Document


 
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 September 30, 2017
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.)
4333 Amon Carter Blvd., 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.)
4333 Amon Carter Blvd., Fort Worth, Texas 76155
 
(817) 963-1234
(Address of principal executive offices, including zip code)
 
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, 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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. 
American Airlines Group Inc.
Yes
 
No
American Airlines, Inc.
Yes
 
No
As of October 20, 2017, there were 478,499,073 shares of American Airlines Group Inc. common stock outstanding.
As of October 20, 2017, 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 September 30, 2017
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



This combined Quarterly Report on Form 10-Q is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. “AMR” or “AMR Corporation” refers to the Company during the period of time prior to its emergence from Chapter 11 and its acquisition of US Airways Group, Inc. (US Airways Group) on December 9, 2013 (the Merger). References to “US Airways Group” and “US Airways,” a subsidiary of US Airways Group, represent the entities during the period of time prior to AAG’s internal corporate restructuring on December 30, 2015. References in this Quarterly Report on Form 10-Q 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, and 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 Quarterly Report on Form 10-Q or as of the dates indicated in the statements.

2



PART I: FINANCIAL INFORMATION
This combined Quarterly 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 shares and per share amounts)(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues:
 
 
 
 
Mainline passenger
 
$
7,628

 
$
7,419

 
$
21,981

 
$
21,192

Regional passenger
 
1,749

 
1,731

 
5,133

 
5,040

Cargo
 
200

 
171

 
568

 
506

Other
 
1,301

 
1,273

 
3,924

 
3,653

Total operating revenues
 
10,878

 
10,594

 
31,606

 
30,391

Operating expenses:
 
 
 
 
 
 
 
 
Aircraft fuel and related taxes
 
1,570

 
1,393

 
4,481

 
3,736

Salaries, wages and benefits
 
2,995

 
2,772

 
8,824

 
8,094

Regional expenses
 
1,654

 
1,538

 
4,848

 
4,488

Maintenance, materials and repairs
 
487

 
481

 
1,474

 
1,352

Other rent and landing fees
 
471

 
463

 
1,363

 
1,342

Aircraft rent
 
304

 
299

 
892

 
908

Selling expenses
 
400

 
347

 
1,094

 
990

Depreciation and amortization
 
433

 
399

 
1,255

 
1,128

Special items, net
 
112

 
289

 
432

 
450

Other
 
1,220

 
1,182

 
3,575

 
3,386

Total operating expenses
 
9,646

 
9,163

 
28,238

 
25,874

Operating income
 
1,232

 
1,431

 
3,368

 
4,517

Nonoperating income (expense):
 
 
 
 
 
 
 
 
Interest income
 
25

 
16

 
70

 
45

Interest expense, net
 
(266
)
 
(250
)
 
(787
)
 
(738
)
Other, net
 
13

 
(8
)
 
8

 
(25
)
Total nonoperating expense, net
 
(228
)
 
(242
)
 
(709
)
 
(718
)
Income before income taxes
 
1,004

 
1,189

 
2,659

 
3,799

Income tax provision
 
380

 
452

 
998

 
1,412

Net income
 
$
624

 
$
737

 
$
1,661

 
$
2,387

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.29

 
$
1.40

 
$
3.37

 
$
4.23

Diluted
 
$
1.28

 
$
1.40

 
$
3.35

 
$
4.20

Weighted average shares outstanding (in thousands):
 
 
 
 
 
 
 
 
Basic
 
484,772

 
525,415

 
493,164

 
564,886

Diluted
 
486,625

 
528,510

 
495,796

 
568,679

Cash dividends declared per common share
 
$
0.10

 
$
0.10

 
$
0.30

 
$
0.30

See accompanying notes to condensed consolidated financial statements.

4



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited) 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
624

 
$
737

 
$
1,661

 
$
2,387

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
Pension, retiree medical and other postretirement benefits
 
(15
)
 
(17
)
 
(44
)
 
(52
)
Investments
 

 
2

 

 
6

Total other comprehensive loss, net of tax
 
(15
)
 
(15
)
 
(44
)
 
(46
)
Total comprehensive income
 
$
609

 
$
722

 
$
1,617

 
$
2,341

See accompanying notes to condensed consolidated financial statements.


5



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
 
 
September 30, 2017
 
December 31, 2016
 
 
(Unaudited)
 
 
ASSETS
 
 
Current assets
 
 
 
 
Cash
 
$
340

 
$
322

Short-term investments
 
5,428

 
6,037

Restricted cash and short-term investments
 
393

 
638

Accounts receivable, net
 
1,700

 
1,594

Aircraft fuel, spare parts and supplies, net
 
1,315

 
1,094

Prepaid expenses and other
 
826

 
639

Total current assets
 
10,002

 
10,324

Operating property and equipment
 
 
 
 
Flight equipment
 
39,545

 
37,028

Ground property and equipment
 
7,902

 
7,116

Equipment purchase deposits
 
1,280

 
1,209

Total property and equipment, at cost
 
48,727

 
45,353

Less accumulated depreciation and amortization
 
(15,416
)
 
(14,194
)
Total property and equipment, net
 
33,311

 
31,159

Other assets
 
 
 
 
Goodwill
 
4,091

 
4,091

Intangibles, net of accumulated amortization of $612 and $578, respectively
 
2,214

 
2,173

Deferred tax asset
 
538

 
1,498

Other assets
 
2,245

 
2,029

Total other assets
 
9,088

 
9,791

Total assets
 
$
52,401

 
$
51,274

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Current maturities of long-term debt and capital leases
 
$
2,467

 
$
1,855

Accounts payable
 
1,638

 
1,592

Accrued salaries and wages
 
1,413

 
1,516

Air traffic liability
 
4,653

 
3,912

Loyalty program liability
 
2,893

 
2,789

Other accrued liabilities
 
2,243

 
2,208

Total current liabilities
 
15,307

 
13,872

Noncurrent liabilities
 
 
 
 
Long-term debt and capital leases, net of current maturities
 
22,217

 
22,489

Pension and postretirement benefits
 
7,467

 
7,842

Other liabilities
 
3,462

 
3,286

Total noncurrent liabilities
 
33,146

 
33,617

Commitments and contingencies
 

 

Stockholders’ equity
 
 
 
 
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 479,999,894 shares issued and outstanding at September 30, 2017; 507,294,153 shares issued and outstanding at December 31, 2016
 
5

 
5

Additional paid-in capital
 
5,918

 
7,223

Accumulated other comprehensive loss
 
(5,127
)
 
(5,083
)
Retained earnings
 
3,152

 
1,640

Total stockholders’ equity
 
3,948

 
3,785

Total liabilities and stockholders’ equity
 
$
52,401

 
$
51,274

See accompanying notes to condensed consolidated financial statements.

6



AMERICAN AIRLINES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Net cash provided by operating activities
 
$
4,307

 
$
5,897

Cash flows from investing activities:
 
 
 
 
Capital expenditures and aircraft purchase deposits
 
(4,563
)
 
(4,271
)
Purchases of short-term investments
 
(4,093
)
 
(5,078
)
Sales of short-term investments
 
4,714

 
4,587

Purchase of equity investment
 
(203
)
 

Decrease in restricted cash and short-term investments
 
245

 
60

Proceeds from sale of property and equipment and sale-leaseback transactions
 
831

 
60

Net cash used in investing activities
 
(3,069
)
 
(4,642
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
 
2,160

 
5,392

Payments on long-term debt and capital leases
 
(1,813
)
 
(2,534
)
Deferred financing costs
 
(66
)
 
(39
)
Treasury stock repurchases
 
(1,372
)
 
(3,931
)
Dividend payments
 
(150
)
 
(172
)
Other financing activities
 
21

 
20

Net cash used in financing activities
 
(1,220
)
 
(1,264
)
Net increase (decrease) in cash
 
18

 
(9
)
Cash at beginning of period
 
322

 
390

Cash at end of period
 
$
340

 
$
381

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Settlement of bankruptcy obligations
 
$
15

 
$
3

Supplemental information:
 
 
 
 
Interest paid, net
 
778

 
714

Income taxes paid
 
15

 
10

See accompanying notes to condensed consolidated financial statements.


7



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC.
(Unaudited)
1. 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, 2016. 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.
On December 9, 2013, a subsidiary of AMR Corporation (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 AAG’s 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.
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, valuation allowance for deferred tax assets, as well as pension and retiree medical and other postretirement benefits. Certain prior period amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
Revenue
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. We will 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 will adopt the new revenue standard using the full retrospective method.
We are in the process of finalizing how the application of the new revenue standard will impact our condensed 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. 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. 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. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Recent Accounting Pronouncements” for our preliminary assessment of the quantitative impacts of the new revenue standard on our consolidated financial statements.
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

8


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


is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We expect we will adopt the new lease standard effective January 1, 2019. 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 condensed 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 condensed 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.
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. We expect we will adopt this new standard effective January 1, 2018. This standard is not expected to have a material impact on our condensed consolidated financial statements.
Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires an entity to present the service cost component of net benefit cost in the income statement line items where it reports compensation cost. Entities will present all other components of net benefit cost outside of operating income, if this subtotal is presented. 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. We will adopt this standard on January 1, 2018. The new standard will require all components of our net periodic benefit cost (income), with the exception of service cost, currently reported within operating expenses as salaries, wages and benefits, to be reclassified and reported within nonoperating income (expense). The adoption of this new standard will have no impact on pre-tax income or net income reported. See Note 8 for our current components of net periodic benefit cost (income).
Financial Instruments
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10)." ASU 2016-01 makes several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and it requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017. We will adopt this standard on January 1, 2018. Based on our portfolio of investments as of September 30, 2017, we do not expect the adoption of ASU 2016-01 to have a material impact on our condensed consolidated financial statements.

9


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


2. Special Items, Net
Special items, net on the condensed consolidated statements of operations consisted of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Merger integration expenses (1)
$
62

 
$
194

 
$
192

 
$
395

Fleet restructuring expenses (2)
62

 
31

 
174

 
72

Mark-to-market adjustments for bankruptcy obligations and other
(12
)
 
39

 
7

 
(22
)
Labor contract expenses (3)

 

 
45

 

Other operating charges, net

 
25

 
14

 
5

Mainline operating special items, net
112

 
289

 
432

 
450

 
 
 
 
 
 
 
 
Regional operating special items, net (4)
(5
)
 
5

 
(1
)
 
13

Nonoperating special items, net (5)
3

 

 
12

 
36

 
     
(1) 
Merger integration expenses included costs related to information technology, professional fees, re-branding of aircraft and airport facilities and training. Additionally, the 2016 periods also included costs related to alignment of labor union contracts, re-branded uniforms, relocation and severance.
(2) 
Fleet restructuring expenses driven by the Merger principally included the acceleration of aircraft depreciation and impairments for aircraft grounded or expected to be grounded earlier than planned.
(3) 
Labor contract expenses primarily included one-time charges to adjust the vacation accruals for pilots and flight attendants as a result of the mid-contract pay rate adjustments effective in the second quarter of 2017.
(4) 
Regional operating special items, net principally related to a gain on the sale of certain aircraft in the 2017 period and Merger integration expenses in the 2016 period.
(5) 
Nonoperating special items, net primarily consisted of debt issuance and extinguishment costs associated with term loan refinancings. Additionally, the 2016 nine-month period included costs associated with a bond refinancing.

10


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


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):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Basic EPS:
 
 
 
 
 
 
 
Net income
$
624

 
$
737

 
$
1,661

 
$
2,387

Weighted average common shares outstanding (in thousands)
484,772

 
525,415

 
493,164

 
564,886

Basic EPS
$
1.29

 
$
1.40

 
$
3.37

 
$
4.23

 
 
 
 
 
 
 
 
Diluted EPS:
 
 
 
 
 
 
 
Net income for purposes of computing diluted EPS
$
624

 
$
737

 
$
1,661

 
$
2,387

Share computation for diluted EPS (in thousands):
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
484,772

 
525,415

 
493,164

 
564,886

Dilutive effect of stock awards
1,853

 
3,095

 
2,632

 
3,793

Diluted weighted average common shares outstanding
486,625

 
528,510

 
495,796

 
568,679

Diluted EPS
$
1.28

 
$
1.40

 
$
3.35

 
$
4.20

 
 
 
 
 
 
 
 
Restricted stock unit awards excluded from the calculation of diluted EPS because inclusion would be antidilutive (in thousands)
66

 
1,623

 
432

 
1,771

4. Share Repurchase Programs and Dividends
Since July 2014, our Board of Directors has approved six share repurchase programs aggregating $11.0 billion of authority. As of September 30, 2017, $677 million remained unused under a 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.
During the three months ended September 30, 2017, we repurchased 7.7 million shares of AAG common stock for $362 million at a weighted average cost per share of $46.97. During the nine months ended September 30, 2017, we repurchased 29.4 million shares of AAG common stock for $1.3 billion at a weighted average cost per share of $45.05. Since the inception of our share repurchase programs in July 2014, we have repurchased 257.7 million shares of AAG common stock for $10.3 billion at a weighted average cost per share of $40.05.
Our Board of Directors declared the following cash dividends during the first nine months of 2017:
Period
 
Per share
 
For stockholders
of record as of
 
Payable on
 
Total
(millions)
First Quarter
 
$
0.10

 
February 13, 2017
 
February 27, 2017
 
$
51

Second Quarter
 
0.10

 
May 16, 2017
 
May 30, 2017
 
50

Third Quarter
 
0.10

 
August 14, 2017
 
August 28, 2017
 
49

Total
 
 
 
 
 
 
 
$
150

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. 

11


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


5. Debt
Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):
 
 
September 30, 2017
 
December 31, 2016
Secured
 
 
 
 
2013 Credit Facilities, variable interest rate of 3.24%, installments through 2020
 
$
1,825

 
$
1,843

2014 Credit Facilities, variable interest rate of 3.24%, installments through 2021
 
735

 
735

April 2016 Credit Facilities, variable interest rate of 3.74%, installments through 2023
 
990

 
1,000

December 2016 Credit Facilities, variable interest rate of 3.73%, installments through 2023
 
1,250

 
1,250

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, maturing from 2018 to 2029
 
11,396

 
10,912

Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 8.99%, maturing from 2018 to 2029
 
5,330

 
5,343

Special facility revenue bonds, fixed interest rates ranging from 5.00% to 8.00%, maturing from 2018 to 2035
 
857

 
891

Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2017 to 2028
 
789

 
849

 
 
23,172

 
22,823

Unsecured
 
 
 
 
5.50% senior notes, interest only payments until due in 2019
 
750

 
750

6.125% senior notes, interest only payments until due in 2018
 
500

 
500

4.625% senior notes, interest only payments until due in 2020
 
500

 
500

 
 
1,750

 
1,750

Total long-term debt and capital lease obligations
 
24,922

 
24,573

Less: Total unamortized debt discount, premium and issuance costs
 
238

 
229

Less: Current maturities
 
2,467

 
1,855

Long-term debt and capital lease obligations, net of current maturities
 
$
22,217

 
$
22,489

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of September 30, 2017 (in millions):
2013 Revolving Facility
 
$
1,200

2014 Revolving Facility
 
1,000

April 2016 Revolving Facility
 
300

Total
 
$
2,500

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.

12


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


2017 Aircraft Financing Activities
2017-2 EETCs
In August 2017, American created two pass-through trusts which issued approximately $797 million aggregate principal amount of Series 2017-2 Class AA and Class A EETCs (the 2017-2 EETCs) in connection with the financing of 30 aircraft previously delivered to American or scheduled to be delivered to American through April 2018 (the 2017-2 Aircraft). A portion of the net proceeds received from the sale of the 2017-2 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 2017-2 EETCs until such time as American issues additional Series AA and A equipment notes to the pass-through trusts, which trusts will purchase such additional equipment notes with the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on our condensed consolidated balance sheet because the proceeds held by the depository are not American's assets.
As of September 30, 2017, approximately $253 million of the escrowed proceeds from the 2017-2 EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on equipment notes issued in connection with the 2017-2 EETCs are payable semi-annually in April and October of each year, with interest payments beginning in April 2018 and principal payments beginning in October 2018. These equipment notes are secured by liens on the aircraft financed with the proceeds of the 2017-2 EETCs.
Certain information regarding the 2017-2 EETC equipment notes and the remaining escrowed proceeds of the 2017-2 EETCs, as of September 30, 2017, is set forth in the table below.
 
 
2017-2 EETCs
 
 
Series AA
 
Series A
Aggregate principal issued
 
$545 million
 
$252 million
Remaining escrowed proceeds
 
$372 million
 
$172 million
Fixed interest rate per annum
 
3.35%
 
3.60%
Maturity date
 
October 2029
 
October 2029
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 delivered to American through May 2017 (the 2017-1 Aircraft).
During the first six months of 2017, all of the net proceeds received from the sale of the 2017-1 EETCs were used to purchase equipment notes issued by American in connection with the financing of the 2017-1 Aircraft. Interest and principal payments on equipment notes issued in connection with the 2017-1 EETCs are payable semi-annually in February and August of each year, with interest payments that began in August 2017 and principal payments beginning in February 2018. These equipment notes are secured by liens on the 2017-1 Aircraft.
Certain information regarding the 2017-1 EETC equipment notes, as of September 30, 2017, is set forth in the table below.
 
 
2017-1 EETCs
 
 
Series AA
 
Series A
 
Series B
Aggregate principal issued
 
$537 million
 
$248 million
 
$198 million
Fixed interest rate per annum
 
3.65%
 
4.00%
 
4.95%
Maturity date
 
February 2029
 
February 2029
 
February 2025
2016-3 EETCs
During the first quarter of 2017, all remaining net proceeds of the Series 2016-3 Class AA and Class A EETCs (the 2016-3 EETCs), in the amount of $109 million, were used to purchase equipment notes issued by American in connection with the financing of two of the 25 aircraft financed under the 2016-3 EETCs (such 25 aircraft, the 2016-3 Aircraft). Interest and principal payments on equipment notes issued in connection with the 2016-3 EETCs are payable semi-annually in April and October of each year, with interest payments that began in April 2017 and principal payments beginning in October 2017. These equipment notes are secured by liens on the 2016-3 Aircraft.

13


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


Certain information regarding the 2016-3 EETC equipment notes, as of September 30, 2017, is set forth in the table below.
 
 
2016-3 EETCs
 
 
Series AA
 
Series A
Aggregate principal issued
 
$558 million
 
$256 million
Fixed interest rate per annum
 
3.00%
 
3.25%
Maturity date
 
October 2028
 
October 2028
Equipment Loans and Other Notes Payable Issued in 2017
In the first nine months of 2017, American entered into agreements under which it borrowed $815 million in connection with the financing of certain aircraft. Debt incurred under these agreements matures in 2021 through 2029.
2017 Other Financing Activities
2013 Credit Facilities
In March 2017, American and AAG entered into the Second Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of June 27, 2013), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015, pursuant to which we refinanced the $1.8 billion term loan facility due June 2020 established thereunder (the 2013 Term Loan Facility and, together with the $1.4 billion revolving credit facility established under such agreement (the 2013 Revolving Facility), the 2013 Credit Facilities) to reduce the LIBOR margin from 2.50% to 2.00% and the base rate margin from 1.50% to 1.00%.
In August 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2013 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3.00% to 2.25%, and the maximum principal amount of such facility was reduced to $1.2 billion. As of September 30, 2017, approximately $1.8 billion of principal was outstanding under the 2013 Term Loan Facility and there were no borrowings or letters of credit outstanding under the 2013 Revolving Facility.
2014 Credit Facilities
In June 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of October 10, 2014), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015 and the Second Amendment to Amended and Restated Credit and Guaranty Agreement dated as of September 22, 2016, pursuant to which we refinanced the $735 million term loan facility due October 2021 established thereunder (the 2014 Term Loan Facility and, together with the $1.025 billion revolving credit facility established under such agreement (the 2014 Revolving Facility), the 2014 Credit Facilities) to reduce the LIBOR margin from 2.50% to 2.00% and the base rate margin from 1.50% to 1.00%.
In August 2017, American and AAG entered into the Fourth Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2014 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3.00% to 2.25%, and the maximum principal amount of such facility was reduced to $1.0 billion. As of September 30, 2017, approximately $735 million of principal was outstanding under the 2014 Term Loan Facility and there were no borrowings or letters of credit outstanding under the 2014 Revolving Facility.
April 2016 Credit Facilities
In August 2017, American and AAG entered into the Second Amendment to the Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (the April 2016 Credit Facilities), as previously amended by the First Amendment to the Credit and Guaranty Agreement, dated as of October 31, 2016, pursuant to which a new $300 million revolving credit facility (the April 2016 Revolving Facility) was established with a maturity date of October 2022 and a LIBOR margin of 2.25%. As of September 30, 2017, approximately $990 million of principal was outstanding under the term loan facility under the April 2016 Credit Facilities and there were no borrowings or letters of credit outstanding under the April 2016 Revolving Facility. 

14


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


6. Income Taxes
At December 31, 2016, we had approximately $10.5 billion of gross net operating losses (NOLs) carried over from prior taxable years (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.
At December 31, 2016, we had an alternative minimum tax credit carryforward of approximately $339 million available for federal income tax purposes, which is available for an indefinite period.
During the three and nine months ended September 30, 2017, we recorded an income tax provision of $380 million and $998 million, respectively, which was substantially non-cash due to the utilization of the NOLs described above. Substantially all of our income before income taxes is attributable to the United States.
7. Fair Value Measurements and Other Investments
Assets Measured at Fair Value on a Recurring Basis
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 nine months ended September 30, 2017.
Assets measured at fair value on a recurring basis are summarized below (in millions):
 
 
Fair Value Measurements as of September 30, 2017
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Short-term investments (1) (2):
 
 
 
 
 
 
 
 
Money market funds
 
$
170

 
$
170

 
$

 
$

Corporate obligations
 
2,320

 

 
2,320

 

Bank notes/certificates of deposit/time deposits
 
2,738

 

 
2,738

 

Repurchase agreements
 
200

 

 
200

 

 
 
5,428

 
170

 
5,258

 

Restricted cash and short-term investments (1)
 
393

 
104

 
289

 

Total
 
$
5,821

 
$
274

 
$
5,547

 
$

 
     
(1) 
Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive 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 $341 million of corporate obligations.
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): 
 
 
September 30, 2017
 
December 31, 2016
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Long-term debt, including current maturities
 
$
24,684

 
$
25,681

 
$
24,344

 
$
24,983


15


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


Other Investments
We have an approximate 25% ownership interest in Republic Airways Holdings Inc. (Republic), which we received in the second quarter of 2017 in consideration for our unsecured claim in Republic’s bankruptcy case. This ownership interest is accounted for under the equity method and our portion of Republic’s financial results is recognized within other, net on the condensed consolidated statements of operations.
Additionally, in the third quarter of 2017, we acquired 2.7% of the outstanding shares of China Southern Airlines Company Limited for $203 million. Since our subscription agreement restricts the sale or transfer of these shares for three years, we account for this investment under the cost method.
8. Employee Benefit Plans
The following tables provide the components of net periodic benefit cost (income) (in millions):
 
 
Pension Benefits
 
Retiree Medical and Other
Postretirement Benefits
Three Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

Interest cost
 
180

 
187

 
10

 
12

Expected return on assets
 
(198
)
 
(188
)
 
(5
)
 
(5
)
Amortization of:
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
7

 
7

 
(59
)
 
(60
)
Unrecognized net loss (gain)
 
36

 
32

 
(6
)
 
(4
)
Net periodic benefit cost (income)
 
$
26

 
$
39

 
$
(59
)
 
$
(56
)
 
 
 
 
 
 
 
 
 
 
 
Pension Benefits
 
Retiree Medical and Other
Postretirement Benefits
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
2

 
$
2

 
$
3

 
$
2

Interest cost
 
541

 
562

 
29

 
36

Expected return on assets
 
(592
)
 
(562
)
 
(16
)
 
(15
)
Amortization of:
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
21

 
21

 
(178
)
 
(180
)
Unrecognized net loss (gain)
 
108

 
95

 
(17
)
 
(12
)
Net periodic benefit cost (income)
 
$
80

 
$
118

 
$
(179
)
 
$
(169
)
Effective November 1, 2012, substantially all of our defined benefit pension plans were frozen.
During the first nine months of 2017, we contributed $281 million to our defined benefit pension plans, including supplemental contributions of $256 million in addition to a $25 million minimum required cash contribution.

16


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


9. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive income (loss) (AOCI) are as follows (in millions):
 
 
Pension, Retiree
Medical and
Other
Postretirement
Benefits
 
Income Tax
Benefit
(Provision) 
(1)
 
Total
Balance at December 31, 2016
 
$
(4,406
)
 
$
(677
)
 
$
(5,083
)
Other comprehensive loss before reclassifications
 
(1
)
 

 
(1
)
Amounts reclassified from AOCI
 
(66
)
 
23

(2)
(43
)
Net current-period other comprehensive income (loss)
 
(67
)
 
23

 
(44
)
Balance at September 30, 2017
 
$
(4,473
)
 
$
(654
)
 
$
(5,127
)
 
     
(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 condensed consolidated statement of operations.
Reclassifications out of AOCI are as follows (in millions):
 
 
Amounts reclassified from AOCI
 
Affected line items on the
condensed consolidated
statements of operations
AOCI Components
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
Amortization of pension, retiree medical and other postretirement benefits:
 
 
 
 
 
 
 
 
 
 
Prior service cost (benefit)
 
$
(33
)
 
$
(33
)
 
$
(100
)
 
$
(100
)
 
Salaries, wages and benefits
Actuarial loss
 
19

 
17

 
57

 
52

 
Salaries, wages and benefits
Total reclassifications for the period, net of tax
 
$
(14
)
 
$
(16
)
 
$
(43
)
 
$
(48
)
 
 
10. 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 condensed consolidated statements of operations. Regional expenses consist of the following (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Aircraft fuel and related taxes
 
$
352

 
$
303

 
$
999

 
$
801

Salaries, wages and benefits
 
369

 
337

 
1,074

 
990

Capacity purchases from third-party regional carriers
 
404

 
378

 
1,210

 
1,164

Maintenance, materials and repairs
 
74

 
82

 
209

 
264

Other rent and landing fees
 
159

 
143

 
466

 
413

Aircraft rent
 
9

 
9

 
26

 
26

Selling expenses
 
95

 
90

 
269

 
256

Depreciation and amortization
 
79

 
78

 
235

 
218

Special items, net
 
(5
)
 
5

 
(1
)
 
13

Other
 
118

 
113

 
361

 
343

Total regional expenses
 
$
1,654

 
$
1,538

 
$
4,848

 
$
4,488


17


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


11. Legal Proceedings
Chapter 11 Cases. On November 29, 2011, AMR, American, and certain of AMR’s 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 September 30, 2017, there were approximately 24.5 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 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 American’s 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, 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 May 12, 2017, defendants filed a motion for summary judgment. On June 23, 2017, plaintiffs filed an opposition to defendants’ motion and cross-motion for summary judgment. Briefing of the parties’ respective motions concluded on September 1, 2017; a hearing date has not yet been set. 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 American’s 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 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,

18


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


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 II, 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 additional discussion.
12. Subsequent Events
Dividend Declaration
In October 2017, we announced that our Board of Directors had declared a $0.10 per share dividend for stockholders of record on November 13, 2017, and payable on November 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.
2016-3 Class B EETCs
In October 2017, American created one additional pass-through trust which issued approximately $193 million aggregate principal amount of Series 2016-3 Class B EETCs (the 2016-3 Class B EETCs) in connection with the financing of the 2016-3 Aircraft. The proceeds received from the sale of the 2016-3 Class B EETCs were used on the date of issuance of the 2016-3 Class B EETCs to acquire Series B equipment notes issued by American in connection with the financing of the 2016-3 Aircraft.
These Series B equipment notes bear interest at 3.75% per annum. Interest and principal payments on equipment notes issued in connection with the 2016-3 Class B EETCs are payable semi-annually in April and October of each year, beginning in April 2018.
2017-2 Class B EETCs
In October 2017, American created one additional pass-through trust which issued approximately $221 million aggregate principal amount of Series 2017-2 Class B EETCs (the 2017-2 Class B EETCs) in connection with the financing of the 2017-2 Aircraft. A portion of the net proceeds received from the sale of the Series 2017-2 Class B EETCs was used on the date of issuance of the 2017-2 Class B EETCs to acquire Series B equipment notes issued by American in connection with the financing of certain 2017-2 Aircraft, and the balance of such proceeds is being held in escrow for the benefit of the holders of the 2017-2 Class B EETCs until such time as American issues additional Series B equipment notes to the pass-through trust, which trusts will purchase such additional equipment notes with the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on our condensed consolidated balance sheet because the proceeds held by the depository are not American's assets.
These Series B equipment notes bear interest at 3.70% per annum. Interest and principal payments on equipment notes issued in connection with the 2017-2 Class B EETCs are payable semi-annually in April and October of each year, with interest payments beginning in April 2018 and principal payments beginning in October 2018.

19



ITEM 1B. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Operating revenues:
 
 
 
 
 
 
Mainline passenger
 
$
7,628

 
$
7,419

 
$
21,981

 
$
21,192

Regional passenger
 
1,749

 
1,731

 
5,133

 
5,040

Cargo
 
200

 
171

 
568

 
506

Other
 
1,298

 
1,270

 
3,916

 
3,639

Total operating revenues
 
10,875

 
10,591

 
31,598

 
30,377

Operating expenses:
 
 
 
 
 
 
 
 
Aircraft fuel and related taxes
 
1,570

 
1,393

 
4,481

 
3,736

Salaries, wages and benefits
 
2,991

 
2,770

 
8,816

 
8,087

Regional expenses
 
1,662

 
1,534

 
4,860

 
4,480

Maintenance, materials and repairs
 
487

 
481

 
1,474

 
1,352

Other rent and landing fees
 
471

 
463

 
1,363

 
1,342

Aircraft rent
 
304

 
299

 
892

 
908

Selling expenses
 
400

 
347

 
1,094

 
990

Depreciation and amortization
 
433

 
399

 
1,255

 
1,128

Special items, net
 
112

 
289

 
432

 
450

Other
 
1,220

 
1,184

 
3,575

 
3,391

Total operating expenses
 
9,650

 
9,159

 
28,242

 
25,864

Operating income
 
1,225

 
1,432

 
3,356

 
4,513

Nonoperating income (expense):
 
 
 
 
 
 
 
 
Interest income
 
56

 
28

 
158

 
74

Interest expense, net
 
(250
)
 
(229
)
 
(738
)
 
(674
)
Other, net
 
13

 
(8
)
 
8

 
(27
)
Total nonoperating expense, net
 
(181
)
 
(209
)
 
(572
)
 
(627
)
Income before income taxes
 
1,044

 
1,223

 
2,784

 
3,886

Income tax provision
 
395

 
465

 
1,046

 
1,445

Net income
 
$
649

 
$
758

 
$
1,738

 
$
2,441

See accompanying notes to condensed consolidated financial statements.


20



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
649

 
$
758

 
$
1,738

 
$
2,441

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
Pension, retiree medical and other postretirement benefits
 
(15
)
 
(17
)
 
(44
)
 
(53
)
Investments
 

 
2

 

 
6

Total other comprehensive loss, net of tax
 
(15
)
 
(15
)
 
(44
)
 
(47
)
Total comprehensive income
 
$
634

 
$
743

 
$
1,694

 
$
2,394

See accompanying notes to condensed consolidated financial statements.


21



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
 
 
September 30, 2017
 
December 31, 2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash
 
$
328

 
$
310

Short-term investments
 
5,425

 
6,034

Restricted cash and short-term investments
 
393

 
638

Accounts receivable, net
 
1,705

 
1,599

Receivables from related parties, net
 
8,457

 
6,810

Aircraft fuel, spare parts and supplies, net
 
1,252

 
1,032

Prepaid expenses and other
 
820

 
633

Total current assets
 
18,380

 
17,056

Operating property and equipment
 
 
 
 
Flight equipment
 
39,214

 
36,671

Ground property and equipment
 
7,661

 
6,910

Equipment purchase deposits
 
1,280

 
1,209

Total property and equipment, at cost
 
48,155

 
44,790

Less accumulated depreciation and amortization
 
(15,127
)
 
(13,909
)
Total property and equipment, net
 
33,028

 
30,881

Other assets
 
 
 
 
Goodwill
 
4,091

 
4,091

Intangibles, net of accumulated amortization of $612 and $578, respectively
 
2,214

 
2,173

Deferred tax asset
 
903

 
1,912

Other assets
 
2,177

 
1,979

Total other assets
 
9,385

 
10,155

Total assets
 
$
60,793

 
$
58,092

 
 
 
 
 
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Current maturities of long-term debt and capital leases
 
$
1,970

 
$
1,859

Accounts payable
 
1,580

 
1,546

Accrued salaries and wages
 
1,366

 
1,460

Air traffic liability
 
4,653

 
3,912

Loyalty program liability
 
2,893

 
2,789

Other accrued liabilities
 
2,132

 
2,106

Total current liabilities
 
14,594

 
13,672

Noncurrent liabilities
 
 
 
 
Long-term debt and capital leases, net of current maturities
 
20,942

 
20,718

Pension and postretirement benefits
 
7,426

 
7,800

Other liabilities
 
3,421

 
3,253

Total noncurrent liabilities
 
31,789

 
31,771

Commitments and contingencies
 

 

Stockholder’s equity
 
 
 
 
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding
 

 

Additional paid-in capital
 
16,690

 
16,624

Accumulated other comprehensive loss
 
(5,226
)
 
(5,182
)
Retained earnings
 
2,946

 
1,207

Total stockholder’s equity
 
14,410

 
12,649

Total liabilities and stockholder’s equity
 
$
60,793

 
$
58,092

See accompanying notes to condensed consolidated financial statements.

22



AMERICAN AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Net cash provided by operating activities
 
$
2,738

 
$
1,769

Cash flows from investing activities:
 
 
 
 
Capital expenditures and aircraft purchase deposits
 
(4,501
)
 
(4,219
)
Purchases of short-term investments
 
(4,093
)
 
(5,078
)
Sales of short-term investments
 
4,714

 
4,587

Purchase of equity investment
 
(203
)
 

Decrease in restricted cash and short-term investments
 
245

 
60

Proceeds from sale of property and equipment and sale-leaseback transactions
 
816

 
50

Net cash used in investing activities
 
(3,022
)
 
(4,600
)
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
 
2,160

 
5,392

Payments on long-term debt and capital leases
 
(1,813
)
 
(2,534
)
Deferred financing costs
 
(66
)
 
(39
)
Other financing activities
 
21

 
20

Net cash provided by financing activities
 
302

 
2,839

Net increase in cash
 
18

 
8

Cash at beginning of period
 
310

 
364

Cash at end of period
 
$
328

 
$
372

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Settlement of bankruptcy obligations
 
$
15

 
$
3

Supplemental information:
 
 
 
 
Interest paid, net
 
718

 
653

Income taxes paid
 
13

 
9

See accompanying notes to condensed consolidated financial statements.


23



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC.
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of American Airlines, Inc. (American) should be read in conjunction with the consolidated financial statements contained in American’s Annual Report on Form 10-K for the year ended December 31, 2016. American is the principal wholly-owned subsidiary of American Airlines Group Inc. (AAG). All significant intercompany transactions have been eliminated.
On December 9, 2013, a subsidiary of AMR Corporation (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 AAG’s 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.
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, valuation allowance for deferred tax assets, as well as pension and retiree medical and other postretirement benefits. Certain prior period amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
Revenue
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. American will 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 will adopt the new revenue standard using the full retrospective method.
American is in the process of finalizing how the application of the new revenue standard will impact its condensed 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. 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. 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. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Recent Accounting Pronouncements” for American's preliminary assessment of the quantitative impacts of the new revenue standard on its consolidated financial statements.
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

24


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


adoption is permitted. American expects to adopt the new lease standard effective January 1, 2019. 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 condensed consolidated financial statements. Interpretations are on-going and could have a material impact on American’s implementation. Currently, American expects that the adoption of the new lease standard will have a material impact on its condensed 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.
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. American expects to adopt this new standard effective January 1, 2018. This standard is not expected to have a material impact on American’s condensed consolidated financial statements.
Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires an entity to present the service cost component of net benefit cost in the income statement line items where it reports compensation cost. Entities will present all other components of net benefit cost outside of operating income, if this subtotal is presented. 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. American will adopt this standard on January 1, 2018. The new standard will require all components of American’s net periodic benefit cost (income), with the exception of service cost, currently reported within operating expenses as salaries, wages and benefits, to be reclassified and reported within nonoperating income (expense). The adoption of this new standard will have no impact on pre-tax income or net income reported. See Note 6 for American’s current components of net periodic benefit cost (income).
Financial Instruments
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10)." ASU 2016-01 makes several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and it requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for interim and annual periods beginning after December 15, 2017. American will adopt this standard on January 1, 2018. Based on American's portfolio of investments as of September 30, 2017, it does not expect the adoption of ASU 2016-01 to have a material impact on its condensed consolidated financial statements.

25


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


2. Special Items, Net
Special items, net on the condensed consolidated statements of operations consisted of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Merger integration expenses (1)
$
62

 
$
194

 
$
192

 
$
395

Fleet restructuring expenses (2)
62

 
31

 
174

 
72

Mark-to-market adjustments for bankruptcy obligations and other
(12
)
 
39

 
7

 
(22
)
Labor contract expenses (3)

 

 
45

 

Other operating charges, net

 
25

 
14

 
5

Mainline operating special items, net
112

 
289

 
432

 
450

 
 
 
 
 
 
 
 
Regional operating special items, net (4)
(1
)
 
3

 
3

 
11

Nonoperating special items, net (5)
3

 

 
12

 
36

 
     
(1) 
Merger integration expenses included costs related to information technology, professional fees, re-branding of aircraft and airport facilities and training. Additionally, the 2016 periods also included costs related to alignment of labor union contracts, re-branded uniforms, relocation and severance.
(2) 
Fleet restructuring expenses driven by the Merger principally included the acceleration of aircraft depreciation and impairments for aircraft grounded or expected to be grounded earlier than planned.
(3) 
Labor contract expenses primarily included one-time charges to adjust the vacation accruals for pilots and flight attendants as a result of the mid-contract pay rate adjustments effective in the second quarter of 2017.
(4) 
Regional operating special items, net principally related to Merger integration expenses.
(5) 
Nonoperating special items, net primarily consisted of debt issuance and extinguishment costs associated with term loan refinancings. Additionally, the 2016 nine-month period included costs associated with a bond refinancing.

26


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


3. Debt
Long-term debt and capital lease obligations included in the condensed consolidated balance sheets consisted of (in millions):
 
 
September 30, 2017
 
December 31, 2016
Secured
 
 
 
 
2013 Credit Facilities, variable interest rate of 3.24%, installments through 2020
 
$
1,825

 
$
1,843

2014 Credit Facilities, variable interest rate of 3.24%, installments through 2021
 
735

 
735

April 2016 Credit Facilities, variable interest rate of 3.74%, installments through 2023
 
990

 
1,000

December 2016 Credit Facilities, variable interest rate of 3.73%, installments through 2023
 
1,250

 
1,250

Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.00% to 9.75%, maturing from 2018 to 2029
 
11,396

 
10,912

Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.34% to 8.99%, maturing from 2018 to 2029
 
5,330

 
5,343

Special facility revenue bonds, fixed interest rates ranging from 5.00% to 5.50%, maturing from 2018 to 2035
 
828

 
862

Other secured obligations, fixed interest rates ranging from 3.60% to 12.24%, maturing from 2017 to 2028
 
788

 
848

Total long-term debt and capital lease obligations
 
23,142

 
22,793

Less: Total unamortized debt discount, premium and issuance costs
 
230

 
216

Less: Current maturities
 
1,970

 
1,859

Long-term debt and capital lease obligations, net of current maturities
 
$
20,942

 
$
20,718

The table below shows the maximum availability under revolving credit facilities, all of which were undrawn, as of September 30, 2017 (in millions):
2013 Revolving Facility
 
$
1,200

2014 Revolving Facility
 
1,000

April 2016 Revolving Facility
 
300

Total
 
$
2,500

The December 2016 Credit Facilities provide for a revolving credit facility that may be established in the future.
2017 Aircraft Financing Activities
2017-2 EETCs
In August 2017, American created two pass-through trusts which issued approximately $797 million aggregate principal amount of Series 2017-2 Class AA and Class A EETCs (the 2017-2 EETCs) in connection with the financing of 30 aircraft previously delivered to American or scheduled to be delivered to American through April 2018 (the 2017-2 Aircraft). A portion of the net proceeds received from the sale of the 2017-2 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 2017-2 EETCs until such time as American issues additional Series AA and A equipment notes to the pass-through trusts, which trusts will purchase such additional equipment notes with the escrowed funds. These escrowed funds are not guaranteed by American and are not reported as debt on American's condensed consolidated balance sheet because the proceeds held by the depository are not American's assets.
As of September 30, 2017, approximately $253 million of the escrowed proceeds from the 2017-2 EETCs have been used to purchase equipment notes issued by American. Interest and principal payments on equipment notes issued in connection with the 2017-2 EETCs are payable semi-annually in April and October of each year, with interest payments beginning in April 2018 and principal payments beginning in October 2018. These equipment notes are secured by liens on the aircraft financed with the proceeds of the 2017-2 EETCs.

27


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


Certain information regarding the 2017-2 EETC equipment notes and the remaining escrowed proceeds of the 2017-2 EETCs, as of September 30, 2017, is set forth in the table below.
 
 
2017-2 EETCs
 
 
Series AA
 
Series A
Aggregate principal issued
 
$545 million
 
$252 million
Remaining escrowed proceeds
 
$372 million
 
$172 million
Fixed interest rate per annum
 
3.35%
 
3.60%
Maturity date
 
October 2029
 
October 2029
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 delivered to American through May 2017 (the 2017-1 Aircraft).
During the first six months of 2017, all of the net proceeds received from the sale of the 2017-1 EETCs were used to purchase equipment notes issued by American in connection with the financing of the 2017-1 Aircraft. Interest and principal payments on equipment notes issued in connection with the 2017-1 EETCs are payable semi-annually in February and August of each year, with interest payments that began in August 2017 and principal payments beginning in February 2018. These equipment notes are secured by liens on the 2017-1 Aircraft.
Certain information regarding the 2017-1 EETC equipment notes, as of September 30, 2017, is set forth in the table below. 
 
 
2017-1 EETCs
 
 
Series AA
 
Series A
 
Series B
Aggregate principal issued
 
$537 million
 
$248 million
 
$198 million
Fixed interest rate per annum
 
3.65%
 
4.00%
 
4.95%
Maturity date
 
February 2029        
 
February 2029        
 
February 2025        
2016-3 EETCs
During the first quarter of 2017, all remaining net proceeds of the Series 2016-3 Class AA and Class A EETCs (the 2016-3 EETCs), in the amount of $109 million, were used to purchase equipment notes issued by American in connection with the financing of two of the 25 aircraft financed under the 2016-3 EETCs (such 25 aircraft, the 2016-3 Aircraft). Interest and principal payments on equipment notes issued in connection with the 2016-3 EETCs are payable semi-annually in April and October of each year, with interest payments that began in April 2017 and principal payments beginning in October 2017. These equipment notes are secured by liens on the 2016-3 Aircraft.
Certain information regarding the 2016-3 EETC equipment notes, as of September 30, 2017, is set forth in the table below. 
 
 
2016-3 EETCs
 
 
Series AA
 
Series A
Aggregate principal issued
 
$558 million
 
$256 million
Fixed interest rate per annum
 
3.00%
 
3.25%
Maturity date
 
October 2028        
 
October 2028