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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From                     to
Commission file number 1-8400
 
 
 
American Airlines Group Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
 
75-1825172
 
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
1 Skyview Drive,
Fort Worth,
Texas
76155
 
 
 
(817)
963-1234
 
 
(Address of principal executive offices, including zip code)
 
 
(Registrant’s telephone number, including area code)
 
Commission file number 1-2691
 
 
 
American Airlines, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
 
13-1502798
 
(State or other jurisdiction of incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
 
1 Skyview Drive,
Fort Worth,
Texas
76155
 
 
 
(817)
963-1234
 
 
(Address of principal executive offices, including zip code)
 
 
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
AAL
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
American Airlines Group Inc.
Yes
 
No
American Airlines, Inc.
Yes
 
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
American Airlines Group Inc.
Yes
 
No
American Airlines, Inc.
Yes
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
American Airlines Group Inc.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
American Airlines, Inc.
Large accelerated filer
Accelerated filer

Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
American Airlines Group Inc.
 
American Airlines, Inc.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
American Airlines Group Inc.
Yes
 
No
American Airlines, Inc.
Yes
 
No
As of April 24, 2020, there were 422,894,501 shares of American Airlines Group Inc. common stock outstanding.
As of April 24, 2020, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.
 




American Airlines Group Inc.
American Airlines, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2020
Table of Contents
 
 
Page
PART I: FINANCIAL INFORMATION
Item 1A.
 
 
 
 
 
 
Item 1B.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II: OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.


1



General
This report is filed by American Airlines Group Inc. (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this report to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. References in this report to “mainline” refer to the operations of American only and exclude regional operations.
Note Concerning Forward-Looking Statements
Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), and the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about our plans, objectives, expectations, intentions, estimates and strategies for the future, and other statements that are not historical facts. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described below under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1A. Risk Factors and other risks and uncertainties listed from time to time in our filings with the Securities and Exchange Commission (the SEC).
All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, Item 1A. Risk Factors and elsewhere in this report. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such statements other than as required by law. Forward-looking statements speak only as of the date of this report or as of the dates indicated in the statements.

2



PART I: FINANCIAL INFORMATION
This report on Form 10-Q is filed by both AAG and American and includes the Condensed Consolidated Financial Statements of each company in Item 1A and Item 1B, respectively.


3



ITEM 1A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share and per share amounts)(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Operating revenues:
 
Passenger
$
7,681

 
$
9,658

Cargo
147

 
218

Other
687

 
708

Total operating revenues
8,515

 
10,584

Operating expenses:
 
 
 
Aircraft fuel and related taxes
1,395

 
1,726

Salaries, wages and benefits
3,140

 
3,090

Regional expenses
1,924

 
1,763

Maintenance, materials and repairs
629

 
561

Other rent and landing fees
468

 
503

Aircraft rent
334

 
327

Selling expenses
305

 
370

Depreciation and amortization
560

 
480

Special items, net
1,132

 
138

Other
1,177

 
1,251

Total operating expenses
11,064

 
10,209

Operating income (loss)
(2,549
)
 
375

Nonoperating income (expense):
 
 
 
Interest income
21

 
33

Interest expense, net
(257
)
 
(271
)
Other income (expense), net
(105
)
 
108

Total nonoperating expense, net
(341
)
 
(130
)
Income (loss) before income taxes
(2,890
)
 
245

Income tax provision (benefit)
(649
)
 
60

Net income (loss)
$
(2,241
)
 
$
185

 
 
 
 
Earnings (loss) per common share:
 
 
 
Basic
$
(5.26
)
 
$
0.41

Diluted
$
(5.26
)
 
$
0.41

Weighted average shares outstanding (in thousands):
 
 
 
Basic
425,713

 
451,951

Diluted
425,713

 
453,429

Cash dividends declared per common share
$
0.10

 
$
0.10

See accompanying notes to condensed consolidated financial statements.

4



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)(Unaudited) 
 
Three Months Ended March 31,
 
2020
 
2019
Net income (loss)
$
(2,241
)
 
$
185

Other comprehensive income (loss), net of tax:
 
 
 
Pension, retiree medical and other postretirement benefits
(126
)
 
(16
)
Investments
(23
)
 
3

Total other comprehensive loss, net of tax
(149
)
 
(13
)
Total comprehensive income (loss)
$
(2,390
)
 
$
172

See accompanying notes to condensed consolidated financial statements.


5



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and par value)
 
March 31, 2020
 
December 31, 2019
 
(Unaudited)
 
 
ASSETS
 
Current assets
 
 
 
Cash
$
474

 
$
280

Short-term investments
3,102

 
3,546

Restricted cash and short-term investments
157

 
158

Accounts receivable, net
1,020

 
1,750

Aircraft fuel, spare parts and supplies, net
1,772

 
1,851

Prepaid expenses and other
650

 
621

Total current assets
7,175

 
8,206

Operating property and equipment
 
 
 
Flight equipment
39,305

 
42,537

Ground property and equipment
9,602

 
9,443

Equipment purchase deposits
1,740

 
1,674

Total property and equipment, at cost
50,647

 
53,654

Less accumulated depreciation and amortization
(16,441
)
 
(18,659
)
Total property and equipment, net
34,206

 
34,995

Operating lease right-of-use assets
8,619

 
8,737

Other assets
 
 
 
Goodwill
4,091

 
4,091

Intangibles, net of accumulated amortization of $714 and $704, respectively
2,059

 
2,084

Deferred tax asset
1,237

 
645

Other assets
1,193

 
1,237

Total other assets
8,580

 
8,057

Total assets
$
58,580

 
$
59,995

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt and finance leases
$
3,518

 
$
2,861

Accounts payable
1,648

 
2,062

Accrued salaries and wages
1,633

 
1,541

Air traffic liability
5,473

 
4,808

Loyalty program liability
3,094

 
3,193

Operating lease liabilities
1,752

 
1,708

Other accrued liabilities
2,095

 
2,138

Total current liabilities
19,213

 
18,311

Noncurrent liabilities
 
 
 
Long-term debt and finance leases, net of current maturities
21,564

 
21,454

Pension and postretirement benefits
6,107

 
6,052

Loyalty program liability
5,757

 
5,422

Operating lease liabilities
7,239

 
7,421

Other liabilities
1,336

 
1,453

Total noncurrent liabilities
42,003

 
41,802

Commitments and contingencies

 

Stockholders’ equity (deficit)
 
 
 
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 422,886,533 shares issued and outstanding at March 31, 2020; 428,202,506 shares issued and outstanding at December 31, 2019
4

 
4

Additional paid-in capital
3,861

 
3,945

Accumulated other comprehensive loss
(6,480
)
 
(6,331
)
Retained earnings (deficit)
(21
)
 
2,264

Total stockholders’ deficit
(2,636
)
 
(118
)
Total liabilities and stockholders’ equity (deficit)
$
58,580

 
$
59,995

See accompanying notes to condensed consolidated financial statements.

6



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Net cash provided by (used in) operating activities
$
(168
)
 
$
1,651

Cash flows from investing activities:
 
 
 
Capital expenditures and aircraft purchase deposits
(845
)
 
(1,305
)
Proceeds from sale-leaseback transactions
280

 
352

Proceeds from sale of property and equipment
35

 
7

Purchases of short-term investments
(820
)
 
(570
)
Sales of short-term investments
1,237

 
1,051

Other investing activities
(49
)
 
(15
)
Net cash used in investing activities
(162
)
 
(480
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
1,698

 
400

Payments on long-term debt and finance leases
(926
)
 
(849
)
Deferred financing costs
(31
)
 
(6
)
Treasury stock repurchases
(171
)
 
(608
)
Dividend payments
(43
)
 
(46
)
Other financing activities
(1
)
 

Net cash provided by (used in) financing activities
526

 
(1,109
)
Net increase in cash and restricted cash
196

 
62

Cash and restricted cash at beginning of period
290

 
286

Cash and restricted cash at end of period (1)
$
486

 
$
348

 
 
 
 
Non-cash transactions:
 
 
 
Right-of-use (ROU) assets acquired through operating leases
$
328

 
$
332

Settlement of bankruptcy obligations
56

 

Deferred financing costs paid through issuance of debt
17

 

Property and equipment acquired through finance leases

 
2

Supplemental information:
 
 
 
Interest paid, net
239

 
267

Income taxes paid
2

 
3

 
   
(1) 
The following table provides a reconciliation of cash and restricted cash to amounts reported within the condensed consolidated balance sheets:
Cash
$
474

 
$
337

Restricted cash included in restricted cash and short-term investments
12

 
11

Total cash and restricted cash
$
486

 
$
348


See accompanying notes to condensed consolidated financial statements.


7



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In millions, except share amounts)(Unaudited)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
(Deficit)
 
Total
Balance at December 31, 2019
$
4

 
$
3,945

 
$
(6,331
)
 
$
2,264

 
$
(118
)
Net loss

 

 

 
(2,241
)
 
(2,241
)
Other comprehensive loss, net

 

 
(149
)
 

 
(149
)
Purchase and retirement of 6,378,025 shares of AAG common stock

 
(145
)
 

 

 
(145
)
Dividends declared on AAG common stock ($0.10 per share)

 

 

 
(44
)
 
(44
)
Issuance of 1,062,052 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

 
(13
)
 

 

 
(13
)
Settlement of single-dip unsecured claims held in Disputed Claims Reserve

 
56

 

 

 
56

Share-based compensation expense

 
18

 

 

 
18

Balance at March 31, 2020
$
4

 
$
3,861

 
$
(6,480
)
 
$
(21
)
 
$
(2,636
)

 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance at December 31, 2018
$
5

 
$
4,964

 
$
(5,896
)
 
$
758

 
$
(169
)
Net income

 

 

 
185

 
185

Other comprehensive loss, net

 

 
(13
)
 

 
(13
)
Purchase and retirement of 16,947,393 shares of AAG common stock

 
(610
)
 

 

 
(610
)
Dividends declared on AAG common stock ($0.10 per share)

 

 

 
(46
)
 
(46
)
Issuance of 552,752 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes

 
(8
)
 

 

 
(8
)
Share-based compensation expense

 
25

 

 

 
25

Balance at March 31, 2019
$
5

 
$
4,371

 
$
(5,909
)
 
$
897

 
$
(636
)
See accompanying notes to condensed consolidated financial statements.

8



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncement
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (we, us, our and similar terms, or AAG) should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying unaudited condensed consolidated financial statements include the accounts of AAG and its wholly-owned subsidiaries. AAG’s principal subsidiary is American Airlines, Inc. (American). All significant intercompany transactions have been eliminated.
Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. 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, as well as pension and retiree medical and other postretirement benefits.
(b) Impact of Coronavirus (COVID-19)
COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. As a result, we have experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in our revenues. While our business performed largely as expected in January and February of 2020, a severe reduction in air travel during March 2020 resulted in our total operating revenues decreasing nearly 20% in the first quarter of 2020 as compared to the first quarter of 2019. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we presently expect the deterioration to increase in the second quarter of 2020 and our results of operations for the remainder of 2020 to be severely impacted.
We have taken aggressive actions to mitigate the effect of COVID-19 on our business including deep capacity reductions, structural changes to our fleet, cost reductions, and steps to preserve cash and improve our overall liquidity position. We remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time, consistent with the terms of the financial support we have received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act which, among other things, includes obligations regarding minimum air service and restrictions on involuntary workforce actions. See Note 14 for further information.
Capacity Reductions
We have significantly reduced our capacity (as measured by available seat miles), with April and May 2020 flying expected to decrease by approximately 80% year-over-year and June 2020 flying expected to decrease by approximately 70% year-over-year. Given the fluidity of the environment, we will continue to evaluate these targets and make further demand-driven adjustments to our capacity as needed.
Fleet
To better align our network with lower passenger demand, we have accelerated the retirement of Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft. These retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 13 for further information on the accounting for our fleet retirements. Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft.

9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

Cost Reductions
We are moving quickly to align our costs with our reduced schedule. In aggregate, we estimate that we have reduced our 2020 operating and capital expenditures by more than $12 billion. These savings have been achieved through lower fuel expense and a series of actions, including the capacity reductions and accelerated fleet retirements discussed above as well as reductions in heavy maintenance expense, the deferral of marketing expenditures, consolidation of space at airport facilities and reductions in contractor, event and training expenses. We have also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation and implemented voluntary leave and early retirement programs to reduce our labor costs consistent with our obligations under the CARES Act. In total, nearly 39,000 team members have opted for early retirement, a reduced work schedule or a partially-paid leave status. Our average estimated second quarter 2020 cash burn rate is currently expected to be approximately $70 million per day, and we presently expect this amount to decrease over time to approximately $50 million per day for the month of June 2020 as these cost-savings initiatives gain traction and assuming no material, unforecasted revenue reductions, costs or other events.
Liquidity
At March 31, 2020, we had $6.8 billion in total available liquidity, consisting of $3.6 billion in unrestricted cash and short-term investments and $3.2 billion in undrawn capacity under our revolving credit facilities, of which we borrowed $2.7 billion in April 2020.
During the first quarter of 2020, we completed the following financing transactions (see Note 6 for further information):
refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027;
raised $1.0 billion from a 364-day senior secured delayed draw term loan credit facility;
issued $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025 and repaid $500 million of 4.625% unsecured senior notes that matured in March 2020;
raised $280 million from aircraft sale-leaseback transactions; and
raised $197 million from aircraft financings, of which $17 million was used to repay existing indebtedness.
We have been approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act of which we received an initial disbursement of $2.9 billion in April 2020 (representing 50% of the current expected total). We currently anticipate receiving three additional installments from May to July 2020. As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, we expect to issue an aggregate principal amount of approximately $1.7 billion under a promissory note and warrants to purchase up to 13.7 million shares of AAG common stock (assuming the full $5.8 billion of financial assistance is received). As of the date of this report, the principal amount of this promissory note is $842 million and a warrant to purchase up to 6.7 million shares of AAG common stock has been issued. The principal amount of this promissory note will increase by an amount equal to 30% of each additional installment disbursed under the PSP Agreement, and we will issue a warrant for a number of shares of AAG common stock equal to 10% of each such increase in the principal amount of this promissory note, divided by $12.51 per share (the exercise price per share of such warrants). See Note 14 for further information on the Payroll Support Program. We also applied for a secured loan from the U.S. Department of the Treasury (Treasury) of approximately $4.75 billion under the CARES Act, which if granted will involve the issuance of additional warrants to purchase approximately 38.0 million shares of AAG common stock. As of the date of this report, the secured loan application has not been acted on. Also, we are permitted to, and will, defer payment of the employer portion of social security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022). This deferral is expected to provide approximately $300 million in additional liquidity during 2020. Additionally, we have suspended our capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable.
We continue to evaluate future financing opportunities and have engaged third-party appraisers to evaluate some of our unencumbered assets. We expect to pledge a portion of these unencumbered assets as collateral for future financings, including as part of the approximately $4.75 billion secured loan we have applied for under the CARES Act.
Certain of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value ratio covenants.

10


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

Given the above actions and our assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings and funds from government assistance to be provided pursuant to the CARES Act) and projected cash flows from operations.
(c) Recent Accounting Pronouncement
Accounting Standards Update (ASU) 2016-13: Financial Instruments Credit Losses (Topic 326)
This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. We adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on our condensed consolidated financial statements.
2. Special Items, Net
Special items, net in the condensed consolidated statements of operations consisted of the following (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
Fleet impairment (1)
$
744

 
$

Labor contract expenses (2)
218

 

Severance expenses (3)
205

 

Mark-to-market adjustments on bankruptcy obligations, net (4)
(50
)
 

Fleet restructuring expenses (5)

 
83

Merger integration expenses

 
37

Other operating charges, net
15

 
18

Mainline operating special items, net
1,132

 
138

Regional operating special items, net (6)
93

 

Operating special items, net
1,225

 
138

 
 
 
 
Mark-to-market adjustments on equity and other investments, net (7)
180

 
(69
)
Debt refinancing, extinguishment and other charges
37

 

Nonoperating special items, net
217

 
(69
)

     
(1) 
Fleet impairment primarily includes a $676 million non-cash write-down of aircraft and spare parts and $68 million in write-offs of ROU assets and lease return costs associated with our mainline fleet, principally Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 aircraft, which are being retired earlier than previously planned as a result of the decline in demand for air travel due to COVID-19. See Note 13 for further information related to these charges.
(2) 
Labor contract expenses primarily relate to one-time charges resulting from the ratification of a new contract with the Transport Workers Union and International Association of Machinists & Aerospace Workers for our maintenance and fleet service team members, including signing bonuses and adjustments to vacation accruals resulting from pay rate increases.
(3) 
Severance expenses principally include salary and medical costs associated with certain team members who opted in to a voluntary early retirement program offered as a result of reductions to our operation due to COVID-19.
(4) 
Bankruptcy obligations that will be settled in shares of our common stock are marked-to-market based on our stock price.

11


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

(5) 
Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment expected to be retired earlier than planned.
(6) 
Regional operating special items, net primarily includes an $88 million non-cash write-down of regional aircraft, principally certain Embraer 140 and certain Bombardier CRJ200 aircraft, which are being retired earlier than previously planned as a result of the decline in demand for air travel due to COVID-19. See Note 13 for further information related to this charge.
(7) 
Mark-to-market adjustments on equity and other investments, net primarily relates to net unrealized gains and losses associated with our equity investment in China Southern Airlines Company Limited (China Southern Airlines) and certain treasury rate lock derivative instruments.
3. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings (loss) per common share (EPS) (in millions, except share and per share amounts):
 
Three Months Ended March 31,
 
2020
 
2019
Basic EPS:
 
 
 
Net income (loss)
$
(2,241
)
 
$
185

Weighted average common shares outstanding (in thousands)
425,713

 
451,951

Basic EPS
$
(5.26
)
 
$
0.41

 
 
 
 
Diluted EPS:
 
 
 
Net income (loss) for purposes of computing diluted EPS
$
(2,241
)
 
$
185

Share computation for diluted EPS (in thousands):
 
 
 
Basic weighted average common shares outstanding
425,713

 
451,951

Dilutive effect of stock awards

 
1,478

Diluted weighted average common shares outstanding
425,713

 
453,429

Diluted EPS
$
(5.26
)
 
$
0.41

 
 
 
 
Restricted stock unit awards excluded from the calculation of
      diluted EPS because inclusion would be antidilutive (in
      thousands)
4,934

 
2,267


4. Share Repurchase Programs and Dividends
During the three months ended March 31, 2020, we repurchased 6.4 million shares of AAG common stock for $145 million at a weighted average cost per share of $22.77.
In January 2020, our Board of Directors declared a cash dividend of $0.10 per share for stockholders of record as of February 5, 2020 and paid on February 19, 2020, totaling $43 million.
We have suspended our capital return program, including share repurchases and the payment of future dividends. In connection with our receipt of financial support under the Payroll Support Program, we agreed not to repurchase shares of or make dividend payments in respect of AAG common stock through September 30, 2021. If we receive a secured loan from Treasury pursuant to the CARES Act, we will be prohibited from repurchasing shares of AAG common stock through the date that is one year after such secured loan is fully repaid.

12


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

5. Revenue Recognition
Revenue
The following are the significant categories comprising our reported operating revenues (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
Passenger revenue:
 
 
 
Passenger travel
$
7,079

 
$
8,772

Loyalty revenue - travel (1)
602

 
886

Total passenger revenue
7,681

 
9,658

Cargo
147

 
218

Other:
 
 
 
Loyalty revenue - marketing services
571

 
578

Other revenue
116

 
130

Total other revenue
687

 
708

Total operating revenues
$
8,515

 
$
10,584

 
    
(1) 
Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions, which were earned from travel or co-branded credit card and other partners.
The following is our total passenger revenue by geographic region (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
Domestic
$
5,780

 
$
7,226

Latin America
1,180

 
1,371

Atlantic
523

 
673

Pacific
198

 
388

Total passenger revenue
$
7,681

 
$
9,658


We attribute passenger revenue by geographic region based upon the origin and destination of each flight segment.
Contract Balances
Our significant contract liabilities are comprised of (1) outstanding loyalty program mileage credits that may be redeemed for future travel and other non-air travel awards, reported as loyalty program liability on the condensed consolidated balance sheets and (2) ticket sales for transportation that has not yet been provided, reported as air traffic liability on the condensed consolidated balance sheets.
 
March 31, 2020
 
December 31, 2019
 
(In millions)
Loyalty program liability
$
8,851

 
$
8,615

Air traffic liability
5,473

 
4,808

Total
$
14,324

 
$
13,423


13


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

The balance of the loyalty program liability fluctuates based on seasonal patterns, which impact the volume of mileage credits issued through travel or sold to co-branded credit card and other partners (deferral of revenue) and mileage credits redeemed (recognition of revenue). Changes in loyalty program liability are as follows (in millions):
Balance at December 31, 2019
$
8,615

Deferral of revenue
887

Recognition of revenue (1)
(651
)
Balance at March 31, 2020 (2)
$
8,851

 
(1) 
Principally relates to revenue recognized from the redemption of mileage credits for both air and non-air travel awards. Mileage credits are combined in one homogenous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as miles that were issued during the period.
(2) 
Mileage credits can be redeemed at any time and do not expire as long as that AAdvantage member has any type of qualifying activity at least every 18 months. As of March 31, 2020, our current loyalty program liability was $3.1 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to COVID-19, we will continue to monitor redemption patterns and may adjust our estimates in the future.
The air traffic liability principally represents tickets sold for future travel on American and partner airlines, as well as estimated future refunds and exchanges of tickets sold for past travel. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is generally one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months. For the three months ended March 31, 2020, $2.6 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2019. In response to COVID-19, we extended the contract duration for certain tickets, principally those with travel scheduled March 1, 2020 through September 30, 2020. Accordingly, any revenue associated with these tickets will be recognized within 21 months. Additionally, given this change in contract duration, our estimates of revenue from unused tickets may be subject to variability and differ from historical experience.

14


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

6. Debt
Long-term debt included in the condensed consolidated balance sheets consisted of (in millions):
 
March 31, 2020
 
December 31, 2019
Secured
 
 
 
2013 Credit Facilities, variable interest rate of 2.71%, installments through 2025
$
1,807

 
$
1,807

2014 Credit Facilities, variable interest rate of 2.69%, installments through 2027
1,220

 
1,202

April 2016 Credit Facilities, variable interest rate of 2.94%, installments through 2023
970

 
970

December 2016 Credit Facilities, variable interest rate of 2.70%, installments through 2023
1,213

 
1,213

Delayed Draw Term Loan Credit Facility, variable interest rate of 3.00%, interest only payments until due March 2021
1,000

 

Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 8.39%, averaging 4.03%, maturing from 2020 to 2032
11,712

 
11,933

Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.87% to 7.31%, averaging 3.02%, maturing from 2020 to 2032
4,755

 
4,727

Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.00%, maturing from 2020 to 2031
754

 
754

 
23,431

 
22,606

Unsecured
 
 
 
5.000% senior notes, interest only payments until due in June 2022
750

 
750

3.75% senior notes, interest only payments until due in March 2025
500

 

4.625% senior notes

 
500

 
1,250

 
1,250

Total long-term debt
24,681

 
23,856

Less: Total unamortized debt discount, premium and issuance costs
233

 
211

Less: Current maturities
3,415

 
2,749

Long-term debt, net of current maturities
$
21,033

 
$
20,896


The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of March 31, 2020 (in millions):
2013 Revolving Facility
$
750

2014 Revolving Facility
1,643

April 2016 Revolving Facility
450

Other Short-term Revolving Facility
400

Total
$
3,243


The December 2016 Credit Facilities provide for a revolving credit facility that may be established thereunder in the future.
In April 2020, we borrowed an aggregate of $2.7 billion under our revolving credit facilities. See Note 14 for further information related to this subsequent event.
Secured financings are collateralized by assets, primarily aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities, airport slots and certain pre-delivery payments.

15


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

2020 Financing Activities
2014 Credit Facilities
In January 2020, American and AAG entered into the Eighth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement; the revolving credit facility established thereunder, the 2014 Revolving Facility; the term loan facility established thereunder, the 2014 Term Loan Facility; and collectively, the 2014 Credit Facilities), pursuant to which American refinanced the 2014 Term Loan Facility, increasing the total aggregate principal amount outstanding to $1.22 billion, reducing the LIBOR margin from 2.00% to 1.75%, with a LIBOR floor of 0%, and reducing the base rate margin from 1.00% to 0.75%. In addition, the maturity date for the 2014 Term Loan Facility was extended to January 2027 from October 2021. The 2014 Revolving Facility remains unchanged and, as of March 31, 2020, there were no borrowings or letters of credit outstanding thereunder.
3.75% Senior Notes
In February 2020, AAG issued $500 million aggregate principal amount of 3.75% senior notes due 2025 (the 3.75% senior notes). These notes bear interest at a rate of 3.75% per annum, payable semi-annually in arrears in March and September of each year, beginning in September 2020. The 3.75% senior notes are senior unsecured obligations of AAG and are fully and unconditionally guaranteed by American. The 3.75% senior notes mature in March 2025.
Delayed Draw Term Loan Credit Facility
In March 2020, American and AAG entered into a Credit and Guaranty Agreement which provides for a 364-day $1.0 billion senior secured delayed draw term loan credit facility (the Delayed Draw Term Loan Credit Facility), which will be due and payable in a single installment on the maturity date in March 2021. Borrowings under the Delayed Draw Term Loan Credit Facility bear interest at an index rate plus an applicable index margin or, at American's option, LIBOR (subject to a floor of 1.00%) plus an applicable LIBOR margin for interest periods of one, three or six months (or, if available to all affected lenders, 12 months or a shorter period). Voluntary prepayments at par may be made by American at any time. As of March 31, 2020, $1.0 billion in borrowings were outstanding under the Delayed Draw Term Loan Credit Facility. The proceeds of the term loans under the Delayed Draw Term Loan Credit Facility are being used for general corporate purposes.
Subject to certain limitations and exceptions, the Delayed Draw Term Loan Credit Facility is secured by collateral, including certain slots, foreign gate leaseholds and route authorities (collectively, SGR) utilized by American in providing its scheduled air carrier services to and from Mexico and Central America and to London and certain cities in the European Union. The lien on Mexico and Central America SGR is a first-priority lien and the lien on London and European SGR is a second-priority lien. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions. American's obligations under the Delayed Draw Term Loan Credit Facility are guaranteed by AAG. American is required to maintain a certain minimum ratio of appraised value of collateral to the outstanding term loans.
The Delayed Draw Term Loan Credit Facility contains 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. The Delayed Draw Term Loan Credit Facility also includes covenants that, among other things, require AAG to maintain a minimum aggregate liquidity 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.
Equipment Notes and Other Notes Payable Issued in 2020
In the three months ended March 31, 2020, American entered into agreements under which it borrowed $197 million in connection with the financing or refinancing, as the case may be, of certain aircraft, of which $17 million was used to repay existing indebtedness. Debt incurred under these agreements matures in 2029 through 2032 and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging 2.99% at March 31, 2020.
7. Income Taxes
At December 31, 2019, we had approximately $9.1 billion of federal net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income. The federal NOL Carryforwards will expire beginning in 2023 if unused. We also had approximately $3.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2019, which will expire in years 2020 through 2039 if unused.

16


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

At December 31, 2019, we had an Alternative Minimum Tax (AMT) credit carryforward of approximately $170 million available for federal income tax purposes, which is presently expected to be fully refunded in 2020 as a result of the CARES Act enacted in March of 2020.
During the three months ended March 31, 2020, we recorded an income tax benefit of $649 million.
8. Fair Value Measurements and Other Investments
Assets Measured at Fair Value on a Recurring Basis
We utilize the market approach to measure the fair value of 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 three months ended March 31, 2020.
Assets measured at fair value on a recurring basis are summarized below (in millions):
 
Fair Value Measurements as of March 31, 2020
 
Total
 
Level 1
 
Level 2
 
Level 3
Short-term investments (1), (2):
 
 
 
 
 
 
 
Money market funds
$
239

 
$
239

 
$

 
$

Bank notes/certificates of deposit/time deposits
2,048

 

 
2,048

 

Corporate obligations
815

 

 
815

 

 
3,102

 
239

 
2,863

 

Restricted cash and short-term investments (1)
157

 
12

 
145

 

Long-term investments (3)
122

 
122

 

 

Total
$
3,381

 
$
373

 
$
3,008

 
$

 
     
(1) 
All short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss at each reporting period. There were no credit losses.
(2) 
Our short-term investments mature in one year or less except for $823 million of bank notes/certificates of deposit/time deposits and $115 million of corporate obligations.
(3) 
Long-term investments primarily include our equity investment in China Southern Airlines, in which we presently own a 2.2% equity interest, and are classified in other assets on the condensed consolidated balance sheet.
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): 
 
March 31, 2020
 
December 31, 2019
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt, including current maturities
$
24,448

 
$
21,377

 
$
23,645

 
$
24,508



17


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

9. Employee Benefit Plans
The following table provides the components of net periodic benefit cost (income) (in millions):
 
 
Pension Benefits
 
Retiree Medical and Other
Postretirement Benefits
Three Months Ended March 31,
 
2020
 
2019
 
2020
 
2019
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

Interest cost
 
153

 
176

 
7

 
8

Expected return on assets
 
(252
)
 
(204
)
 
(4
)
 
(4
)
Amortization of:
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
7

 
7

 
(54
)
 
(59
)
Unrecognized net loss (gain)
 
41

 
38

 
(6
)
 
(8
)
Net periodic benefit cost (income)
 
$
(50
)
 
$
18

 
$
(56
)
 
$
(62
)

Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen.
The components of net periodic benefit cost (income) other than the service cost component are included in nonoperating other income (expense), net in the condensed consolidated statements of operations.
Pursuant to the CARES Act, minimum required pension contributions to be made in the calendar year 2020 can be deferred to January 1, 2021, with interest accruing from the original due date to the new payment date. We expect to defer our $196 million 2020 minimum required contribution to January 1, 2021.
10. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss (AOCI) are as follows (in millions):
 
Pension, Retiree
Medical and
Other
Postretirement
Benefits
 
Unrealized Loss on Investments
 
Income Tax
Benefit
(Provision) 
(1)
 
Total
Balance at December 31, 2019
$
(5,238
)
 
$
(2
)
 
$
(1,091
)

$
(6,331
)
Other comprehensive income (loss) before
reclassifications
(152
)
 
(29
)
 
41

 
(140
)
Amounts reclassified from AOCI
(12
)
 

 
3

(2)
(9
)
Net current-period other comprehensive income
(loss)
(164
)
 
(29
)
 
44

 
(149
)
Balance at March 31, 2020
$
(5,402
)
 
$
(31
)
 
$
(1,047
)
 
$
(6,480
)
 
     
(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 (benefit) on the condensed consolidated statement of operations.

18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)

Reclassifications out of AOCI are as follows (in millions):