may face future downgrades, which could negatively
impact our borrowing costs and the prices of our equity or debt securities. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness.
Commitments
For further information regarding our commitments, see the Notes to AAGs Consolidated Financial Statements in Part II, Item 8A and the Notes to Americans Consolidated Financial
Statements in Part II, Item 8B at the referenced footnotes below.
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AAG
|
|
American
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Long-term debt and debt covenants
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Note 5
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Note 3
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Employee benefit plans.
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Note 9
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Note 7
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Commitments, contingencies and guarantees
|
|
Note 11
|
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Note 9
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Off-Balance
Sheet Arrangements
An
off-balance
sheet arrangement is any transaction, agreement or other
contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as
equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development
arrangements with us.
We have no
off-balance
sheet arrangements
of the types described in the first three categories above that we believe may have a material current or future effect on financial condition, liquidity or results of operations. Certain guarantees that we do not expect to have a material current
or future effect on our financial condition, liquidity or results of operations are disclosed in Note 11 to AAGs Consolidated Financial Statements included in Part II, Item 8A and Note 9 to Americans Consolidated Financial
Statements in Part II, Item 8B.
72
Special Facility Revenue Bonds
We guarantee the payment of principal and interest of certain special facility revenue bonds issued by
municipalities primarily to build or improve airport facilities and purchase equipment which are leased to us. Under such leases, we are required to make rental payments through 2035, sufficient to pay maturing principal and interest payments on the
related bonds. As of December 31, 2016, the remaining lease payments guaranteeing the principal and interest on these bonds are $605 million, which are accounted for as operating leases.
Pass-Through Trusts
We have financed certain aircraft and engines with EETCs, issued by pass-through trusts. These trusts are
off-balance
sheet entities, the primary purpose of
which is to finance the acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time
and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. The trusts were also 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.
Each trust covers a set number of aircraft scheduled to be delivered or refinanced upon the issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft
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. The equipment notes are issued, at Americans election, in connection with a mortgage financing of the aircraft or, in certain cases, by a separate owner trust in connection with a leveraged lease
financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the aircraft. The pass-through trust certificates
are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by
AAG. As of December 31, 2016, $10.9 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.
With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest
entity. American concluded the leasing entities met the criteria for variable interest entities. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the
lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates American to absorb decreases in value or entitles American to participate in increases in the value of the aircraft. American does not
provide residual value guarantees to the bondholders or equity participants in the trusts. Some leases have a fair market value or a fixed price purchase option that allows American to purchase the aircraft at or near the end of the lease term.
However, the option price approximates an estimate of the aircrafts fair value at the option date. Under this feature, American does not participate in any increases in the value of the aircraft. American concluded it is not the primary
beneficiary under these arrangements. Therefore, American accounts for its EETC leveraged lease financings as operating leases. Americans total future obligations under these leveraged lease financings are $1.5 billion as of
December 31, 2016.
73
Contractual Obligations
The following table provides details of our future cash contractual obligations as of December 31, 2016. The
table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Payments Due by Period
|
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|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and
Thereafter
|
|
|
Total
|
|
American
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and capital lease obligations
(2)
,
(4)
(See Note 3)
|
|
$
|
1,899
|
|
|
$
|
1,954
|
|
|
$
|
2,008
|
|
|
$
|
3,416
|
|
|
$
|
2,679
|
|
|
$
|
10,837
|
|
|
$
|
22,793
|
|
Interest obligations
(3)
,
(4)
|
|
|
913
|
|
|
|
879
|
|
|
|
814
|
|
|
|
703
|
|
|
|
566
|
|
|
|
1,572
|
|
|
|
5,447
|
|
Aircraft and engine purchase commitments
(5)
(See Note 9)
|
|
|
4,064
|
|
|
|
2,192
|
|
|
|
3,113
|
|
|
|
3,133
|
|
|
|
2,948
|
|
|
|
2,553
|
|
|
|
18,003
|
|
Operating lease commitments
(6)
(See Note 9)
|
|
|
2,242
|
|
|
|
2,010
|
|
|
|
1,813
|
|
|
|
1,638
|
|
|
|
1,213
|
|
|
|
3,785
|
|
|
|
12,701
|
|
Regional capacity purchase agreements
(7)
(See Note 9)
|
|
|
1,710
|
|
|
|
1,421
|
|
|
|
1,283
|
|
|
|
1,048
|
|
|
|
855
|
|
|
|
2,738
|
|
|
|
9,055
|
|
Minimum pension obligations
(8)
(See Note 7)
|
|
|
279
|
|
|
|
62
|
|
|
|
1,136
|
|
|
|
800
|
|
|
|
793
|
|
|
|
3,082
|
|
|
|
6,152
|
|
Retiree medical and other postretirement benefits and other obligations
(8)
(See Note 7 and Note 9)
|
|
|
483
|
|
|
|
388
|
|
|
|
229
|
|
|
|
126
|
|
|
|
98
|
|
|
|
320
|
|
|
|
1,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total American Contractual Obligations
|
|
$
|
11,590
|
|
|
$
|
8,906
|
|
|
$
|
10,396
|
|
|
$
|
10,864
|
|
|
$
|
9,152
|
|
|
$
|
24,887
|
|
|
$
|
75,795
|
|
|
|
|
|
|
|
AAG Parent and Other AAG Subsidiaries
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and capital lease obligations
(2)
(See Note 5)
|
|
$
|
|
|
|
$
|
500
|
|
|
$
|
750
|
|
|
$
|
506
|
|
|
$
|
2
|
|
|
$
|
22
|
|
|
$
|
1,780
|
|
Interest obligations
(3)
|
|
|
97
|
|
|
|
82
|
|
|
|
67
|
|
|
|
14
|
|
|
|
2
|
|
|
|
8
|
|
|
|
270
|
|
Operating lease commitments
|
|
|
8
|
|
|
|
6
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
8
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AAG Contractual Obligations
|
|
$
|
11,695
|
|
|
$
|
9,494
|
|
|
$
|
11,215
|
|
|
$
|
11,385
|
|
|
$
|
9,157
|
|
|
$
|
24,925
|
|
|
$
|
77,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For additional information, see the Notes to AAGs and Americans Consolidated Financial Statements in Part II, Items 8A and 8B
referenced in the table above.
|
(2)
|
Amounts represent contractual amounts due. Excludes $216 million and $13 million of unamortized debt discount, debt premium and debt
issuance costs as of December 31, 2016 for American and AAG, respectively.
|
(3)
|
For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2016.
|
(4)
|
Includes $10.9 billion of future principal payments and $2.6 billion of future interest payments, respectively, as of
December 31, 2016, related to EETCs associated with mortgage financings for the purchase of certain aircraft.
|
(5)
|
See Part I, Item 2. Properties
Aircraft and Engine Purchase Commitments
for additional information about the firm
commitment aircraft delivery schedule.
|
(6)
|
Includes $1.5 billion of future minimum lease payments related to EETC leverage leased financings of certain aircraft as of
December 31, 2016.
|
74
(7)
|
Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs
based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially.
|
(8)
|
Includes minimum pension contributions based on actuarially determined estimates and retiree medical and other postretirement benefit payments
and is based on estimated payments through 2026. The total pension contribution of $279 million in 2017 assumes a supplemental contribution of $254 million in addition to the $25 million minimum required contribution. See Note 9 to
AAGs Consolidated Financial Statements in Part II, Item 8A and Note 7 to Americans Consolidated Financial Statements in Part II, Item 8B for additional information on our minimum pension obligations.
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Capital Raising Activity and Other Possible Actions
In light of our significant financial commitments related to, among other things, new aircraft and the servicing and amortization of existing debt and equipment leasing arrangements, we and our
subsidiaries will regularly consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity
securities in public or private offerings or otherwise. The cash available from operations and these sources, however, may not be sufficient to cover cash contractual obligations because economic factors may reduce the amount of cash generated by
operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks or natural disasters could reduce the demand for air travel, which would reduce the amount of
cash generated by operations. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, or aircraft,
aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance requirements. As a result, we cannot use all of
our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 5 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 3 to Americans Consolidated
Financial Statements in Part II, Item 8B for information regarding our financing arrangements.
In the
past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt or lease obligations or otherwise improve our balance sheet. Going forward,
depending on market conditions, our cash position and other considerations, we may continue to take such actions.
OTHER
INFORMATION
Basis of Presentation
See Note 1 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 1 to Americans
Consolidated Financial Statements in Part II, Item 8B for information regarding the basis of presentation.
Critical Accounting
Policies and Estimates
The preparation of financial statements in accordance with GAAP requires
management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our
estimates and assumptions are reasonable; however, actual results could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in
materially different results under
75
different assumptions and conditions. We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements. See the Basis of
Presentation and Summary of Significant Accounting Policies included in Note 1 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 1 to Americans Consolidated Financial Statements in Part II, Item 8B
for additional discussion of the application of these estimates and other accounting policies.
Passenger Revenue
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation
that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets sold for future travel dates and estimated future refunds and exchanges of
tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. Our air traffic liability was $3.9 billion and $3.7 billion as of
December 31, 2016 and 2015, respectively.
The majority of tickets sold are nonrefundable. A small
percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using
estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are generally based on the analysis of our historical data. We and other airline industry participants have consistently
applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the
accuracy of our estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed.
Loyalty Program
We currently operate the loyalty program, AAdvantage. 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 the Citi and Barclaycard US
co-branded
credit cards, hotels and car rental companies. Mileage credits can be redeemed for travel on American or other
participating partner airlines.
We use the incremental cost method to account for the portion of our
loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American, any
one
world airline or other partner airlines. We have an obligation to provide future travel when these mileage credits are redeemed and
therefore have recorded a liability for mileage credits outstanding.
The incremental cost liability
includes all mileage credits, even mileage credits for members whose account balances have not yet reached the minimum level required to redeem an award. Mileage credits are subject to expiration. The liability for outstanding mileage credits is
valued based on the estimated incremental cost of carrying one additional passenger. The estimated incremental cost primarily includes unit costs incurred for fuel, food and insurance as well as fees incurred when travel awards are redeemed on
partner airlines. In calculating the liability, we estimate how many mileage credits will never be redeemed for travel and exclude those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be
used per award redemption and the number of travel awards that will be redeemed on partner airlines. These costs and estimates are based on our historical program experience as well as consideration of enacted program changes, as applicable. Changes
in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.
76
As of December 31, 2016 and 2015, the liability for outstanding
mileage credits accounted for under the incremental cost method was $669 million and $657 million, respectively, and is included on the consolidated balance sheets within loyalty program liability.
A change to certain estimates used in the calculation of incremental cost could have a material impact on the
liability. A one percentage point increase or decrease in the percentage of travel awards redeemed on partner airlines would have an approximate $38 million impact on the liability as of December 31, 2016. A 10% increase or decrease in the
assumed price per gallon of fuel would have an approximate $9 million impact on the liability as of December 31, 2016.
Additionally, we applied the acquisition method of accounting in connection with the Merger in December 2013 and recorded a liability for outstanding US Airways mileage credits at fair value,
an amount significantly in excess of incremental cost. At December 31, 2016, all the mileage credits associated with this liability have been recognized in passenger revenue. At December 31, 2015, this liability was $296 million and
was included on the consolidated balance sheet within the loyalty program liability.
We also sell
loyalty program mileage credits to participating airline partners and
non-airline
business partners. Sales of mileage credits to
non-airline
business partners is
comprised of two components, transportation and marketing. We account for mileage sales under our agreements with
non-airline
business partners in accordance with Accounting Standards Update (ASU)
No. 2009-13,
Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. In accordance with Topic 605, we allocate the consideration received from the sale of mileage
credits based on the relative selling price of each product or service delivered.
In 2016, American
entered into new
co-branded
credit card program agreements with Citi and Barclaycard US. We identified the following revenue elements in these
co-branded
credit card
agreements: the transportation component; the use of the American brand including access to loyalty program member lists, advertising and other travel related benefits (collectively, the marketing component).
The transportation component represents the estimated selling price of future travel awards and is determined using
historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the
period in which the mileage credits are expected to be redeemed for travel. As of December 31, 2016 and 2015, we had $2.1 billion and $1.5 billion, respectively, in deferred revenue from the sale of mileage credits recorded within
loyalty program liability on our consolidated balance sheets.
A change to certain estimates used in the
allocation of consideration received from the sale of mileage credits could have a material impact on the liability. A 10% increase or decrease in the relative selling price of the transportation component would have an approximate $81 million
impact on the liability as of December 31, 2016.
The services under the marketing component are
provided periodically, but no less than monthly. Accordingly, the marketing component is considered earned and recognized in other revenues in the period of the mileage sale. For the years ended December 31, 2016, 2015 and 2014, the marketing
component of mileage sales and other marketing related payments included in other revenues was approximately $1.9 billion, $1.7 billion and $1.6 billion, respectively.
Long-lived Assets
Long-lived assets
consist of flight equipment, as well as other fixed assets and finite-lived intangible assets such as certain domestic airport slots, customer relationships, marketing agreements,
77
tradenames and airport gate leasehold rights. In addition to the original cost, the recorded value of our fixed assets is impacted by a number of estimates made, including estimated useful lives,
salvage values and our determination as to whether aircraft are temporarily or permanently grounded. Finite-lived intangible assets are originally recorded at their acquired fair values and are subsequently amortized over their estimated useful
lives. See Note 1 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 1 to Americans Consolidated Financial Statements in Part II, Item 8B for further information.
We record impairment charges on long-lived assets used in operations when events and circumstances indicate that
the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book value of the assets exceeds
their estimated fair value.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Estimates of fair value represent managements best estimate based on appraisals, industry trends and reference to market
rates and transactions.
The majority of Americans fleet types are depreciated over
25-30
years. It is possible that the ultimate lives of our aircraft will be significantly different than the current estimate due to unforeseen events in the future that impact our fleet plan, including positive or
negative developments in the areas described above. For example, operating the aircraft for a longer period will result in higher maintenance, fuel and other operating costs than if we replaced the aircraft.
Goodwill and Indefinite-lived Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets
acquired and liabilities assumed. Goodwill is not amortized but assessed for impairment annually on
October 1
st
or more frequently if events
or circumstances indicate that goodwill may be impaired. We have one consolidated reporting unit.
Indefinite-lived intangible assets other than goodwill include certain domestic airport slots at our hubs and international slots and route authorities. Indefinite-lived intangible assets are not
amortized but instead are assessed for impairment annually on October 1
st
or more frequently if events or circumstances indicate that the asset may be impaired.
Goodwill and indefinite-lived intangible assets are measured for impairment by initially performing a qualitative assessment. Under the qualitative approach, we analyze the following factors to
determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets: (1) negative trends in our market capitalization, (2) an increase in fuel prices, (3) declining per mile passenger
yields, (4) lower passenger demand as a result of a weakened U.S. and global economy and (5) changes to the regulatory environment.
If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the assets fair value and the amount of the impairment. Under
the quantitative approach, we calculate the fair value of the asset using the following assumptions: (1) our projected revenues, expenses and cash flows, (2) an estimated weighted average cost of capital, (3) assumed discount rates
depending on the asset, (4) a tax rate and (5) market prices for comparable assets. These assumptions are consistent with those which hypothetical market participants would use. If the assets carrying value exceeds its fair value
calculated using the quantitative approach, we will record an impairment charge for the difference in fair value and carrying value.
78
Based upon our annual assessment, there were no impairments of our
goodwill and indefinite-lived assets in 2016.
Pensions and Retiree Medical and Other Postretirement Benefits
We recognize the funded status (i.e. the difference between the fair value of plan assets and the projected benefit
obligations) of our pension and retiree medical and other postretirement benefits plans in the consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income (loss).
Our pension and retiree medical and other postretirement benefits costs and liabilities are calculated using
various actuarial assumptions and methodologies. We use certain assumptions including, but not limited to, the selection of the: (i) discount rate; (ii) expected return on plan assets; (iii) expected health care cost trend rate and
(iv) the estimated age of pilot retirement (as discussed below). These assumptions as of December 31 were:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Pension weighted average discount rate
(1)
|
|
|
4.30
|
%
|
|
|
4.70
|
%
|
Retiree medical and other postretirement benefits weighted average discount rate
(1)
|
|
|
4.10
|
%
|
|
|
4.42
|
%
|
Expected rate of return on plan assets
(2)
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Weighted average health care cost trend rate assumed for next year
(3)
:
|
|
|
|
|
|
|
|
|
Initial
|
|
|
4.25
|
%
|
|
|
5.21
|
%
|
Ultimate (2024)
|
|
|
3.77
|
%
|
|
|
4.56
|
%
|
Pilot Retirement Age
|
|
|
62
|
|
|
|
62
|
|
(1)
|
When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash
flows approximate our projected benefit disbursements. Lowering the discount rate by 50 basis points as of December 31, 2016 would increase our pension and retiree medical and other postretirement benefits obligations by approximately
$1.2 billion and $44 million, respectively, and increase estimated 2017 pension expense by $4 million and decrease estimated 2017 retiree medical and other postretirement benefits expense by $1 million.
|
(2)
|
The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current
and expected market conditions and our target asset allocation of 30% U.S. stocks, 22% developed international stocks, 20% long duration corporate and U.S. government/agency bonds, 20% alternative (private) investments and 8% emerging market stocks.
The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation. Lowering the expected long-term rate of return on plan assets by 50 basis
points as of December 31, 2016 would increase estimated 2017 pension expense and retiree medical and other postretirement benefits expense by approximately $51 million and $1 million, respectively.
|
(3)
|
The assumed health care cost trend rate is based upon an evaluation of our historical trends and experience, taking into account current and
expected market conditions. Increasing the assumed health care cost trend rate by 100 basis points would increase estimated 2017 retiree medical and other postretirement benefits expense by $5 million.
|
During 2016, we revised our mortality assumptions to incorporate the new mortality improvement scale issued by the
Society of Actuaries. This resulted in a decrease in the projected benefit obligations of our pension and retiree medical and other postretirement benefits plans of $146 million and $5 million, respectively. We also reviewed and revised
certain other economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates
79
and health care cost and trend rates. The net effect of changing these assumptions for the pension plans resulted in an increase of $891 million in the projected benefit obligation at
December 31, 2016. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in a decrease of $65 million in the projected benefit obligation at December 31, 2016.
See Note 9 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 7 to Americans
Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes.
We provide a valuation allowance for our deferred tax assets when it is more likely than not that some
portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain
assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our projections of future profitability, including risks associated with remaining Merger integration activities as well as other
conditions which are beyond our control, such as the health of the economy, the level and volatility of fuel prices and travel demand.
In connection with the preparation of our financial statements at the end of 2015, we determined that after considering all positive and negative evidence, including the completion of certain
critical Merger integration milestones as well as our financial performance, it was more likely than not that substantially all of our deferred income tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion
of the valuation allowance as of December 31, 2015, which resulted in a special
non-cash
tax benefit recorded in the consolidated statement of operations for 2015.
Recent Accounting Pronouncements
Revenue
In May 2014, the Financial
Accounting Standards Board (FASB) issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606). ASU
2014-09
completes the joint effort by the FASB
and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). Subsequently, the FASB has issued several additional
ASUs to clarify the implementation. The new revenue standard applies to all companies that enter into contracts with customers to transfer goods or services and is effective for public entities for interim and annual reporting periods beginning
after December 15, 2017. Early adoption is permitted; however, we currently expect to adopt the new revenue standard effective January 1, 2018. Entities have the choice to apply the new revenue standard either retrospectively to each
reporting period presented or by recognizing the cumulative effect of applying the new revenue standard at the date of initial application and not adjusting comparative information. We currently expect to adopt the new revenue standard using the
full retrospective method.
We are still in the process of evaluating how the adoption of the new
revenue standard will impact our consolidated financial statements. We currently expect that the new revenue standard will
80
materially impact our liability for outstanding mileage credits earned by AAdvantage loyalty program members when flying on American. We currently use the incremental cost method to account for
this portion of our loyalty program liability, which values these mileage credits based on the estimated incremental cost of carrying one additional passenger (see Note 1 (i) Loyalty Program to AAGs Consolidated Financial Statements in Part
II, Item 8A and Note 1 (i) Loyalty Program to Americans Consolidated Financial Statements in Part II, Item 8B). The new revenue standard will require us to change our policy and apply a relative selling price approach whereby a portion of
each passenger ticket sale attributable to mileage credits earned will be deferred and recognized in passenger revenue upon future mileage redemption. The carrying value of the earned mileage credits recognized in loyalty program liability is
expected to be materially greater under the relative selling price approach than the value attributed to these mileage credits under the incremental cost method. The new revenue standard will also require us to reclassify certain ancillary fees to
passenger revenue, which are currently included within other operating revenue.
Leases
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic
842). ASU
2016-02
requires lessees to recognize a lease liability and a
right-of-use
asset on the balance sheet and aligns
many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU
2016-02
is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to adopt the new lease standard using a modified retrospective approach for all leases existing at or commencing
after the date of initial application with an option to use certain practical expedients. We are currently evaluating how the adoption of the new lease standard will impact our consolidated financial statements. Interpretations are
on-going
and could have a material impact on our implementation. Currently, we expect that the adoption of the new lease standard will have a material impact on our consolidated balance sheet due to the recognition
of
right-of-use
assets and lease liabilities principally for certain leases currently accounted for as operating leases.
See Note 1 to AAGs Consolidated Financial Statements in Part II, Item 8A and Note 1 to Americans
Consolidated Financial Statements in Part II, Item 8B for further information on recent accounting pronouncements.
81
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA OF AMERICAN AIRLINES GROUP INC.
Report of Independent Registered Public
Accounting Firm
The Board of Directors and Stockholders
American Airlines Group Inc.:
We have audited the accompanying consolidated balance sheets of American Airlines Group Inc. and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated
statements of operations, comprehensive income, cash flows, and stockholders equity (deficit) for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of American Airlines Group Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal
Control
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2017 expressed an unqualified
opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG LLP
Dallas, Texas
February 22, 2017
84
AMERICAN AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating revenues:
|
|
|
|
|
Mainline passenger
|
|
$
|
27,909
|
|
|
$
|
29,037
|
|
|
$
|
30,802
|
|
Regional passenger
|
|
|
6,670
|
|
|
|
6,475
|
|
|
|
6,322
|
|
Cargo
|
|
|
700
|
|
|
|
760
|
|
|
|
875
|
|
Other
|
|
|
4,901
|
|
|
|
4,718
|
|
|
|
4,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
40,180
|
|
|
|
40,990
|
|
|
|
42,650
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
5,071
|
|
|
|
6,226
|
|
|
|
10,592
|
|
Salaries, wages and benefits
|
|
|
10,890
|
|
|
|
9,524
|
|
|
|
8,508
|
|
Regional expenses
|
|
|
6,044
|
|
|
|
5,983
|
|
|
|
6,516
|
|
Maintenance, materials and repairs
|
|
|
1,834
|
|
|
|
1,889
|
|
|
|
2,051
|
|
Other rent and landing fees
|
|
|
1,772
|
|
|
|
1,731
|
|
|
|
1,727
|
|
Aircraft rent
|
|
|
1,203
|
|
|
|
1,250
|
|
|
|
1,250
|
|
Selling expenses
|
|
|
1,323
|
|
|
|
1,394
|
|
|
|
1,544
|
|
Depreciation and amortization
|
|
|
1,525
|
|
|
|
1,364
|
|
|
|
1,295
|
|
Special items, net
|
|
|
709
|
|
|
|
1,051
|
|
|
|
800
|
|
Other
|
|
|
4,525
|
|
|
|
4,374
|
|
|
|
4,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34,896
|
|
|
|
34,786
|
|
|
|
38,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,284
|
|
|
|
6,204
|
|
|
|
4,249
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
63
|
|
|
|
39
|
|
|
|
31
|
|
Interest expense, net of capitalized interest
|
|
|
(991
|
)
|
|
|
(880
|
)
|
|
|
(887
|
)
|
Other, net
|
|
|
(57
|
)
|
|
|
(747
|
)
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
(985
|
)
|
|
|
(1,588
|
)
|
|
|
(1,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,299
|
|
|
|
4,616
|
|
|
|
3,212
|
|
Income tax provision (benefit)
|
|
|
1,623
|
|
|
|
(2,994
|
)
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.85
|
|
|
$
|
11.39
|
|
|
$
|
4.02
|
|
Diluted
|
|
$
|
4.81
|
|
|
$
|
11.07
|
|
|
$
|
3.93
|
|
Weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
552,308
|
|
|
|
668,393
|
|
|
|
717,456
|
|
Diluted
|
|
|
556,099
|
|
|
|
687,355
|
|
|
|
734,016
|
|
Cash dividends declared per common share
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
0.20
|
|
See accompanying notes to
consolidated financial statements.
85
AMERICAN AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,882
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension, retiree medical and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss and prior service cost
|
|
|
(65
|
)
|
|
|
(108
|
)
|
|
|
(163
|
)
|
Current year change
|
|
|
(293
|
)
|
|
|
(51
|
)
|
|
|
(2,633
|
)
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
Reclassification into earnings
|
|
|
|
|
|
|
(9
|
)
|
|
|
(4
|
)
|
Unrealized gain (loss) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in value
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
Reversal of
non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss, net of tax
|
|
|
(351
|
)
|
|
|
(173
|
)
|
|
|
(2,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
2,325
|
|
|
$
|
7,437
|
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
86
AMERICAN AIRLINES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
322
|
|
|
$
|
390
|
|
Short-term investments
|
|
|
6,037
|
|
|
|
5,864
|
|
Restricted cash and short-term investments
|
|
|
638
|
|
|
|
695
|
|
Accounts receivable, net
|
|
|
1,594
|
|
|
|
1,425
|
|
Aircraft fuel, spare parts and supplies, net
|
|
|
1,094
|
|
|
|
863
|
|
Prepaid expenses and other
|
|
|
639
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,324
|
|
|
|
9,985
|
|
Operating property and equipment
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
37,028
|
|
|
|
33,185
|
|
Ground property and equipment
|
|
|
7,116
|
|
|
|
6,402
|
|
Equipment purchase deposits
|
|
|
1,209
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
|
45,353
|
|
|
|
40,654
|
|
Less accumulated depreciation and amortization
|
|
|
(14,194
|
)
|
|
|
(13,144
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
31,159
|
|
|
|
27,510
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,091
|
|
|
|
4,091
|
|
Intangibles, net of accumulated amortization of $578 and $502, respectively
|
|
|
2,173
|
|
|
|
2,249
|
|
Deferred tax asset
|
|
|
1,498
|
|
|
|
2,477
|
|
Other assets
|
|
|
2,029
|
|
|
|
2,103
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
9,791
|
|
|
|
10,920
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,274
|
|
|
$
|
48,415
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and capital leases
|
|
$
|
1,855
|
|
|
$
|
2,231
|
|
Accounts payable
|
|
|
1,592
|
|
|
|
1,563
|
|
Accrued salaries and wages
|
|
|
1,516
|
|
|
|
1,205
|
|
Air traffic liability
|
|
|
3,912
|
|
|
|
3,747
|
|
Loyalty program liability
|
|
|
2,789
|
|
|
|
2,525
|
|
Other accrued liabilities
|
|
|
2,208
|
|
|
|
2,334
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,872
|
|
|
|
13,605
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, net of current maturities
|
|
|
22,489
|
|
|
|
18,330
|
|
Pension and postretirement benefits
|
|
|
7,842
|
|
|
|
7,450
|
|
Deferred gains and credits, net
|
|
|
526
|
|
|
|
667
|
|
Other liabilities
|
|
|
2,760
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
33,617
|
|
|
|
29,175
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 507,294,153 shares issued and outstanding at
December 31, 2016; 624,622,381 shares issued and outstanding at December 31, 2015
|
|
|
5
|
|
|
|
6
|
|
Additional
paid-in
capital
|
|
|
7,223
|
|
|
|
11,591
|
|
Accumulated other comprehensive loss
|
|
|
(5,083
|
)
|
|
|
(4,732
|
)
|
Retained earnings (deficit)
|
|
|
1,640
|
|
|
|
(1,230
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,785
|
|
|
|
5,635
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
51,274
|
|
|
$
|
48,415
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
87
AMERICAN AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,882
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,818
|
|
|
|
1,609
|
|
|
|
1,513
|
|
Debt discount and lease amortization
|
|
|
(119
|
)
|
|
|
(122
|
)
|
|
|
(171
|
)
|
Special items,
non-cash
|
|
|
270
|
|
|
|
273
|
|
|
|
52
|
|
Pension and postretirement
|
|
|
(68
|
)
|
|
|
(193
|
)
|
|
|
(163
|
)
|
Deferred income tax provision (benefit)
|
|
|
1,611
|
|
|
|
(3,014
|
)
|
|
|
346
|
|
Share-based compensation
|
|
|
100
|
|
|
|
284
|
|
|
|
304
|
|
Other, net
|
|
|
(18
|
)
|
|
|
(12
|
)
|
|
|
3
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(160
|
)
|
|
|
352
|
|
|
|
(160
|
)
|
Increase in other assets
|
|
|
(184
|
)
|
|
|
(27
|
)
|
|
|
(168
|
)
|
Increase in accounts payable and accrued liabilities
|
|
|
307
|
|
|
|
173
|
|
|
|
110
|
|
Increase (decrease) in air traffic liability
|
|
|
164
|
|
|
|
(505
|
)
|
|
|
(97
|
)
|
Increase (decrease) in loyalty program liability
|
|
|
264
|
|
|
|
(295
|
)
|
|
|
(229
|
)
|
Contributions to pension plans
|
|
|
(32
|
)
|
|
|
(6
|
)
|
|
|
(810
|
)
|
Increase (decrease) in other liabilities
|
|
|
(105
|
)
|
|
|
122
|
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,524
|
|
|
|
6,249
|
|
|
|
3,080
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and aircraft purchase deposits
|
|
|
(5,731
|
)
|
|
|
(6,151
|
)
|
|
|
(5,311
|
)
|
Purchases of short-term investments
|
|
|
(6,241
|
)
|
|
|
(8,126
|
)
|
|
|
(5,380
|
)
|
Sales of short-term investments
|
|
|
6,092
|
|
|
|
8,517
|
|
|
|
7,179
|
|
Decrease in restricted cash and short-term investments
|
|
|
57
|
|
|
|
79
|
|
|
|
261
|
|
Net proceeds from slot transaction
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Proceeds from sale of an investment
|
|
|
|
|
|
|
52
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
123
|
|
|
|
35
|
|
|
|
33
|
|
Other investing activities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,698
|
)
|
|
|
(5,594
|
)
|
|
|
(2,911
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital leases
|
|
|
(3,827
|
)
|
|
|
(2,153
|
)
|
|
|
(3,132
|
)
|
Proceeds from issuance of long-term debt
|
|
|
7,701
|
|
|
|
5,009
|
|
|
|
3,302
|
|
Deferred financing costs
|
|
|
(77
|
)
|
|
|
(87
|
)
|
|
|
(106
|
)
|
Sale-leaseback transactions
|
|
|
5
|
|
|
|
43
|
|
|
|
811
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Treasury stock repurchases
|
|
|
(4,500
|
)
|
|
|
(3,846
|
)
|
|
|
(1,062
|
)
|
Dividend payments
|
|
|
(224
|
)
|
|
|
(278
|
)
|
|
|
(144
|
)
|
Other financing activities
|
|
|
28
|
|
|
|
53
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(894
|
)
|
|
|
(1,259
|
)
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(68
|
)
|
|
|
(604
|
)
|
|
|
(146
|
)
|
Cash at beginning of year
|
|
|
390
|
|
|
|
994
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
322
|
|
|
$
|
390
|
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
88
AMERICAN AIRLINES GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Retained
Earnings
(Deficit)
|
|
|
Total
|
|
Balance at December 31, 2013
|
|
$
|
5
|
|
|
$
|
10,592
|
|
|
$
|
(2,032
|
)
|
|
$
|
(11,296
|
)
|
|
$
|
(2,731
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,882
|
|
|
|
2,882
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(2,796
|
)
|
|
|
|
|
|
|
(2,796
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
(58
|
)
|
Reversal of
non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
|
|
|
|
330
|
|
Cash tax withholding on shares issued
|
|
|
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
(110
|
)
|
Purchase and retirement of 23,406,472 of AAG common stock
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Dividends declared on common stock ($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
(148
|
)
|
US Airways Group convertible debt settled with cash
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
Issuance of 5,701,776 shares of common stock pursuant to employee stock plans
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Issuance of 57,393,096 shares of post-reorganization common stock
|
|
|
1
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
1,605
|
|
Issuance of 130,980,613 shares for optional conversion of preferred shares
|
|
|
1
|
|
|
|
3,889
|
|
|
|
|
|
|
|
|
|
|
|
3,890
|
|
Share-based compensation expense
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
7
|
|
|
|
15,135
|
|
|
|
(4,559
|
)
|
|
|
(8,562
|
)
|
|
|
2,021
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,610
|
|
|
|
7,610
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(159
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
Cash tax withholding on shares issued
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
Purchase and retirement of 85,141,691 shares of AAG common stock
|
|
|
(1
|
)
|
|
|
(3,585
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,586
|
)
|
Dividends declared on common stock ($0.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
|
|
(278
|
)
|
Issuance of 12,289,537 shares of common stock pursuant to employee stock plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of
single-dip
unsecured claims held in distributed claims
reserve
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Share-based compensation expense
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
6
|
|
|
|
11,591
|
|
|
|
(4,732
|
)
|
|
|
(1,230
|
)
|
|
|
5,635
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,676
|
|
|
|
2,676
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(564
|
)
|
|
|
|
|
|
|
(564
|
)
|
Non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
203
|
|
Cash tax withholding on shares issued
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
Purchase and retirement of 119,823,621 shares of AAG common stock
|
|
|
(1
|
)
|
|
|
(4,415
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,416
|
)
|
Dividends declared on common stock ($0.40 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
(224
|
)
|
Issuance of 2,506,067 shares of common stock pursuant to employee stock plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of
single-dip
unsecured claims held in distributed claims
reserve
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Share-based compensation expense
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Impact of adoption of Accounting Standards Update (ASU)
2016-09
(See Note 1
(r))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
418
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
5
|
|
|
$
|
7,223
|
|
|
$
|
(5,083
|
)
|
|
$
|
1,640
|
|
|
$
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN
AIRLINES GROUP INC.
1. Basis of Presentation and Summary of Significant Accounting Policies
(a) Basis of Presentation
American Airlines Group Inc. (we, us, our and similar terms, or AAG), a Delaware corporation, is a holding company whose primary business activity is the operation of a major network air carrier,
providing scheduled air transportation for passengers and cargo through its mainline operating subsidiary, American Airlines, Inc. (American) and its wholly-owned regional airline subsidiaries, Envoy Aviation Group Inc. (Envoy), Piedmont Airlines,
Inc. (Piedmont) and PSA Airlines, Inc. (PSA) that operate under capacity purchase agreements as American Eagle. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation,
which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc.
The preparation of financial statements in accordance with accounting principles generally accepted in the United
States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the loyalty program, valuation
allowance for deferred tax assets, as well as pensions and retiree medical and other postretirement benefits. Certain prior year amounts have been reclassified to conform to the current year presentation.
(b) Short-term Investments
Short-term investments are classified as
available-for-sale
and stated at fair value. Realized gains and losses are
recorded in nonoperating expense on the consolidated statement of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on the consolidated balance sheet.
(c) Restricted Cash and Short-term Investments
We have restricted cash and short-term investments related primarily to collateral held to support workers
compensation obligations.
(d) Aircraft Fuel, Spare Parts, and Supplies, Net
Aircraft fuel is recorded on a
first-in,
first-out
basis. Spare parts and supplies are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is established for spare parts and
supplies.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(e) Operating Property and Equipment
Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the
assets estimated useful life or the lease term, whichever is less, using the straight-line method. Residual values for aircraft, engines, and related rotable parts are generally 5% to 10% of original cost. Costs of major improvements that
enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications
are as follows:
|
|
|
|
|
Principal Property and Equipment Classification
|
|
Estimated Useful Life
|
|
Aircraft, engines and related rotable parts
|
|
|
20 30 years
|
|
Buildings and improvements
|
|
|
Lesser of 5 30 years
|
|
Furniture, fixtures and other equipment
|
|
|
3 10 years
|
|
Capitalized software
|
|
|
5 10 years
|
|
We record impairment charges on operating property and equipment when events and
circumstances indicate that the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book
value of the assets exceeds their estimated fair value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.
(f)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes.
We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or
all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain assumptions in
evaluating the realizability of our deferred tax assets. Many factors are considered that impact our projections of future profitability, including risks associated with remaining Merger integration activities as well as other conditions which are
beyond our control, such as the health of the economy, the level and volatility of fuel prices and travel demand.
(g) Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets
acquired and liabilities assumed. Goodwill is not amortized but assessed for impairment annually on October
1
st
or more frequently if events or
circumstances indicate that goodwill may be impaired. We have one consolidated reporting unit.
Goodwill
is measured for impairment by initially performing a qualitative assessment and, if necessary, then comparing the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the
carrying value, a second step is performed to
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment charge equal to the difference is recorded. Based upon our
annual assessment, there was no goodwill impairment in 2016. The carrying value of the goodwill on our consolidated balance sheets was $4.1 billion as of December 31, 2016 and 2015.
(h) Other Intangibles, Net
Intangible assets consist primarily of domestic airport slots, customer relationships, marketing agreements, international slots and route authorities, airport gate leasehold rights and tradenames.
Finite-Lived Intangible Assets
Finite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The following table provides information relating to our amortizable intangible assets as of December 31, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Domestic airport slots
|
|
$
|
365
|
|
|
$
|
365
|
|
Customer relationships
|
|
|
300
|
|
|
|
300
|
|
Marketing agreements
|
|
|
105
|
|
|
|
105
|
|
Tradenames
|
|
|
35
|
|
|
|
35
|
|
Airport gate leasehold rights
|
|
|
137
|
|
|
|
137
|
|
Accumulated amortization
|
|
|
(578
|
)
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
364
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Certain domestic airport slots and airport gate leasehold rights are amortized on a
straight-line basis over 25 years. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively.
Tradenames are fully amortized.
We recorded amortization expense related to these intangible assets of
$76 million, $55 million and $81 million for the years ended December 31, 2016, 2015 and 2014, respectively. We expect to record annual amortization expense for these intangible assets as follows (in millions):
|
|
|
|
|
2017
|
|
$
|
45
|
|
2018
|
|
|
41
|
|
2019
|
|
|
41
|
|
2020
|
|
|
41
|
|
2021
|
|
|
41
|
|
2022 and thereafter
|
|
|
155
|
|
|
|
|
|
|
Total
|
|
$
|
364
|
|
|
|
|
|
|
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets include certain domestic airport slots at our hubs and international slots and
route authorities. Indefinite-lived intangible assets are not amortized but instead are
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
assessed for impairment annually on October 1
st
or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31, 2016 and 2015, we had $1.8 billion of indefinite-lived intangible assets on our
consolidated balance sheets.
Indefinite-lived intangible assets are reviewed for impairment by
initially performing a qualitative assessment to determine whether we believe it is more likely than not that an asset has been impaired. If we believe impairment has occurred, we then evaluate for impairment by comparing the estimated fair value of
assets to the carrying value. An impairment charge is recognized if the assets estimated fair value is less than its carrying value. Based upon our annual assessment, there was no indefinite-lived intangible asset impairment in 2016.
(i) Loyalty Program
We currently operate the loyalty program, AAdvantage. 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 the Citi and Barclaycard US
co-branded
credit cards, hotels and car rental
companies. Mileage credits can be redeemed for travel on American or other participating partner airlines.
We use the incremental cost method to account for the portion of our loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American, any
one
world
airline or other partner airlines. We have an obligation to provide future travel when these mileage credits are redeemed and therefore have recorded a liability for mileage credits outstanding.
The incremental cost liability includes all mileage credits, even mileage credits for members whose account
balances have not yet reached the minimum level required to redeem an award. Mileage credits are subject to expiration. The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional
passenger. The estimated incremental cost primarily includes unit costs incurred for fuel, food and insurance as well as fees incurred when travel awards are redeemed on partner airlines. In calculating the liability, we estimate how many mileage
credits will never be redeemed for travel and exclude those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be
redeemed on partner airlines. These costs and estimates are based on our historical program experience as well as consideration of enacted program changes, as applicable. Changes in the liability resulting from members earning additional mileage
credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.
As of December 31, 2016 and 2015, the liability for outstanding mileage credits accounted for under the incremental cost method was $669 million and $657 million, respectively, and is
included on the consolidated balance sheets within loyalty program liability.
Additionally, we applied
the acquisition method of accounting in connection with the Merger in December 2013 and recorded a liability for outstanding US Airways mileage credits at fair value, an amount significantly in excess of incremental cost. At December 31,
2016, all the mileage credits associated with this liability have been recognized in passenger revenue. At December 31, 2015, this liability was $296 million and was included on the consolidated balance sheet within the loyalty program
liability.
We also sell loyalty program mileage credits to participating airline partners and
non-airline
business partners. Sales of mileage credits to
non-airline
business partners is comprised of two components,
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
transportation and marketing. We account for mileage sales under our agreements with
non-airline
business partners in accordance with Accounting Standards
Update (ASU)
No. 2009-13,
Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. In accordance with Topic 605, we allocate the consideration received from
the sale of mileage credits based on the relative selling price of each product or service delivered.
In 2016, American entered into new
co-branded
credit card program
agreements with Citi and Barclaycard US. We identified the following revenue elements in these
co-branded
credit card agreements: the transportation component; the use of the American brand including access to
loyalty program member lists, advertising and other travel related benefits (collectively, the marketing component).
The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer
redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel.
As of December 31, 2016 and 2015, we had $2.1 billion and $1.5 billion, respectively, in deferred revenue from the sale of mileage credits recorded within loyalty program liability on our consolidated balance sheets.
The services under the marketing component are provided periodically, but no less than monthly. Accordingly, the
marketing component is considered earned and recognized in other revenues in the period of the mileage sale. For the years ended December 31, 2016, 2015 and 2014, the marketing component of mileage sales and other marketing related payments
included in other revenues was approximately $1.9 billion, $1.7 billion and $1.6 billion, respectively.
(j) Revenue
Passenger Revenue
Passenger revenue is
recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets
sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. Our air
traffic liability was $3.9 billion and $3.7 billion as of December 31, 2016 and 2015, respectively.
The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange
policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are
generally based on the analysis of our historical data. We and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future refunds and
exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included
in passenger revenue during the period in which the evaluations are completed.
We have arrangements
with regional carriers to provide us with regional jet and turboprop service under the brand name American Eagle. The American Eagle carriers include our wholly-owned
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
regional carriers, Envoy, PSA and Piedmont, as well as third-party regional carriers including Republic Airline Inc. (Republic), Mesa Airlines, Inc. (Mesa), Air Wisconsin Airlines Corporation
(Air Wisconsin), Compass Airlines, LLC (Compass), ExpressJet Airlines, Inc. (ExpressJet), SkyWest Airlines, Inc. (SkyWest) and Trans States Airlines, Inc. (Trans States). We classify revenues generated from transportation on these carriers as
regional passenger revenues. Liabilities related to tickets sold by us for travel on these air carriers is also included in our air traffic liability and are subsequently recognized as revenue in the same manner as described above.
Passenger Taxes and Fees
Various taxes and fees assessed on the sale of tickets to end customers are collected by us as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in
the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate taxing authority.
Cargo Revenue
Cargo revenue is
recognized when we provide the transportation.
Other Revenue
Other revenue includes revenue associated with marketing services provided to our business partners as part of our
loyalty program, baggage fees, ticketing change fees, airport clubs and inflight services. The accounting and recognition for the loyalty program marketing services are discussed in Note 1(i) above. Baggage fees, ticketing change fees, airport clubs
and inflight service revenues are recognized when we provide the service.
(k) Maintenance, Materials and Repairs
Maintenance and repair costs for owned and leased flight equipment are charged to operating
expense as incurred, except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.
(l) Selling Expenses
Selling expenses include credit card fees, commissions, computerized reservations systems fees and advertising. Advertising costs are expensed as incurred. Advertising expense was $116 million,
$110 million and $92 million for the years ended December 31, 2016, 2015 and 2014, respectively.
(m) Share-based Compensation
We account for our share-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award. 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 fair value of stock options and stock appreciation rights (SARs) is estimated using a
Black-Scholes option pricing model. The fair value of restricted stock units (RSUs) is based on the market price of the underlying shares of common stock on the date of grant. See Note 14 for further discussion of share-based compensation.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(n) Deferred Gains and Credits, Net
Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated
with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale-leaseback of aircraft and certain vendor incentives. We periodically receive vendor incentives in connection with
acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.
(o) Foreign Currency Gains and Losses
Foreign currency gains and losses are recorded as part of other nonoperating expense, net in our consolidated
statements of operations. Foreign currency gains for 2016 were $1 million. Foreign currency losses for 2015 and 2014 were $751 million and $114 million, respectively. Included in 2015 was a $592 million nonoperating special
charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.
(p) Other Operating Expenses
Other
operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses.
(q) Regional Expenses
Expenses associated with our wholly-owned regional airlines and third-party regional carriers operating under the
brand name American Eagle are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Aircraft fuel and related taxes
|
|
$
|
1,109
|
|
|
$
|
1,230
|
|
|
$
|
2,009
|
|
Salaries, wages and benefits
|
|
|
1,333
|
|
|
|
1,187
|
|
|
|
1,140
|
|
Capacity purchases from third-party regional carriers
(1)
|
|
|
1,538
|
|
|
|
1,651
|
|
|
|
1,494
|
|
Maintenance, materials and repairs
|
|
|
345
|
|
|
|
323
|
|
|
|
367
|
|
Other rent and landing fees
|
|
|
564
|
|
|
|
504
|
|
|
|
444
|
|
Aircraft rent
|
|
|
36
|
|
|
|
34
|
|
|
|
35
|
|
Selling expenses
|
|
|
347
|
|
|
|
333
|
|
|
|
307
|
|
Depreciation and amortization
|
|
|
301
|
|
|
|
252
|
|
|
|
217
|
|
Special items, net
|
|
|
14
|
|
|
|
29
|
|
|
|
24
|
|
Other
|
|
|
457
|
|
|
|
440
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional expenses
|
|
$
|
6,044
|
|
|
$
|
5,983
|
|
|
$
|
6,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the years ended December 31, 2016, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased
was approximately $405 million, $492 million and $447 million, respectively.
|
(r)
Recent Accounting Pronouncements
Revenue
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606). ASU
2014-09
completes the joint effort by the FASB and
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS).
Subsequently, the FASB has issued several additional ASUs to clarify the implementation. The new revenue standard applies to all companies that enter into contracts with customers to transfer goods or services and is effective for public entities
for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted; however, we currently expect to adopt the new revenue standard effective January 1, 2018. Entities have the choice to apply the new
revenue standard either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the new revenue standard at the date of initial application and not adjusting comparative information. We currently expect
to adopt the new revenue standard using the full retrospective method.
We are still in the process of
evaluating how the adoption of the new revenue standard will impact our consolidated financial statements. We currently expect that the new revenue standard will materially impact our liability for outstanding mileage credits earned by AAdvantage
loyalty program members when flying on American. We currently use the incremental cost method to account for this portion of our loyalty program liability, which values these mileage credits based on the estimated incremental cost of carrying one
additional passenger (see (i) Loyalty Program above). The new revenue standard will require us to change our policy and apply a relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits
earned will be deferred and recognized in passenger revenue upon future mileage redemption. The carrying value of the earned mileage credits recognized in loyalty program liability is expected to be materially greater under the relative selling
price approach than the value attributed to these mileage credits under the incremental cost method. The new revenue standard will also require us to reclassify certain ancillary fees to passenger revenue, which are currently included within other
operating revenue.
Leases
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic
842). ASU
2016-02
requires lessees to recognize a lease liability and a
right-of-use
asset on the balance sheet and aligns
many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. ASU
2016-02
is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to adopt the new lease standard using a modified retrospective approach for all leases existing at or commencing
after the date of initial application with an option to use certain practical expedients. We are currently evaluating how the adoption of the new lease standard will impact our consolidated financial statements. Interpretations are
on-going
and could have a material impact on our implementation. Currently, we expect that the adoption of the new lease standard will have a material impact on our consolidated balance sheet due to the recognition
of
right-of-use
assets and lease liabilities principally for certain leases currently accounted for as operating leases.
Share-based Compensation
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. ASU
2016-09
simplifies the accounting for share-based payment award transactions including the financial statement presentation of excess tax benefits and deficiencies, classification of
awards as either equity or liabilities, accounting for forfeitures and classification on the statement of cash flows. ASU
2016-09
is effective for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. Early
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
adoption is permitted. We early adopted this standard during the second quarter of 2016. The adoption of this standard resulted in the recognition of $418 million of previously unrecognized
excess tax benefits in deferred tax assets and an increase to retained earnings on the consolidated balance sheet as of the beginning of the current year, and the recognition of $15 million of excess tax benefits in the income tax provision for
the year ended December 31, 2016.
Fair Value Measurement
In May 2015, the FASB issued ASU
2015-07,
Fair Value Measurement
(Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). ASU
2015-07
requires that investments using the practical expedient to measure
fair value at net asset value per share (or its equivalent) be excluded from the fair value hierarchy. Although the investments are not characterized within the fair value hierarchy, the amount of investments measured using the practical expedient
must still be disclosed to allow for reconciliation of the total investments in the fair value hierarchy to total investments in the notes to the consolidated financial statements. ASU
2015-07
is effective for
fiscal years beginning after December 15, 2015. We adopted this standard retrospectively during the year ended December 31, 2016. The adoption impacted the fair value hierarchy disclosures of our benefit plan assets, see Note 9 for further
discussion.
Statement of Cash Flows
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows
(Topic 230): Restricted Cash. ASU
2016-18
requires that the change in total cash, cash at beginning of period and cash at end of period on the statement of cash flows include restricted cash and
restricted cash equivalents. ASU
2016-18
also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard is
to be applied retrospectively to each period presented and is effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This standard is not
expected to have a material impact on our consolidated financial statements.
2. Special Items, Net
Special items, net on the consolidated statements of operations consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Mainline operating special items, net
(1)
|
|
$
|
709
|
|
|
$
|
1,051
|
|
|
$
|
800
|
|
(1)
|
The 2016 mainline operating special items totaled a net charge of $709 million, which principally included $514 million of Merger
integration expenses, $177 million of fleet restructuring expenses and a $25 million net charge consisting of
mark-to-market
adjustments for bankruptcy
obligations.
|
The 2015 mainline operating special items totaled a net charge of
$1.1 billion, which principally included $826 million of Merger integration expenses, $210 million of fleet restructuring expenses and a $53 million net credit consisting of
mark-to-market
adjustments for bankruptcy obligations.
The 2014
mainline operating special items totaled a net charge of $800 million, which primarily included $732 million of Merger integration expenses, $88 million of fleet restructuring expenses, an $81 million charge to revise prior
estimates of certain aircraft residual values and an $81 million
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
net charge for bankruptcy-related items principally consisting of
mark-to-market
adjustments for bankruptcy
obligations and professional fees. These charges were offset in part by a net $265 million gain related to the divestiture of slots.
Merger integration expenses included costs related to information technology,
re-branding
of aircraft, airport facilities and uniforms, alignment of labor
union contracts, professional fees, relocation, training, and severance, and in 2015 and 2014, also included share-based compensation related to awards granted in connection with the Merger that fully vested in December 2015. Fleet restructuring
expenses included the acceleration of aircraft depreciation, impairments, remaining lease payments and lease return costs for aircraft currently grounded or expected to be grounded earlier than planned.
The following additional amounts are also included in the consolidated statements of operations as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Regional operating special items, net
(1)
|
|
$
|
14
|
|
|
$
|
29
|
|
|
$
|
24
|
|
Nonoperating special items, net
(2)
|
|
|
49
|
|
|
|
594
|
|
|
|
132
|
|
Income tax special items, net
(3)
|
|
|
|
|
|
|
(3,015
|
)
|
|
|
346
|
|
(1)
|
The 2016 and 2015 regional operating special items, net principally related to Merger integration expenses.
|
The 2014 regional operating special items, net consisted primarily of a $24 million charge due to a new pilot
labor contract at our Envoy regional subsidiary.
(2)
|
The 2016 nonoperating special items totaled a net charge of $49 million, which consisted of debt issuance and extinguishment costs
associated with bond and term loan refinancings.
|
The 2015 nonoperating special items
totaled a net charge of $594 million, which principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in
Venezuela.
The 2014 nonoperating special items totaled a net charge of $132 million, which
principally included a $43 million charge for Venezuelan foreign currency losses and $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness.
(3)
|
In 2015, income tax special items totaled a net credit of $3.0 billion. In connection with the preparation of our financial statements
for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of our deferred tax assets, which include our net operating losses (NOLs), would be realized. Accordingly, we reversed $3.0 billion of
the valuation allowance as of December 31, 2015, which resulted in a special
non-cash
tax benefit recorded in our consolidated statement of operations. See Note 6 for further information.
|
In 2014, income tax special items, net were $346 million. During 2014, we sold
our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special
non-cash
tax provision of $330 million in the
second quarter of 2014 that reversed the
non-cash
tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders equity, principally in 2009. This provision represents the
tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was
settled or terminated.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
3. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (EPS) (in millions,
except share and per share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,882
|
|
Weighted average common shares outstanding (in thousands)
|
|
|
552,308
|
|
|
|
668,393
|
|
|
|
717,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
4.85
|
|
|
$
|
11.39
|
|
|
$
|
4.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,882
|
|
Change in fair value of conversion feature on 7.25% convertible senior notes
(a)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for purposes of computing diluted EPS
|
|
$
|
2,676
|
|
|
$
|
7,610
|
|
|
$
|
2,885
|
|
Share computation for diluted EPS (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
552,308
|
|
|
|
668,393
|
|
|
|
717,456
|
|
Dilutive effect of stock awards
|
|
|
3,791
|
|
|
|
18,962
|
|
|
|
15,603
|
|
Assumed conversion of convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
556,099
|
|
|
|
687,355
|
|
|
|
734,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
4.81
|
|
|
$
|
11.07
|
|
|
$
|
3.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following were excluded from the calculation of diluted EPS (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, SARs and RSUs because inclusion would be antidilutive
|
|
|
1,429
|
|
|
|
764
|
|
|
|
226
|
|
(a)
|
In March 2014, we notified the holders of the 7.25% convertible senior notes that we had elected to settle all future conversions solely in
cash instead of shares of AAG common stock in accordance with the related indenture. Thus, the diluted shares include the weighted average impact of the 7.25% convertible senior notes only for the period from January 1, 2014 to March 12,
2014. In addition, under GAAP, we must adjust the numerator for purposes of calculating diluted EPS by the change in fair value of the conversion feature from March 12, 2014 to May 15, 2014, which increased GAAP net income for purposes of
computing diluted EPS by $3 million for the year ended December 31, 2014.
|
4. Share Repurchase
Programs and Dividends
Since July 2014, our Board of Directors has approved several share repurchase
programs aggregating $9.0 billion of authority. As of December 31, 2016, there was no remaining authority to repurchase shares under our existing share repurchase programs. However, in January 2017, our Board of Directors authorized a new
$2.0 billion share repurchase program that expires on December 31, 2018.
During the year
ended December 31, 2016, we repurchased 119.8 million shares of AAG common stock for $4.4 billion at a weighted average cost per share of $36.86. During the year ended December 31, 2015, we repurchased 85.1 million shares of
AAG common stock for $3.6 billion at a weighted average cost per share of $42.09. During the year ended December 31, 2014, we
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
repurchased 23.4 million shares of AAG common stock for $1.0 billion at a weighted average cost per share of $42.72. Since the inception of the share repurchase programs in July 2014,
we have repurchased 228.4 million shares of AAG common stock for $9.0 billion at a weighted average cost per share of $39.41.
Our Board of Directors declared the following cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
Period
|
|
Per share
|
|
|
For stockholders
of record as of
|
|
Payable on
|
|
Cash paid
(millions)
|
|
2016
|
|
Fourth Quarter
|
|
$
|
0.10
|
|
|
November 7, 2016
|
|
November 21, 2016
|
|
$
|
52
|
|
|
|
Third Quarter
|
|
|
0.10
|
|
|
August 5, 2016
|
|
August 19, 2016
|
|
|
53
|
|
|
|
Second Quarter
|
|
|
0.10
|
|
|
May 4, 2016
|
|
May 18, 2016
|
|
|
58
|
|
|
|
First Quarter
|
|
|
0.10
|
|
|
February 10, 2016
|
|
February 24, 2016
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.40
|
|
|
|
|
|
|
$
|
224
|
|
|
|
|
|
|
|
2015
|
|
Fourth Quarter
|
|
$
|
0.10
|
|
|
November 5, 2015
|
|
November 19, 2015
|
|
$
|
72
|
|
|
|
Third Quarter
|
|
|
0.10
|
|
|
August 10, 2015
|
|
August 24, 2015
|
|
|
66
|
|
|
|
Second Quarter
|
|
|
0.10
|
|
|
May 4, 2015
|
|
May 18, 2015
|
|
|
70
|
|
|
|
First Quarter
|
|
|
0.10
|
|
|
February 9, 2015
|
|
February 23, 2015
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.40
|
|
|
|
|
|
|
$
|
278
|
|
|
|
|
|
|
|
2014
|
|
Fourth Quarter
|
|
$
|
0.10
|
|
|
November 3, 2014
|
|
November 17, 2014
|
|
$
|
72
|
|
|
|
Third Quarter
|
|
|
0.10
|
|
|
August 4, 2014
|
|
August 18, 2014
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.20
|
|
|
|
|
|
|
$
|
144
|
|
Any future dividends that may be declared and paid from time to time will be
subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at our discretion.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
5. Debt
Long-term debt and capital lease obligations included in the consolidated balance sheets consisted of
(in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Secured
|
|
|
|
|
|
|
|
|
2013 Credit Facilities, variable interest rate of 3.26%, installments through
2020
(a)
|
|
$
|
1,843
|
|
|
$
|
1,867
|
|
2014 Credit Facilities, variable interest rate of 3.25%, installments through
2021
(a)
|
|
|
735
|
|
|
|
743
|
|
April 2016 Credit Facilities, variable interest rate of 3.26%, installments through 2023
(a)
|
|
|
1,000
|
|
|
|
|
|
December 2016 Credit Facilities, variable interest rate of 3.25%, installments through 2023
(a)
|
|
|
1,250
|
|
|
|
|
|
2013 Citicorp Credit Facility Tranche
B-1
(b)
|
|
|
|
|
|
|
980
|
|
2013 Citicorp Credit Facility Tranche
B-2
(b)
|
|
|
|
|
|
|
588
|
|
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, maturing from
2017 to 2028
(c)
|
|
|
10,912
|
|
|
|
8,693
|
|
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.81% to 8.48%, maturing from 2017
to 2028
(d)
|
|
|
5,343
|
|
|
|
4,183
|
|
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.00%, maturing from 2017 to 2035
(e)
|
|
|
891
|
|
|
|
1,080
|
|
Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2017 to 2028
|
|
|
849
|
|
|
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,823
|
|
|
|
19,057
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
5.50% senior notes, interest only payments until due in 2019
(f)
|
|
|
750
|
|
|
|
750
|
|
6.125% senior notes, interest only payments until due in 2018
(f)
|
|
|
500
|
|
|
|
500
|
|
4.625% senior notes, interest only payments until due in 2020
(f)
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations
|
|
|
24,573
|
|
|
|
20,807
|
|
Less: Total unamortized debt discount, debt premium and debt issuance costs
|
|
|
229
|
|
|
|
246
|
|
Less: Current maturities
|
|
|
1,855
|
|
|
|
2,231
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities
|
|
$
|
22,489
|
|
|
$
|
18,330
|
|
|
|
|
|
|
|
|
|
|
The table below shows availability under revolving credit facilities, all of which
were undrawn, as of December 31, 2016 (in millions):
|
|
|
|
|
2013 Revolving Facility
|
|
$
|
1,400
|
|
2014 Revolving Facility
|
|
|
1,025
|
|
|
|
|
|
|
Total
|
|
$
|
2,425
|
|
|
|
|
|
|
The April 2016 and December 2016 Credit Facilities each provide for a revolving
credit facility that may be established in the future.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Secured financings are collateralized by assets, primarily
aircraft, engines, simulators, aircraft spare parts, airport leasehold rights, route authorities and airport slots. At December 31, 2016, we were operating 34 aircraft under capital leases. Leases can generally be renewed at rates based on fair
market value at the end of the lease term for a number of additional years.
At December 31, 2016,
the maturities of long-term debt and capital lease obligations are as follows (in millions):
|
|
|
|
|
2017
|
|
$
|
1,899
|
|
2018
|
|
|
2,454
|
|
2019
|
|
|
2,758
|
|
2020
|
|
|
3,922
|
|
2021
|
|
|
2,681
|
|
2022 and thereafter
|
|
|
10,859
|
|
|
|
|
|
|
Total
|
|
$
|
24,573
|
|
|
|
|
|
|
(a) 2013, 2014, April 2016 and December 2016 Credit Facilities
Certain details of our 2013, 2014, April 2016 and December 2016 Credit Facilities (collectively referred to as the
Credit Facilities) are shown in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Credit Facilities
|
|
2014 Credit Facilities
|
|
April and December
2016 Credit Facilities
|
|
|
2013 Term
Loan
|
|
2013 Revolving
Facility
|
|
2014 Term
Loan
|
|
2014 Revolving
Facility
|
|
April 2016
Term Loan
|
|
December 2016
Term Loan
|
|
|
|
|
|
|
|
Aggregate principal issued or credit facility availability
|
|
$1.9 billion
|
|
$1.4 billion
|
|
$750 million
|
|
$1.025 billion
|
|
$1.0 billion
|
|
$1.25 billion
|
|
|
|
|
|
|
|
Principal outstanding or drawn
|
|
$1.84 billion
|
|
$
|
|
$735 million
|
|
$
|
|
$1.0 billion
|
|
$1.25 billion
|
|
|
|
|
|
|
|
Maturity date
|
|
June 2020
|
|
October 2020
|
|
October 2021
|
|
October 2020
|
|
April 2023
|
|
December 2023
|
|
|
|
|
|
|
|
London Interbank Offered Rate (LIBOR) margin
|
|
2.50%
(1)
,
(2)
|
|
3.00%
|
|
2.50%
(1)
|
|
3.00%
|
|
2.50%
(1)
|
|
2.50%
(1)
|
(1)
|
LIBOR margin is subject to a floor of 0.75%.
|
(2)
|
As AAGs corporate credit rating was Ba3 or higher from Moodys and
BB-
or higher from
Standard and Poors (S&P) as of December 31, 2016, the applicable LIBOR margin is 2.50% for the 2013 Term Loan; otherwise, the LIBOR margin would be 2.75%.
|
The Term Loans are repayable in annual installments in an amount equal to 1.00% of the principal amount, with any
unpaid balance due on the respective maturity dates. Voluntary prepayments may be made by American at any time.
The proceeds from the April 2016 Term Loan and the December 2016 Term Loan were used to repay $588 million and $970 million, respectively, in remaining principal plus accrued and unpaid
interest of the 2013 Citicorp Credit Facility tranche
B-2
term loan (Tranche
B-2)
and tranche
B-1
term loan (Tranche
B-1),
respectively, with the remainder of the proceeds to be used for general corporate purposes.
The 2013 and 2014 Revolving Facilities provide that American may from time to time borrow, repay and reborrow loans thereunder and have the ability to issue letters of credit thereunder in an
aggregate
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
amount outstanding at any time up to $300 million. The 2013 and 2014 Revolving Facilities are each subject to an undrawn fee of 0.75%. As of December 31, 2016, there were no borrowings
or letters of credit outstanding under the 2013 or 2014 Revolving Facilities. The April 2016 and December 2016 Credit Facilities each provide for a revolving credit facility that may be established in the future.
Subject to certain limitations and exceptions, the Credit Facilities are secured by certain collateral, including
spare parts, certain slots, route authorities and airport gate leasehold rights. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. Americans obligations under the Credit
Facilities are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in
Collateral-Related Covenants.
The Credit Facilities contain events of default customary for similar financings, including cross default to other
material indebtedness. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately. In addition, if a change of control occurs, American will (absent an amendment or
waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 and 2014 Revolving Facilities and any revolving credit facilities established under the April 2016 or December 2016 Credit Facilities. The
Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted
subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain
business activities, in each case subject to certain exceptions.
(b) 2013 Citicorp Credit Facility
On May 23, 2013, American entered into a term loan credit facility (as amended, the 2013
Citicorp Credit Facility) with Citicorp North America, Inc., as administrative agent, and certain lenders. The 2013 Citicorp Credit Facility consisted of Tranche
B-1
and Tranche
B-2
that were repaid and terminated in 2016 in connection with Americans entry into the April 2016 and December 2016 Credit Facilities discussed above.
(c) EETCs Issued in 2016
2016-1
EETCs
In January 2016, American created three pass-through trusts which issued approximately $1.1 billion aggregate principal amount of Series
2016-1
Class AA, Class A and Class B EETCs (the
2016-1
EETCs) in connection with the financing of 22 aircraft owned by American (the
2016-1
EETC Aircraft). All
of the proceeds received from the sale of the
2016-1
EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on the equipment notes are payable semi-annually in
January and July of each year, which began in July 2016. These equipment notes are secured by liens on the
2016-1
EETC Aircraft.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
The details of the
2016-1
EETC equipment notes issued by American in three series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
2016-1
EETCs
|
|
|
Series AA
|
|
Series A
|
|
Series B
|
Aggregate principal issued
|
|
$584 million
|
|
$262 million
|
|
$228 million
|
Fixed interest rate per annum
|
|
3.575%
|
|
4.10%
|
|
5.25%
|
Maturity date
|
|
January 2028
|
|
January 2028
|
|
January 2024
|
2016-2
EETCs
In May and July 2016, American created three pass-through trusts which issued approximately $1.1 billion
aggregate principal amount of Series
2016-2
Class AA, Class A and Class B EETCs (the
2016-2
EETCs) in connection with the financing of 22 aircraft owned
by American (the
2016-2
EETC Aircraft). All of the proceeds received from the sale of the
2016-2
EETCs have been used to purchase equipment notes issued by American.
Interest and principal payments on the equipment notes are payable semi-annually in June and December of each year, with interest payments that began in December 2016 and principal payments beginning in June 2017. These equipment notes are secured
by liens on the
2016-2
EETC Aircraft.
The details of the
2016-2
EETC equipment notes issued by American in three series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
2016-2
EETCs
|
|
|
Series AA
|
|
Series A
|
|
Series B
|
Aggregate principal issued
|
|
$567 million
|
|
$261 million
|
|
$227 million
|
Fixed interest rate per annum
|
|
3.20%
|
|
3.65%
|
|
4.375%
|
Maturity date
|
|
June 2028
|
|
June 2028
|
|
June 2024
|
2016-3
EETCs
In October 2016, American created two pass-through trusts which issued approximately $814 million aggregate
principal amount of Series
2016-3
Class AA and Class A EETCs (the
2016-3
EETCs) in connection with the financing of 25 aircraft owned by American or originally
scheduled to be delivered to American through January 2017 (the
2016-3
EETC Aircraft). A portion of the proceeds received from the sale of the
2016-3
EETCs has been used
to acquire Series AA and A equipment notes issued by American to the pass-through trusts and the balance of such proceeds is being held in escrow for the benefit of the holders of the
2016-3
EETCs until such
time as American issues additional Series AA and A equipment notes to the pass-through trusts, which will purchase the notes with escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on our consolidated
balance sheet because the proceeds held by the depository are not Americans assets.
As of
December 31, 2016, approximately $705 million of the escrowed proceeds from the
2016-3
EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on the
equipment notes are payable semi-annually in April and October of each year, with interest payments beginning in April 2017 and principal payments beginning in October 2017. These equipment notes are secured by liens on the
2016-3
EETC Aircraft. The remaining escrowed proceeds of $109 million will be used to purchase equipment notes as new aircraft are financed following their delivery.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
The details of the
2016-3
EETC equipment notes issued by American in two series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
2016-3
EETCs
|
|
|
Series AA
|
|
Series A
|
Aggregate principal issued
|
|
$558 million
|
|
$256 million
|
Remaining escrowed proceeds
|
|
$75 million
|
|
$34 million
|
Fixed interest rate per annum
|
|
3.00%
|
|
3.25%
|
Maturity date
|
|
October 2028
|
|
October 2028
|
(d) Equipment Loans and Other Notes Payable Issued in 2016
In 2016, American entered into loan agreements to borrow $1.8 billion in connection with the financing of
certain aircraft. Debt incurred under these loan agreements matures in 2021 through 2028 and bears interest at fixed and variable rates of LIBOR plus an applicable margin averaging 2.96% at December 31, 2016.
(e) Special Facility Revenue Bonds
2016 Financing Activity
In June 2016,
the New York Transportation Development Corporation (NYTDC) issued approximately $844 million of special facility revenue refunding bonds (the 2016 JFK Bonds) on behalf of American. The net proceeds from the 2016 JFK Bonds generally were used
to provide a portion of the funds to refinance $1.0 billion of special facility revenue bonds (Prior JFK Bonds), the net proceeds of which partially financed the construction of a terminal (the Terminal) used by American at John F. Kennedy
International Airport (JFK).
American is required to pay debt service on the 2016 JFK Bonds through
payments under a loan agreement with NYTDC, and American and AAG guarantee the 2016 JFK Bonds. Americans and AAGs obligations under these guarantees are secured by a mortgage on Americans lease of the Terminal and related property
from the Port Authority of New York and New Jersey.
The 2016 JFK Bonds, in aggregate, were priced at
approximately 107% of par value. The gross proceeds from the issuance of the 2016 JFK Bonds were approximately $907 million. Of this amount, approximately $895 million was used to partially fund the redemption of the Prior JFK Bonds. The
2016 JFK Bonds bear interest at 5.0% per annum and are comprised of $212 million of serial bonds, portions of which mature annually from August 1, 2017 to August 1, 2021, and $632 million of term bonds, $278 million of which
matures on August 1, 2026 and $354 million of which matures on August 1, 2031. In connection with the refinancing of the Prior JFK Bonds, American recorded a special nonoperating charge of $36 million consisting of
non-cash
write offs of unamortized bond discounts and issuance costs as well as payments of redemption premiums and fees.
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(f) Senior Notes
The details of our 5.50%, 6.125% and 4.625% senior notes are shown in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
5.50% Senior Notes
|
|
6.125% Senior Notes
|
|
4.625% Senior Notes
|
Aggregate principal issued and outstanding
|
|
$750 million
|
|
$500 million
|
|
$500 million
|
Maturity date
|
|
October 2019
|
|
June 2018
|
|
March 2020
|
Fixed interest rate per annum
|
|
5.50%
|
|
6.125%
|
|
4.625%
|
Interest payments
|
|
Semi-annually
in arrears in April and October
|
|
Semi-annually
in arrears in June and December
|
|
Semi-annually
in arrears in March and September
|
The 5.50% senior notes and the 4.625% senior notes are senior unsecured obligations
of AAG. The 6.125% senior notes are general unsecured senior obligations of AAG. The senior notes are fully and unconditionally guaranteed by American. The indentures for the senior notes contain covenants and events of default generally customary
for similar financings. In addition, if we experience specific kinds of changes of control, we must offer to repurchase the senior notes at a price of 101% of the principal amount plus accrued and unpaid interest, if any, to (but not including) the
repurchase date. Upon the occurrence of certain events of default, the senior notes may be accelerated and become due and payable.
Guarantees
As of December 31,
2016, AAG had issued guarantees covering approximately $844 million of Americans special facility revenue bonds (and interest thereon) and $9.3 billion of Americans secured debt (and interest thereon), including the Credit
Facilities and certain EETC financings.
Collateral-Related Covenants
Certain of our debt financing agreements contain loan to value (LTV) ratio covenants and require us to annually
appraise the related collateral. Pursuant to such agreements, if the LTV ratio exceeds a specified threshold, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down
such financing, in whole or in part.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Specifically, we are required to meet certain collateral coverage
tests on an annual basis for four credit facilities, as described below:
|
|
|
|
|
|
|
|
|
|
|
2013 Credit Facilities
|
|
2014 Credit Facilities
|
|
April 2016 Credit
Facilities
|
|
December 2016
Credit
Facilities
|
Frequency of Appraisals
of Appraised Collateral
|
|
Annual
|
|
Annual
|
|
Annual
|
|
Annual
|
LTV Requirement
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
LTV as of Last Measurement Date
|
|
31.5%
|
|
23.2%
|
|
47.7%
|
|
61.8%
|
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 London
Heathrow
|
|
Certain spare parts
|
|
Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, and certain simulators
|
At December 31, 2016, we were in compliance with the applicable collateral
coverage tests as of the most recent measurement dates.
6. Income Taxes
The significant components of the income tax provision (benefit) were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
State and Local
|
|
|
12
|
|
|
|
20
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax provision (benefit)
|
|
|
12
|
|
|
|
20
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,508
|
|
|
|
(2,884
|
)
|
|
|
345
|
|
State and Local
|
|
|
103
|
|
|
|
(130
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit)
|
|
|
1,611
|
|
|
|
(3,014
|
)
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
1,623
|
|
|
$
|
(2,994
|
)
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
The income tax provision (benefit) differed from amounts computed
at the statutory federal income tax rate as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory income tax provision
|
|
$
|
1,505
|
|
|
$
|
1,616
|
|
|
$
|
1,123
|
|
State income tax provision, net of federal tax effect
|
|
|
63
|
|
|
|
72
|
|
|
|
75
|
|
Book expenses (benefits) not deductible for tax purposes
|
|
|
34
|
|
|
|
57
|
|
|
|
(1
|
)
|
Bankruptcy administration expenses
|
|
|
1
|
|
|
|
3
|
|
|
|
95
|
|
Alternative minimum tax (AMT) credit refund
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
Change in valuation allowance
|
|
|
7
|
|
|
|
(4,742
|
)
|
|
|
(1,323
|
)
|
Income tax provision resulting from OCI allocation
|
|
|
|
|
|
|
|
|
|
|
330
|
|
Other, net
|
|
|
13
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
1,623
|
|
|
$
|
(2,994
|
)
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We provide a valuation allowance for our deferred tax assets, which include our
NOLs, when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all
available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our projections of future profitability, including risks associated with
remaining Merger integration activities as well as other conditions which are beyond our control, such as the health of the economy, the level and volatility of fuel prices and travel demand.
In connection with the preparation of our financial statements at the end of 2015, we determined that after
considering all positive and negative evidence, including the completion of certain critical Merger integration milestones as well as our financial performance, it was more likely than not that substantially all of our deferred income tax assets,
which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance, which resulted in a special
non-cash
tax benefit recorded in the consolidated statement of
operations.
For the year ended December 31, 2014, we recorded a $330 million tax provision.
During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special
non-cash
tax provision of
$330 million in the second quarter of 2014 that reversed the
non-cash
tax provision which was recorded in OCI, a subset of stockholders equity, principally in 2009. This provision represents the tax
effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was
settled or terminated.
In addition to the changes in the valuation allowance from operations described
in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 10. The total increase in the valuation allowance was $7 million in 2016. The
total decrease in the valuation allowance was $4.8 billion and $197 million in 2015 and 2014, respectively.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
The components of our deferred tax assets and liabilities were (in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
$
|
3,853
|
|
|
$
|
2,558
|
|
Pensions
|
|
|
2,610
|
|
|
|
2,436
|
|
Loyalty program liability
|
|
|
485
|
|
|
|
590
|
|
Alternative minimum tax credit carryforwards
|
|
|
344
|
|
|
|
346
|
|
Postretirement benefits other than pensions
|
|
|
291
|
|
|
|
340
|
|
Rent expense
|
|
|
256
|
|
|
|
134
|
|
Gains from lease transactions
|
|
|
213
|
|
|
|
262
|
|
Reorganization items
|
|
|
53
|
|
|
|
57
|
|
Other
|
|
|
972
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,077
|
|
|
|
7,923
|
|
Valuation allowance
|
|
|
(29
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
9,048
|
|
|
|
7,901
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
|
(7,216
|
)
|
|
|
(5,158
|
)
|
Other
|
|
|
(345
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,561
|
)
|
|
|
(5,424
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
1,487
|
|
|
$
|
2,477
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, we had approximately $10.5 billion of gross NOL
Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2017. The federal NOL Carryforwards will expire beginning in 2022 if unused. We also had approximately $3.7 billion of NOL
Carryforwards to reduce future state taxable income at December 31, 2016, which will expire in years 2017 through 2036 if unused. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be
substantially constrained under the general annual limitation rules of Section 382 where an ownership change has occurred. Substantially all of our remaining federal NOL Carryforwards (attributable to US Airways Group) are subject
to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. We elected to be covered by certain special rules for federal income tax
purposes that permitted approximately $9.0 billion (with $8.9 billion of unlimited NOL still remaining at December 31, 2016) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by
Section 382. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless
another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit a companys future use of NOLs
and tax credits. See Part I, Item 1A. Risk Factors
Our ability to utilize our NOL Carryforwards may be limited
for unaudited additional discussion of this risk.
At December 31, 2016, we had an AMT credit carryforward of approximately $339 million available for
federal income tax purposes, which is available for an indefinite period.
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
In 2016, we recorded an income tax provision with an effective
rate of approximately 38%, which was substantially
non-cash
as we utilized our NOLs described above. Substantially all of our income before income taxes is attributable to the United States.
We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate. Our 2013 through
2015 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and we are under examination, in administrative appeals, or engaged in tax litigation in
certain jurisdictions. We believe that the effect of any assessments will not be material to our consolidated financial statements.
The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We accrue interest and penalties related to unrecognized tax benefits in interest expense
and operating expense, respectively.
7. Risk Management
Our economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the
price of fuel.
Due to the discretionary nature of business and leisure travel spending, airline
industry revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand
for air travel and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on our revenues. In addition, during challenging economic times, actions by our competitors to increase their
revenues can have an adverse impact on our revenues.
Our operating results are materially impacted by
changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to
be highly volatile. Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of fuel can have a material effect on our operating results and liquidity.
These additional factors could impact our results of operations, financial performance and liquidity:
(a) Credit Risk
Most of our receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American. These
receivables are short-term, mostly settled within seven days after sale. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. We do not believe we are subject to any significant
concentration of credit risk.
(b) Interest Rate Risk
We have exposure to market risk associated with changes in interest rates related primarily to our variable rate
debt obligations. Interest rates on $9.6 billion principal amount of long-term debt as of December 31, 2016 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on our
variable rate debt was 3.1% at December 31, 2016. We do not currently have an interest rate hedge program.
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(c) Foreign Currency Risk
We are exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar value of foreign
currency-denominated operating revenues and expenses. Our largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. We do not currently have a foreign currency hedge
program. See Part I, Item 1A. Risk Factors
We operate a global business with international operations that are subject to economic and political
instability and have been, and in the future may continue to be, adversely
affected by numerous events, circumstances or government actions beyond our control
for unaudited additional discussion of this risk.
8. Fair Value Measurements
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. Accounting standards
include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair
value are observable in the market. Each fair value measurement is reported in one of three levels:
|
|
|
Level 1 Observable inputs such as quoted prices in active markets;
|
|
|
|
Level 2 Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
|
When available, we use quoted market prices to determine the fair value
of our financial assets. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates.
We utilize the market approach to measure fair value for our financial assets. The market approach uses
prices and other relevant information generated by market transactions involving identical or comparable assets. Our short-term investments classified as Level 2 primarily utilize broker quotes in a
non-active
market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2016.
Assets measured at fair value on a recurring basis are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Short-term investments
(1)
,
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
589
|
|
|
$
|
589
|
|
|
$
|
|
|
|
$
|
|
|
Corporate obligations
|
|
|
2,550
|
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
Bank notes/certificates of deposit/time deposits
|
|
|
2,898
|
|
|
|
|
|
|
|
2,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,037
|
|
|
|
589
|
|
|
|
5,448
|
|
|
|
|
|
Restricted cash and short-term investments
(1)
|
|
|
638
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,675
|
|
|
$
|
1,227
|
|
|
$
|
5,448
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(1)
|
Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other
comprehensive income (loss) at each measurement date.
|
(2)
|
All short-term investments are classified as
available-for-sale
and stated at fair value. Our short-term investments mature in one year or less except for $385 million of bank notes/certificates of
deposit/time deposits and $230 million of corporate obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Short-term investments
(1)
,
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,010
|
|
|
$
|
1,010
|
|
|
$
|
|
|
|
$
|
|
|
Government agency investments
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Corporate obligations
|
|
|
2,191
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
Bank notes/certificates of deposit/time deposits
|
|
|
2,662
|
|
|
|
|
|
|
|
2,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,864
|
|
|
|
1,010
|
|
|
|
4,854
|
|
|
|
|
|
Restricted cash and short-term investments
(1)
|
|
|
695
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,559
|
|
|
$
|
1,705
|
|
|
$
|
4,854
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other
comprehensive income (loss) at each measurement date.
|
(2)
|
All short-term investments are classified as
available-for-sale
and stated at fair value. Our short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of
deposit/time deposits and $734 million of corporate obligations.
|
There were no
Level 1 to Level 2 transfers during the years ended December 31, 2016 or 2015.
Fair Value of Debt
The fair value of our long-term debt was estimated using quoted market prices or discounted cash
flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements. If our long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.
The carrying value and estimated fair value of our long-term debt, including current maturities, were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Long-term debt, including current maturities
|
|
$
|
24,344
|
|
|
$
|
24,983
|
|
|
$
|
20,561
|
|
|
$
|
21,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Employee Benefit Plans
We sponsor defined benefit and defined contribution pension plans for eligible employees. The defined benefit
pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1,
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
2012, substantially all of our defined benefit pension plans were frozen and we began providing enhanced benefits under our defined contribution pension plans for certain groups. We use a
December 31 measurement date for all of our defined benefit pension plans. We also provide certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective
November 1, 2012, we modified our retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to our retiree medical and other
postretirement benefits plans in 2012, we recognized a negative plan amendment of $1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for
whom the benefit was eliminated, or approximately eight years. As of December 31, 2016, $871 million of actuarial gain remains to be amortized.
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, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Benefit obligation at beginning of period
|
|
$
|
16,395
|
|
|
$
|
17,594
|
|
|
$
|
1,131
|
|
|
$
|
1,325
|
|
Service cost
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
Interest cost
|
|
|
749
|
|
|
|
737
|
|
|
|
47
|
|
|
|
50
|
|
Actuarial (gain) loss
(1) (2)
|
|
|
729
|
|
|
|
(1,159
|
)
|
|
|
(105
|
)
|
|
|
(177
|
)
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Settlements
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(635
|
)
|
|
|
(776
|
)
|
|
|
(92
|
)
|
|
|
(94
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
17,238
|
|
|
$
|
16,395
|
|
|
$
|
991
|
|
|
$
|
1,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
9,707
|
|
|
$
|
10,986
|
|
|
$
|
253
|
|
|
$
|
244
|
|
Actual return on plan assets
|
|
|
915
|
|
|
|
(506
|
)
|
|
|
22
|
|
|
|
(10
|
)
|
Employer contributions
|
|
|
32
|
|
|
|
6
|
|
|
|
83
|
|
|
|
89
|
|
Settlements
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(635
|
)
|
|
|
(776
|
)
|
|
|
(92
|
)
|
|
|
(94
|
)
|
Other
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
10,017
|
|
|
$
|
9,707
|
|
|
$
|
266
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of period
|
|
$
|
(7,221
|
)
|
|
$
|
(6,688
|
)
|
|
$
|
(725
|
)
|
|
$
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The December 31, 2016 and 2015 pension actuarial (gain) loss primarily relates to weighted average discount rate assumption changes and
changes to our mortality assumptions.
|
(2)
|
The December 31, 2016 and 2015 retiree medical and other postretirement benefits actuarial gain primarily relates to medical trend and
cost assumption changes, favorable plan experience adjustments and weighted average discount rate assumption changes.
|
(3)
|
At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical and other
postretirement benefits plans asset values that were previously offset against the benefit obligation.
|
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Balance Sheet Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
97
|
|
|
$
|
109
|
|
Noncurrent liability
(1)
|
|
|
7,214
|
|
|
|
6,681
|
|
|
|
628
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
7,221
|
|
|
$
|
6,688
|
|
|
$
|
725
|
|
|
$
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
5,484
|
|
|
$
|
5,047
|
|
|
$
|
(430
|
)
|
|
$
|
(339
|
)
|
Prior service cost (benefit)
(1)
|
|
|
188
|
|
|
|
216
|
|
|
|
(837
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss (income),
pre-tax
|
|
$
|
5,672
|
|
|
$
|
5,263
|
|
|
$
|
(1,267
|
)
|
|
$
|
(1,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The 2016 noncurrent liability does not include $20 million of other postretirement benefits or $1 million of prior service cost. The
2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service cost.
|
Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Projected benefit obligation (PBO)
|
|
$
|
17,209
|
|
|
$
|
16,369
|
|
|
$
|
|
|
|
$
|
|
|
Accumulated benefit obligation (ABO)
|
|
|
17,197
|
|
|
|
16,357
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation (APBO)
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
1,129
|
|
Fair value of plan assets
|
|
|
9,986
|
|
|
|
9,677
|
|
|
|
266
|
|
|
|
253
|
|
ABO less fair value of plan assets
|
|
|
7,211
|
|
|
|
6,680
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and
Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In millions)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
1
|
|
Interest cost
|
|
|
749
|
|
|
|
737
|
|
|
|
746
|
|
|
|
47
|
|
|
|
50
|
|
|
|
61
|
|
Expected return on assets
|
|
|
(750
|
)
|
|
|
(851
|
)
|
|
|
(786
|
)
|
|
|
(20
|
)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Settlements
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit)
(1)
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
(240
|
)
|
|
|
(243
|
)
|
|
|
(244
|
)
|
Unrecognized net loss (gain)
|
|
|
126
|
|
|
|
112
|
|
|
|
43
|
|
|
|
(17
|
)
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
|
155
|
|
|
|
29
|
|
|
|
38
|
|
|
|
(227
|
)
|
|
|
(218
|
)
|
|
|
(209
|
)
|
Defined contribution plan cost
|
|
|
766
|
|
|
|
662
|
|
|
|
546
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost (income)
|
|
$
|
921
|
|
|
$
|
691
|
|
|
$
|
584
|
|
|
$
|
(227
|
)
|
|
$
|
(218
|
)
|
|
$
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(1)
|
The 2016, 2015 and 2014 prior service cost does not include amortization of $1 million, $3 million and $14 million,
respectively, related to other postretirement benefits.
|
The estimated amount of
unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $144 million.
The estimated amount of unrecognized net gain for the retiree medical and other postretirement benefits plans that
will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $23 million.
Assumptions
The following actuarial
assumptions were used to determine our benefit obligations and net periodic benefit cost for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical
and
Other Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.30
|
%
|
|
|
4.70
|
%
|
|
|
4.10
|
%
|
|
|
4.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and
Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.70
|
%
|
|
|
4.30
|
%
|
|
|
5.10
|
%
|
|
|
4.42
|
%
|
|
|
4.00
|
%
|
|
|
4.74
|
%
|
Weighted average expected rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Weighted average health care cost trend rate assumed for next year
(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.25
|
%
|
|
|
5.21
|
%
|
|
|
5.25
|
%
|
(1)
|
The weighted average health care cost trend rate at December 31, 2016 is assumed to decline gradually to 3.77% by 2024 and remain level
thereafter.
|
As of December 31, 2016, our estimate of the long-term rate of
return on plan assets was 8% based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at
year-end.
Expected returns on other assets are
based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay and
securities lending programs.
A one percentage point change in the assumed health care cost trend rates
would have the following effects on our retiree medical and other postretirement benefits plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
Increase (decrease) on 2016 service and interest cost
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
Increase (decrease) on benefit obligation as of December 31, 2016
|
|
|
53
|
|
|
|
(50
|
)
|
116
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 and various other laws for U.S. based plans as well as under funding rules specific to countries where we maintain defined benefit plans. Based on current funding assumptions, we
have minimum required contributions of $25 million for 2017. We expect to make supplemental contributions of $254 million to our U.S. based defined benefit plans in 2017. Currently, the minimum funding obligation for our U.S. based defined
benefit pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Our pension funding obligations are likely to increase materially following expiration of the temporary funding rules, when we will be
required to make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of our investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and
timing of any supplemental contributions and our actuarial experience.
Benefit Payments
The following benefit payments, which reflect expected future service as appropriate, are expected to be paid
(approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022-2026
|
|
Pension
|
|
$
|
688
|
|
|
$
|
722
|
|
|
$
|
762
|
|
|
$
|
804
|
|
|
$
|
845
|
|
|
$
|
4,819
|
|
Retiree medical and other postretirement benefits
|
|
|
97
|
|
|
|
93
|
|
|
|
88
|
|
|
|
79
|
|
|
|
73
|
|
|
|
312
|
|
Plan Assets
The objectives of our investment policies are to: maintain sufficient income and liquidity to pay retirement
benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.
Based on these investment objectives, a long-term strategic asset allocation has been established. This strategic
allocation seeks to balance the potential benefit of improving 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
|
|
Equity
|
|
|
65% - 90%
|
|
Public:
|
|
|
|
|
U.S.
|
|
|
20% - 45%
|
|
International
|
|
|
17% - 27%
|
|
Emerging Markets
|
|
|
5% - 11%
|
|
Alternative Investments
|
|
|
5% - 30%
|
|
Fixed Income
|
|
|
15% - 40%
|
|
U.S. Long Duration
|
|
|
15% - 40%
|
|
High Yield and Emerging Markets
|
|
|
0% - 10%
|
|
Other
|
|
|
0% - 5%
|
|
Cash Equivalents
|
|
|
0% - 5%
|
|
Public equity and emerging market fixed income securities are used to provide
diversification and are expected to generate higher returns over the long-term than U.S. long duration bonds. Public
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. U.S. long duration
bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public markets over the long-term. Additionally, the pension plans master
trust engages currency overlay managers in an attempt to increase returns by protecting
non-U.S.
dollar denominated assets from a rise in the relative value of the U.S. dollar. The pension plans master
trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are subject to market risk.
Investments in securities traded on recognized securities exchanges are valued at the last reported sales price on
the last business day of the year. Securities traded in the
over-the-counter
market are valued at the last bid price. The money market fund is valued at fair value which
represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by and reported by the general partners of the
partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair values of the underlying investments of the
trusts as determined by the sponsor of the trusts. The pension plans master trust also invests in a
103-12
investment entity (the
103-12
Investment Trust) which is
designed to invest plan assets of more than one unrelated employer. The
103-12
Investment Trust is valued at net asset value which is determined by the issuer at the end of each month and is based on the
aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Benefit Plan Assets Measured at Fair Value on a Recurring Basis
The fair value of our pension plan assets at December 31, 2016 and 2015, by asset category,
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Asset Category
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
573
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
573
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International markets
(a)
,
(b)
|
|
|
3,232
|
|
|
|
|
|
|
|
|
|
|
|
3,232
|
|
Large-cap
companies
(b)
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
2,253
|
|
Mid-cap
companies
(b)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
Small-cap
companies
(b)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Mutual funds
(c)
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
(d)
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
|
|
2,337
|
|
Government securities
(e)
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
U.S. municipal securities
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Alternative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity partnerships
(f)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
21
|
|
Private equity partnerships measured at net asset value
(f) (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703
|
|
Common/collective trusts
(g)
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
Common/collective trusts and
103-12
Investment Trust measured at net asset value
(g) (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
Insurance group annuity contracts
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Dividend and interest receivable
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Due to/from brokers for sale of securities net
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Other liabilities net
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,508
|
|
|
$
|
2,556
|
|
|
$
|
23
|
|
|
$
|
10,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
Holdings are diversified as follows: 15% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 6% Netherlands, 17% of other emerging markets
and the remaining 33% with no concentration greater than 5% in any one country.
|
b)
|
There are no significant concentrations of holdings by company or industry.
|
c)
|
Investment includes mutual funds invested 42% in equity securities of
large-cap,
mid-cap
and
small-cap
U.S. companies, 33% in U.S. treasuries and corporate bonds and 25% in equity securities of international companies.
|
d)
|
Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a
S&P rating A or higher. Holdings include 86% U.S. companies, 12% international companies and 2% emerging market companies.
|
e)
|
Includes approximately 61% investments in U.S. domestic government securities and 39% in emerging market government securities. There are no
significant foreign currency risks within this classification.
|
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
f)
|
Includes limited partnerships that invest primarily in U.S. (95%) and European (5%) buyout opportunities of a range of privately held
companies. The pension plans master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the
underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plans master trust has future funding commitments of approximately $456 million over the next ten years.
|
g)
|
Investment includes 73% in an emerging market
103-12
Investment Trust with investments in emerging
country equity securities, 12% in Canadian segregated balanced value, income growth and diversified pooled funds and 15% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing
markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.
|
h)
|
In accordance with ASU
2015-07,
certain investments that are measured using net asset value per share
(or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2015
|
|
Asset Category
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
287
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
287
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International markets
(a)
,
(b)
|
|
|
2,873
|
|
|
|
|
|
|
|
|
|
|
|
2,873
|
|
Large-cap
companies
(b)
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
1,999
|
|
Mid-cap
companies
(b)
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
Small-cap
companies
(b)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Mutual funds
(c)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
(d)
|
|
|
|
|
|
|
2,204
|
|
|
|
|
|
|
|
2,204
|
|
Government securities
(e)
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
917
|
|
U.S. municipal securities
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Alternative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity partnerships
(f)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
Private equity partnerships measured at net asset value
(f) (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706
|
|
Common/collective trusts
(g)
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Common/collective trusts and
103-12
Investment Trust measured at net asset value
(g) (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
Insurance group annuity contracts
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Dividend and interest receivable
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Due to/from brokers for sale of securities net
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Other assets net
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Other liabilities net
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,595
|
|
|
$
|
3,199
|
|
|
$
|
18
|
|
|
$
|
9,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
a)
|
Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of
other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.
|
b)
|
There are no significant concentrations of holdings by company or industry.
|
c)
|
Investment includes mutual funds invested 40% in equity securities of
large-cap,
mid-cap
and
small-cap
U.S. companies, 35% in U.S. treasuries and corporate bonds and 25% in equity securities of international companies.
|
d)
|
Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a
S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.
|
e)
|
Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no
significant foreign currency risks within this classification.
|
f)
|
Includes limited partnerships that invest primarily in U.S. (89%) and European (11%) buyout opportunities of a range of privately held
companies. The pension plans master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the
underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plans master trust has future funding commitments of approximately $428 million over the next ten years.
|
g)
|
Investment includes 73% in an emerging market
103-12
Investment Trust with investments in emerging
country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing
markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.
|
h)
|
In accordance with ASU
2015-07,
certain investments that are measured using net asset value per share
(or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the notes to the consolidated financial statements.
|
Changes in fair
value measurements of Level 3 investments during the year ended December 31, 2016, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
Partnerships
|
|
|
Insurance
Group
Annuity
Contracts
|
|
Beginning balance at December 31, 2015
|
|
$
|
16
|
|
|
$
|
2
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Relating to assets sold during the period
|
|
|
7
|
|
|
|
|
|
Purchases
|
|
|
7
|
|
|
|
|
|
Sales
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
21
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Changes in fair value measurements of Level 3 investments
during the year ended December 31, 2015, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
Partnerships
|
|
|
Insurance
Group
Annuity
Contracts
|
|
Beginning balance at December 31, 2014
|
|
$
|
17
|
|
|
$
|
2
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
16
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
The fair value of our retiree medical and other postretirement benefits plans
assets at December 31, 2016 by asset category, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Asset Category
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Money market fund
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
Mutual funds Institutional Class
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of our retiree medical and other postretirement benefits plans
assets at December 31, 2015 by asset category, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2015
|
|
Asset Category
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Money market fund
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
Mutual funds Institutional Class
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Mutual funds AMR Class
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23
|
|
|
$
|
230
|
|
|
$
|
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in the retiree medical and other postretirement benefits plans
mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales
charge to participants. Purchases are restricted to certain retirement benefit plans, including our retiree medical and other postretirement benefits plans, resulting in a fair value classification of Level 2. Investments include approximately
27% of investments in
non-U.S.
common stocks in each of 2016 and 2015. Net asset value is based on the fair market value of the funds underlying assets and liabilities at the date of determination.
Profit Sharing Program
We instituted an employee profit sharing program effective on January 1, 2016 and accrue 5% of our
pre-tax
income excluding special items to distribute to employees in early 2017. For the year ended December 31, 2016, we accrued $314 million for this program.
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
10. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension,
Retiree
Medical and
Other
Postretirement
Benefits
|
|
|
Derivative
Financial
Instruments
|
|
|
Unrealized
Gain
(Loss)
on
Investments
|
|
|
Income
Tax
Benefit
(Provision)
(1)
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
(3,683
|
)
|
|
$
|
9
|
|
|
$
|
(5
|
)
|
|
$
|
(880
|
)
|
|
$
|
(4,559
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(51
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(57
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(108
|
)
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive loss
|
|
|
(159
|
)
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
(3,842
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(880
|
)
|
|
|
(4,732
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(462
|
)
|
|
|
|
|
|
|
10
|
|
|
|
166
|
|
|
|
(286
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
37
|
(2)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
(564
|
)
|
|
|
|
|
|
|
10
|
|
|
|
203
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(4,406
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(677
|
)
|
|
$
|
(5,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income until
the obligations are fully extinguished.
|
(2)
|
Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision on the
consolidated statement of operations.
|
Reclassifications out of AOCI for the years
ended December 31, 2016 and 2015 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
|
|
|
Affected line items on the
consolidated
statement of
operations
|
|
|
Year Ended December 31,
|
|
|
AOCI Components
|
|
2016
|
|
|
2015
|
|
|
Amortization of pension, retiree medical and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
$
|
(134
|
)
|
|
$
|
(212
|
)
|
|
Salaries, wages and benefits
|
Actuarial loss
|
|
|
69
|
|
|
|
104
|
|
|
Salaries, wages and benefits
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
(9
|
)
|
|
Aircraft fuel and related taxes
|
Net unrealized change on investments:
|
|
|
|
|
|
|
|
|
|
|
Net change in value
|
|
|
|
|
|
|
1
|
|
|
Other nonoperating, net
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(65
|
)
|
|
$
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Amounts allocated to OCI for income taxes as further described in
Note 6 will remain in AOCI until we cease all related activities, such as termination of the pension plan.
11. Commitments, Contingencies and Guarantees
(a) Aircraft and Engine Purchase Commitments
Under all of our aircraft and engine purchase agreements, our total future commitments as of December 31, 2016 are expected to be as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Payments for aircraft commitments and certain engines
(1)
|
|
$
|
4,064
|
|
|
$
|
2,192
|
|
|
$
|
3,113
|
|
|
$
|
3,133
|
|
|
$
|
2,948
|
|
|
$
|
2,553
|
|
|
$
|
18,003
|
|
(1)
|
These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for regional aircraft. American has
granted a security interest in its purchase deposits with Boeing. Our purchase deposits held by all manufacturers totaled $1.2 billion as of December 31, 2016.
|
(b) Facility and support commitments
We have contracts related to facility construction or improvement projects, primarily at airport locations, as well
as information technology support. The contractual obligations related to these contracts are presented in the table below (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Facility construction or improvement contracts
|
|
$
|
182
|
|
|
$
|
126
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
321
|
|
Information technology contracts
|
|
|
205
|
|
|
|
168
|
|
|
|
128
|
|
|
|
47
|
|
|
|
24
|
|
|
|
8
|
|
|
|
580
|
|
(c) Capacity Purchase Agreements with Third-Party Regional Carriers
American has capacity purchase agreements with third-party regional carriers. The capacity purchase agreements
provide that all revenues, including passenger,
in-flight,
ancillary, mail and freight revenues, go to American. In return, American agrees to pay predetermined fees to these airlines for operating an
agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that American reimburses 100% of certain variable costs, such as airport landing fees and passenger liability insurance.
American controls marketing, scheduling, ticketing, pricing and seat inventories.
As of
December 31, 2016, Americans capacity purchase agreements with third-party regional carriers had expiration dates ranging from 2017 to 2027, with rights of American to extend the respective terms of certain agreements. See Part I,
Item 2. Properties for unaudited information on the aircraft operated by third-party regional carriers under such capacity purchase agreements.
As of December 31, 2016, Americans minimum fixed obligations under its capacity purchase agreements with third-party regional carriers are as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Minimum fixed obligations under capacity purchase agreements with third-party regional carriers
(1)
|
|
$
|
1,710
|
|
|
$
|
1,421
|
|
|
$
|
1,283
|
|
|
$
|
1,048
|
|
|
$
|
855
|
|
|
$
|
2,738
|
|
|
$
|
9,055
|
|
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(1)
|
Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs
based on assumed minimum levels of flying under the capacity purchase agreements and Americans actual payments could differ materially. These obligations also include the portion of Americans future obligations related to aircraft deemed
to be leased in the amount of approximately $434 million in 2017, $370 million in 2018, $349 million in 2019, $317 million in 2020, $280 million in 2021 and $927 million in 2022 and thereafter.
|
(d) Operating Leases
We lease certain aircraft, engines and ground equipment, in addition to the majority of our ground facilities and
terminal space. As of December 31, 2016, we had 419 aircraft under operating leases, with remaining terms ranging from three months to approximately 11 years. Airports are utilized for flight operations under lease arrangements with the
municipalities or agencies owning or controlling such airports. Substantially all leases provide that the lessee must pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Some leases also include
renewal and purchase options.
As of December 31, 2016, obligations under noncancellable operating
leases for future minimum lease payments are as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Future minimum lease payments
|
|
$
|
2,250
|
|
|
$
|
2,016
|
|
|
$
|
1,815
|
|
|
$
|
1,639
|
|
|
$
|
1,214
|
|
|
$
|
3,793
|
|
|
$
|
12,727
|
|
Mainline and regional rent expense, excluding landing fees, was $2.8 billion
in each of 2016, 2015 and 2014.
(e)
Off-Balance
Sheet Arrangements
Aircraft
American currently operates 346 owned aircraft and 138 leased aircraft which were financed with EETCs issued by pass-through trusts. These trusts are
off-balance
sheet entities, the primary purpose of which is to finance the acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft is purchased, delivered or
refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. The trusts were also
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.
Each trust covers a set number of aircraft scheduled to be delivered or refinanced upon the
issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft 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. The equipment notes are issued, at Americans election, in connection with a mortgage financing of
the aircraft or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the equipment notes are secured by a security interest in the aircraft. The pass-through
trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have
been guaranteed by AAG. As of December 31, 2016, $10.9 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.
With respect to leveraged leases, American evaluated whether the leases had characteristics of a variable interest
entity. American concluded the leasing entities met the criteria for variable interest entities. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the
lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates American to absorb decreases in value or entitles American to participate in increases in the value of the aircraft. American does not
provide residual value guarantees to the bondholders or equity participants in the trusts. Some leases have a fair market value or a fixed price purchase option that allows American to purchase the aircraft at or near the end of the lease term.
However, the option price approximates an estimate of the aircrafts fair value at the option date. Under this feature, American does not participate in any increases in the value of the aircraft. American concluded it is not the primary
beneficiary under these arrangements. Therefore, American accounts for its EETC leveraged lease financings as operating leases. Americans total future obligations under these leveraged lease financings are $1.5 billion as of
December 31, 2016, which are included in the future minimum lease payments table above.
Special Facility
Revenue Bonds
AAG guarantees the payment of principal and interest of certain special facility
revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment which is leased to American. Under such leases, American is required to make rental payments through 2035, sufficient to pay maturing
principal and interest payments on the related bonds. As of December 31, 2016, the remaining lease payments guaranteeing the principal and interest on these bonds are $605 million, which are accounted for as operating leases.
(f) Legal Proceedings
Chapter 11 Cases
. On November 29, 2011, AMR, American, and certain of AMRs other direct and indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order approving and confirming the
Debtors fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger.
Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG
common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. As of December 31, 2016, there were approximately 25.2 million shares of AAG common stock remaining in the
Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, we are
not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully pay any additional allowed
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
unsecured claims. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be
distributed to former AMR stockholders.
There is also pending in the Bankruptcy Court an adversary
proceeding relating to an action brought by American to seek a determination that certain
non-pension,
postemployment benefits are not vested benefits and thus may be modified or terminated without liability
to American. On April 18, 2014, the Bankruptcy Court granted Americans motion for summary judgment with respect to certain
non-union
employees, concluding that their benefits were not vested and
could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees benefits are vested, and American cannot predict
whether it will receive relief from obligations to provide benefits to any of those retirees. Our financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may
ultimately be implemented based upon the outcome of this proceeding.
DOJ Antitrust Civil
Investigative Demand
. In June 2015, we received a Civil Investigative Demand (CID) from the United States Department of Justice (DOJ) as part of an investigation into whether there have been illegal agreements or coordination of air passenger
capacity. The CID seeks documents and other information from us, and other airlines have announced that they have received similar requests. We are cooperating fully with the DOJ investigation. In addition, subsequent to announcement of the delivery
of CIDs by the DOJ, we, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in approximately 100 putative class action lawsuits
alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits have been consolidated in the Federal District Court for the District of Columbia. On October 28, 2016, the Court denied a motion by the airline defendants
to dismiss all claims in the class actions. Both the DOJ investigation and these lawsuits are in their relatively early stages and we intend to defend these matters vigorously.
Private Party Antitrust Action
. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US
Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint named as defendants US Airways Group and US Airways, Inc., alleged that the effect of the Merger may be to create a
monopoly in violation of Section 7 of the Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On August 6, 2013, the plaintiffs
re-filed
their complaint in the Bankruptcy Court,
adding AMR and American as defendants. On November 27, 2013, the Bankruptcy Court denied plaintiffs motion to preliminarily enjoin the Merger. On August 19, 2015, after three previous largely unsuccessful attempts to amend their
complaint, plaintiffs filed a fourth motion for leave to file an amended and supplemental complaint to add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air
passenger capacity. Thereafter, plaintiffs filed a request with the Judicial Panel on Multidistrict Litigation to consolidate the Fjord matter with the putative class action lawsuits, which was denied on October 15, 2015. A jointly proposed
schedule for the remainder of the case was submitted on September 7, 2016, which has not yet been accepted by the Bankruptcy Court. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.
DOJ Investigation Related to the United States Postal Service
. In April 2015, the DOJ informed us of an
inquiry regarding Americans 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air. In October 2015, we received a CID from the DOJ seeking certain information relating to these
contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis. The DOJ has indicated it is
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
investigating potential violations of the False Claims Act or other statutes. We are cooperating fully with the DOJ with regard to its investigation.
General
. In addition to the specifically identified legal proceedings, we and our subsidiaries are also
engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control.
Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material. See Part
I, Item 1A. Risk Factors
We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity
for unaudited additional discussion.
(g) Guarantees and Indemnifications
We are party to many routine contracts in which we provide general indemnities in the normal course of business to
third parties for various risks. We are not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs.
In our aircraft financing agreements, we generally indemnify the financing parties, trustees acting on their behalf
and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or taxes) relate to the
negligence of the indemnified parties.
Our loan agreements and other LIBOR-based financing transactions
(including certain leveraged aircraft leases) generally obligate us to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or
credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, our loan agreements and other financing
arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result
of a change in the applicable tax law.
These increased cost and withholding tax provisions continue for
the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts we could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of
default and, in a secured financing transaction, would entitle the lender to foreclose on the collateral to realize the amount due.
In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax
law, illegality or certain other events or circumstances. In such a case, we may be required to make a lump sum payment to terminate the relevant transaction.
We have general indemnity clauses in many of our airport and other real estate leases where we as lessee indemnify the lessor (and related parties) against liabilities related to our use of the
leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, we
provide environmental indemnities in many of these leases for contamination related to our use of the leased property.
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Under certain contracts with third parties, we indemnify the
third-party against legal liability arising out of an action by the third-party, or certain other parties. 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.
We are involved
in certain claims and litigation related to our operations. We are also subject to regulatory assessments in the ordinary course of business. We establish reserves for litigation and regulatory matters when those matters present loss contingencies
that are both probable and can be reasonably estimated. In the opinion of management, liabilities, if any, arising from these regulatory matters, claims and litigation will not have a material adverse effect on our consolidated financial position,
results of operations, or cash flows, after consideration of available insurance.
As of
December 31, 2016, AAG had issued guarantees covering approximately $844 million of Americans special facility revenue bonds (and interest thereon) and $9.3 billion of Americans secured debt (and interest thereon),
including the Credit Facilities and certain EETC financings.
(h) Credit Card Processing Agreements
We have agreements with companies that process customer credit card transactions for the sale of
air travel and other services. Our agreements allow these processing companies, under certain conditions, to hold an amount of our cash (referred to as a holdback) equal to a portion of advance ticket sales that have been processed by that company,
but for which we have not yet provided the air transportation. Additional holdback requirements in the event of material adverse changes in our financial condition will reduce our liquidity in the form of unrestricted cash by the amount of the
holdbacks. We are not currently required to maintain any holdbacks pursuant to these requirements.
(i) Labor
Negotiations
As of December 31, 2016, we employed approximately 122,300 active full-time
equivalent employees, of which 20,800 were employed by our regional operations. Approximately 85% of employees are covered by collective bargaining agreements with various labor unions. Negotiations for joint collective bargaining agreements
covering our mainline maintenance, fleet service, stores and planner employees as well as for certain employee groups at our wholly-owned regional subsidiaries are continuing. There is no assurance that a successful or timely resolution of these
labor negotiations will be achieved.
(j) Other
As a result of the terrorist attacks of September 11, 2001 and the subsequent liability protections provided
for by the Air Transportation Safety and System Stabilization Act (the Stabilization Act), we recorded a liability for these terrorist attacks claims equal to the related insurance receivable due to us. The Stabilization Act provides that,
notwithstanding any other provision of law, liability for all claims, whether compensatory or punitive, arising from these terrorist attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. As of
December 31, 2016, the remaining liability and the amount of the offsetting receivable were each $974 million.
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
12. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information and
non-cash
investing and
financing activities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of bankruptcy obligations
|
|
$
|
3
|
|
|
$
|
63
|
|
|
$
|
5,495
|
|
Capital lease obligations
|
|
|
|
|
|
|
5
|
|
|
|
747
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
|
964
|
|
|
|
873
|
|
|
|
814
|
|
Income taxes paid
|
|
|
16
|
|
|
|
20
|
|
|
|
7
|
|
13. Operating Segments and Related Disclosures
We are managed as a single business unit that provides air transportation for passengers and cargo. This allows us
to benefit from an integrated revenue pricing and route network that includes American and our wholly-owned and third-party regional carriers that fly under capacity purchase agreements operating as American Eagle. The flight equipment of all these
carriers is combined to form one fleet that is deployed through a single route scheduling system. When making resource allocation decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and
route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. The objective in making resource allocation decisions is to maximize consolidated financial results, not the individual
results of American or American Eagle.
Our operating revenues by geographic region as defined by the
United States Department of Transportation (DOT) are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
DOT Domestic
|
|
$
|
28,620
|
|
|
$
|
28,761
|
|
|
$
|
28,568
|
|
DOT Latin America
|
|
|
4,995
|
|
|
|
5,539
|
|
|
|
6,964
|
|
DOT Atlantic
|
|
|
4,769
|
|
|
|
5,146
|
|
|
|
5,652
|
|
DOT Pacific
|
|
|
1,796
|
|
|
|
1,544
|
|
|
|
1,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,180
|
|
|
$
|
40,990
|
|
|
$
|
42,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We attribute operating revenues by geographic region based upon the origin and
destination of each flight segment. Our tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.
14. 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 authorizes the grant of awards for the issuance of 40 million shares. Any shares underlying awards granted under the 2013 Plan, or any
pre-existing
US Airways Group 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.
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
Our net income for the years ended December 31, 2016, 2015
and 2014 included $102 million, $274 million and $381 million, respectively, of share-based compensation costs. Of the 2015 and 2014 amounts, $198 million and $224 million, respectively, were related to awards granted to
certain employees in connection with the Merger and recorded in special items, net on the accompanying consolidated statements of operations.
During 2016, 2015 and 2014, we withheld approximately 1.4 million, 7.0 million and 1.7 million shares of AAG common stock, respectively, and paid approximately $56 million,
$306 million and $62 million, respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards.
(a) Restricted Stock Unit Awards (RSUs)
We have granted RSUs with service conditions (time vested primarily over three years) and performance conditions.
The grant-date fair value of RSUs is equal to the market price of the underlying shares of common stock on the date of grant. 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. Stock-settled RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock.
Cash-settled restricted stock unit awards (CRSUs) are classified as liability awards as the vesting results in payment of cash.
Stock-settled RSU award activity for all plans for the years ended December 31, 2016, 2015 and 2014 is as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
|
(In thousands)
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
23,879
|
|
|
$
|
24.33
|
|
Granted
|
|
|
3,467
|
|
|
|
37.07
|
|
Vested and released
|
|
|
(4,193
|
)
|
|
|
23.84
|
|
Forfeited
|
|
|
(1,811
|
)
|
|
|
25.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
21,342
|
|
|
$
|
26.43
|
|
Granted
|
|
|
2,213
|
|
|
|
46.62
|
|
Vested and released
|
|
|
(17,163
|
)
|
|
|
25.20
|
|
Forfeited
|
|
|
(785
|
)
|
|
|
27.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
5,607
|
|
|
$
|
38.08
|
|
Granted
|
|
|
2,655
|
|
|
|
41.34
|
|
Vested and released
|
|
|
(2,754
|
)
|
|
|
34.83
|
|
Forfeited
|
|
|
(321
|
)
|
|
|
40.15
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
5,187
|
|
|
$
|
41.48
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $116 million of unrecognized
compensation cost related to stock-settled RSUs. These costs are expected to be recognized over a weighted average period of one year. The total fair value of stock-settled RSUs vested during the years ended December 31, 2016, 2015 and 2014 was
$107 million, $750 million and $154 million, respectively.
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
As of December 31, 2016, we had a nominal amount of CRSUs
outstanding. The total cash paid for CRSUs vested during the years ended December 31, 2016, 2015 and 2014 was less than $1 million, $10 million and $12 million, respectively.
(b) Stock Options and Stock Appreciation Rights
We assumed US Airways Groups outstanding stock options and stock appreciation rights in connection with the
Merger using an exchange ratio of one to one. These stock options and stock appreciation rights were granted with an exercise price equal to the underlying common stocks fair value at the date of each grant, have service conditions, become
exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years. Stock options and stock-settled stock appreciation rights (SARs) are classified as equity awards as the exercise
results in the issuance of shares of AAG common stock. Cash-settled stock appreciation rights (CSARs) are classified as liability awards as the exercise results in payment of cash. Compensation costs were expensed on a straight-line basis over the
vesting period for the entire award. There are no unrecognized compensation costs as all awards outstanding are vested.
Stock option and SAR award activity for all plans for the years ended December 31, 2016, 2015 and 2014 is as follows (stock options and SARs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
and
SARs
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
Balance at December 31, 2013
|
|
|
11,158
|
|
|
$
|
12.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,109
|
)
|
|
|
10.74
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(42
|
)
|
|
|
41.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
7,007
|
|
|
$
|
13.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,985
|
)
|
|
|
12.09
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(9
|
)
|
|
|
45.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
4,013
|
|
|
$
|
15.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,738
|
)
|
|
|
14.49
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(180
|
)
|
|
|
46.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
2,095
|
|
|
$
|
13.08
|
|
|
|
1.6
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options and SARs exercised during the years
ended December 31, 2016, 2015 and 2014 was $49 million, $102 million and $105 million, respectively. All stock options and SARs outstanding at December 31, 2016 are vested and exercisable.
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
CSAR award activity for all plans for the years ended
December 31, 2016, 2015 and 2014 is as follows (CSARs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSARs
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
Balance at December 31, 2013
|
|
|
2,865
|
|
|
$
|
6.26
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,254
|
)
|
|
|
6.18
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
1,611
|
|
|
$
|
6.33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(760
|
)
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
851
|
|
|
$
|
6.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(501
|
)
|
|
|
5.24
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
350
|
|
|
$
|
7.94
|
|
|
|
1.0
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the weighted average fair value of outstanding CSARs
was $38.57 per share and the related liability was $13 million. These CSARs are fully vested and exercisable and will continue to be remeasured at fair value at each reporting date until all awards are settled. Total cash paid for CSARs
exercised during the years ended December 31, 2016, 2015 and 2014 was $18 million, $31 million and $42 million, respectively.
15. Valuation and Qualifying Accounts (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Year
|
|
|
Changes
Charged to
Statement of
Operations
Accounts
|
|
|
Write-offs
(Net
of
Recoveries)
|
|
|
Sales,
Retirements
and
Transfers
|
|
|
Balance
at End
of
Year
|
|
Allowance for obsolescence of inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
$
|
728
|
|
|
$
|
37
|
|
|
$
|
(3
|
)
|
|
$
|
3
|
|
|
$
|
765
|
|
Year ended December 31, 2015
|
|
|
673
|
|
|
|
50
|
|
|
|
(4
|
)
|
|
|
9
|
|
|
|
728
|
|
Year ended December 31, 2014
|
|
|
547
|
|
|
|
142
|
|
|
|
(4
|
)
|
|
|
(12
|
)
|
|
|
673
|
|
Allowance for uncollectible accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
$
|
41
|
|
|
$
|
47
|
|
|
$
|
(52
|
)
|
|
$
|
|
|
|
$
|
36
|
|
Year ended December 31, 2015
|
|
|
17
|
|
|
|
46
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
41
|
|
Year ended December 31, 2014
|
|
|
41
|
|
|
|
6
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
17
|
|
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
16. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2016 and 2015 (in millions, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
9,435
|
|
|
$
|
10,363
|
|
|
$
|
10,594
|
|
|
$
|
9,789
|
|
Operating expenses
|
|
|
8,100
|
|
|
|
8,612
|
|
|
|
9,163
|
|
|
|
9,022
|
|
Operating income
|
|
|
1,335
|
|
|
|
1,751
|
|
|
|
1,431
|
|
|
|
767
|
|
Net income
|
|
|
700
|
|
|
|
950
|
|
|
|
737
|
|
|
|
289
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.15
|
|
|
$
|
1.69
|
|
|
$
|
1.40
|
|
|
$
|
0.56
|
|
Diluted
|
|
$
|
1.14
|
|
|
$
|
1.68
|
|
|
$
|
1.40
|
|
|
$
|
0.56
|
|
Shares used for computation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
606,245
|
|
|
|
563,000
|
|
|
|
525,415
|
|
|
|
514,571
|
|
Diluted
|
|
|
611,488
|
|
|
|
566,040
|
|
|
|
528,510
|
|
|
|
518,358
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
9,827
|
|
|
$
|
10,827
|
|
|
$
|
10,706
|
|
|
$
|
9,630
|
|
Operating expenses
|
|
|
8,611
|
|
|
|
8,906
|
|
|
|
8,707
|
|
|
|
8,562
|
|
Operating income
|
|
|
1,216
|
|
|
|
1,921
|
|
|
|
1,999
|
|
|
|
1,068
|
|
Net income
|
|
|
932
|
|
|
|
1,704
|
|
|
|
1,693
|
|
|
|
3,281
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.34
|
|
|
$
|
2.47
|
|
|
$
|
2.56
|
|
|
$
|
5.24
|
|
Diluted
|
|
$
|
1.30
|
|
|
$
|
2.41
|
|
|
$
|
2.49
|
|
|
$
|
5.09
|
|
Shares used for computation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
696,415
|
|
|
|
688,727
|
|
|
|
661,869
|
|
|
|
626,559
|
|
Diluted
|
|
|
716,930
|
|
|
|
707,611
|
|
|
|
680,739
|
|
|
|
644,140
|
|
Our fourth quarter 2016 results include $273 million of total net special
charges consisting principally of $121 million of Merger integration expenses, $104 million of fleet restructuring expenses and a $47 million net charge consisting of
mark-to-market
adjustments for bankruptcy obligations.
Our fourth quarter 2015 results include $2.0 billion of total net special credits consisting principally of a $3.0 billion
non-cash
tax benefit
recorded in connection with the reversal of our tax valuation allowance, offset in part by a nonoperating net special charge of $592 million to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations
and deterioration of economic conditions in Venezuela and $450 million in total operating special charges primarily consisting of Merger integration expenses and fleet restructuring expenses.
17. Subsequent Events
2017-1
EETCs
In January 2017, American created three pass-through trusts which issued approximately $983 million aggregate principal amount of Series
2017-1
Class AA, Class A and Class B EETCs (the
2017-1
EETCs) in connection with the financing of 24 aircraft scheduled to be delivered to American between January 2017 and May 2017 (the
2017-1
Aircraft). A portion of the proceeds received from the sale of the
2017-1
EETCs has been used to acquire Series AA, A and B equipment notes issued by American to the
pass-through trusts and the balance of such proceeds is being held in escrow for
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
the benefit of the holders of the
2017-1
EETCs until such time as American issues additional Series AA, A and B equipment notes to the pass-through trusts,
which will purchase the equipment notes with escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on our consolidated balance sheet because the proceeds held by the depository are not Americans
assets.
Series AA equipment notes bear interest at 3.65% per annum, Series A equipment notes bear
interest at 4.00% per annum and Series B equipment notes bear interest at 4.95% per annum. Interest and principal payments on the equipment notes will be payable semi-annually in February and August of each year, with interest payments beginning in
August 2017 and principal payments beginning in February 2018. The final payments on the Series AA and Series A equipment notes are due in February 2029 and the final payment on the Series B equipment notes is due in February 2025. The equipment
notes are secured by liens on the
2017-1
Aircraft.
Share Repurchase
Program and Dividend Declaration
In January 2017, we announced that our Board of Directors had
authorized a new $2.0 billion share repurchase program that expires on December 31, 2018. Share repurchases under our share repurchase programs may be made through a variety of methods, which may include open market purchases, privately
negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. Our share
repurchase programs do not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion.
Also in January 2017, we announced that our Board of Directors had declared a $0.10 per share dividend for stockholders of record on February 13, 2017, and payable on February 27, 2017.
Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors. We are not obligated to continue a dividend for any fixed period, and
payment of dividends may be suspended at any time at our discretion.
135
ITEM 8B. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA OF AMERICAN AIRLINES, INC.
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Stockholder
American Airlines, Inc.:
We have audited the accompanying consolidated balance sheets of American Airlines, Inc. and subsidiaries (American) as of December 31, 2016 and 2015, and the related consolidated statements of
operations, comprehensive income, cash flows, and stockholders equity (deficit) for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of Americans
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American Airlines, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Americans internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal
Control
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2017 expressed an unqualified
opinion on the effectiveness of Americans internal control over financial reporting.
/s/ KPMG LLP
Dallas, Texas
February 22,
2017
136
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline passenger
|
|
$
|
27,909
|
|
|
$
|
29,037
|
|
|
$
|
30,802
|
|
Regional passenger
|
|
|
6,670
|
|
|
|
6,475
|
|
|
|
6,322
|
|
Cargo
|
|
|
700
|
|
|
|
760
|
|
|
|
875
|
|
Other
|
|
|
4,884
|
|
|
|
4,666
|
|
|
|
4,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
40,163
|
|
|
|
40,938
|
|
|
|
42,676
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel and related taxes
|
|
|
5,071
|
|
|
|
6,226
|
|
|
|
10,592
|
|
Salaries, wages and benefits
|
|
|
10,881
|
|
|
|
9,514
|
|
|
|
8,499
|
|
Regional expenses
|
|
|
6,009
|
|
|
|
5,952
|
|
|
|
6,477
|
|
Maintenance, materials and repairs
|
|
|
1,834
|
|
|
|
1,889
|
|
|
|
2,051
|
|
Other rent and landing fees
|
|
|
1,772
|
|
|
|
1,731
|
|
|
|
1,727
|
|
Aircraft rent
|
|
|
1,203
|
|
|
|
1,250
|
|
|
|
1,250
|
|
Selling expenses
|
|
|
1,323
|
|
|
|
1,394
|
|
|
|
1,544
|
|
Depreciation and amortization
|
|
|
1,525
|
|
|
|
1,364
|
|
|
|
1,301
|
|
Special items, net
|
|
|
709
|
|
|
|
1,051
|
|
|
|
783
|
|
Other
|
|
|
4,532
|
|
|
|
4,378
|
|
|
|
4,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
34,859
|
|
|
|
34,749
|
|
|
|
38,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,304
|
|
|
|
6,189
|
|
|
|
4,266
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
104
|
|
|
|
49
|
|
|
|
32
|
|
Interest expense, net of capitalized interest
|
|
|
(906
|
)
|
|
|
(796
|
)
|
|
|
(847
|
)
|
Other, net
|
|
|
(59
|
)
|
|
|
(774
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
(861
|
)
|
|
|
(1,521
|
)
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,443
|
|
|
|
4,668
|
|
|
|
3,268
|
|
Income tax provision (benefit)
|
|
|
1,662
|
|
|
|
(3,452
|
)
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,781
|
|
|
$
|
8,120
|
|
|
$
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
137
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
2,781
|
|
|
$
|
8,120
|
|
|
$
|
2,948
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension, retiree medical and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss and prior service cost
|
|
|
(65
|
)
|
|
|
(109
|
)
|
|
|
(163
|
)
|
Current year change
|
|
|
(292
|
)
|
|
|
(51
|
)
|
|
|
(2,621
|
)
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
Reclassification into earnings
|
|
|
|
|
|
|
(9
|
)
|
|
|
(4
|
)
|
Unrealized gain (loss) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in value
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Reversal of
non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss, net of tax
|
|
|
(351
|
)
|
|
|
(175
|
)
|
|
|
(2,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
2,430
|
|
|
$
|
7,945
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
138
AMERICAN AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
310
|
|
|
$
|
364
|
|
Short-term investments
|
|
|
6,034
|
|
|
|
5,862
|
|
Restricted cash and short-term investments
|
|
|
638
|
|
|
|
695
|
|
Accounts receivable, net
|
|
|
1,599
|
|
|
|
1,420
|
|
Receivables from related parties, net
|
|
|
6,810
|
|
|
|
1,981
|
|
Aircraft fuel, spare parts and supplies, net
|
|
|
1,032
|
|
|
|
796
|
|
Prepaid expenses and other
|
|
|
633
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,056
|
|
|
|
11,858
|
|
Operating property and equipment
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
36,671
|
|
|
|
32,838
|
|
Ground property and equipment
|
|
|
6,910
|
|
|
|
6,224
|
|
Equipment purchase deposits
|
|
|
1,209
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, at cost
|
|
|
44,790
|
|
|
|
40,129
|
|
Less accumulated depreciation and amortization
|
|
|
(13,909
|
)
|
|
|
(12,893
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
30,881
|
|
|
|
27,236
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,091
|
|
|
|
4,091
|
|
Intangibles, net of accumulated amortization of $578 and $502, respectively
|
|
|
2,173
|
|
|
|
2,249
|
|
Deferred tax asset
|
|
|
1,912
|
|
|
|
2,932
|
|
Other assets
|
|
|
1,979
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
10,155
|
|
|
|
11,345
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,092
|
|
|
$
|
50,439
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and capital leases
|
|
$
|
1,859
|
|
|
$
|
2,234
|
|
Accounts payable
|
|
|
1,546
|
|
|
|
1,517
|
|
Accrued salaries and wages
|
|
|
1,460
|
|
|
|
1,156
|
|
Air traffic liability
|
|
|
3,912
|
|
|
|
3,747
|
|
Loyalty program liability
|
|
|
2,789
|
|
|
|
2,525
|
|
Other accrued liabilities
|
|
|
2,106
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,672
|
|
|
|
13,377
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, net of current maturities
|
|
|
20,718
|
|
|
|
16,592
|
|
Pension and postretirement benefits
|
|
|
7,800
|
|
|
|
7,410
|
|
Deferred gains and credits, net
|
|
|
526
|
|
|
|
667
|
|
Other liabilities
|
|
|
2,727
|
|
|
|
2,695
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
31,771
|
|
|
|
27,364
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in
capital
|
|
|
16,624
|
|
|
|
16,521
|
|
Accumulated other comprehensive loss
|
|
|
(5,182
|
)
|
|
|
(4,831
|
)
|
Retained earnings (deficit)
|
|
|
1,207
|
|
|
|
(1,992
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
12,649
|
|
|
|
9,698
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
58,092
|
|
|
$
|
50,439
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
139
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,781
|
|
|
$
|
8,120
|
|
|
$
|
2,948
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,762
|
|
|
|
1,560
|
|
|
|
1,469
|
|
Debt discount and lease amortization
|
|
|
(124
|
)
|
|
|
(126
|
)
|
|
|
(171
|
)
|
Special items,
non-cash
|
|
|
270
|
|
|
|
295
|
|
|
|
91
|
|
Pension and postretirement
|
|
|
(70
|
)
|
|
|
(194
|
)
|
|
|
(163
|
)
|
Deferred income tax provision (benefit)
|
|
|
1,652
|
|
|
|
(3,467
|
)
|
|
|
344
|
|
Share-based compensation
|
|
|
100
|
|
|
|
284
|
|
|
|
300
|
|
Other, net
|
|
|
(16
|
)
|
|
|
(21
|
)
|
|
|
7
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(169
|
)
|
|
|
354
|
|
|
|
(176
|
)
|
Increase in other assets
|
|
|
(205
|
)
|
|
|
(22
|
)
|
|
|
(191
|
)
|
Increase in accounts payable and accrued liabilities
|
|
|
336
|
|
|
|
214
|
|
|
|
74
|
|
Increase (decrease) in air traffic liability
|
|
|
164
|
|
|
|
(505
|
)
|
|
|
(97
|
)
|
Increase in receivables from related parties, net
|
|
|
(4,862
|
)
|
|
|
(3,695
|
)
|
|
|
(527
|
)
|
Increase (decrease) in loyalty program liability
|
|
|
264
|
|
|
|
(295
|
)
|
|
|
(229
|
)
|
Contributions to pension plans
|
|
|
(32
|
)
|
|
|
(6
|
)
|
|
|
(809
|
)
|
Increase (decrease) in other liabilities
|
|
|
(101
|
)
|
|
|
91
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,750
|
|
|
|
2,587
|
|
|
|
2,578
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and aircraft purchase deposits
|
|
|
(5,657
|
)
|
|
|
(6,075
|
)
|
|
|
(5,256
|
)
|
Purchases of short-term investments
|
|
|
(6,241
|
)
|
|
|
(8,126
|
)
|
|
|
(5,380
|
)
|
Sales of short-term investments
|
|
|
6,092
|
|
|
|
8,517
|
|
|
|
7,179
|
|
Decrease in restricted cash and short-term investments
|
|
|
57
|
|
|
|
79
|
|
|
|
261
|
|
Net proceeds from slot transaction
|
|
|
|
|
|
|
|
|
|
|
307
|
|
Proceeds from sale of property and equipment
|
|
|
113
|
|
|
|
26
|
|
|
|
20
|
|
Other investing activities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,634
|
)
|
|
|
(5,579
|
)
|
|
|
(2,869
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital leases
|
|
|
(3,827
|
)
|
|
|
(2,153
|
)
|
|
|
(2,955
|
)
|
Proceeds from issuance of long-term debt
|
|
|
7,701
|
|
|
|
4,509
|
|
|
|
2,552
|
|
Deferred financing costs
|
|
|
(77
|
)
|
|
|
(80
|
)
|
|
|
(95
|
)
|
Sale-leaseback transactions
|
|
|
5
|
|
|
|
43
|
|
|
|
811
|
|
Funds transferred from (to) affiliates, net
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
Other financing activities
|
|
|
28
|
|
|
|
53
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,830
|
|
|
|
2,372
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(54
|
)
|
|
|
(620
|
)
|
|
|
(148
|
)
|
Cash at beginning of year
|
|
|
364
|
|
|
|
984
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
310
|
|
|
$
|
364
|
|
|
$
|
984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
140
AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Retained
Earnings
(Deficit)
|
|
|
Total
|
|
Balance at December 31, 2013
|
|
$
|
|
|
|
$
|
10,802
|
|
|
$
|
(2,140
|
)
|
|
$
|
(13,060
|
)
|
|
$
|
(4,398
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,948
|
|
|
|
2,948
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(2,784
|
)
|
|
|
|
|
|
|
(2,784
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
Reversal of
non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
328
|
|
Share-based compensation expense
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Intercompany equity transfer
|
|
|
|
|
|
|
5,072
|
|
|
|
|
|
|
|
|
|
|
|
5,072
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
|
|
|
|
16,174
|
|
|
|
(4,656
|
)
|
|
|
(10,112
|
)
|
|
|
1,406
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,120
|
|
|
|
8,120
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(160
|
)
|
|
|
|
|
|
|
(160
|
)
|
Net changes in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
Intercompany equity transfer
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
|
|
|
16,521
|
|
|
|
(4,831
|
)
|
|
|
(1,992
|
)
|
|
|
9,698
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,781
|
|
|
|
2,781
|
|
Changes in pension, retiree medical and other postretirement benefits liability
|
|
|
|
|
|
|
|
|
|
|
(563
|
)
|
|
|
|
|
|
|
(563
|
)
|
Non-cash
tax benefit
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
203
|
|
Share-based compensation expense
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Impact of adoption of Accounting Standards Update (ASU)
2016-09
(See Note 1
(r))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
418
|
|
Intercompany equity transfer
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Change in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
|
|
|
$
|
16,624
|
|
|
$
|
(5,182
|
)
|
|
$
|
1,207
|
|
|
$
|
12,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN
AIRLINES, INC.
1. Basis of Presentation and Summary of Significant Accounting Policies
(a) Basis of Presentation
American Airlines, Inc. (American) is a Delaware corporation whose primary business activity is the operation of a major network air carrier. American is a wholly-owned subsidiary of American
Airlines Group Inc. (AAG), which owns all of Americans outstanding common stock, par value $1.00 per share. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation,
which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11 (the Merger). Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. On December 30, 2015, in order to
simplify AAGs internal corporate structure, US Airways, Inc. (US Airways), a wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation.
The preparation of financial statements in accordance with accounting principles generally accepted in the United
States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the loyalty program, valuation
allowance for deferred tax assets, as well as pensions and retiree medical and other postretirement benefits. Certain prior year amounts have been reclassified to conform to the current year presentation.
(b) Short-term Investments
Short-term investments are classified as
available-for-sale
and stated at fair value. Realized gains and losses are
recorded in nonoperating expense on the consolidated statement of operations. Unrealized gains and losses are recorded in accumulated other comprehensive loss on the consolidated balance sheet.
(c) Restricted Cash and Short-term Investments
American has restricted cash and short-term investments related primarily to collateral held to support
workers compensation obligations.
(d) Aircraft Fuel, Spare Parts, and Supplies, Net
Aircraft fuel is recorded on a
first-in,
first-out
basis. Spare parts and supplies are recorded at net realizable value based on average costs. These items are expensed when used. An allowance for obsolescence is established for spare parts and
supplies.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(e) Operating Property and Equipment
Operating property and equipment is recorded at cost and depreciated or amortized to residual values over the
assets estimated useful life or the lease term, whichever is less, using the straight-line method. Residual values for aircraft, engines, and related rotable parts are generally 5% to 10% of original cost. Costs of major improvements that
enhance the usefulness of the asset are capitalized and depreciated or amortized over the estimated useful life of the asset or the lease term, whichever is less. The estimated useful lives for the principal property and equipment classifications
are as follows:
|
|
|
|
|
Principal Property and Equipment Classification
|
|
Estimated Useful Life
|
|
Aircraft, engines and related rotable parts
|
|
|
20 30 years
|
|
Buildings and improvements
|
|
|
Lesser of 5 - 30 years
|
|
Furniture, fixtures and other equipment
|
|
|
3 - 10 years
|
|
Capitalized software
|
|
|
5 - 10 years
|
|
American records impairment charges on operating property and equipment when events
and circumstances indicate that the assets may be impaired. An asset or group of assets is considered impaired when the undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of the assets and the net book
value of the assets exceeds their estimated fair value. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.
(f)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes.
American provides a valuation allowance for its deferred tax assets when it is more likely than not that some
portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. 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 Americans projections of future profitability, including risks associated with remaining Merger integration activities as
well as other conditions which are beyond Americans control, such as the health of the economy, the level and volatility of fuel prices and travel demand.
(g) Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets
acquired and liabilities assumed. Goodwill is not amortized but assessed for impairment annually on October
1
st
or more frequently if events or
circumstances indicate that goodwill may be impaired. American has one consolidated reporting unit.
Goodwill is measured for impairment by initially performing a qualitative assessment and, if necessary, then
comparing the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, a second step is performed to
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
determine the implied fair value of goodwill. If the implied fair value of goodwill is lower than its carrying value, an impairment charge equal to the difference is recorded. Based upon
Americans annual assessment, there was no goodwill impairment in 2016. The carrying value of the goodwill on Americans consolidated balance sheets was $4.1 billion as of December 31, 2016 and 2015.
(h) Other Intangibles, Net
Intangible assets consist primarily of domestic airport slots, customer relationships, marketing agreements, international slots and route authorities, airport gate leasehold rights and tradenames.
Finite-Lived Intangible Assets
Finite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The following table provides information relating to Americans amortizable intangible assets as of December 31, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Domestic airport slots
|
|
$
|
365
|
|
|
$
|
365
|
|
Customer relationships
|
|
|
300
|
|
|
|
300
|
|
Marketing agreements
|
|
|
105
|
|
|
|
105
|
|
Tradenames
|
|
|
35
|
|
|
|
35
|
|
Airport gate leasehold rights
|
|
|
137
|
|
|
|
137
|
|
Accumulated amortization
|
|
|
(578
|
)
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
364
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
Certain domestic airport slots and airport gate leasehold rights are amortized on a
straight-line basis over 25 years. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight-line basis over approximately nine years and 30 years, respectively.
Tradenames are fully amortized.
American recorded amortization expense related to these intangible
assets of $76 million, $55 million and $81 million for the years ended December 31, 2016, 2015 and 2014, respectively. American expects to record annual amortization expense for these intangible assets as follows (in millions):
|
|
|
|
|
2017
|
|
$
|
45
|
|
2018
|
|
|
41
|
|
2019
|
|
|
41
|
|
2020
|
|
|
41
|
|
2021
|
|
|
41
|
|
2022 and thereafter
|
|
|
155
|
|
|
|
|
|
|
Total
|
|
$
|
364
|
|
|
|
|
|
|
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets include certain domestic airport slots at Americans
hubs and international slots and route authorities. Indefinite-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1
st
or more frequently if events or circumstances indicate that the asset may be impaired. As of December 31,
2016 and 2015, American had $1.8 billion of indefinite-lived intangible assets on its consolidated balance sheets.
Indefinite-lived intangible assets are reviewed for impairment by initially performing a qualitative assessment to determine whether American believes it is more likely than not that an asset has
been impaired. If American believes impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value. An impairment charge is recognized if the assets estimated fair value is
less than its carrying value. Based upon Americans annual assessment, there was no indefinite-lived intangible asset impairment in 2016.
(i) Loyalty Program
American currently
operates the loyalty program, AAdvantage. 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 the Citi and
Barclaycard US
co-branded
credit cards, hotels and car rental companies. Mileage credits can be redeemed for travel on American or other participating partner airlines.
American uses the incremental cost method to account for the portion of its loyalty program liability incurred when
AAdvantage members earn mileage credits by flying on American, any
one
world airline or other partner airlines. American has an obligation to provide future travel when these mileage credits are redeemed and therefore have recorded a liability
for mileage credits outstanding.
The incremental cost liability includes all mileage credits, even
mileage credits for members whose account balances have not yet reached the minimum level required to redeem an award. Mileage credits are subject to expiration. The liability for outstanding mileage credits is valued based on the estimated
incremental cost of carrying one additional passenger. The estimated incremental cost primarily includes unit costs incurred for fuel, food and insurance as well as fees incurred when travel awards are redeemed on partner airlines. In calculating
the liability, American estimates how many mileage credits will never be redeemed for travel and excludes those mileage credits from the estimate of the liability. Estimates are also made for the number of miles that will be used per award
redemption and the number of travel awards that will be redeemed on partner airlines. These costs and estimates are based on Americans historical program experience as well as consideration of enacted program changes, as applicable. Changes in
the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue.
As of December 31, 2016 and 2015, the liability for outstanding mileage credits accounted for under the
incremental cost method was $669 million and $657 million, respectively, and is included on the consolidated balance sheets within loyalty program liability.
Additionally, American applied the acquisition method of accounting in connection with AAGs Merger in
December 2013 and recorded a liability for outstanding US Airways mileage credits at fair value, an amount significantly in excess of incremental cost. At December 31, 2016, all the mileage credits associated with this liability have been
recognized in passenger revenue. At December 31, 2015, this liability was $296 million and was included on the consolidated balance sheet within the loyalty program liability.
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
American also sells loyalty program mileage credits to
participating airline partners and
non-airline
business partners. Sales of mileage credits to
non-airline
business partners is comprised of two components,
transportation and marketing. American accounts for mileage sales under its agreements with
non-airline
business partners in accordance with Accounting Standards Update (ASU)
No. 2009-13,
Revenue Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. In accordance with Topic 605, American allocates the consideration received from the
sale of mileage credits based on the relative selling price of each product or service delivered.
In
2016, American entered into new
co-branded
credit card program agreements with Citi and Barclaycard US. American identified the following revenue elements in these
co-branded
credit card agreements: the transportation component; the use of the American brand including access to loyalty program member lists, advertising and other travel related benefits (collectively, the
marketing component).
The transportation component represents the estimated selling price of future
travel awards and is determined using historical transaction information, including information related to customer redemption patterns. The transportation component is deferred based on its relative selling price and is amortized into passenger
revenue on a straight-line basis over the period in which the mileage credits are expected to be redeemed for travel. As of December 31, 2016 and 2015, American had $2.1 billion and $1.5 billion, respectively, in deferred revenue from
the sale of mileage credits recorded within loyalty program liability on its consolidated balance sheets.
The services under the marketing component are provided periodically, but no less than monthly. Accordingly, the
marketing component is considered earned and recognized in other revenues in the period of the mileage sale. For the years ended December 31, 2016, 2015 and 2014, the marketing component of mileage sales and other marketing related payments
included in other revenues was approximately $1.9 billion, $1.7 billion and $1.6 billion, respectively.
(j) Revenue
Passenger Revenue
Passenger revenue is
recognized when transportation is provided. Ticket sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on the consolidated balance sheets. The air traffic liability represents tickets
sold for future travel dates and estimated future refunds and exchanges of tickets sold for past travel dates. The balance in the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity.
Americans air traffic liability was $3.9 billion and $3.7 billion as of December 31, 2016 and 2015, respectively.
The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. Due to complex pricing structures, refund and exchange
policies, and interline agreements with other airlines, certain amounts are recognized in passenger revenue using estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates are
generally based on the analysis of Americans historical data. American and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel. Estimated future
refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of Americans estimates. Any adjustments resulting from periodic evaluations of the estimated air traffic
liability are included in passenger revenue during the period in which the evaluations are completed.
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
American has arrangements with regional carriers to provide it
with regional jet and turboprop service under the brand name American Eagle. The American Eagle carriers include AAGs wholly-owned regional carriers, Envoy, PSA and Piedmont, as well as third-party regional carriers including
Republic Airline Inc. (Republic), Mesa Airlines, Inc. (Mesa), Air Wisconsin Airlines Corporation (Air Wisconsin), Compass Airlines, LLC (Compass), ExpressJet Airlines, Inc. (ExpressJet), SkyWest Airlines, Inc. (SkyWest) and Trans States Airlines,
Inc. (Trans States). American classifies revenues generated from transportation on these carriers as regional passenger revenues. Liabilities related to tickets sold by American for travel on these air carriers are also included in Americans
air traffic liability and are subsequently recognized as revenue in the same manner as described above.
Passenger
Taxes and Fees
Various taxes and fees assessed on the sale of tickets to end customers are
collected by American as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying consolidated statements of operations and recorded as a liability until remitted to the appropriate
taxing authority.
Cargo Revenue
Cargo revenue is recognized when American provides the transportation.
Other Revenue
Other revenue includes revenue associated with marketing services provided to Americans business partners as part of its loyalty program, baggage fees, ticketing change fees, airport clubs and
inflight services. The accounting and recognition for the loyalty program marketing services are discussed in Note 1(i) above. Baggage fees, ticketing change fees, airport clubs and inflight service revenues are recognized when American provides the
service.
(k) Maintenance, Materials and Repairs
Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred,
except costs incurred for maintenance and repair under flight hour maintenance contract agreements, which are accrued based on contractual terms when an obligation exists.
(l) Selling Expenses
Selling expenses
include credit card fees, commissions, computerized reservations systems fees and advertising. Advertising costs are expensed as incurred. Advertising expense was $116 million, $110 million and $92 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
(m) Share-based Compensation
American accounts for its share-based compensation expense based on the fair value of the stock award at the time of
grant, which is recognized ratably over the vesting period of the stock award. 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 fair
value of stock options and stock appreciation rights (SARs) is estimated using a Black-Scholes option pricing model. The fair value of restricted stock units (RSUs) is based on the market price of the underlying shares of common stock on the date of
grant. See Note 12 for further discussion of share-based compensation.
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(n) Deferred Gains and Credits, Net
Included within deferred gains and credits, net are amounts deferred and amortized into future periods associated
with the adjustment of leases to fair value in connection with the application of acquisition accounting, deferred gains on the sale-leaseback of aircraft and certain vendor incentives. American periodically receives vendor incentives in connection
with acquisition of aircraft and engines. These credits are deferred until aircraft and engines are delivered and then applied as a reduction to the cost of the related equipment.
(o) Foreign Currency Gains and Losses
Foreign currency gains and losses are recorded as part of other nonoperating expense, net in Americans
consolidated statements of operations. Foreign currency gains for 2016 were $1 million. Foreign currency losses for 2015 and 2014 were $751 million and $114 million, respectively. Included in 2015 was a $592 million nonoperating
special charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.
(p) Other Operating Expenses
Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees
and certain general and administrative expenses.
(q) Regional Expenses
Expenses associated with Americans third-party regional carriers operating under the brand name American Eagle
are classified as regional expenses on the consolidated statements of operations. Regional expenses consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Aircraft fuel and related taxes
|
|
$
|
1,109
|
|
|
$
|
1,230
|
|
|
$
|
2,009
|
|
Salaries, wages and benefits
|
|
|
327
|
|
|
|
276
|
|
|
|
228
|
|
Capacity purchases from third-party regional carriers
(1)
|
|
|
3,186
|
|
|
|
3,137
|
|
|
|
2,858
|
|
Maintenance, materials and repairs
|
|
|
4
|
|
|
|
4
|
|
|
|
6
|
|
Other rent and landing fees
|
|
|
487
|
|
|
|
434
|
|
|
|
386
|
|
Aircraft rent
|
|
|
28
|
|
|
|
28
|
|
|
|
27
|
|
Selling expenses
|
|
|
347
|
|
|
|
333
|
|
|
|
307
|
|
Depreciation and amortization
|
|
|
237
|
|
|
|
197
|
|
|
|
168
|
|
Special items, net
|
|
|
13
|
|
|
|
18
|
|
|
|
5
|
|
Other
|
|
|
271
|
|
|
|
295
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regional expenses
|
|
$
|
6,009
|
|
|
$
|
5,952
|
|
|
$
|
6,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the years ended December 31, 2016, 2015 and 2014, the component of capacity purchase expenses related to aircraft deemed to be leased
was approximately $405 million, $492 million and $447 million, respectively.
|
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(r) Recent Accounting Pronouncements
Revenue
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606). ASU
2014-09
completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial
Reporting Standards (IFRS). Subsequently, the FASB has issued several additional ASUs to clarify the implementation. The new revenue standard applies to all companies that enter into contracts with customers to transfer goods or services and is
effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted; however, American currently expects to adopt the new revenue standard effective January 1, 2018.
Entities have the choice to apply the new revenue standard either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the new revenue standard at the date of initial application and not adjusting
comparative information. American currently expects to adopt the new revenue standard using the full retrospective method.
American is still in the process of evaluating how the adoption of the new revenue standard will impact its consolidated financial statements. American currently expects that the new revenue
standard will materially impact its liability for outstanding mileage credits earned by AAdvantage loyalty program members when flying on American. American currently uses the incremental cost method to account for this portion of its loyalty
program liability, which values these mileage credits based on the estimated incremental cost of carrying one additional passenger (see (i) Loyalty Program above). The new revenue standard will require American to change its policy and apply a
relative selling price approach whereby a portion of each passenger ticket sale attributable to mileage credits earned will be deferred and recognized in passenger revenue upon future mileage redemption. The carrying value of the earned mileage
credits recognized in loyalty program liability is expected to be materially greater under the relative selling price approach than the value attributed to these mileage credits under the incremental cost method. The new revenue standard will also
require American to reclassify certain ancillary fees to passenger revenue, which are currently included within other operating revenue.
Leases
In February 2016, the FASB
issued ASU
2016-02,
Leases (Topic 842). ASU
2016-02
requires lessees to recognize a lease liability and a
right-of-use
asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
ASU
2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to adopt the new lease
standard using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. American is currently evaluating how the adoption of the new lease
standard will impact its consolidated financial statements. Interpretations are
on-going
and could have a material impact on Americans implementation. Currently, American expects that the adoption of the
new lease standard will have a material impact on its consolidated balance sheet due to the recognition of
right-of-use
assets and lease liabilities principally for
certain leases currently accounted for as operating leases.
Share-based Compensation
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU
2016-09
simplifies the
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
accounting for share-based payment award transactions including the financial statement presentation of excess tax benefits and deficiencies, classification of awards as either equity or
liabilities, accounting for forfeitures and classification on the statement of cash flows. ASU
2016-09
is effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. Early adoption is permitted. American early adopted this standard during the second quarter of 2016. The adoption of this standard resulted in the recognition of $418 million of previously unrecognized excess tax benefits in
deferred tax assets and an increase to retained earnings on the consolidated balance sheet as of the beginning of the current year, and the recognition of $15 million of excess tax benefits in the income tax provision for the year ended
December 31, 2016.
Fair Value Measurement
In May 2015, the FASB issued ASU
2015-07,
Fair Value Measurement
(Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). ASU
2015-07
requires that investments using the practical expedient to measure
fair value at net asset value per share (or its equivalent) be excluded from the fair value hierarchy. Although the investments are not characterized within the fair value hierarchy, the amount of investments measured using the practical expedient
must still be disclosed to allow for reconciliation of the total investments in the fair value hierarchy to total investments in the notes to the consolidated financial statements. ASU
2015-07
is effective for
fiscal years beginning after December 15, 2015. American adopted this standard retrospectively during the year ended December 31, 2016. The adoption impacted the fair value hierarchy disclosures of Americans benefit plan assets, see
Note 7 for further discussion.
Statement of Cash Flows
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows
(Topic 230): Restricted Cash. ASU
2016-18
requires that the change in total cash, cash at beginning of period and cash at end of period on the statement of cash flows include restricted cash and
restricted cash equivalents. ASU
2016-18
also requires companies who report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard is
to be applied retrospectively to each period presented and is effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This standard is not
expected to have a material impact on Americans consolidated financial statements.
2. Special Items, Net
Special items, net on the consolidated statements of operations consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Mainline operating special items, net
(1)
|
|
$
|
709
|
|
|
$
|
1,051
|
|
|
$
|
783
|
|
(1)
|
The 2016 mainline operating special items totaled a net charge of $709 million, which principally included $514 million of Merger
integration expenses, $177 million of fleet restructuring expenses and a $25 million net charge consisting of
mark-to-market
adjustments for bankruptcy
obligations.
|
The 2015 mainline operating special items totaled a net charge of
$1.1 billion, which principally included $826 million of Merger integration expenses, $210 million of fleet restructuring expenses and a $53 million net credit consisting of
mark-to-market
adjustments for bankruptcy obligations.
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The 2014 mainline operating special items totaled a net charge of
$783 million, which primarily included $732 million of Merger integration expenses, $88 million of fleet restructuring expenses, an $81 million charge to revise prior estimates of certain aircraft residual values and a
$60 million net charge for bankruptcy-related items principally consisting of
mark-to-market
adjustments for bankruptcy obligations and professional fees. These
charges were offset in part by a net $265 million gain related to the divestiture of slots.
Merger
integration expenses included costs related to information technology,
re-branding
of aircraft, airport facilities and uniforms, alignment of labor union contracts, professional fees, relocation, training, and
severance, and in 2015 and 2014, also included share-based compensation related to awards granted in connection with the Merger that fully vested in December 2015. Fleet restructuring expenses included the acceleration of aircraft depreciation,
impairments, remaining lease payments and lease return costs for aircraft currently grounded or expected to be grounded earlier than planned.
The following additional amounts are also included in the consolidated statements of operations as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Regional operating special items, net
(1)
|
|
$
|
13
|
|
|
$
|
18
|
|
|
$
|
5
|
|
Nonoperating special items, net
(2)
|
|
|
49
|
|
|
|
616
|
|
|
|
128
|
|
Income tax special items, net
(3)
|
|
|
|
|
|
|
(3,468
|
)
|
|
|
344
|
|
(1)
|
The 2016, 2015 and 2014 regional operating special items, net principally related to Merger integration expenses.
|
(2)
|
The 2016 nonoperating special items totaled a net charge of $49 million, which consisted of debt issuance and extinguishment costs
associated with bond and term loan refinancings.
|
The 2015 nonoperating special items
totaled a net charge of $616 million, which principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in
Venezuela.
The 2014 nonoperating special items totaled a net charge of $128 million, which
principally included a $43 million charge for Venezuelan foreign currency losses and $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness.
(3)
|
In 2015, income tax special items totaled a net credit of $3.5 billion. In connection with the preparation of Americans financial
statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its net operating losses (NOLs), would be realized. Accordingly, American reversed
$3.5 billion of the valuation allowance as of December 31, 2015, which resulted in a special
non-cash
tax benefit recorded in the consolidated statement of operations. See Note 4 for further
information.
|
In 2014, income tax special items, net were $344 million. During
2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special
non-cash
tax provision of
$328 million in the second quarter of 2014 that reversed the
non-cash
tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders equity, principally in 2009. This
provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of Americans fuel hedging contracts. In accordance with GAAP, American retained the $328 million tax
provision in OCI until the last contract was settled or terminated.
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
3. Debt
Long-term debt and capital lease obligations included in the consolidated balance sheets consisted of (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Secured
|
|
|
|
|
|
|
|
|
2013 Credit Facilities, variable interest rate of 3.26%, installments through
2020
(a)
|
|
$
|
1,843
|
|
|
$
|
1,867
|
|
2014 Credit Facilities, variable interest rate of 3.25%, installments through
2021
(a)
|
|
|
735
|
|
|
|
743
|
|
April 2016 Credit Facilities, variable interest rate of 3.26%, installments through 2023
(a)
|
|
|
1,000
|
|
|
|
|
|
December 2016 Credit Facilities, variable interest rate of 3.25%, installments through 2023
(a)
|
|
|
1,250
|
|
|
|
|
|
2013 Citicorp Credit Facility Tranche
B-1
(b)
|
|
|
|
|
|
|
980
|
|
2013 Citicorp Credit Facility Tranche
B-2
(b)
|
|
|
|
|
|
|
588
|
|
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, maturing from
2017 to 2028
(c)
|
|
|
10,912
|
|
|
|
8,693
|
|
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.81% to 8.48%, maturing from 2017
to 2028
(d)
|
|
|
5,343
|
|
|
|
4,183
|
|
Special facility revenue bonds, fixed interest rates ranging from 5.00% to 5.50%, maturing from 2017 to 2035
(e)
|
|
|
862
|
|
|
|
1,051
|
|
Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2017 to 2028
|
|
|
848
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,793
|
|
|
|
19,027
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
Affiliate unsecured obligations
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations
|
|
|
22,793
|
|
|
|
19,054
|
|
Less: Total unamortized debt discount, debt premium and debt issuance costs
|
|
|
216
|
|
|
|
228
|
|
Less: Current maturities
|
|
|
1,859
|
|
|
|
2,234
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, net of current maturities
|
|
$
|
20,718
|
|
|
$
|
16,592
|
|
|
|
|
|
|
|
|
|
|
The table below shows availability under revolving credit facilities, all of which
were undrawn, as of December 31, 2016 (in millions):
|
|
|
|
|
2013 Revolving Facility
|
|
$
|
1,400
|
|
2014 Revolving Facility
|
|
|
1,025
|
|
|
|
|
|
|
Total
|
|
$
|
2,425
|
|
|
|
|
|
|
The April 2016 and December 2016 Credit Facilities each provide for a revolving
credit facility that may be established in the future.
Secured financings are collateralized by assets,
primarily aircraft, engines, simulators, aircraft spare parts, airport leasehold rights, route authorities and airport slots. At December 31, 2016, American was
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
operating 34 aircraft under capital leases. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years.
At December 31, 2016, the maturities of long-term debt and capital lease obligations are as follows (in
millions):
|
|
|
|
|
2017
|
|
$
|
1,899
|
|
2018
|
|
|
1,954
|
|
2019
|
|
|
2,008
|
|
2020
|
|
|
3,416
|
|
2021
|
|
|
2,679
|
|
2022 and thereafter
|
|
|
10,837
|
|
|
|
|
|
|
Total
|
|
$
|
22,793
|
|
|
|
|
|
|
(a) 2013, 2014, April 2016 and December 2016 Credit Facilities
Certain details of Americans 2013, 2014, April 2016 and December 2016 Credit Facilities (collectively referred
to as the Credit Facilities) are shown in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Credit Facilities
|
|
2014 Credit Facilities
|
|
April and December
2016 Credit Facilities
|
|
|
2013 Term
Loan
|
|
2013 Revolving
Facility
|
|
2014 Term
Loan
|
|
2014 Revolving
Facility
|
|
April 2016
Term Loan
|
|
December 2016
Term Loan
|
|
|
|
|
|
|
|
Aggregate principal issued or credit facility availability
|
|
$1.9 billion
|
|
$1.4 billion
|
|
$750 million
|
|
$1.025 billion
|
|
$1.0 billion
|
|
$1.25 billion
|
|
|
|
|
|
|
|
Principal outstanding or drawn
|
|
$1.84 billion
|
|
$
|
|
$735 million
|
|
$
|
|
$1.0 billion
|
|
$1.25 billion
|
|
|
|
|
|
|
|
Maturity date
|
|
June 2020
|
|
October 2020
|
|
October 2021
|
|
October 2020
|
|
April 2023
|
|
December 2023
|
|
|
|
|
|
|
|
London Interbank Offered Rate (LIBOR) margin
|
|
2.50%
(1)
,
(2)
|
|
3.00%
|
|
2.50%
(1)
|
|
3.00%
|
|
2.50%
(1)
|
|
2.50%
(1)
|
(1)
|
LIBOR margin is subject to a floor of 0.75%.
|
(2)
|
As AAGs corporate credit rating was Ba3 or higher from Moodys and
BB-
or higher from
Standard and Poors (S&P) as of December 31, 2016, the applicable LIBOR margin is 2.50% for the 2013 Term Loan; otherwise, the LIBOR margin would be 2.75%.
|
The Term Loans are repayable in annual installments in an amount equal to 1.00% of the principal amount, with any
unpaid balance due on the respective maturity dates. Voluntary prepayments may be made by American at any time.
The proceeds from the April 2016 Term Loan and the December 2016 Term Loan were used to repay $588 million and $970 million, respectively, in remaining principal plus accrued and unpaid
interest of the 2013 Citicorp Credit Facility tranche
B-2
term loan (Tranche
B-2)
and tranche
B-1
term loan (Tranche
B-1),
respectively, with the remainder of the proceeds to be used for general corporate purposes.
The 2013 and 2014 Revolving Facilities provide that American may from time to time borrow, repay and reborrow loans thereunder and have the ability to issue letters of credit thereunder in an
aggregate
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
amount outstanding at any time up to $300 million. The 2013 and 2014 Revolving Facilities are each subject to an undrawn fee of 0.75%. As of December 31, 2016, there were no borrowings
or letters of credit outstanding under the 2013 or 2014 Revolving Facilities. The April 2016 and December 2016 Credit Facilities each provide for a revolving credit facility that may be established in the future.
Subject to certain limitations and exceptions, the Credit Facilities are secured by certain collateral, including
spare parts, certain slots, route authorities and airport gate leasehold rights. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. Americans obligations under the Credit
Facilities are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in
Collateral-Related Covenants.
The Credit Facilities contain events of default customary for similar financings, including cross default to other
material indebtedness. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately. In addition, if a change of control occurs, American will (absent an amendment or
waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 and 2014 Revolving Facilities and any revolving credit facilities established under the April 2016 or December 2016 Credit Facilities. The
Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the Credit Facilities) of not less than $2.0 billion, and limit the ability of AAG and its restricted
subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain
business activities, in each case subject to certain exceptions.
(b) 2013 Citicorp Credit Facility
On May 23, 2013, American entered into a term loan credit facility (as amended, the 2013
Citicorp Credit Facility) with Citicorp North America, Inc., as administrative agent, and certain lenders. The 2013 Citicorp Credit Facility consisted of Tranche
B-1
and Tranche
B-2
that were repaid and terminated in 2016 in connection with Americans entry into the April 2016 and December 2016 Credit Facilities discussed above.
(c) EETCs Issued in 2016
2016-1
EETCs
In January 2016, American created three pass-through trusts which issued approximately $1.1 billion aggregate principal amount of Series
2016-1
Class AA, Class A and Class B EETCs (the
2016-1
EETCs) in connection with the financing of 22 aircraft owned by American (the
2016-1
EETC Aircraft). All
of the proceeds received from the sale of the
2016-1
EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on the equipment notes are payable semi-annually in
January and July of each year, which began in July 2016. These equipment notes are secured by liens on the
2016-1
EETC Aircraft.
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The details of the
2016-1
EETC equipment notes issued by American in three series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
2016-1
EETCs
|
|
|
Series AA
|
|
Series A
|
|
Series B
|
Aggregate principal issued
|
|
$584 million
|
|
$262 million
|
|
$228 million
|
Fixed interest rate per annum
|
|
3.575%
|
|
4.10%
|
|
5.25%
|
Maturity date
|
|
January 2028
|
|
January 2028
|
|
January 2024
|
2016-2
EETCs
In May and July 2016, American created three pass-through trusts which issued approximately $1.1 billion
aggregate principal amount of Series
2016-2
Class AA, Class A and Class B EETCs (the
2016-2
EETCs) in connection with the financing of 22 aircraft owned
by American (the
2016-2
EETC Aircraft). All of the proceeds received from the sale of the
2016-2
EETCs have been used to purchase equipment notes issued by American.
Interest and principal payments on the equipment notes are payable semi-annually in June and December of each year, with interest payments that began in December 2016 and principal payments beginning in June 2017. These equipment notes are secured
by liens on the
2016-2
EETC Aircraft.
The details of the
2016-2
EETC equipment notes issued by American in three series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
|
|
2016-2
EETCs
|
|
|
Series AA
|
|
Series A
|
|
Series B
|
Aggregate principal issued
|
|
$567 million
|
|
$261 million
|
|
$227 million
|
Fixed interest rate per annum
|
|
3.20%
|
|
3.65%
|
|
4.375%
|
Maturity date
|
|
June 2028
|
|
June 2028
|
|
June 2024
|
2016-3
EETCs
In October 2016, American created two pass-through trusts which issued approximately $814 million aggregate
principal amount of Series
2016-3
Class AA and Class A EETCs (the
2016-3
EETCs) in connection with the financing of 25 aircraft owned by American or originally
scheduled to be delivered to American through January 2017 (the
2016-3
EETC Aircraft). A portion of the proceeds received from the sale of the
2016-3
EETCs has been used
to acquire Series AA and A equipment notes issued by American to the pass-through trusts and the balance of such proceeds is being held in escrow for the benefit of the holders of the
2016-3
EETCs until such
time as American issues additional Series AA and A equipment notes to the pass-through trusts, which will purchase the notes with escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on its consolidated
balance sheet because the proceeds held by the depository are not Americans assets.
As of
December 31, 2016, approximately $705 million of the escrowed proceeds from the
2016-3
EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on the
equipment notes are payable semi-annually in April and October of each year, with interest payments beginning in April 2017 and principal payments beginning in October 2017. These equipment notes are secured by liens on the
2016-3
EETC Aircraft. The remaining escrowed proceeds of $109 million will be used to purchase equipment notes as new aircraft are financed following their delivery.
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The details of the
2016-3
EETC equipment notes issued by American in two series are reflected in the table below as of December 31, 2016:
|
|
|
|
|
|
|
2016-3
EETCs
|
|
|
Series AA
|
|
Series A
|
Aggregate principal issued
|
|
$558 million
|
|
$256 million
|
Remaining escrowed proceeds
|
|
$75 million
|
|
$34 million
|
Fixed interest rate per annum
|
|
3.00%
|
|
3.25%
|
Maturity date
|
|
October 2028
|
|
October 2028
|
(d) Equipment Loans and Other Notes Payable Issued in 2016
In 2016, American entered into loan agreements to borrow $1.8 billion in connection with the financing of
certain aircraft. Debt incurred under these loan agreements matures in 2021 through 2028 and bears interest at fixed and variable rates of LIBOR plus an applicable margin averaging 2.96% at December 31, 2016.
(e) Special Facility Revenue Bonds
2016 Financing Activity
In June 2016,
the New York Transportation Development Corporation (NYTDC) issued approximately $844 million of special facility revenue refunding bonds (the 2016 JFK Bonds) on behalf of American. The net proceeds from the 2016 JFK Bonds generally were used
to provide a portion of the funds to refinance $1.0 billion of special facility revenue bonds (Prior JFK Bonds), the net proceeds of which partially financed the construction of a terminal (the Terminal) used by American at John F. Kennedy
International Airport (JFK).
American is required to pay debt service on the 2016 JFK Bonds through
payments under a loan agreement with NYTDC, and American and AAG guarantee the 2016 JFK Bonds. Americans and AAGs obligations under these guarantees are secured by a mortgage on Americans lease of the Terminal and related property
from the Port Authority of New York and New Jersey.
The 2016 JFK Bonds, in aggregate, were priced at
approximately 107% of par value. The gross proceeds from the issuance of the 2016 JFK Bonds were approximately $907 million. Of this amount, approximately $895 million was used to partially fund the redemption of the Prior JFK Bonds. The
2016 JFK Bonds bear interest at 5.0% per annum and are comprised of $212 million of serial bonds, portions of which mature annually from August 1, 2017 to August 1, 2021, and $632 million of term bonds, $278 million of which
matures on August 1, 2026 and $354 million of which matures on August 1, 2031. In connection with the refinancing of the Prior JFK Bonds, American recorded a special nonoperating charge of $36 million consisting of
non-cash
write offs of unamortized bond discounts and issuance costs as well as payments of redemption premiums and fees.
Guarantees
As of December 31,
2016, American had issued guarantees covering AAGs $750 million aggregate principal amount of 5.50% senior notes due 2019, $500 million aggregate principal amount of 6.125% senior notes due 2018 and $500 million aggregate
principal amount of 4.625% senior notes due 2020.
Collateral-Related Covenants
Certain of Americans debt financing agreements contain loan to value (LTV) ratio covenants and require
American to annually appraise the related collateral. Pursuant to such agreements, if the LTV
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
ratio exceeds a specified threshold, American is required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing,
in whole or in part.
Specifically, American is required to meet certain collateral coverage tests on an
annual basis for four credit facilities, as described below:
|
|
|
|
|
|
|
|
|
|
|
2013 Credit Facilities
|
|
2014 Credit Facilities
|
|
April 2016 Credit
Facilities
|
|
December 2016
Credit
Facilities
|
Frequency of Appraisals
of Appraised Collateral
|
|
Annual
|
|
Annual
|
|
Annual
|
|
Annual
|
LTV Requirement
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
|
1.6x Collateral valuation to amount of debt outstanding (62.5% LTV)
|
LTV as of Last
Measurement Date
|
|
31.5%
|
|
23.2%
|
|
47.7%
|
|
61.8%
|
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 London
Heathrow
|
|
Certain spare parts
|
|
Generally, certain Ronald Reagan Washington National Airport (DCA) slots, certain La Guardia Airport (LGA) slots, and certain simulators
|
At December 31, 2016, American was in compliance with the applicable
collateral coverage tests as of the most recent measurement dates.
4. Income Taxes
The significant components of the income tax provision (benefit) were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(30
|
)
|
State and Local
|
|
|
10
|
|
|
|
15
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax provision (benefit)
|
|
|
10
|
|
|
|
15
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,559
|
|
|
|
(3,407
|
)
|
|
|
342
|
|
State and Local
|
|
|
93
|
|
|
|
(60
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit)
|
|
|
1,652
|
|
|
|
(3,467
|
)
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
1,662
|
|
|
$
|
(3,452
|
)
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The income tax provision (benefit) differed from amounts computed
at the statutory federal income tax rate as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory income tax provision
|
|
$
|
1,555
|
|
|
$
|
1,635
|
|
|
$
|
1,144
|
|
State income tax provision, net of federal tax effect
|
|
|
67
|
|
|
|
71
|
|
|
|
81
|
|
Book expenses not deductible for tax purposes
|
|
|
32
|
|
|
|
55
|
|
|
|
4
|
|
Bankruptcy administration expenses
|
|
|
1
|
|
|
|
3
|
|
|
|
86
|
|
Alternative minimum tax (AMT) credit refund
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
Change in valuation allowance
|
|
|
(1
|
)
|
|
|
(5,216
|
)
|
|
|
(1,285
|
)
|
Income tax provision resulting from OCI allocation
|
|
|
|
|
|
|
|
|
|
|
328
|
|
Other, net
|
|
|
8
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
1,662
|
|
|
$
|
(3,452
|
)
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American provides a valuation allowance for its deferred tax assets, which include
the NOLs, when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. 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 Americans projections of future profitability,
including risks associated with remaining Merger integration activities as well as other conditions which are beyond its control, such as the health of the economy, the level and volatility of fuel prices and travel demand.
In connection with the preparation of Americans financial statements at the end of 2015, American determined
that after considering all positive and negative evidence, including the completion of certain critical Merger integration milestones as well as its financial performance, it was more likely than not that substantially all of its deferred income tax
assets, which include its NOLs, would be realized. Accordingly, American reversed $3.5 billion of the valuation allowance, which resulted in a special
non-cash
tax benefit recorded in the consolidated
statement of operations.
For the year ended December 31, 2014, American recorded a
$320 million tax provision. During 2014, American sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, American recorded a special
non-cash
tax provision of $328 million in the second quarter of 2014 that reversed the
non-cash
tax provision which was recorded in OCI, a subset of stockholders
equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of Americans fuel hedging contracts. In accordance with GAAP, American
retained the $328 million tax provision in OCI until the last contract was settled or terminated.
In addition to the changes in the valuation allowance from operations described in the table above, the valuation
allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 8. The total decrease in the valuation allowance was $1 million, $5.2 billion and $525 million in 2016,
2015 and 2014, respectively.
158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The components of Americans deferred tax assets and
liabilities were (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
$
|
4,087
|
|
|
$
|
2,818
|
|
Pensions
|
|
|
2,595
|
|
|
|
2,420
|
|
Loyalty program liability
|
|
|
485
|
|
|
|
590
|
|
Alternative minimum tax credit carryforwards
|
|
|
456
|
|
|
|
458
|
|
Postretirement benefits other than pensions
|
|
|
291
|
|
|
|
340
|
|
Rent expense
|
|
|
256
|
|
|
|
134
|
|
Gains from lease transactions
|
|
|
213
|
|
|
|
261
|
|
Reorganization items
|
|
|
53
|
|
|
|
57
|
|
Other
|
|
|
911
|
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,347
|
|
|
|
8,201
|
|
Valuation allowance
|
|
|
(13
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
9,334
|
|
|
|
8,187
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
|
(7,101
|
)
|
|
|
(5,011
|
)
|
Other
|
|
|
(335
|
)
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,436
|
)
|
|
|
(5,255
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
1,898
|
|
|
$
|
2,932
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, American had approximately $11.3 billion of gross
NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2017. American is a member of AAGs consolidated federal and certain state income tax returns. The amount of federal
NOL Carryforwards available in those returns is $10.5 billion, substantially all of which is expected to be available for use in 2017. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately
$3.4 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2016, which will expire in years 2017 through 2034 if unused. Americans ability to deduct its NOL Carryforwards and to utilize certain other
available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an ownership change has occurred. Substantially all of Americans remaining federal NOL Carryforwards
(attributable to US Airways Group) are subject to limitation under Section 382; however, Americans ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. American elected
to be covered by certain special rules for federal income tax purposes that permitted approximately $9.5 billion (with $9.3 billion of unlimited NOL still remaining at December 31, 2016) of its federal NOL Carryforwards to be utilized
without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. Americans ability to utilize any new NOL Carryforwards arising after the ownership changes is not
affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling
three-year period can potentially limit a companys future use of NOLs and tax credits. See Part I, Item 1A. Risk Factors
Our ability to utilize our NOL Carryforwards may be limited
for unaudited additional
discussion of this risk.
At December 31, 2016, American had an AMT credit carryforward of
approximately $452 million available for federal income tax purposes, which is available for an indefinite period.
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
In 2016, American recorded an income tax provision with an
effective rate of approximately 37%, which was substantially
non-cash
as American utilized the NOLs described above. Substantially all of Americans income before income taxes is attributable to the
United States.
American files its tax returns as prescribed by the tax laws of the jurisdictions in
which it operates. Americans 2013 through 2015 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in
administrative appeals, or engaged in tax litigation in certain jurisdictions. American believes that the effect of any assessments will not be material to its consolidated financial statements.
The amount of, and changes to, Americans uncertain tax positions were not material in any of the years
presented. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.
5. Risk Management
Americans
economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel.
Due to the discretionary nature of business and leisure travel spending, airline industry revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the
world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel and changes in booking practices, both of which in turn have had, and may have in the future, a strong
negative effect on Americans revenues. In addition, during challenging economic times, actions by its competitors to increase their revenues can have an adverse impact on Americans revenues.
Americans operating results are materially impacted by changes in the availability, price volatility and cost
of aircraft fuel, which represents one of the largest single cost items in Americans business. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to be highly volatile. Because of the amount of
fuel needed to operate Americans business, even a relatively small increase or decrease in the price of fuel can have a material effect on Americans operating results and liquidity.
These additional factors could impact Americans results of operations, financial performance and liquidity:
(a) Credit Risk
Most of Americans receivables relate to tickets sold to individual passengers through the use of major credit cards or to tickets sold by other airlines and used by passengers on American.
These receivables are short-term, mostly settled within seven days after sale. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. American does not believe it is subject to
any significant concentration of credit risk.
(b) Interest Rate Risk
American has exposure to market risk associated with changes in interest rates related primarily to its variable
rate debt obligations. Interest rates on $9.6 billion principal amount of long-term debt as of
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
December 31, 2016 are subject to adjustment to reflect changes in floating interest rates. The weighted average effective interest rate on Americans variable rate debt was 3.1% at
December 31, 2016. American does not currently have an interest rate hedge program.
(c) Foreign Currency
Risk
American is exposed to the effect of foreign exchange rate fluctuations on the U.S. dollar
value of foreign currency-denominated operating revenues and expenses. Americans largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real. American does not
currently have a foreign currency hedge program. See Part I, Item 1A. Risk Factors
We operate a global business with international operations that are subject to economic and political instability and have been, and in the
future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control
for unaudited additional discussion of this risk.
6. Fair Value Measurements
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. Accounting standards
include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair
value are observable in the market. Each fair value measurement is reported in one of three levels:
|
|
|
Level 1 Observable inputs such as quoted prices in active markets;
|
|
|
|
Level 2 Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
|
When available, American uses quoted market prices to determine the fair
value of its financial assets. If quoted market prices are not available, American measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and
currency rates.
American utilizes the market approach to measure fair value for its financial assets.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Americans short-term investments classified as Level 2 primarily utilize broker quotes in a
non-active
market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2016.
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Assets measured at fair value on a recurring basis are summarized
below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Short-term investments
(1)
,
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
587
|
|
|
$
|
587
|
|
|
$
|
|
|
|
$
|
|
|
Corporate obligations
|
|
|
2,550
|
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
Bank notes/certificates of deposit/time deposits
|
|
|
2,897
|
|
|
|
|
|
|
|
2,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,034
|
|
|
|
587
|
|
|
|
5,447
|
|
|
|
|
|
Restricted cash and short-term investments
(1)
|
|
|
638
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,672
|
|
|
$
|
1,225
|
|
|
$
|
5,447
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other
comprehensive income (loss) at each measurement date.
|
(2)
|
All short-term investments are classified as
available-for-sale
and stated at fair value. Americans short-term investments mature in one year or less except for $385 million of bank notes/certificates of
deposit/time deposits and $230 million of corporate obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Short-term investments
(1)
,
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,008
|
|
|
$
|
1,008
|
|
|
$
|
|
|
|
$
|
|
|
Government agency investments
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Corporate obligations
|
|
|
2,191
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
Bank notes/certificates of deposit/time deposits
|
|
|
2,662
|
|
|
|
|
|
|
|
2,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,862
|
|
|
|
1,008
|
|
|
|
4,854
|
|
|
|
|
|
Restricted cash and short-term investments
(1)
|
|
|
695
|
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,557
|
|
|
$
|
1,703
|
|
|
$
|
4,854
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other
comprehensive income (loss) at each measurement date.
|
(2)
|
All short-term investments are classified as
available-for-sale
and stated at fair value. Americans short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of
deposit/time deposits and $734 million of corporate obligations.
|
There were no
Level 1 to Level 2 transfers during the years ended December 31, 2016 or 2015.
Fair Value of Debt
The fair value of Americans long-term debt was estimated using quoted market prices or
discounted cash flow analyses, based on Americans current estimated incremental borrowing rates for similar types of borrowing arrangements. If Americans long-term debt was measured at fair value, it would have been classified as
Level 2 in the fair value hierarchy.
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The carrying value and estimated fair value of Americans
long-term debt, including current maturities, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Long-term debt, including current maturities
|
|
$
|
22,577
|
|
|
$
|
23,181
|
|
|
$
|
18,826
|
|
|
$
|
19,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Employee Benefit Plans
American sponsors defined benefit and defined contribution pension plans for eligible employees. The defined benefit
pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement. Effective November 1, 2012, substantially all of Americans defined benefit
pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain groups. American uses a December 31 measurement date for all of its defined benefit pension plans. American also
provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits
plans to eliminate the company subsidy for employees who retire on or after November 1, 2012. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of
$1.9 billion, which is included as a component of actuarial gain in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years. As of
December 31, 2016, $871 million of actuarial gain remains to be amortized.
163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, 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, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Benefit obligation at beginning of period
|
|
$
|
16,310
|
|
|
$
|
17,504
|
|
|
$
|
1,129
|
|
|
$
|
1,324
|
|
Service cost
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
Interest cost
|
|
|
746
|
|
|
|
733
|
|
|
|
47
|
|
|
|
50
|
|
Actuarial (gain) loss
(1) (2)
|
|
|
725
|
|
|
|
(1,153
|
)
|
|
|
(104
|
)
|
|
|
(178
|
)
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Settlements
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(633
|
)
|
|
|
(773
|
)
|
|
|
(92
|
)
|
|
|
(94
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
17,148
|
|
|
$
|
16,310
|
|
|
$
|
990
|
|
|
$
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
9,660
|
|
|
$
|
10,935
|
|
|
$
|
253
|
|
|
$
|
244
|
|
Actual return on plan assets
|
|
|
911
|
|
|
|
(505
|
)
|
|
|
22
|
|
|
|
(10
|
)
|
Employer contributions
|
|
|
32
|
|
|
|
6
|
|
|
|
83
|
|
|
|
89
|
|
Settlements
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(633
|
)
|
|
|
(773
|
)
|
|
|
(92
|
)
|
|
|
(94
|
)
|
Other
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
9,968
|
|
|
$
|
9,660
|
|
|
$
|
266
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of period
|
|
$
|
(7,180
|
)
|
|
$
|
(6,650
|
)
|
|
$
|
(724
|
)
|
|
$
|
(876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The December 31, 2016 and 2015 pension actuarial (gain) loss primarily relates to weighted average discount rate assumption changes and
changes to Americans mortality assumptions.
|
(2)
|
The December 31, 2016 and 2015 retiree medical and other postretirement benefits actuarial gain primarily relates to medical trend and
cost assumption changes, favorable plan experience adjustments and weighted average discount rate assumption changes.
|
(3)
|
At December 31, 2015, certain trust assets totaling approximately $24 million, were added to the retiree medical and other
postretirement benefits plans asset values that were previously offset against the benefit obligation.
|
164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Balance Sheet Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
As of December 31,
|
|
|
|
|
Current liability
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
97
|
|
|
$
|
109
|
|
Noncurrent liability
(1)
|
|
|
7,173
|
|
|
|
6,643
|
|
|
|
627
|
|
|
|
767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
7,180
|
|
|
$
|
6,650
|
|
|
$
|
724
|
|
|
$
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
5,472
|
|
|
$
|
5,036
|
|
|
$
|
(429
|
)
|
|
$
|
(339
|
)
|
Prior service cost (benefit)
(1)
|
|
|
188
|
|
|
|
216
|
|
|
|
(837
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss (income),
pre-tax
|
|
$
|
5,660
|
|
|
$
|
5,252
|
|
|
$
|
(1,266
|
)
|
|
$
|
(1,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The 2016 noncurrent liability does not include $20 million of other postretirement benefits or $1 million of prior service cost. The
2015 noncurrent liability does not include $17 million of other postretirement benefits or $1 million of prior service cost.
|
Plans with Accumulated Benefit Obligations Exceeding Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and Other
Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(In millions)
|
|
Projected benefit obligation (PBO)
|
|
$
|
17,119
|
|
|
$
|
16,283
|
|
|
$
|
|
|
|
$
|
|
|
Accumulated benefit obligation (ABO)
|
|
|
17,108
|
|
|
|
16,272
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation (APBO)
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
1,129
|
|
Fair value of plan assets
|
|
|
9,936
|
|
|
|
9,630
|
|
|
|
266
|
|
|
|
253
|
|
ABO less fair value of plan assets
|
|
|
7,172
|
|
|
|
6,642
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and
Other Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(In millions)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
1
|
|
Interest cost
|
|
|
746
|
|
|
|
733
|
|
|
|
742
|
|
|
|
47
|
|
|
|
50
|
|
|
|
61
|
|
Expected return on assets
|
|
|
(747
|
)
|
|
|
(848
|
)
|
|
|
(783
|
)
|
|
|
(20
|
)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Settlements
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit)
(1)
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
(240
|
)
|
|
|
(243
|
)
|
|
|
(244
|
)
|
Unrecognized net loss (gain)
|
|
|
125
|
|
|
|
111
|
|
|
|
43
|
|
|
|
(16
|
)
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
|
154
|
|
|
|
26
|
|
|
|
36
|
|
|
|
(226
|
)
|
|
|
(218
|
)
|
|
|
(209
|
)
|
Defined contribution plan cost
|
|
|
761
|
|
|
|
657
|
|
|
|
527
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost (income)
|
|
$
|
915
|
|
|
$
|
683
|
|
|
$
|
563
|
|
|
$
|
(226
|
)
|
|
$
|
(218
|
)
|
|
$
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(1)
|
The 2016, 2015 and 2014 prior service cost does not include amortization of $1 million, $3 million and $14 million,
respectively, related to other postretirement benefits.
|
The estimated amount of
unrecognized net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $144 million.
The estimated amount of unrecognized net gain for the retiree medical and other postretirement benefits plans that
will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $23 million.
Assumptions
The following actuarial
assumptions were used to determine Americans benefit obligations and net periodic benefit cost for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical and
Other Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.30
|
%
|
|
|
4.70
|
%
|
|
|
4.10
|
%
|
|
|
4.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Retiree Medical
and
Other Postretirement Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.70
|
%
|
|
|
4.30
|
%
|
|
|
5.10
|
%
|
|
|
4.42
|
%
|
|
|
4.00
|
%
|
|
|
4.74
|
%
|
Weighted average expected rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Weighted average health care cost trend rate assumed for next year
(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.25
|
%
|
|
|
5.21
|
%
|
|
|
5.25
|
%
|
(1)
|
The weighted average health care cost trend rate at December 31, 2016 is assumed to decline gradually to 3.77% by 2024 and remain level
thereafter.
|
As of December 31, 2016, Americans estimate of the long-term
rate of return on plan assets was 8% based on the target asset allocation. Expected returns on long duration bonds are based on yields to maturity of the bonds held at
year-end.
Expected returns on other
assets are based on a combination of long-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management, currency overlay
and securities lending programs.
A one percentage point change in the assumed health care cost trend
rates would have the following effects on Americans retiree medical and other postretirement benefits plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
Increase (decrease) on 2016 service and interest cost
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
Increase (decrease) on benefit obligation as of December 31, 2016
|
|
|
53
|
|
|
|
(50
|
)
|
166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Minimum Contributions
American is required to make minimum contributions to its defined benefit pension plans under the minimum funding
requirements of the Employee Retirement Income Security Act of 1974 and various other laws for U.S. based plans as well as under funding rules specific to countries where American maintains defined benefit plans. Based on current funding
assumptions, American has minimum required contributions of $25 million for 2017. American expects to make supplemental contributions of $254 million to its U.S. based defined benefit plans in 2017. Currently, the minimum funding
obligation for Americans U.S. based defined benefit pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Americans pension funding obligations are likely to increase materially following
expiration of the temporary funding rules, when American will be required to make contributions relating to the 2018 fiscal year. The amount of these obligations will depend on the performance of Americans investments held in trust by the
pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and Americans actuarial experience.
Benefit Payments
The following benefit
payments, which reflect expected future service as appropriate, are expected to be paid (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022-2026
|
|
Pension
|
|
$
|
685
|
|
|
$
|
719
|
|
|
$
|
758
|
|
|
$
|
800
|
|
|
$
|
841
|
|
|
$
|
4,797
|
|
Retiree medical and other postretirement benefits
|
|
|
97
|
|
|
|
93
|
|
|
|
88
|
|
|
|
79
|
|
|
|
73
|
|
|
|
312
|
|
Plan Assets
The objectives of Americans investment policies are to: maintain sufficient income and liquidity to pay
retirement benefits; produce a long-term rate of return that meets or exceeds the assumed rate of return for plan assets; limit the volatility of asset performance and funded status; and diversify assets among asset classes and investment managers.
Based on these investment objectives, a long-term strategic asset allocation has been established. This
strategic allocation seeks to balance the potential benefit of improving 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
|
|
Equity
|
|
|
65% - 90%
|
|
Public:
|
|
|
|
|
U.S.
|
|
|
20% - 45%
|
|
International
|
|
|
17% - 27%
|
|
Emerging Markets
|
|
|
5% - 11%
|
|
Alternative Investments
|
|
|
5% - 30%
|
|
Fixed Income
|
|
|
15% - 40%
|
|
U.S. Long Duration
|
|
|
15% - 40%
|
|
High Yield and Emerging Markets
|
|
|
0% - 10%
|
|
Other
|
|
|
0% - 5%
|
|
Cash Equivalents
|
|
|
0% - 5%
|
|
167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Public equity and emerging market fixed income securities are used
to provide diversification and are expected to generate higher returns over the long-term than U.S. long duration bonds. Public stocks are managed using a value investment approach in order to participate in the returns generated by stocks in the
long-term, while reducing year-over-year volatility. U.S. long duration bonds are used to partially hedge the assets from declines in interest rates. Alternative (private) investments are used to provide expected returns in excess of the public
markets over the long-term. Additionally, the pension plans master trust engages currency overlay managers in an attempt to increase returns by protecting
non-U.S.
dollar denominated assets from a rise
in the relative value of the U.S. dollar. The pension plans master trust also participates in securities lending programs to generate additional income by loaning plan assets to borrowers on a fully collateralized basis. These programs are
subject to market risk.
Investments in securities traded on recognized securities exchanges are valued
at the last reported sales price on the last business day of the year. Securities traded in the
over-the-counter
market are valued at the last bid price. The money
market fund is valued at fair value which represents the net asset value of the shares of such fund as of the close of business at the end of the period. Investments in limited partnerships are carried at estimated net asset value as determined by
and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. Common/collective trusts are valued at net asset value based on the fair
values of the underlying investments of the trusts as determined by the sponsor of the trusts. The pension plans master trust also invests in a
103-12
investment entity (the
103-12
Investment Trust) which is designed to invest plan assets of more than one unrelated employer. The
103-12
Investment Trust is valued at net asset value which is
determined by the issuer at the end of each month and is based on the aggregate fair value of trust assets less liabilities, divided by the number of units outstanding. No changes in valuation techniques or inputs occurred during the year.
168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Benefit Plan Assets Measured at Fair Value on a Recurring Basis
The fair value of Americans pension plan assets at December 31, 2016 and 2015, by
asset category, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
573
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
573
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International markets
(a)
,
(b)
|
|
|
3,232
|
|
|
|
|
|
|
|
|
|
|
|
3,232
|
|
Large-cap
companies
(b)
|
|
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
2,253
|
|
Mid-cap
companies
(b)
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
Small-cap
companies
(b)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
(c)
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
|
|
2,337
|
|
Government securities
(d)
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
U.S. municipal securities
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Alternative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity partnerships
(e)
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
21
|
|
Private equity partnerships measured at net asset value
(e) (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703
|
|
Common/collective trusts
(f)
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
Common/collective trusts and
103-12
Investment Trust measured at net asset value
(f) (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
Insurance group annuity contracts
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Dividend and interest receivable
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Due to/from brokers for sale of securities net
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Other liabilities net
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,459
|
|
|
$
|
2,556
|
|
|
$
|
23
|
|
|
$
|
9,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
Holdings are diversified as follows: 15% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 6% Netherlands, 17% of other emerging markets
and the remaining 33% with no concentration greater than 5% in any one country.
|
b)
|
There are no significant concentrations of holdings by company or industry.
|
c)
|
Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a
S&P rating A or higher. Holdings include 86% U.S. companies, 12% international companies and 2% emerging market companies.
|
d)
|
Includes approximately 61% investments in U.S. domestic government securities and 39% in emerging market government securities. There are no
significant foreign currency risks within this classification.
|
e)
|
Includes limited partnerships that invest primarily in U.S. (95%) and European (5%) buyout opportunities of a range of privately held
companies. The pension plans master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather
|
169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
|
receives distributions as the underlying assets are liquidated. It is estimated that the underlying assets of these funds will be gradually liquidated over the next one to ten years.
Additionally, the pension plans master trust has future funding commitments of approximately $456 million over the next ten years.
|
f)
|
Investment includes 73% in an emerging market
103-12
Investment Trust with investments in emerging
country equity securities, 12% in Canadian segregated balanced value, income growth and diversified pooled funds and 15% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing
markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.
|
g)
|
In accordance with ASU
2015-07,
certain investments that are measured using net asset value per share
(or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the notes to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2015
|
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
287
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
287
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International markets
(a)
,
(b)
|
|
|
2,873
|
|
|
|
|
|
|
|
|
|
|
|
2,873
|
|
Large-cap
companies
(b)
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
1,999
|
|
Mid-cap
companies
(b)
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
Small-cap
companies
(b)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
(c)
|
|
|
|
|
|
|
2,204
|
|
|
|
|
|
|
|
2,204
|
|
Government securities
(d)
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
917
|
|
U.S. municipal securities
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
Alternative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity partnerships
(e)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
Private equity partnerships measured at net asset value
(e) (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706
|
|
Common/collective trusts
(f)
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
Common/collective trusts and
103-12
Investment Trust measured at net asset value
(f) (g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
Insurance group annuity contracts
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Dividend and interest receivable
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Due to/from brokers for sale of securities net
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Other assets net
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Other liabilities net
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,548
|
|
|
$
|
3,199
|
|
|
$
|
18
|
|
|
$
|
9,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
Holdings are diversified as follows: 16% United Kingdom, 12% Japan, 10% France, 7% Switzerland, 7% Netherlands, 6% Republic of Korea, 11% of
other emerging markets and the remaining 31% with no concentration greater than 5% in any one country.
|
b)
|
There are no significant concentrations of holdings by company or industry.
|
170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
c)
|
Includes approximately 74% investments in corporate debt with a S&P rating lower than A and 26% investments in corporate debt with a
S&P rating A or higher. Holdings include 82% U.S. companies, 16% international companies and 2% emerging market companies.
|
d)
|
Includes approximately 75% investments in U.S. domestic government securities and 25% in emerging market government securities. There are no
significant foreign currency risks within this classification.
|
e)
|
Includes limited partnerships that invest primarily in U.S. (89%) and European (11%) buyout opportunities of a range of privately held
companies. The pension plans master trust does not have the right to redeem its limited partnership investment at its net asset value, but rather receives distributions as the underlying assets are liquidated. It is estimated that the
underlying assets of these funds will be gradually liquidated over the next one to ten years. Additionally, the pension plans master trust has future funding commitments of approximately $428 million over the next ten years.
|
f)
|
Investment includes 73% in an emerging market
103-12
Investment Trust with investments in emerging
country equity securities, 14% in Canadian segregated balanced value, income growth and diversified pooled funds and 13% in a common/collective trust investing in securities of smaller companies located outside the U.S., including developing
markets. Requests for withdrawals must meet specific requirements with advance notice of redemption preferred.
|
g)
|
In accordance with ASU
2015-07,
certain investments that are measured using net asset value per share
(or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the notes to the consolidated financial statements.
|
Changes in fair
value measurements of Level 3 investments during the year ended December 31, 2016, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
Partnerships
|
|
|
Insurance
Group
Annuity
Contracts
|
|
Beginning balance at December 31, 2015
|
|
$
|
16
|
|
|
$
|
2
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Relating to assets sold during the period
|
|
|
7
|
|
|
|
|
|
Purchases
|
|
|
7
|
|
|
|
|
|
Sales
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
21
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value measurements of Level 3 investments during the year
ended December 31, 2015, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Private
Equity
Partnerships
|
|
|
Insurance
Group
Annuity
Contracts
|
|
Beginning balance at December 31, 2014
|
|
$
|
17
|
|
|
$
|
2
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
16
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
The fair value of Americans retiree medical and other
postretirement benefits plans assets at December 31, 2016 by asset category, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Money market fund
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
Mutual funds Institutional Class
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of Americans retiree medical and other postretirement benefits
plans assets at December 31, 2015 by asset category, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2015
|
|
Asset Category
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Money market fund
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
Mutual funds Institutional Class
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Mutual funds AMR Class
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23
|
|
|
$
|
230
|
|
|
$
|
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in the retiree medical and other postretirement benefits plans
mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period. AMR Class shares are offered without a sales
charge to participants. Purchases are restricted to certain retirement benefit plans, including Americans retiree medical and other postretirement benefits plans, resulting in a fair value classification of Level 2. Investments include
approximately 27% of investments in
non-U.S.
common stocks in each of 2016 and 2015. Net asset value is based on the fair market value of the funds underlying assets and liabilities at the date of
determination.
Profit Sharing Program
American instituted an employee profit sharing program effective on January 1, 2016 and accrues 5% of its
pre-tax
income excluding special items to distribute to employees in early 2017. For the year ended December 31, 2016, American accrued $314 million for this program.
172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
8. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension,
Retiree
Medical and
Other
Postretirement
Benefits
|
|
|
Derivative
Financial
Instruments
|
|
|
Unrealized
Gain
(Loss)
on
Investments
|
|
|
Income
Tax
Benefit
(Provision)
(1)
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
(3,671
|
)
|
|
$
|
9
|
|
|
$
|
(3
|
)
|
|
$
|
(991
|
)
|
|
$
|
(4,656
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(51
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(58
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(109
|
)
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive loss
|
|
|
(160
|
)
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
(3,831
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
(991
|
)
|
|
|
(4,831
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(461
|
)
|
|
|
|
|
|
|
9
|
|
|
|
166
|
|
|
|
(286
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
37
|
(2)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
(563
|
)
|
|
|
|
|
|
|
9
|
|
|
|
203
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(4,394
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(788
|
)
|
|
$
|
(5,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Relates principally to pension, retiree medical and other postretirement benefits obligations that will not be recognized in net income until
the obligations are fully extinguished.
|
(2)
|
Relates to pension, retiree medical and other postretirement benefits obligations and is recognized within the income tax provision on the
consolidated statement of operations.
|
173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Reclassifications out of AOCI for the years ended
December 31, 2016 and 2015 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCI
|
|
|
Affected line items on
the
consolidated statement of
operations
|
|
|
Year Ended December 31,
|
|
|
AOCI Components
|
|
2016
|
|
|
2015
|
|
|
Amortization of pension, retiree medical and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit
|
|
$
|
(134
|
)
|
|
$
|
(212
|
)
|
|
Salaries, wages and benefits
|
Actuarial loss
|
|
|
69
|
|
|
|
103
|
|
|
Salaries, wages and benefits
|
Derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
(9
|
)
|
|
Aircraft fuel and related taxes
|
Net unrealized change on investments:
|
|
|
|
|
|
|
|
|
|
|
Net change in value
|
|
|
|
|
|
|
1
|
|
|
Other nonoperating, net
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
(65
|
)
|
|
$
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to OCI for income taxes as further described in Note 4 will
remain in AOCI until American ceases all related activities, such as termination of the pension plan.
9. Commitments,
Contingencies and Guarantees
(a) Aircraft and Engine Purchase Commitments
Under all of Americans aircraft and engine purchase agreements, its total future commitments as of
December 31, 2016 are expected to be as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Payments for aircraft commitments and certain engines
(1)
|
|
$
|
4,064
|
|
|
$
|
2,192
|
|
|
$
|
3,113
|
|
|
$
|
3,133
|
|
|
$
|
2,948
|
|
|
$
|
2,553
|
|
|
$
|
18,003
|
|
(1)
|
These amounts are net of purchase deposits currently held by the manufacturers and include all commitments for regional aircraft. American has
granted a security interest in its purchase deposits with Boeing. Americans purchase deposits held by all manufacturers totaled $1.2 billion as of December 31, 2016.
|
(b) Facility and support commitments
American has contracts related to facility construction or improvement projects, primarily at airport locations, as
well as information technology support. The contractual obligations related to these contracts are presented in the table below (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Facility construction or improvement contracts
|
|
$
|
182
|
|
|
$
|
126
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
321
|
|
Information technology contracts
|
|
|
205
|
|
|
|
168
|
|
|
|
128
|
|
|
|
47
|
|
|
|
24
|
|
|
|
8
|
|
|
|
580
|
|
(c) Capacity Purchase Agreements with Third-Party Regional Carriers
American has capacity purchase agreements with third-party regional carriers. The capacity purchase agreements
provide that all revenues, including passenger,
in-flight,
ancillary, mail and
174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
freight revenues, go to American. In return, American agrees to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of
passengers on board. In addition, these agreements provide that American reimburses 100% of certain variable costs, such as airport landing fees and passenger liability insurance. American controls marketing, scheduling, ticketing, pricing and seat
inventories.
As of December 31, 2016, Americans capacity purchase agreements with
third-party regional carriers had expiration dates ranging from 2017 to 2027, with rights of American to extend the respective terms of certain agreements. See Part I, Item 2. Properties for unaudited information on the aircraft operated by
third-party regional carriers under such capacity purchase agreements.
As of December 31, 2016,
Americans minimum fixed obligations under its capacity purchase agreements with third-party regional carriers are as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Minimum fixed obligations under capacity purchase agreements with third-party regional carriers
(1)
|
|
$
|
1,710
|
|
|
$
|
1,421
|
|
|
$
|
1,283
|
|
|
$
|
1,048
|
|
|
$
|
855
|
|
|
$
|
2,738
|
|
|
$
|
9,055
|
|
(1)
|
Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs
based on assumed minimum levels of flying under the capacity purchase agreements and Americans actual payments could differ materially. These obligations also include the portion of Americans future obligations related to aircraft deemed
to be leased in the amount of approximately $434 million in 2017, $370 million in 2018, $349 million in 2019, $317 million in 2020, $280 million in 2021 and $927 million in 2022 and thereafter.
|
(d) Operating Leases
American leases certain aircraft, engines and ground equipment, in addition to the majority of its ground facilities
and terminal space. As of December 31, 2016, American had 408 aircraft under operating leases, with remaining terms ranging from three months to approximately 11 years. Airports are utilized for flight operations under lease arrangements with
the municipalities or agencies owning or controlling such airports. Substantially all leases provide that the lessee must pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Some leases also
include renewal and purchase options.
As of December 31, 2016, obligations under noncancellable
operating leases for future minimum lease payments are as follows (approximately, in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
and
Thereafter
|
|
|
Total
|
|
Future minimum lease payments
|
|
$
|
2,242
|
|
|
$
|
2,010
|
|
|
$
|
1,813
|
|
|
$
|
1,638
|
|
|
$
|
1,213
|
|
|
$
|
3,785
|
|
|
$
|
12,701
|
|
Mainline and regional rent expense, excluding landing fees, was $2.7 billion
in each of 2016 and 2015 and $2.8 billion in 2014.
175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(e)
Off-Balance
Sheet Arrangements
Aircraft
American currently operates 346 owned aircraft and 138 leased aircraft which were financed with EETCs issued by pass-through trusts. These trusts are
off-balance
sheet entities, the primary purpose of which is to finance the acquisition of flight equipment. Rather than finance each aircraft separately when such aircraft is purchased, delivered or
refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. The trusts were also
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.
Each trust covers a set number of aircraft scheduled to be delivered or refinanced upon the
issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft 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. The equipment notes are issued, at Americans election, in connection with a mortgage financing of
the aircraft or, in certain cases, by a separate owner trust in connection with a leveraged lease financing of the aircraft. In the case of a leveraged lease financing, the owner trust then leases the aircraft to American. In both cases, the
equipment notes are secured by a security interest in the aircraft. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, in the case of mortgage financings, the equipment notes
issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG. As of December 31, 2016, $10.9 billion associated with these mortgage financings is reflected as debt in the accompanying
consolidated balance sheet.
With respect to leveraged leases, American evaluated whether the leases had
characteristics of a variable interest entity. American concluded the leasing entities met the criteria for variable interest entities. American generally is not the primary beneficiary of the leasing entities if the lease terms are consistent with
market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates American to absorb decreases in value or entitles American to participate in increases in the
value of the aircraft. American does not provide residual value guarantees to the bondholders or equity participants in the trusts. Some leases have a fair market value or a fixed price purchase option that allows American to purchase the aircraft
at or near the end of the lease term. However, the option price approximates an estimate of the aircrafts fair value at the option date. Under this feature, American does not participate in any increases in the value of the aircraft. American
concluded it is not the primary beneficiary under these arrangements. Therefore, American accounts for its EETC leveraged lease financings as operating leases. Americans total future obligations under these leveraged lease financings are
$1.5 billion as of December 31, 2016, which are included in the future minimum lease payments table above.
Special Facility Revenue Bonds
American guarantees the payment of principal and interest of certain special facility revenue bonds issued by
municipalities primarily to build or improve airport facilities and purchase equipment which is leased to American. Under such leases, American is required to make rental payments through 2035, sufficient to pay maturing principal and interest
payments on the related bonds. As of December 31, 2016, the remaining lease payments guaranteeing the principal and interest on these bonds are $605 million, which are accounted for as operating leases.
176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(f) Legal Proceedings
Chapter 11 Cases
. On November 29, 2011, AMR, American, and certain of AMRs other direct and
indirect domestic subsidiaries (the Debtors) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On
October 21, 2013, the Bankruptcy Court entered an order approving and confirming the Debtors fourth amended joint plan of reorganization (as amended, the Plan). On the Effective Date, December 9, 2013, the Debtors consummated their
reorganization pursuant to the Plan and completed the Merger.
Pursuant to rulings of the Bankruptcy
Court, the Plan established the Disputed Claims Reserve to hold shares of AAG common stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed claims. As of December 31, 2016, there
were approximately 25.2 million shares of AAG common stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if
such distributions had been made on or about the Effective Date. However, American is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully
pay any additional allowed unsecured claims. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to American but rather will be distributed to former
AMR stockholders.
There is also pending in the Bankruptcy Court an adversary proceeding relating to an
action brought by American to seek a determination that certain
non-pension,
postemployment benefits are not vested benefits and thus may be modified or terminated without liability to American. On
April 18, 2014, the Bankruptcy Court granted Americans motion for summary judgment with respect to certain
non-union
employees, concluding that their benefits were not vested and could be
terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees benefits are vested, and American cannot predict whether
it will receive relief from obligations to provide benefits to any of those retirees. Americans financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may
ultimately be implemented based upon the outcome of this proceeding.
DOJ Antitrust Civil
Investigative Demand
. In June 2015, American received a Civil Investigative Demand (CID) from the United States Department of Justice (DOJ) as part of an investigation into whether there have been illegal agreements or coordination of air
passenger capacity. The CID seeks documents and other information from American, and other airlines have announced that they have received similar requests. American is cooperating fully with the DOJ investigation. In addition, subsequent to
announcement of the delivery of CIDs by the DOJ, American, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in approximately 100
putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits have been consolidated in the Federal District Court for the District of Columbia. On October 28, 2016, the Court denied a
motion by the airline defendants to dismiss all claims in the class actions. Both the DOJ investigation and these lawsuits are in their relatively early stages and American intends to defend these matters vigorously.
Private Party Antitrust Action
. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US
Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of
177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
California. The complaint named as defendants US Airways Group and US Airways, Inc., alleged that the effect of the Merger may be to create a monopoly in violation of Section 7 of the
Clayton Antitrust Act, and sought injunctive relief and/or divestiture. On August 6, 2013, the plaintiffs
re-filed
their complaint in the Bankruptcy Court, adding AMR and American as defendants. On
November 27, 2013, the Bankruptcy Court denied plaintiffs motion to preliminarily enjoin the Merger. On August 19, 2015, after three previous largely unsuccessful attempts to amend their complaint, plaintiffs filed a fourth motion
for leave to file an amended and supplemental complaint to add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air passenger capacity. Thereafter, plaintiffs filed a
request with the Judicial Panel on Multidistrict Litigation to consolidate the Fjord matter with the putative class action lawsuits, which was denied on October 15, 2015. A jointly proposed schedule for the remainder of the case was submitted
on September 7, 2016, which has not yet been accepted by the Bankruptcy Court. American believes this lawsuit is without merit and intends to vigorously defend against the allegations.
DOJ Investigation Related to the United States Postal Service
. In April 2015, the DOJ informed American of
an inquiry regarding Americans 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air. In October 2015, American received a CID from the DOJ seeking certain information relating to
these contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes. American
is cooperating fully with the DOJ with regard to its investigation.
General
. In addition to the
specifically identified legal proceedings, American and its subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome
depending on a number of variables, some of which are not within Americans control. Therefore, although American will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution
and potential financial and other impacts on American are uncertain but could be material. See Part I, Item 1A. Risk Factors
We may be a party to litigation in the normal course of business or otherwise, which could affect our
financial position and liquidity
for unaudited additional discussion.
(g) Guarantees and
Indemnifications
American is a party to many routine contracts in which it provides general
indemnities in the normal course of business to third parties for various risks. American is not able to estimate the potential amount of any liability resulting from the indemnities. These indemnities are discussed in the following paragraphs.
In its aircraft financing agreements, American generally indemnifies the financing parties, trustees
acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (or
taxes) relate to the negligence of the indemnified parties.
Americans loan agreements and other
LIBOR-based financing transactions (including certain leveraged aircraft leases) generally obligate American to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit
requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In
addition, Americans loan agreements and other financing arrangements typically
178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
contain a withholding tax provision that requires American to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender
or other financing party as a result of a change in the applicable tax law.
These increased cost and
withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts American could be obligated to pay under such provisions. Any failure to pay amounts due under such
provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose on the collateral to realize the amount due.
In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other
parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances. In such a case, American may be required to make a lump sum payment to terminate the relevant transaction.
American has general indemnity clauses in many of its airport and other real estate leases where
American as lessee indemnifies the lessor (and related parties) against liabilities related to Americans use of the leased property. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties,
but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties. In addition, American provides environmental indemnities in many of these leases for contamination related to Americans use of the leased
property.
Under certain contracts with third parties, American indemnifies the third-party against
legal liability arising out of an action by the third-party, or certain other parties. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. American has liability insurance protecting American
for some of the obligations it has undertaken under these indemnities.
American is involved in certain
claims and litigation related to its operations. American is also subject to regulatory assessments in the ordinary course of business. American establishes reserves for litigation and regulatory matters when those matters present loss contingencies
that are both probable and can be reasonably estimated. In the opinion of management, liabilities, if any, arising from these regulatory matters, claims and litigation will not have a material adverse effect on Americans consolidated financial
position, results of operations, or cash flows, after consideration of available insurance.
As of
December 31, 2016, American had issued guarantees covering AAGs $750 million aggregate principal amount of 5.50% senior notes due 2019, $500 million aggregate principal amount of 6.125% senior notes due 2018 and
$500 million aggregate principal amount of 4.625% senior notes due 2020.
(h) Credit Card Processing
Agreements
American has agreements with companies that process customer credit card transactions
for the sale of air travel and other services. Americans agreements allow these processing companies, under certain conditions, to hold an amount of its cash (referred to as a holdback) equal to a portion of advance ticket sales that have been
processed by that company, but for which American has not yet provided the air transportation. Additional holdback requirements in the event of material adverse changes in Americans financial condition will reduce its liquidity in the form of
unrestricted cash by the amount of the holdbacks. American is not currently required to maintain any holdbacks pursuant to these requirements.
179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(i) Labor Negotiations
As of December 31, 2016, American employed approximately 101,500 active full-time equivalent employees.
Approximately 84% of employees are covered by collective bargaining agreements with various labor unions. Negotiations for joint collective bargaining agreements covering Americans maintenance, fleet service, stores and planner employees are
continuing. There is no assurance that a successful or timely resolution of these labor negotiations will be achieved.
(j) Other
As a result of the terrorist attacks of September 11, 2001 and the subsequent liability protections provided for by the Air Transportation Safety and System Stabilization Act (the Stabilization
Act), American recorded a liability for these terrorist attacks claims equal to the related insurance receivable due to American. The Stabilization Act provides that, notwithstanding any other provision of law, liability for all claims, whether
compensatory or punitive, arising from these terrorist attacks, against any air carrier shall not exceed the liability coverage maintained by the air carrier. As of December 31, 2016, the remaining liability and the amount of the offsetting
receivable were each $974 million.
10. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information and
non-cash
investing and
financing activities are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of bankruptcy obligations
|
|
$
|
3
|
|
|
$
|
63
|
|
|
$
|
5,131
|
|
Capital lease obligations
|
|
|
|
|
|
|
5
|
|
|
|
747
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized
|
|
|
867
|
|
|
|
787
|
|
|
|
780
|
|
Income taxes paid
|
|
|
14
|
|
|
|
19
|
|
|
|
4
|
|
11. Operating Segments and Related Disclosures
American is managed as a single business unit that provides air transportation for passengers and cargo. This allows
it to benefit from an integrated revenue pricing and route network that includes American and AAGs wholly-owned and third-party regional carriers that fly under capacity purchase agreements operating as American Eagle. The flight equipment of
all these carriers is combined to form one fleet that is deployed through a single route scheduling system. When making resource allocation decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft
type and route economics, but gives no weight to the financial impact of the resource allocation decision on an individual carrier basis. The objective in making resource allocation decisions is to maximize consolidated financial results, not the
individual results of American or American Eagle.
180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Americans operating revenues by geographic region as defined
by the United States Department of Transportation (DOT) are summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
DOT Domestic
|
|
$
|
28,603
|
|
|
$
|
28,709
|
|
|
$
|
28,584
|
|
DOT Latin America
|
|
|
4,995
|
|
|
|
5,539
|
|
|
|
6,974
|
|
DOT Atlantic
|
|
|
4,769
|
|
|
|
5,146
|
|
|
|
5,652
|
|
DOT Pacific
|
|
|
1,796
|
|
|
|
1,544
|
|
|
|
1,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
40,163
|
|
|
$
|
40,938
|
|
|
$
|
42,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American attributes operating revenues by geographic region based upon the origin
and destination of each flight segment. Americans tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.
12. 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 authorizes the grant of awards for the issuance of 40 million shares. Any shares underlying awards granted under the 2013
Plan, or any
pre-existing
US Airways Group 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.
Americans net income for the years ended December 31, 2016, 2015 and 2014 included $102 million,
$274 million and $381 million, respectively, of share-based compensation costs. Of the 2015 and 2014 amounts, $198 million and $224 million, respectively, were related to awards granted to certain employees in connection with the
Merger and recorded in special items, net on the accompanying consolidated statements of operations.
During 2016, 2015 and 2014, AAG withheld approximately 1.4 million, 7.0 million and 1.7 million
shares of AAG common stock, respectively, and paid approximately $56 million, $306 million and $62 million, respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards.
(a) Restricted Stock Unit Awards (RSUs)
AAG has granted RSUs with service conditions (time vested primarily over three years) and performance conditions.
The grant-date fair value of RSUs is equal to the market price of the underlying shares of common stock on the date of grant. 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. Stock-settled RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock.
Cash-settled restricted stock unit awards (CRSUs) are classified as liability awards as the vesting results in payment of cash by AAG.
181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Stock-settled RSU award activity for all plans for the years ended
December 31, 2016, 2015 and 2014 is as follows (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted
Average Grant
Date Fair
Value
|
|
|
|
(In thousands)
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
23,879
|
|
|
$
|
24.33
|
|
Granted
|
|
|
3,467
|
|
|
|
37.07
|
|
Vested and released
|
|
|
(4,193
|
)
|
|
|
23.84
|
|
Forfeited
|
|
|
(1,811
|
)
|
|
|
25.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
21,342
|
|
|
$
|
26.43
|
|
Granted
|
|
|
2,213
|
|
|
|
46.62
|
|
Vested and released
|
|
|
(17,163
|
)
|
|
|
25.20
|
|
Forfeited
|
|
|
(785
|
)
|
|
|
27.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
5,607
|
|
|
$
|
38.08
|
|
Granted
|
|
|
2,655
|
|
|
|
41.34
|
|
Vested and released
|
|
|
(2,754
|
)
|
|
|
34.83
|
|
Forfeited
|
|
|
(321
|
)
|
|
|
40.15
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
5,187
|
|
|
$
|
41.48
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $116 million of unrecognized
compensation cost related to stock-settled RSUs. These costs are expected to be recognized over a weighted average period of one year. The total fair value of stock-settled RSUs vested during the years ended December 31, 2016, 2015 and 2014 was
$107 million, $750 million and $154 million, respectively.
As of December 31, 2016,
AAG had a nominal amount of CRSUs outstanding. The total cash paid for CRSUs vested during the years ended December 31, 2016, 2015 and 2014 was less than $1 million, $10 million and $12 million, respectively.
(b) Stock Options and Stock Appreciation Rights
AAG assumed US Airways Groups outstanding stock options and stock appreciation rights in connection with the
Merger using an exchange ratio of one to one. These stock options and stock appreciation rights were granted with an exercise price equal to the underlying common stocks fair value at the date of each grant, have service conditions, become
exercisable over a three-year vesting period and expire if unexercised at the end of their term, which ranges from seven to ten years. Stock options and stock-settled stock appreciation rights (SARs) are classified as equity awards as the exercise
results in the issuance of shares of AAG common stock. Cash-settled stock appreciation rights (CSARs) are classified as liability awards as the exercise results in payment of cash by AAG. Compensation costs were expensed on a straight-line basis
over the vesting period for the entire award. There are no unrecognized compensation costs as all awards outstanding are vested.
182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
Stock option and SAR award activity for all plans for the years
ended December 31, 2016, 2015 and 2014 is as follows (stock options and SARs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
and
SARs
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
Balance at December 31, 2013
|
|
|
11,158
|
|
|
$
|
12.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,109
|
)
|
|
|
10.74
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(42
|
)
|
|
|
41.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
7,007
|
|
|
$
|
13.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,985
|
)
|
|
|
12.09
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(9
|
)
|
|
|
45.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
4,013
|
|
|
$
|
15.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,738
|
)
|
|
|
14.49
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(180
|
)
|
|
|
46.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
2,095
|
|
|
$
|
13.08
|
|
|
|
1.6
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options and SARs exercised during the years
ended December 31, 2016, 2015 and 2014 was $49 million, $102 million and $105 million, respectively. All stock options and SARs outstanding at December 31, 2016 are vested and exercisable.
183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
CSAR award activity for all plans for the years ended
December 31, 2016, 2015 and 2014 is as follows (CSARs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSARs
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
Balance at December 31, 2013
|
|
|
2,865
|
|
|
$
|
6.26
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,254
|
)
|
|
|
6.18
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
1,611
|
|
|
$
|
6.33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(760
|
)
|
|
|
6.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
851
|
|
|
$
|
6.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(501
|
)
|
|
|
5.24
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
350
|
|
|
$
|
7.94
|
|
|
|
1.0
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the weighted average fair value of outstanding CSARs
was $38.57 per share and the related liability was $13 million. These CSARs are fully vested and exercisable and will continue to be remeasured at fair value at each reporting date until all awards are settled. Total cash paid for CSARs
exercised during the years ended December 31, 2016, 2015 and 2014 was $18 million, $31 million and $42 million, respectively.
13. Valuation and Qualifying Accounts (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
Beginning of
Year
|
|
|
Changes
Charged to
Statement of
Operations
Accounts
|
|
|
Write-offs
(Net
of
Recoveries)
|
|
|
Sales,
Retirements
and
Transfers
|
|
|
Balance
at End
of Year
|
|
Allowance for obsolescence of inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
$
|
689
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
720
|
|
Year ended December 31, 2015
|
|
|
638
|
|
|
|
42
|
|
|
|
|
|
|
|
9
|
|
|
|
689
|
|
Year ended December 31, 2014
|
|
|
504
|
|
|
|
135
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
638
|
|
Allowance for uncollectible accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
$
|
37
|
|
|
$
|
47
|
|
|
$
|
(49
|
)
|
|
$
|
|
|
|
$
|
35
|
|
Year ended December 31, 2015
|
|
|
14
|
|
|
|
45
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
37
|
|
Year ended December 31, 2014
|
|
|
40
|
|
|
|
3
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
14
|
|
184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
14. Quarterly Financial Data (Unaudited)
Unaudited summarized financial data by quarter for 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
9,427
|
|
|
$
|
10,360
|
|
|
$
|
10,591
|
|
|
$
|
9,786
|
|
Operating expenses
|
|
|
8,104
|
|
|
|
8,603
|
|
|
|
9,159
|
|
|
|
8,995
|
|
Operating income
|
|
|
1,323
|
|
|
|
1,757
|
|
|
|
1,432
|
|
|
|
791
|
|
Net income
|
|
|
710
|
|
|
|
972
|
|
|
|
758
|
|
|
|
341
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
9,811
|
|
|
$
|
10,814
|
|
|
$
|
10,694
|
|
|
$
|
9,619
|
|
Operating expenses
|
|
|
8,610
|
|
|
|
8,893
|
|
|
|
8,691
|
|
|
|
8,555
|
|
Operating income
|
|
|
1,201
|
|
|
|
1,921
|
|
|
|
2,003
|
|
|
|
1,064
|
|
Net income
|
|
|
937
|
|
|
|
1,709
|
|
|
|
1,723
|
|
|
|
3,751
|
|
Americans fourth quarter 2016 results include $273 million of total net
special charges consisting principally of $121 million of Merger integration expenses, $104 million of fleet restructuring expenses and a $47 million net charge consisting of
mark-to-market
adjustments for bankruptcy obligations.
Americans fourth quarter 2015 results include $2.5 billion of total net special credits consisting
principally of a $3.5 billion
non-cash
tax benefit recorded in connection with the reversal of Americans tax valuation allowance, offset in part by a nonoperating net special charge of
$592 million to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela and $447 million in total operating special charges primarily
consisting of Merger integration expenses and fleet restructuring expenses.
15. Transactions with Related Parties
The following represents the net receivables (payables) to related parties (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
AAG
(1)
|
|
$
|
8,981
|
|
|
$
|
4,489
|
|
AAGs wholly-owned subsidiaries
(2)
|
|
|
(2,171
|
)
|
|
|
(2,508
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,810
|
|
|
$
|
1,981
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The increase in Americans net related party receivable from AAG is primarily due to American providing the cash funding for AAGs
share repurchase and dividend programs.
|
(2)
|
The net payable to AAGs wholly-owned subsidiaries consists primarily of amounts due under regional capacity purchase agreements with
AAGs wholly-owned regional airlines operating under the brand name of American Eagle.
|
Pursuant to a capacity purchase agreement between American and AAGs wholly-owned regional airlines operating as American Eagle, American purchases all of the capacity from these carriers and
recognizes passenger revenue from flights operated by American Eagle. In 2016, 2015 and 2014, American recognized expense of approximately $1.5 billion, $1.2 billion and $1.2 billion, respectively, related to wholly-owned regional
airline capacity purchase agreements.
185
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
16. Subsequent Events
2017-1
EETCs
In January 2017, American created three pass-through trusts which issued approximately $983 million aggregate
principal amount of Series
2017-1
Class AA, Class A and Class B EETCs (the
2017-1
EETCs) in connection with the financing of 24 aircraft scheduled to be
delivered to American between January 2017 and May 2017 (the
2017-1
Aircraft). A portion of the proceeds received from the sale of the
2017-1
EETCs has been used to
acquire Series AA, A and B equipment notes issued by American to the pass-through trusts and the balance of such proceeds is being held in escrow for the benefit of the holders of the
2017-1
EETCs until such
time as American issues additional Series AA, A and B equipment notes to the pass-through trusts, which will purchase the equipment notes with escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on its
consolidated balance sheet because the proceeds held by the depository are not Americans assets.
Series AA equipment notes bear interest at 3.65% per annum, Series A equipment notes bear interest at 4.00% per
annum and Series B equipment notes bear interest at 4.95% per annum. Interest and principal payments on the equipment notes will be payable semi-annually in February and August of each year, with interest payments beginning in August 2017 and
principal payments beginning in February 2018. The final payments on the Series AA and Series A equipment notes are due in February 2029 and the final payment on the Series B equipment notes is due in February 2025. The equipment notes are secured
by liens on the
2017-1
Aircraft.
186