SEC Filing | American Airlines

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aal-20230930

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, 2023


☐			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

(682)

278-9000

(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

(682)

278-9000

(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

Preferred Stock Purchase Rights

—

(1)

(1) Attached to the Common Stock

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

☐

American Airlines, Inc.

☒

Yes

☐

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

☐

American Airlines, Inc.

☒

Yes

☐

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 the 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 check mark 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

☒

American Airlines, Inc.

☐

Yes

☒

As of October 13, 2023, there were 653,540,550 shares of American Airlines Group Inc. common stock outstanding.

As of October 13, 2023, 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, 2023

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		Page
PART I: FINANCIAL INFORMATION
Item 1A.	Condensed Consolidated Financial Statements of American Airlines Group Inc.	6
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Balance Sheets	8
	Condensed Consolidated Statements of Cash Flows	9
	Condensed Consolidated Statements of Stockholders’ Deficit	10
	Notes to the Condensed Consolidated Financial Statements	12
Item 1B.	Condensed Consolidated Financial Statements of American Airlines, Inc.	25
	Condensed Consolidated Statements of Operations	25
	Condensed Consolidated Statements of Comprehensive Income (Loss)	26
	Condensed Consolidated Balance Sheets	27
	Condensed Consolidated Statements of Cash Flows	28
	Condensed Consolidated Statements of Stockholder’s Equity	29
	Notes to the Condensed Consolidated Financial Statements	30
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64

Item 5.	Other Information	92
Item 6.	Exhibits	92
SIGNATURES		93

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. Any forward-looking statements speak only as of the date of this report or as of the dates indicated in the statements.

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Summary of Risk Factors

Our business is subject to a number of risks and uncertainties that may affect our business, results of operations and financial condition, or the trading price of our common stock or other securities. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business. These risks are more fully described in Part II, Item 1A. Risk Factors. These risks include, among others, the following:

Risks Related to our Business and Industry

•Downturns in economic conditions could adversely affect our business.

•We will need to obtain sufficient financing or other capital to operate successfully.

•Our high level of debt and other obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and may cause our business to be vulnerable to adverse economic and industry conditions.

•We have significant pension and other postretirement benefit funding obligations, which may adversely affect our liquidity, results of operations and financial condition.

•If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity.

•The loss of key personnel upon whom we depend to operate our business or the inability to attract and develop additional qualified personnel could adversely affect our business.

•Our business has been and will continue to be affected by many changing economic and other conditions beyond our control, including global events that affect travel behavior, and our results of operations could be volatile and fluctuate due to seasonality.

•Union disputes, employee strikes and other labor-related disruptions, or our inability to otherwise maintain labor costs at competitive levels and hire and retain a sufficient number of employees may adversely affect our operations and financial performance.

•If we encounter problems with any of our third-party regional operators or third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services.

•Any damage to our reputation or brand image could adversely affect our business or financial results.

•Changes to our business model that are designed to increase revenues may not be successful and may cause operational difficulties or decreased demand.

•Our intellectual property rights, particularly our branding rights, are valuable, and any inability to protect them may adversely affect our business and financial results.

•We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity.

•Our ability to utilize our NOLs and other carryforwards may be limited.

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•We have a significant amount of goodwill, which is assessed for impairment at least annually. In addition, we may never realize the full value of our intangible assets or long-lived assets, causing us to record material impairment charges.

•The airline industry is intensely competitive and dynamic.

•The commercial relationships that we have with other companies, including any related equity investments, may not produce the returns or results we expect.

•Our business is very dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on consumer demand, our operating results and liquidity.

•Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.

•We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control.

•We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry continues to face ongoing security concerns.

•We are subject to risks associated with climate change, including increased regulation of our CO2 emissions, changing consumer preferences and the potential increased impacts of severe weather events on our operations and infrastructure.

•A shortage of pilots or other personnel has in the past and could continue to materially adversely affect our business.

•We depend on a limited number of suppliers for aircraft, aircraft engines and parts. Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected, may adversely impact our business, results of operations and financial condition.

•We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition.

•Evolving cybersecurity and data privacy requirements (in particular, compliance with applicable federal, state and foreign laws relating to handling of personal information about individuals) could increase our costs, and any significant data security or privacy incident could disrupt our operations, harm our reputation, expose us to legal risks and otherwise materially adversely affect our business, results of operations and financial condition.

•We rely on third-party distribution channels and must manage effectively the costs, rights and functionality of these channels.

•If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations.

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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.

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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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating revenues:
Passenger	$	12,421	$	12,396	$	36,502	$	32,438
Cargo	193		279		613		970
Other	868		787		2,611		2,375
Total operating revenues	13,482		13,462		39,726		35,783
Operating expenses:
Aircraft fuel and related taxes	3,209		3,847		9,098		10,369
Salaries, wages and benefits	3,974		3,384		10,891		9,773
Regional expenses	1,168		1,174		3,463		3,298
Maintenance, materials and repairs	870		685		2,389		1,949
Other rent and landing fees	745		710		2,214		2,081
Aircraft rent	342		347		1,031		1,045
Selling expenses	430		495		1,357		1,331
Depreciation and amortization	487		491		1,456		1,486
Special items, net	949		37		962		189
Other	1,531		1,362		4,487		4,037
Total operating expenses	13,705		12,532		37,348		35,558
Operating income (loss)	(223)		930		2,378		225
Nonoperating income (expense):
Interest income	168		70		456		107
Interest expense, net	(537)		(499)		(1,626)		(1,430)
Other income (expense), net	(98)		157		(119)		274
Total nonoperating expense, net	(467)		(272)		(1,289)		(1,049)
Income (loss) before income taxes	(690)		658		1,089		(824)
Income tax provision (benefit)	(145)		175		286		(148)
Net income (loss)	$	(545)	$	483	$	803	$	(676)

Earnings (loss) per common share:
Basic	$	(0.83)	$	0.74	$	1.23	$	(1.04)
Diluted	$	(0.83)	$	0.69	$	1.16	$	(1.04)
Weighted average shares outstanding (in thousands):
Basic	654,119		650,586		653,241		650,145
Diluted	654,119		715,985		719,956		650,145

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	(545)	$	483	$	803	$	(676)
Other comprehensive income (loss), net of tax:
Pension, retiree medical and other postretirement benefits	(237)		29		(203)		85
Investments	(1)		(1)		—		(5)
Total other comprehensive income (loss), net of tax	(238)		28		(203)		80
Total comprehensive income (loss)	$	(783)	$	511	$	600	$	(596)

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value amounts)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets
Cash	$	577	$	440
Short-term investments	10,005		8,525
Restricted cash and short-term investments	925		995
Accounts receivable, net	2,021		2,138
Aircraft fuel, spare parts and supplies, net	2,461		2,279
Prepaid expenses and other	719		892
Total current assets	16,708		15,269
Operating property and equipment
Flight equipment	40,934		39,703
Ground property and equipment	10,156		9,913
Equipment purchase deposits	799		613
Total property and equipment, at cost	51,889		50,229
Less accumulated depreciation and amortization	(21,571)		(20,029)
Total property and equipment, net	30,318		30,200
Operating lease right-of-use assets	7,878		8,094
Other assets
Goodwill	4,091		4,091
Intangibles, net of accumulated amortization of $831 and $827, respectively	2,053		2,059
Deferred tax asset	2,875		3,099
Other assets	1,788		1,904
Total other assets	10,807		11,153
Total assets	$	65,711	$	64,716
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term debt and finance leases	$	3,767	$	3,274
Accounts payable	2,123		2,149
Accrued salaries and wages	3,262		1,713
Air traffic liability	7,673		6,745
Loyalty program liability	3,491		3,169
Operating lease liabilities	1,387		1,465
Other accrued liabilities	2,677		2,981
Total current liabilities	24,380		21,496
Noncurrent liabilities
Long-term debt and finance leases, net of current maturities	29,722		32,389
Pension and postretirement benefits	2,929		2,837
Loyalty program liability	5,834		5,976
Operating lease liabilities	6,329		6,559
Other liabilities	1,653		1,258
Total noncurrent liabilities	46,467		49,019
Commitments and contingencies
Stockholders’ equity (deficit)
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 653,504,063 shares issued and outstanding at September 30, 2023; 650,642,461 shares issued and outstanding at December 31, 2022	7		6
Additional paid-in capital	7,353		7,291
Accumulated other comprehensive loss	(4,788)		(4,585)
Retained deficit	(7,708)		(8,511)
Total stockholders’ deficit	(5,136)		(5,799)
Total liabilities and stockholders’ equity (deficit)	$	65,711	$	64,716

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Net cash provided by operating activities	$	5,154	$	2,331
Cash flows from investing activities:
Capital expenditures and aircraft purchase deposits	(1,753)		(1,860)

Proceeds from sale-leaseback transactions and sale of property and equipment	219		83

Purchases of short-term investments	(8,323)		(12,113)
Sales of short-term investments	6,857		13,412
Decrease in restricted short-term investments	39		41

Purchase of equity investments	—		(205)
Other investing activities	300		(274)
Net cash used in investing activities	(2,661)		(916)
Cash flows from financing activities:
Payments on long-term debt and finance leases	(4,624)		(2,038)
Proceeds from issuance of long-term debt	2,324		699




Other financing activities	(92)		(8)
Net cash used in financing activities	(2,392)		(1,347)
Net increase in cash and restricted cash	101		68
Cash and restricted cash at beginning of period	586		408
Cash and restricted cash at end of period (1)	$	687	$	476

Non-cash transactions:
Right-of-use (ROU) assets acquired through operating leases	$	748	$	840
Property and equipment acquired through debt	55		—
Property and equipment acquired through finance leases	34		121
Finance leases converted to operating leases	27		4
Operating leases converted to finance leases	—		42
Equity investments	—		12


Supplemental information:
Interest paid, net	1,711		1,478
Income taxes paid	4		2

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


Cash	$	577	$	332
Restricted cash included in restricted cash and short-term investments	110		144
Total cash and restricted cash	$	687	$	476

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In millions, except share amounts)(Unaudited)


	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Deficit		Total
Balance at December 31, 2022	$	6	$	7,291	$	(4,585)	$	(8,511)	$	(5,799)
Net income	—		—		—		10		10
Other comprehensive income, net	—		—		18		—		18
Issuance of 2,175,213 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	1		(16)		—		—		(15)
Share-based compensation expense	—		15		—		—		15
Balance at March 31, 2023	7		7,290		(4,567)		(8,501)		(5,771)
Net income	—		—		—		1,338		1,338
Other comprehensive income, net	—		—		17		—		17

Issuance of 469,087 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(1)		—		—		(1)
Share-based compensation expense	—		32		—		—		32
Balance at June 30, 2023	7		7,321		(4,550)		(7,163)		(4,385)
Net loss	—		—		—		(545)		(545)
Other comprehensive loss, net	—		—		(238)		—		(238)
Issuance of 217,302 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(1)		—		—		(1)
Share-based compensation expense	—		29		—		—		29
Settlement of Single-Dip Unsecured claims held in the Disputed Claims Reserve	—		4		—				4
Balance at September 30, 2023	$	7	$	7,353	$	(4,788)	$	(7,708)	$	(5,136)

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In millions, except share amounts)(Unaudited)


	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Deficit		Total
Balance at December 31, 2021	$	6	$	7,234	$	(5,942)	$	(8,638)	$	(7,340)
Net loss	—		—		—		(1,635)		(1,635)
Other comprehensive income, net	—		—		26		—		26
Issuance of 1,770,173 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(14)		—		—		(14)
Share-based compensation expense	—		23		—		—		23
Balance at March 31, 2022	6		7,243		(5,916)		(10,273)		(8,940)
Net income	—		—		—		476		476
Other comprehensive income, net	—		—		26		—		26

Issuance of 281,593 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		(2)		—		—		(2)
Share-based compensation expense	—		18		—		—		18
Balance at June 30, 2022	6		7,259		(5,890)		(9,797)		(8,422)
Net income	—		—		—		483		483
Other comprehensive income, net	—		—		28		—		28
Issuance of 83,665 shares of AAG common stock pursuant to employee stock plans net of shares withheld for cash taxes	—		—		—		—		—
Share-based compensation expense	—		18		—		—		18
Balance at September 30, 2022	$	6	$	7,277	$	(5,862)	$	(9,314)	$	(7,893)

See accompanying notes to condensed consolidated financial statements.

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

(Unaudited)

1. Basis of Presentation

(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, 2022. 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, the loyalty program, deferred tax assets, as well as pension and retiree medical and other postretirement benefits.

(b) Labor Relations

In May 2023, American and the Allied Pilots Association, the union representing our mainline pilots, reached an agreement in principle on a new collective bargaining agreement, which was ratified in August 2023. This four-year agreement provides wage rate increases, including an initial wage rate increase of 21% effective as of January 1, 2023, quality-of-life benefits and other benefit-related items. The additional compensation for the 2023 period prior to contract ratification as a result of the higher wage rates was recorded within salaries, wages and benefits in the condensed consolidated statements of operations in the second and third quarters of 2023. The agreement also included a provision for a one-time payment upon ratification. During the third quarter of 2023, one-time charges resulting from the ratification of this new agreement were recorded as mainline operating special items, net in the condensed consolidated statement of operations, including the one-time payment of $754 million as well as adjustments to other benefit-related items of $229 million. The one-time payment and the additional compensation was principally paid in October 2023, with remaining payments expected to be paid in the first quarter of 2024.

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

(Unaudited)

2. Special Items, Net

Special items, net in the condensed consolidated statements of operations consisted of the following (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Labor contract expenses (1)	$	983	$	—	$	983	$	—
Severance expenses	—		—		21		—
Fleet impairment (2)	—		—		—		149
Litigation reserve adjustments	—		37		—		37

Other operating special items, net	(34)		—		(42)		3
Mainline operating special items, net	949		37		962		189






Regional operating special items, net	2		2		8		2
Operating special items, net	951		39		970		191

Debt refinancing and extinguishment	42		—		76		2
Mark-to-market adjustments on equity investments, net (3)	59		(57)		70		32

Nonoperating special items, net	101		(57)		146		34

Income tax special items, net	—		—		—		(9)

(1)Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with our mainline pilots, including a one-time payment of $754 million as well as adjustments to other benefit-related items of $229 million.

(2)Fleet impairment included a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft. We retired our Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic.

(3)Mark-to-market adjustments on equity investments, net included unrealized gains and losses associated with certain equity investments.

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

(Unaudited)

3. Earnings (Loss) Per Common Share

The following table provides the computation of basic and diluted earnings (loss) per common share (EPS) (in millions, except share and per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic EPS:
Net income (loss)	$	(545)	$	483	$	803	$	(676)
Weighted average common shares outstanding (in thousands)	654,119		650,586		653,241		650,145
Basic EPS	$	(0.83)	$	0.74	$	1.23	$	(1.04)

Diluted EPS:
Net income (loss)	$	(545)	$	483	$	803	$	(676)
Interest expense on 6.50% convertible senior notes	—		14		33		—
Net income (loss) for purposes of computing diluted EPS	$	(545)	$	497	$	836	$	(676)
Share computation for diluted EPS (in thousands):
Basic weighted average common shares outstanding	654,119		650,586		653,241		650,145
Dilutive effect of restricted stock unit awards	—		1,778		1,677		—
Dilutive effect of certain PSP Warrants and Treasury Loan Warrants	—		1,893		3,310		—
Assumed conversion of 6.50% convertible senior notes	—		61,728		61,728		—
Diluted weighted average common shares outstanding	654,119		715,985		719,956		650,145
Diluted EPS	$	(0.83)	$	0.69	$	1.16	$	(1.04)

The following were excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
6.50% convertible senior notes	61,728	—	—	61,728
Restricted stock unit awards	3,627	4,490	3,802	5,400

In addition, for the three and nine months ended September 30, 2023 and 2022, excluded from the calculation of diluted EPS because inclusion of such shares would be antidilutive, are certain shares underlying the warrants we issued to the U.S. Department of Treasury (Treasury) pursuant to (i) the payroll support program established under the Coronavirus Aid, Relief, and Economic Security Act (PSP1), (ii) the payroll support program established under the Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP2), (iii) the payroll support program established under the American Rescue Plan Act of 2021 (PSP3) (collectively, the PSP Warrants) and (iv) the Loan and Guarantee Agreement with Treasury (Treasury Loan Warrants).

The table below provides a summary of the PSP Warrants and the Treasury Loan Warrants:


Warrants	Warrants Issued (shares, in thousands)	Exercise Price		Expiration
PSP1 Warrants	14,048	$	12.51	April 2025 to September 2025
PSP2 Warrants	6,576	15.66		January 2026 to April 2026
PSP3 Warrants	4,407	21.75		April 2026 to June 2026
Treasury Loan Warrants	4,396	12.51		September 2025

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4. Revenue Recognition

Revenue

The following are the significant categories comprising our operating revenues (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Passenger revenue:
Passenger travel	$	11,473	$	11,536	$	33,821	$	30,150
Loyalty revenue - travel (1)	948		860		2,681		2,288
Total passenger revenue	12,421		12,396		36,502		32,438
Cargo	193		279		613		970
Other:
Loyalty revenue - marketing services	732		655		2,195		1,991
Other revenue	136		132		416		384
Total other revenue	868		787		2,611		2,375
Total operating revenues	$	13,482	$	13,462	$	39,726	$	35,783

(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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Domestic	$	8,616	$	8,786	$	25,848	$	23,966
Latin America	1,490		1,596		5,045		4,357
Atlantic	2,056		1,901		4,875		3,848
Pacific	259		113		734		267
Total passenger revenue	$	12,421	$	12,396	$	36,502	$	32,438

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 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.


	September 30, 2023		December 31, 2022
	(In millions)
Loyalty program liability	$	9,325	$	9,145
Air traffic liability	7,673		6,745
Total	$	16,998	$	15,890

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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, 2022	$	9,145
Deferral of revenue	2,900
Recognition of revenue (1)	(2,720)
Balance at September 30, 2023 (2)	$	9,325

(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 mileage credits that were part of the loyalty program deferred revenue balance at the beginning of the period, as well as mileage credits that were issued during the period.

(2)Mileage credits can be redeemed at any time and generally do not expire as long as that AAdvantage member has any type of qualifying activity at least every 24 months or if the AAdvantage member is the primary holder of a co-branded credit card. As of September 30, 2023, our current loyalty program liability was $3.5 billion and represents our current estimate of revenue expected to be recognized in the next 12 months based on historical trends, with the balance reflected in long-term loyalty program liability expected to be recognized as revenue in periods thereafter.

The air traffic liability principally represents tickets sold for future travel on American and partner airlines. The balance in our air traffic liability also fluctuates with seasonal travel patterns. The contract duration of passenger tickets is one year. Accordingly, any revenue associated with tickets sold for future travel will be recognized within 12 months. For the nine months ended September 30, 2023, $5.2 billion of revenue was recognized in passenger revenue that was included in our air traffic liability at December 31, 2022. Substantially all tickets issued in 2022 and thereafter are no longer subject to change fees which provides more flexibility for customers to change travel plans. Given this new flexibility offered to our customers, our estimate of revenue that will be recognized from the air traffic liability for future flown or unused tickets may be subject to variability and differ from historical experience.

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5. Debt

Long-term debt included in the condensed consolidated balance sheets consisted of (in millions):


	September 30, 2023		December 31, 2022
Secured
2013 Term Loan Facility, variable interest rate of 8.59%, installments through February 2028	$	990	$	1,752
2014 Term Loan Facility, variable interest rate of 7.32%, installments through January 2027	1,183		1,196

11.75% senior secured notes, interest only payments until due in July 2025	1,961		2,500
10.75% senior secured IP notes, interest only payments until due in February 2026	1,000		1,000
10.75% senior secured LGA/DCA notes, interest only payments until due in February 2026	200		200
7.25% senior secured notes, interest only payments until due in February 2028	750		—
5.50% senior secured notes, installments through April 2026 (1)	3,209		3,500
5.75% senior secured notes, installments beginning in July 2026 until due in April 2029 (1)	3,000		3,000
AAdvantage Term Loan Facility, variable interest rate of 10.34%, installments through April 2028 (1)	3,325		3,500
Enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 2.88% to 7.13%, averaging 3.65%, maturing from 2023 to 2034	8,005		9,175
Equipment loans and other notes payable, fixed and variable interest rates ranging from 2.55% to 8.92%, averaging 6.91%, maturing from 2023 to 2035	3,454		3,170
Special facility revenue bonds, fixed interest rates ranging from 2.25% to 5.38%, maturing from 2026 to 2036	967		1,050
	28,044		30,043
Unsecured
PSP1 Promissory Note, interest only payments until due in April 2030	1,757		1,757
PSP2 Promissory Note, interest only payments until due in January 2031	1,030		1,030
PSP3 Promissory Note, interest only payments until due in April 2031	959		959
6.50% convertible senior notes, interest only payments until due in July 2025	1,000		1,000
3.75% senior notes, interest only payments until due in March 2025	487		500

	5,233		5,246
Total long-term debt	33,277		35,289
Less: Total unamortized debt discount, premium and issuance costs	362		386
Less: Current maturities	3,607		3,059
Long-term debt, net of current maturities	$	29,308	$	31,844

(1)Collectively referred to as the AAdvantage Financing.

As of September 30, 2023, the maximum availability under our revolving credit and other facilities is as follows (in millions):


2013 Revolving Facility	$	736
2014 Revolving Facility	1,631
April 2016 Revolving Facility	446
Other short-term facility	55
Total	$	2,868

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American currently has $55 million of available borrowing base under a cargo receivables facility that is set to expire in December 2023. As a result of the below amendments to the 2013, 2014 and April 2016 Revolving Facilities, the aggregate commitments under these facilities will be $2.8 billion through October 11, 2024, and thereafter through October 13, 2026, such aggregate commitments will decrease to $2.2 billion.

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

6.50% Convertible Senior Notes

At September 30, 2023, the if-converted value of the 6.50% convertible senior notes due 2025 (the Convertible Notes) did not exceed the principal amount. The last reported sale price per share of our common stock (as defined in the indenture governing our Convertible Notes, the Convertible Notes Indenture) did not exceed 130% of the conversion price of the Convertible Notes for at least 20 of the 30 consecutive trading days ending on September 30, 2023. Accordingly, pursuant to the terms of the Convertible Notes Indenture, the holders of the Convertible Notes cannot convert at their option at any time during the quarter ending December 31, 2023. Each $1,000 principal amount of Convertible Notes is convertible at a rate of 61.7284 shares of our common stock, subject to adjustment as provided in the Convertible Notes Indenture. We may settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

2023 Financing Activities

2013 Credit Facilities

In February 2023, American and AAG refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility (the 2013 Term Loan Facility Refinancing) through the combination of (i) the issuance of $750 million in aggregate principal amount of 7.25% senior secured notes due 2028 and (ii) the entry into the Seventh Amendment to the 2013 Credit Agreement, pursuant to which the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility was extended to February 2028 from June 2025. The Seventh Amendment also amended certain other terms of the 2013 Credit Agreement, including the interest rate and amortization schedule for the 2013 Term Loan Facility, the requirements for delivery of appraisals and certain covenants relating to dispositions of collateral. Additionally, the Seventh Amendment transitioned the benchmark interest rate from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR). As a result, the 2013 Term Loan Facility bears interest at a base rate (subject to a floor of 1.00%) plus an applicable margin of 1.75% or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American (subject to a floor of 0.00%), plus the SOFR adjustment applicable to such interest period and an applicable margin of 2.75%.

In March 2023, American and AAG entered into the Eighth Amendment to the 2013 Credit Agreement, pursuant to which American extended the maturity of certain commitments under the 2013 Revolving Facility. The Eighth Amendment also amended certain other terms of the 2013 Credit Agreement, including certain covenants and transitioned the benchmark interest rate from LIBOR to SOFR. The 2013 Revolving Facility bears interest at a base rate (subject to a floor of 1.00%) plus an applicable margin of 2.25%, 2.50% or 2.75%, depending on AAG’s public corporate rating, or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American (subject to a floor of 0.00%), plus the SOFR adjustment applicable to such interest period plus an applicable margin of 3.25%, 3.50% or 3.75%, depending on AAG’s public corporate rating. Additionally, as a result of the Eighth Amendment, through October 11, 2024, the aggregate commitments under the 2013 Revolving Facility will be $736 million, and thereafter through October 13, 2026, such aggregate commitments will decrease to $563 million.

7.25% Senior Secured Notes

On February 15, 2023, as part of the 2013 Term Loan Facility Refinancing, American issued $750 million aggregate principal amount of 7.25% senior secured notes due 2028 (the 7.25% Senior Secured Notes) in a private offering. The 7.25% Senior Secured Notes were issued at par and bear interest at a rate of 7.25% per annum (subject to increase if the collateral coverage ratio described below is not met). Interest on the 7.25% Senior Secured Notes is payable semiannually in arrears on February 15 and August 15 of each year, which began on August 15, 2023. The 7.25% Senior Secured Notes will mature on February 15, 2028. The obligations of American under the 7.25% Senior Secured Notes are fully and unconditionally guaranteed on a senior unsecured basis by AAG. American used the proceeds from the offering of the 7.25% Senior Secured Notes, together with cash on hand, to repay a portion of the term loans then outstanding under the 2013 Term Loan Facility and to pay related fees and expenses.

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The 7.25% Senior Secured Notes were issued pursuant to an indenture, dated as of February 15, 2023 (the 7.25% Senior Secured Notes Indenture), by and among American, AAG and Wilmington Trust, National Association, as trustee and collateral agent. The 7.25% Senior Secured Notes are American’s senior secured obligations and are secured on a first lien basis by security interests in certain assets, rights and properties that American uses to provide non-stop scheduled air carrier services between (a) certain airports in the United States and (b) airports in countries in South America (which comprises Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela but does not include territories subject to the sovereignty, control or jurisdiction of a country not otherwise listed herein) and New Zealand (collectively, the 7.25% Senior Secured Notes Collateral). The 7.25% Senior Secured Notes Collateral also secures, on a first lien, pari passu basis with the 7.25% Senior Secured Notes, the 2013 Credit Facilities under the 2013 Credit Agreement.

American may redeem the 7.25% Senior Secured Notes, in whole at any time or in part from time to time prior to February 15, 2025, at a redemption price equal to 100% of the principal amount of the 7.25% Senior Secured Notes to be redeemed, plus a “make-whole” premium, plus any accrued and unpaid interest thereon to but excluding the date of redemption. At any time on or after February 15, 2025, American may redeem all or any of the 7.25% Senior Secured Notes in whole at any time, or in part from time to time, at the redemption prices described in the 7.25% Senior Secured Notes Indenture, plus any accrued and unpaid interest thereon to but excluding the date of redemption. In addition, at any time prior to February 15, 2025, American may redeem up to 40% of the original aggregate principal amount of the 7.25% Senior Secured Notes (calculated after giving effect to any issuance of additional notes) with the net cash proceeds of certain equity offerings, at a redemption price equal to 107.250% of the aggregate principal amount of the 7.25% Senior Secured Notes to be redeemed, plus any accrued and unpaid interest thereon to but excluding the date of redemption.

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

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

2014 Credit Facilities

In March 2023, American and AAG entered into the Ninth Amendment to the 2014 Credit Agreement, pursuant to which American extended the maturity of certain commitments under the 2014 Revolving Facility. The Ninth Amendment also amended certain other terms of the 2014 Credit Agreement including the requirements for delivery of appraisals and certain other covenants and transitioned the benchmark interest rate for the 2014 Revolving Facility and the 2014 Term Loan Facility from LIBOR to SOFR. The 2014 Revolving Facility bears interest at the same base rate and applicable margin as the 2013 Revolving Facility, as noted above in “2013 Credit Facilities.” The 2014 Term Loan Facility bears interest at a base rate (subject to a floor of 1.00%) plus an applicable margin of 1.75% or, at American’s option, the SOFR rate for a tenor of one, three or six months, depending on the interest period selected by American (subject to a floor of 0.00%), plus the SOFR adjustment applicable to such interest period plus an applicable margin of 0.75%. Additionally, as a result of the Ninth Amendment, through October 11, 2024, the aggregate commitments under the 2014 Revolving Facility will be $1.6 billion, and thereafter through October 13, 2026, such aggregate commitments will decrease to $1.2 billion.

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April 2016 Revolving Facility

In March 2023, American and AAG entered into the Sixth Amendment to the April 2016 Credit Agreement, pursuant to which American extended the maturity of certain commitments under the April 2016 Revolving Facility. The Sixth Amendment also amended certain other terms under the April 2016 Credit Agreement including the requirements for delivery of appraisals and certain other covenants and transitioned the benchmark interest rate for the April 2016 Revolving Facility from LIBOR to SOFR. The April 2016 Revolving Facility bears interest at the same base rate and applicable margin as the 2013 Revolving Facility, as noted above in “2013 Credit Facilities.” Additionally, as a result of the Sixth Amendment, through October 11, 2024, the aggregate commitments under the April 2016 Revolving Facility will be $446 million, and thereafter through October 13, 2026, such aggregate commitments will decrease to $342 million.

AAdvantage Term Loan Facility

In June 2023, American and AAdvantage Loyalty IP Ltd. entered into the First Amendment to the AAdvantage Term Loan Facility pursuant to which the benchmark interest rate transitioned from LIBOR to SOFR, effective July 1, 2023. As a result, the AAdvantage Term Loan Facility bears interest at a base rate (subject to a floor of 0.00%) plus an applicable margin of 3.75% or, at American’s option, the SOFR rate for a tenor of three months (subject to a floor of 0.75%), plus a 0.26161% credit spread adjustment and an applicable margin of 4.75%. Other than the foregoing, the terms of the AAdvantage Term Loan Facility remain substantially unchanged.

Equipment Loans and Other Notes Payable Issued in 2023

During the first nine months of 2023, American entered into agreements under which it borrowed $663 million in connection with the financing of certain aircraft. Debt incurred under these agreements matures in 2032 through 2035 and bears interest at fixed and variable rates (comprised of SOFR plus an applicable margin) averaging 6.90% as of September 30, 2023.

Other Financing Activities

During the first nine months of 2023, we repurchased $552 million of secured and unsecured notes in the open market.

6. Income Taxes

At December 31, 2022, we had approximately $16.2 billion of gross federal net operating losses (NOLs) and $4.3 billion of other carryforwards available to reduce future federal taxable income, of which $5.9 billion will expire beginning in 2025 if unused and $14.6 billion can be carried forward indefinitely. We also had approximately $6.0 billion of NOL carryforwards to reduce future state taxable income at December 31, 2022, which will expire in taxable years 2022 through 2042 if unused.

Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods. We provide a valuation allowance for our deferred tax assets, which include our NOLs, when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand. We have determined that positive factors outweigh negative factors in the determination of the realizability of our deferred tax assets. There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required. Such valuation allowance could be material.

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

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7. Fair Value Measurements

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, restricted cash and restricted short-term investments classified as Level 2 utilize significant observable inputs, other than quoted prices in active markets, for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2023.

Assets measured at fair value on a recurring basis are summarized below (in millions):


	Fair Value Measurements as of September 30, 2023
	Total		Level 1		Level 2		Level 3
Short-term investments (1), (2):
Money market funds	$	444	$	444	$	—	$	—
Corporate obligations	5,880		—		5,880		—
Bank notes/certificates of deposit/time deposits	3,131		—		3,131		—

Repurchase agreements	550		—		550		—
	10,005		444		9,561		—
Restricted cash and short-term investments (1), (3)	925		480		445		—
Long-term investments (4)	174		174		—		—
Total	$	11,104	$	1,098	$	10,006	$	—

(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.

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

(4)Long-term investments include our equity investments in China Southern Airlines Company Limited (China Southern Airlines), GOL Linhas Aéreas Inteligentes S.A. (GOL) and Vertical Aerospace Ltd. (Vertical). See Note 8 for further information on our equity investments.

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 except for $3.7 billion as of September 30, 2023 and December 31, 2022, which would have been classified as Level 3 in the fair value hierarchy. The fair value of the Convertible Notes, which would have been classified as Level 2, was $1.1 billion as of September 30, 2023 and December 31, 2022.

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


	September 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	32,915	$	32,320	$	34,903	$	32,569

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8. Investments

To help expand our network and as part of our ongoing commitment to sustainability, we enter into various commercial relationships or other strategic partnerships, including equity investments, with other airlines and companies. Our equity investments are reflected in other assets on our condensed consolidated balance sheets. Our share of equity method investees’ financial results and changes in fair value are recorded in nonoperating other income (expense), net on the condensed consolidated statements of operations.

Our equity investment ownership interests and carrying values are as follows:

Ownership Interest

Carrying Value (in millions)

Accounting Treatment

September 30, 2023

December 31, 2022

September 30, 2023

December 31, 2022

Republic Airways Holdings Inc.

Equity Method