AMERICAN AIRLINES GROUP INC. Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of AAG's and American's Annual Report on Form 10-K for the year endedDecember 31, 2019 (the 2019 Form 10-K). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of AAG and American, but rather updates disclosures made in the 2019 Form 10-K. Financial Overview Impact of Coronavirus (COVID-19) COVID-19 has been declared a global health pandemic by theWorld Health Organization . COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, "shelter in place" orders and business closures. As a result, we have experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in our revenues. While our business performed largely as expected in January and February of 2020, a severe reduction in air travel duringMarch 2020 resulted in our total operating revenues decreasing nearly 20% in the first quarter of 2020 as compared to the first quarter of 2019. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we presently expect the deterioration to increase in the second quarter of 2020 and our results of operations for the remainder of 2020 to be severely impacted. We have taken aggressive actions to mitigate the effect of COVID-19 on our business including deep capacity reductions, structural changes to our fleet, cost reductions, and steps to preserve cash and improve our overall liquidity position. We remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time, consistent with the terms of the financial support we have received from theU.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act which, among other things, includes obligations regarding minimum air service and restrictions on involuntary workforce actions. See Note 14 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information. Capacity Reductions We have significantly reduced our capacity (as measured by available seat miles), with April andMay 2020 flying expected to decrease by approximately 80% year-over-year andJune 2020 flying expected to decrease by approximately 70% year-over-year. Given the fluidity of the environment, we will continue to evaluate these targets and make further demand-driven adjustments to our capacity as needed. Fleet To better align our network with lower passenger demand, we have accelerated the retirement of Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft. These retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 13 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on the accounting for our fleet retirements. Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft. Cost Reductions We are moving quickly to align our costs with our reduced schedule. In aggregate, we estimate that we have reduced our 2020 operating and capital expenditures by more than$12 billion . These savings have been achieved through lower fuel expense and a series of actions, including the capacity reductions and accelerated fleet retirements discussed above as well as reductions in heavy maintenance expense, the deferral of marketing expenditures, consolidation of space at airport facilities and reductions in contractor, event and training expenses. We have also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation and implemented voluntary leave and early retirement programs to reduce our labor costs consistent with our obligations under the CARES Act. In total, nearly 39,000 team members have opted for early retirement, a reduced work schedule or a partially-paid leave status. Our average estimated second quarter 2020 cash burn rate is currently expected to be approximately$70 million per day, and we presently expect this amount to decrease over time to approximately$50 million per day for the month ofJune 2020 as these cost-savings initiatives gain traction and assuming no material, unforecasted revenue reductions, costs or other events. 43 --------------------------------------------------------------------------------
Liquidity
AtMarch 31, 2020 , we had$6.8 billion in total available liquidity, consisting of$3.6 billion in unrestricted cash and short-term investments and$3.2 billion in undrawn capacity under our revolving credit facilities, of which we borrowed$2.7 billion inApril 2020 . During the first quarter of 2020, we completed the following financing transactions (see Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information): • refinanced the$1.2 billion 2014 Term Loan Facility at a lower interest
rate and extended the maturity from 2021 to 2027;
• raised
credit facility;
• issued
senior notes due 2025 (the 3.75% senior notes) and repaid
4.625% unsecured senior notes that matured in
• raised
• raised$197 million from aircraft financings, of which$17 million was used to repay existing indebtedness. We have been approved to receive an aggregate of$5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act of which we received an initial disbursement of$2.9 billion inApril 2020 (representing 50% of the current expected total). We currently anticipate receiving three additional installments from May toJuly 2020 . As partial compensation to theU.S. Government for the provision of financial assistance under the Payroll Support Program, we expect to issue an aggregate principal amount of approximately$1.7 billion under a promissory note and warrants to purchase up to 13.7 million shares of AAG common stock (assuming the full$5.8 billion of financial assistance is received). As of the date of this report, the principal amount of this promissory note is$842 million and a warrant to purchase up to 6.7 million shares of AAG common stock has been issued. The principal amount of this promissory note will increase by an amount equal to 30% of each additional installment disbursed under the PSP Agreement, and we will issue a warrant for a number of shares of AAG common stock equal to 10% of each such increase in the principal amount of this promissory note, divided by$12.51 per share (the exercise price per share of such warrants). See Note 14 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on the Payroll Support Program. We also applied for a secured loan from theU.S. Department of the Treasury (Treasury ) of approximately$4.75 billion under the CARES Act, which if granted will involve the issuance of additional warrants to purchase approximately 38.0 million shares of AAG common stock. As of the date of this report, the secured loan application has not been acted on. Also, we are permitted to, and will, defer payment of the employer portion of social security taxes through the end of 2020 (with 50% of the deferred amount dueDecember 31, 2021 and the remaining 50% dueDecember 31, 2022 ). This deferral is expected to provide approximately$300 million in additional liquidity during 2020. Additionally, we have suspended our capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable. Based on our current forecast, we expect to have approximately$11 billion of liquidity at the end of the second quarter, assuming no material, unforecasted revenue reductions, costs or other events. We continue to evaluate future financing opportunities and have engaged third-party appraisers to evaluate some of our unencumbered assets. We expect to pledge a portion of these unencumbered assets as collateral for future financings, including as part of the approximately$4.75 billion secured loan we have applied for under the CARES Act. Certain of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least$2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value ratio covenants. Given the above actions and our assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings and funds from government assistance to be provided pursuant to the CARES Act) and projected cash flows from operations. 44 -------------------------------------------------------------------------------- AAG's First Quarter 2020 Results The selected financial data presented below is derived from AAG's unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto. Three Months Ended March 31, Percent Increase Increase 2020 2019 (Decrease) (Decrease) (In millions, except percentage changes) Passenger revenue $ 7,681$ 9,658 $ (1,977 ) (20.5 ) Cargo revenue 147 218 (71 ) (32.7 ) Other operating revenue 687 708 (21 ) (2.9 ) Total operating revenues 8,515 10,584 (2,069 ) (19.6 ) Mainline and regional aircraft fuel and related taxes 1,784 2,149 (365 ) (17.0 ) Salaries, wages and benefits 3,140 3,090 50 1.6 Total operating expenses 11,064 10,209 855 8.4 Operating income (loss) (2,549 ) 375 (2,924 ) nm (2) Pre-tax income (loss) (2,890 ) 245 (3,135 ) nm Income tax provision (benefit) (649 ) 60 (709 ) nm Net income (loss) (2,241 ) 185 (2,426 ) nm Pre-tax income (loss) - GAAP$ (2,890 ) $ 245$ (3,135 ) nm Adjusted for: Pre-tax net special items (1) 1,442 69 1,373 nm Pre-tax income (loss) excluding net special items$ (1,448 ) $ 314$ (1,762 ) nm
(1) See below "Reconciliation of GAAP to Non-GAAP Financial Measures" and Note 2
to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for
details on the components of net special items.
(2) Not meaningful.
Pre-Tax Income (Loss) and Net Income (Loss)
Pre-tax loss and net loss were $2.9 billion and $2.2 billion , respectively, in
the first quarter of 2020. This compares to first quarter 2019 pre-tax income
and net income of $245 million and $185 million , respectively. The
quarter-over-quarter decrease in our pre-tax income was principally driven by
lower revenues as a result of a decline in passenger demand and U.S. government
travel restrictions related to the outbreak and spread of COVID-19 and an
increase in our pre-tax net special items, offset in part by a decrease in fuel
costs. See Note 2 to AAG's Condensed Consolidated Financial Statements in Part
I, Item 1A for further information on net special items.
Excluding the effects of pre-tax net special items, pre-tax loss was $1.4
billion in the first quarter of 2020 and pre-tax income was $314 million in the
first quarter of 2019. The quarter-over-quarter decrease in our pre-tax income
excluding pre-tax net special items was principally driven by lower revenues as
described above, offset in part by a decrease in fuel costs.
Revenue
In the first quarter of 2020, we reported total operating revenues of $8.5
billion , a decrease of $2.1 billion , or 19.6%, as compared to the first quarter
of 2019. While our business performed largely as expected in January and
February of 2020, passenger revenue was $7.7 billion in the first quarter of
2020, a decrease of $2.0 billion , or 20.5%, as compared to the first quarter of
2019 due to severe reductions in air travel during March 2020 . The decrease in
passenger revenue in the first quarter of 2020 was due to a decline in passenger
demand and U.S. government travel restrictions related to COVID-19, resulting in
a 17.6% quarter-over-quarter decrease in revenue passenger miles (RPMs) and a
9.5 point decrease in passenger load factor.
Cargo revenue decreased $71 million , or 32.7%, as compared to the first quarter
of 2019, primarily due to a 30.2% decrease in cargo ton miles reflecting
declines in freight volumes, principally as a result of international schedule
reductions.
45
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Other operating revenue decreased $21 million , or 2.9%, as compared to the first
quarter of 2019, driven primarily by lower revenue associated with our loyalty
program and airport clubs.
Our total revenue per available seat mile (TRASM) was 13.71 cents in the first
quarter of 2020, a 13.6% decrease as compared to 15.87 cents in the first
quarter of 2019.
Fuel
Our mainline and regional fuel expense totaled $1.8 billion in the first quarter
of 2020, which was $365 million , or 17.0%, lower as compared to the first
quarter of 2019. This decrease was primarily driven by a 10.1% decrease in the
average price per gallon of aircraft fuel including related taxes to $1.83 in
the first quarter of 2020 from $2.04 in the first quarter of 2019, as well as a
7.6% decrease in gallons of fuel consumed as a result of lower capacity.
As of March 31, 2020 , we did not have any fuel hedging contracts outstanding to
hedge our fuel consumption. Our current policy is not to enter into transactions
to hedge our fuel consumption, although we review that policy from time to time
based on market conditions and other factors. Although spot prices for oil and
jet fuel are presently very low by historical standards, we do not currently
view the market opportunities to hedge fuel prices as attractive because, among
other things, the forward curve for the purchase of such products, or hedges
related to such products, is very steep, any hedging would potentially require
significant capital or collateral to be placed at risk, and our future fuel
needs remain unclear due to uncertainties regarding air travel demand. As such,
and assuming we do not enter into any future transactions to hedge our fuel
consumption, we will continue to be fully exposed to fluctuations in fuel
prices.
Other Costs
We remain committed to actively managing our cost structure, which we believe is
necessary in an industry whose economic prospects are heavily dependent upon two
variables we cannot control: general economic conditions and the price of fuel.
In particular, the COVID-19 pandemic has resulted in a very rapid deterioration
in general economic conditions.
Our 2020 first quarter total cost per available seat mile (CASM) was 17.82
cents , an increase of 16.3%, from 15.31 cents in the first quarter of 2019. The
increase was driven in part by an increase in net special items. See Note 2 to
AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further
information on net special items. Higher maintenance and depreciation expenses,
costs associated with increased regional capacity and lower than planned overall
capacity in the first quarter of 2020 due to decreased passenger demand and U.S.
government travel restrictions related to COVID-19 also contributed to the
increase in CASM.
Our 2020 first quarter CASM excluding net special items and fuel was 12.97
cents , an increase of 9.2%, as compared to the first quarter of 2019. The
increase was primarily driven by higher maintenance and depreciation expenses,
regional costs and lower than planned capacity in the first quarter of 2020 as
described above.
For a reconciliation of CASM to total CASM excluding net special items and fuel,
see below "Reconciliation of GAAP to Non-GAAP Financial Measures."
46
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Reconciliation of GAAP to Non-GAAP Financial Measures
We sometimes use financial measures that are derived from the condensed
consolidated financial statements but that are not presented in accordance with
GAAP to understand and evaluate our current operating performance and to allow
for period-to-period comparisons. We believe these non-GAAP financial measures
may also provide useful information to investors and others. These non-GAAP
measures may not be comparable to similarly titled non-GAAP measures of other
companies, and should be considered in addition to, and not as a substitute for
or superior to, any measure of performance, cash flow or liquidity prepared in
accordance with GAAP. We are providing a reconciliation of reported non-GAAP
financial measures to their comparable financial measures on a GAAP basis.
The following table presents the reconciliation of pre-tax income (loss) (GAAP
measure) to pre-tax income (loss) excluding net special items (non-GAAP
measure). Management uses this non-GAAP financial measure to evaluate our
current operating performance and to allow for period-to-period comparisons. As
net special items may vary from period-to-period in nature and amount, the
adjustment to exclude net special items allows management an additional tool to
understand our core operating performance.
Three Months Ended March 31,
2020 2019
(In millions)Reconciliation of Pre-Tax Income (Loss) Excluding Net Special Items: Pre-tax income (loss) - GAAP
$ (2,890 ) $ 245 Pre-tax net special items (1): Operating special items, net 1,225 138 Nonoperating special items, net 217 (69 ) Total pre-tax net special items 1,442 69
Pre-tax income (loss) excluding net special items
(1) See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A for further information on net special items.
47
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Additionally, the table below presents the reconciliation of total operating
expenses (GAAP measure) to total operating costs excluding net special items and
fuel (non-GAAP measure). Management uses total operating costs excluding net
special items and fuel to evaluate our current operating performance and for
period-to-period comparisons. The price of fuel, over which we have no control,
impacts the comparability of period-to-period financial performance. The
adjustment to exclude aircraft fuel and net special items allows management an
additional tool to understand and analyze our non-fuel costs and core operating
performance. Amounts may not recalculate due to rounding.
Three Months
Ended
2020 2019
Reconciliation of Total Operating Costs per Available Seat Mile (CASM) Excluding Net Special Items and Fuel: (In millions) Total operating expenses - GAAP$ 11,064 $ 10,209 Operating net special items: Mainline operating special items, net (1) (1,132 ) (138 ) Regional operating special items, net (93 ) -
Fuel:
Aircraft fuel and related taxes - mainline (1,395 ) (1,726 ) Aircraft fuel and related taxes - regional (389 )
(423 ) Total operating expenses, excluding net special items and fuel
$ 8,055 $ 7,922 (In millions) Total Available Seat Miles (ASM) 62,099
66,674
(In cents) Total operating CASM 17.82
15.31
Operating net special items per ASM: Mainline operating special items, net (1) (1.82 ) (0.21 ) Regional operating special items, net (0.15 ) - Fuel per ASM: Aircraft fuel and related taxes - mainline (2.25 ) (2.59 ) Aircraft fuel and related taxes - regional (0.63 ) (0.63 ) Total operating CASM, excluding net special items and fuel 12.97 11.88
(1) See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A for further information on net special items.
48-------------------------------------------------------------------------------- AAG's Results of Operations Operating Statistics The table below sets forth selected operating data for the three months endedMarch 31, 2020 and 2019. Three Months Ended March 31, Increase 2020 2019 (Decrease) Revenue passenger miles (millions) (a) 45,171 54,802 (17.6 )% Available seat miles (millions) (b) 62,099 66,674 (6.9 )% Passenger load factor (percent) (c) 72.7 82.2 (9.5 )pts Yield (cents) (d) 17.00 17.62 (3.5 )% Passenger revenue per available seat mile (cents) (e) 12.37 14.49 (14.6 )% Total revenue per available seat mile (cents) (f) 13.71 15.87 (13.6 )% Aircraft at end of period (g) 1,484 1,564 (5.1 )% Fuel consumption (gallons in millions) 972 1,053 (7.6 )% Average aircraft fuel price including related taxes (dollars per gallon) 1.83 2.04 (10.1 )% Full-time equivalent employees at end of period 131,500 129,800 1.3 % Operating cost per available seat mile (cents) (h) 17.82 15.31 16.3 % (a) Revenue passenger mile (RPM) - A basic measure of sales volume. One RPM represents one passenger flown one mile. (b) Available seat mile (ASM) - A basic measure of production. One ASM represents one seat flown one mile.
(c) Passenger load factor - The percentage of available seats that are filled
with revenue passengers.
(d) Yield - A measure of airline revenue derived by dividing passenger revenue
by RPMs.
(e) Passenger revenue per available seat mile (PRASM) - Passenger revenue
divided by ASMs.
(f) Total revenue per available seat mile (TRASM) - Total revenues divided by
ASMs.
(g) Includes aircraft owned and leased by American as well as aircraft operated
by third-party regional carriers under capacity purchase agreements.
Excludes 49 regional aircraft that are in temporary storage as follows: 17
Embraer 145, 15 Embraer 175, nine Embraer 140 and eight Bombardier CRJ200
aircraft.
(h) Operating cost per available seat mile (CASM) - Operating expenses divided
by ASMs.
Three Months EndedMarch 31, 2020 Compared to Three Months EndedMarch 31, 2019 Operating Revenues Three Months Ended Percent March 31, Increase Increase 2020 2019 (Decrease) (Decrease) (In millions, except percentage changes) Passenger$ 7,681 $ 9,658 $ (1,977 ) (20.5 ) Cargo 147 218 (71 ) (32.7 ) Other 687 708 (21 ) (2.9 ) Total operating revenues$ 8,515 $ 10,584 $ (2,069 ) (19.6 ) 49
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This table presents our passenger revenue and the quarter-over-quarter change in
certain operating statistics:
Decrease
vs. Three Months Ended March 31, 2019
Three Months Ended Load Passenger
March 31, 2020 RPMs ASMs Factor Yield PRASM
(In millions)
Passenger revenue $ 7,681 (17.6)% (6.9 )% (9.5 )pts (3.5 )% (14.6 )%
Passenger revenue decreased $2.0 billion , or 20.5%, in the first quarter of 2020
from the first quarter of 2019 primarily due to a decline in passenger demand
and U.S. government travel restrictions related to COVID-19 resulting in a 17.6%
quarter-over-quarter decrease in RPMs and a 9.5 point decrease in passenger load
factor.
Cargo revenue decreased $71 million , or 32.7%, in the first quarter of 2020 from
the first quarter of 2019 primarily due to a 30.2% decrease in cargo ton miles
reflecting declines in freight volumes, principally as a result of international
schedule reductions.
Total operating revenues in the first quarter of 2020 decreased $2.1 billion , or
19.6%, from the first quarter of 2019, driven principally by a 20.5% decrease in
passenger revenue as described above. TRASM was 13.71 cents in the first quarter
of 2020, a 13.6% decrease as compared to 15.87 cents in the first quarter of
2019.
Operating Expenses
Three Months Ended Percent
March 31, Increase Increase
2020 2019 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes
3,140 3,090 50 1.6
Maintenance, materials and repairs 629 561 68 12.1 Other rent and landing fees 468 503 (35 ) (7.1 ) Aircraft rent 334 327 7 2.4 Selling expenses 305 370 (65 ) (17.7 ) Depreciation and amortization 560 480 80 16.7 Mainline operating special items, net 1,132 138 994 nm Other 1,177 1,251 (74 ) (5.9 ) Regional expenses: Aircraft fuel and related taxes 389 423 (34 ) (8.1 ) Other 1,535 1,340 195 14.6 Total operating expenses$ 11,064 $ 10,209 $ 855 8.4 Total operating expenses increased$855 million , or 8.4%, in the first quarter of 2020 from the first quarter of 2019. See detailed explanations below relating to changes in total CASM. Total CASM We sometimes use financial measures that are derived from the condensed consolidated financial statements but that are not presented in accordance with GAAP to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. The table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding net special items and fuel (non-GAAP measure). Management uses total operating costs excluding net special items and fuel to evaluate our current operating performance and for period-to-period comparisons. The price of fuel, over which we 50 -------------------------------------------------------------------------------- have no control, impacts the comparability of period-to-period financial performance. The adjustment to exclude aircraft fuel and net special items allows management an additional tool to understand and analyze our non-fuel costs and core operating performance. The major components of our total CASM and our total CASM excluding net special items and fuel for the three months endedMarch 31, 2020 and 2019 are as follows (amounts may not recalculate due to rounding): Three Months Ended Percent March 31, Increase 2020 2019 (Decrease) (In cents, except percentage changes) Total CASM: Aircraft fuel and related taxes 2.25 2.59 (13.2 ) Salaries, wages and benefits 5.06 4.64 9.1 Maintenance, materials and repairs 1.01 0.84 20.3 Other rent and landing fees 0.75 0.75 (0.2 ) Aircraft rent 0.54 0.49 9.9 Selling expenses 0.49 0.56 (11.6 ) Depreciation and amortization 0.90 0.72 25.3 Mainline operating special items, net 1.82 0.21 nm Other 1.89 1.88 1.0 Regional expenses: Aircraft fuel and related taxes 0.63 0.63 (1.3 ) Other 2.47 2.01 23.0 Total CASM 17.82 15.31 16.3 Mainline operating special items, net (1.82 ) (0.21 ) nm Regional operating special items, net (0.15 ) - nm Aircraft fuel and related taxes: Aircraft fuel and related taxes - mainline (2.25 ) (2.59 ) (13.2 ) Aircraft fuel and related taxes - regional (0.63 ) (0.63 ) (1.3 ) Total CASM, excluding net special items and fuel 12.97 11.88 9.2 Significant changes in the components of total CASM are as follows: • Mainline aircraft fuel and related taxes per ASM decreased 13.2% in the first quarter of 2020 as compared to the first quarter of 2019 due to a
10.5% decrease in gallons consumed and a 9.7% decrease in the average price
per gallon of fuel including related taxes to
2020 from
• Salaries, wages and benefits per ASM increased 9.1% in the first quarter of
2020 as compared to the first quarter of 2019, primarily due to an 8.8%
decrease in capacity as a result of a decline in passenger demand and
government travel restrictions related to COVID-19.
• Maintenance, materials and repairs per ASM increased 20.3% in the first
quarter of 2020 as compared to the first quarter of 2019, due to an 8.8%
decrease in capacity as described above as well as an increase in the
volume of aircraft engine and component part repairs in the first quarter
of 2020.
• Aircraft rent per ASM increased 9.9% in the first quarter of 2020 ascompared to the first quarter of 2019, primarily due to an 8.8% decrease in
capacity as described above.
• Selling expenses per ASM decreased 11.6% in the first quarter of 2020 as
compared to the first quarter of 2019 primarily due to lower commission
expense and credit card fees driven by the overall decrease in revenues.
• Depreciation and amortization per ASM increased 25.3% in the first quarter
of 2020 as compared to the first quarter of 2019 due in part to an 8.8%
decrease in capacity as described above as well as accelerated depreciation
for certain aircraft and related equipment expected to be retired earlier
than planned. Depreciation associated with facility improvements also
contributed to the increase.
51--------------------------------------------------------------------------------
• Regional aircraft fuel and related taxes per ASM decreased 1.3% in the
first quarter of 2020 as compared to the first quarter of 2019 primarily
due to a 12.1% decrease in the average price per gallon of fuel including
related taxes to
quarter of 2019. This decrease was offset in part by a 4.5% increase in
gallons of fuel consumed, principally due to increased regional capacity.
• Regional other operating expenses per ASM increased 23.0% in the first
quarter of 2020 as compared to the first quarter of 2019 primarily driven
by a 6.7% increase in regional capacity and
operating net special items described below.
Operating Special Items, Net
Three Months Ended March 31,
2020 2019
(In millions)
Fleet impairment (1) $ 744 $ -
Labor contract expenses (2) 218 -
Severance expenses (3) 205 -
Mark-to-market adjustments on bankruptcy obligations, net (4)
(50 ) -
Fleet restructuring expenses (5) - 83
Merger integration expenses - 37
Other operating charges, net 15 18
Mainline operating special items, net 1,132 138
Regional operating special items, net (6) 93 -
Total operating special items, net $ 1,225 $ 138
(1) Fleet impairment primarily includes a $676 million non-cash write-down of
aircraft and spare parts and
assets and lease return costs associated with our mainline fleet,
principally Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190
aircraft, which are being retired earlier than previously planned as a
result of the decline in demand for air travel due to COVID-19. See Note 13
to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for
further information related to these charges.
(2) Labor contract expenses primarily relate to one-time charges resulting from
the ratification of a new contract with the
Association) for our maintenance and fleet service team members, including
signing bonuses and adjustments to vacation accruals resulting from pay rate
increases.
(3) Severance expenses principally include salary and medical costs associated
with certain team members who opted in to a voluntary early retirement
program offered as a result of reductions to our operation due to COVID-19.
(4) Bankruptcy obligations that will be settled in shares of our common stock
are marked-to-market based on our stock price.
(5) Fleet restructuring expenses principally included accelerated depreciation
and rent expense for aircraft and related equipment expected to be retired
earlier than planned.
(6) Regional operating special items, net primarily includes an
non-cash write-down of regional aircraft, principally certain Embraer 140
and certain Bombardier CRJ200 aircraft, which are being retired earlier than
previously planned as a result of the decline in demand for air travel due
to COVID-19. See Note 13 to AAG's Condensed Consolidated Financial
Statements in Part I, Item 1A for further information related to this
charge.
52--------------------------------------------------------------------------------
Nonoperating Results
Three Months Ended Percent
March 31, Increase Increase
2020 2019 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 21 $ 33 $ (12 ) (35.8 )
Interest expense, net (257 ) (271 ) 14 (5.0 )
Other income (expense), net (105 ) 108 (213 ) nm
Total nonoperating expense, net
nm
In the first quarter of 2020, other nonoperating expense, net included$180 million of net special charges principally for mark-to-market unrealized losses primarily associated with our equity investment in China Southern Airlines Company Limited (China Southern Airlines) and certain treasury rate lock derivative instruments, offset in part by$108 million of non-service related pension and other postretirement benefit plan income. In the first quarter of 2019, other nonoperating income, net included$69 million of net special credits principally for mark-to-market unrealized gains primarily associated with our equity investment in China Southern Airlines and$46 million of non-service related pension and other postretirement benefit plan income. The increase in non-service related pension and other postretirement benefit plan income in the first quarter of 2020 as compared to the first quarter of 2019 is principally due to an increase in the expected return on pension plan assets. Income Taxes In the first quarter of 2020, we recorded an income tax benefit of$649 million . Substantially all of our income or loss before income taxes is attributable tothe United States . See Note 7 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes. American's Results of Operations Three Months EndedMarch 31, 2020 Compared to Three Months EndedMarch 31, 2019 Operating Revenues Three Months Ended Percent March 31, Increase Increase 2020 2019 (Decrease) (Decrease) (In millions, except percentage changes) Passenger$ 7,681 $ 9,658 $ (1,977 ) (20.5 ) Cargo 147 218 (71 ) (32.7 ) Other 686 705 (19 )
(2.6 )
Total operating revenues
Passenger revenue decreased$2.0 billion , or 20.5%, in the first quarter of 2020 from the first quarter of 2019 primarily due to a decline in passenger demand andU.S. government travel restrictions related to COVID-19 resulting in a quarter-over-quarter decrease in RPMs and passenger load factor. Cargo revenue decreased$71 million , or 32.7%, in the first quarter of 2020 from the first quarter of 2019 primarily due to a decrease in cargo ton miles reflecting declines in freight volumes, principally as a result of international schedule reductions. Total operating revenues in the first quarter of 2020 decreased$2.1 billion , or 19.5%, from the first quarter of 2019, driven principally by a 20.5% decrease in passenger revenue as described above. 53 --------------------------------------------------------------------------------
Operating Expenses
Three Months Ended Percent
March 31, Increase Increase
2020 2019 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes
3,138 3,089 49 1.6
Maintenance, materials and repairs 629 561 68 12.1 Other rent and landing fees 468 503 (35 ) (7.1 ) Aircraft rent 334 327 7 2.4 Selling expenses 305 370 (65 ) (17.7 ) Depreciation and amortization 560 480 80 16.7 Mainline operating special items, net 1,132 138 994 nm Other 1,198 1,251 (53 ) (4.2 ) Regional expenses: Aircraft fuel and related taxes 389 423 (34 ) (8.1 ) Other 1,502 1,368 134 9.8 Total operating expenses$ 11,050 $ 10,236 $ 814 8.0 Total operating expenses increased$814 million , or 8.0%, in the first quarter of 2020 from the first quarter of 2019. Significant changes in the components of American's total operating expenses are as follows: • Mainline aircraft fuel and related taxes decreased 19.2% in the first
quarter of 2020 as compared to the first quarter of 2019 due to a 10.5%
decrease in gallons consumed and a 9.7% decrease in the average price per
gallon of fuel including related taxes to $1.83 in the first quarter of
2020 from $2.02 in the first quarter of 2019.
• Maintenance, materials and repairs increased 12.1% in the first quarter of
2020 as compared to the first quarter of 2019, primarily due to an increase
in the volume of aircraft engine and component part repairs in the first
quarter of 2020.
• Selling expenses decreased 17.7% in the first quarter of 2020 as compared
to the first quarter of 2019 primarily due to lower commission expense and
credit card fees driven by the overall decrease in revenues.
• Depreciation and amortization increased 16.7% in the first quarter of 2020
as compared to the first quarter of 2019 due in part to accelerated
depreciation for certain aircraft and related equipment expected to be
retired earlier than planned. Depreciation associated with facility
improvements also contributed to the increase.
• Regional aircraft fuel and related taxes decreased 8.1% in the first
quarter of 2020 as compared to the first quarter of 2019 primarily due to a
12.1% decrease in the average price per gallon of fuel including related
taxes to
of 2019. This decrease was offset in part by a 4.5% increase in gallons of
fuel consumed, principally due to increased regional capacity.
• Regional other operating expenses increased 9.8% in the first quarter of
2020 as compared to the first quarter of 2019 primarily driven by an
increase in regional capacity and $93 million of regional operating net
special items described below.
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Operating Special Items, Net
Three Months Ended March 31,
2020 2019
(In millions)
Fleet impairment (1) $ 744 $ -
Labor contract expenses (2) 218 -
Severance expenses (3) 205 -
Mark-to-market adjustments on bankruptcy obligations, net (4)
(50 ) -
Fleet restructuring expenses (5) - 83
Merger integration expenses - 37
Other operating charges, net 15 18
Mainline operating special items, net 1,132 138
Regional operating special items, net (6) 93 -
Total operating special items, net $ 1,225 $ 138
(1) Fleet impairment primarily includes a $676 million non-cash write-down of
aircraft and spare parts and $68 million in write-offs of ROU assets andlease return costs associated with American's mainline fleet, principally
Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 aircraft, which are
being retired earlier than previously planned as a result of the decline in
demand for air travel due to COVID-19. See Note 12 to American's Condensed
Consolidated Financial Statements in Part I, Item 1B for further information
related to these charges.
(2) Labor contract expenses primarily relate to one-time charges resulting from
the ratification of a new contract with the
American's maintenance and fleet service team members, including signing
bonuses and adjustments to vacation accruals resulting from pay rate
increases.
(3) Severance expenses principally include salary and medical costs associated
with certain team members who opted in to a voluntary early retirement
program offered as a result of reductions to American's operation due to
COVID-19.
(4) Bankruptcy obligations that will be settled in shares of AAG common stock
are marked-to-market based on AAG's stock price.
(5) Fleet restructuring expenses principally included accelerated depreciation
and rent expense for aircraft and related equipment expected to be retired
earlier than planned.
(6) Regional operating special items, net primarily includes an
non-cash write-down of regional aircraft, principally certain Embraer 140
and certain Bombardier CRJ200 aircraft, which are being retired earlier than
previously planned as a result of the decline in demand for air travel due
to COVID-19. See Note 12 to American's Condensed Consolidated Financial
Statements in Part I, Item 1B for further information related to this
charge.
Nonoperating Results
Three Months Ended Percent
March 31, Increase Increase
2020 2019 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 104 $ 127 $ (23 ) (17.5 )
Interest expense, net (260 ) (277 ) 17 (6.0 )
Other income (expense), net (105 ) 109 (214 ) nm
Total nonoperating expense, net
nm
In the first quarter of 2020, other nonoperating expense, net included
55
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certain treasury rate lock derivative instruments, offset in part by $108
million of non-service related pension and other postretirement benefit plan
income.
In the first quarter of 2019, other nonoperating income, net included $69
million of net special credits principally for mark-to-market unrealized gains
primarily associated with American's equity investment in China Southern
Airlines and $46 million of non-service related pension and other postretirement
benefit plan income.
The increase in non-service related pension and other postretirement benefit
plan income in the first quarter of 2020 as compared to the first quarter of
2019 is principally due to an increase in the expected return on pension plan
assets.
Income Taxes
American is part of the AAG consolidated income tax return.
In the first quarter of 2020, American recorded an income tax benefit of $628
million . Substantially all of American's income or loss before income taxes is
attributable to the United States .
See Note 5 to American's Condensed Consolidated Financial Statements in Part I,
Item 1B for additional information on income taxes.
Liquidity and Capital Resources
Liquidity
As of March 31, 2020 , AAG had approximately $6.8 billion in total available
liquidity and $157 million in restricted cash and short-term investments.
Additional detail regarding our available liquidity is provided in the table
below (in millions):
AAG American
March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
Cash $ 474 $ 280 $ 464 $ 267
Short-term investments 3,102 3,546 3,100 3,543
Undrawn revolving credit
facilities 3,243 3,243 3,243 3,243
Total available liquidity $ 6,819 $ 7,069 $ 6,807 $ 7,053
Given the actions we have taken in response to COVID-19 and our assumptions
about its future impact on travel demand, which could be materially different
due to the inherent uncertainties of the current operating environment, we
expect to meet our cash obligations as well as remain in compliance with the
debt covenants in our existing financing agreements for the next 12 months based
on our current level of unrestricted cash and short-term investments, our
anticipated access to liquidity (including via proceeds from financings and
funds from government assistance to be provided pursuant to the CARES Act) and
projected cash flows from operations.
Share Repurchase Programs and Cash Dividends
During the three months ended March 31, 2020 , we repurchased 6.4 million shares
of AAG common stock for $145 million at a weighted average cost per share of
$22.77 .
In January 2020 , our Board of Directors declared a cash dividend of $0.10 per
share for stockholders of record as of February 5, 2020 and paid on February 19,
2020 , totaling $43 million .
We have suspended our capital return program, including share repurchases and
the payment of future dividends. In connection with our receipt of financial
support under the Payroll Support Program, we agreed not to repurchase shares of
or make dividend payments in respect of AAG common stock through September 30,
2021 . If we receive a secured loan from Treasury pursuant to the CARES Act, we
will be prohibited from repurchasing shares of AAG common stock through the date
that is one year after such secured loan is fully repaid.
56
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Certain Covenants
Certain of our debt financing agreements (including our term loans, revolving
credit facilities and spare engine EETCs) contain loan to value ratio covenants
and require us to appraise the related collateral annually. Pursuant to such
agreements, if the loan to value ratio exceeds a specified threshold or the
value of the appraised collateral fails to meet a specified threshold, as the
case may be, we are required, as applicable, to pledge additional qualifying
collateral (which in some cases may include cash or investment securities), or
pay down such financing, in whole or in part. As of the most recent applicable
measurement dates, we were in compliance with each of the foregoing collateral
coverage tests. Additionally, certain of our debt financing agreements contain
covenants requiring us to maintain an aggregate of at least $2.0 billion of
unrestricted cash and cash equivalents and amounts available to be drawn under
revolving credit facilities.
Sources and Uses of Cash
AAG
Operating Activities
Our net cash used in operating activities was $168 million for the first quarter
of 2020 as compared to net cash provided by operating activities of $1.7 billion
for the first quarter of 2019. The $1.8 billion quarter-over-quarter decrease in
operating cash flows was primarily due to a net loss in the first quarter of
2020 driven by lower revenues as a result of declining passenger demand and U.S.
government travel restrictions related to COVID-19.
Investing Activities
Our net cash used in investing activities was $162 million and $480 million for
the first quarter of 2020 and 2019, respectively.
Our principal investing activities in the first quarter of 2020 included
expenditures of $845 million for property and equipment, including five Airbus
321neo aircraft, three Embraer 175 aircraft and three Bombardier CRJ900
aircraft. These cash outflows were offset in part by $417 million in net sales
of short-term investments and $280 million of proceeds from aircraft
sale-leaseback transactions.
Our principal investing activities in the first quarter of 2019 included
expenditures of $1.3 billion for property and equipment, including seven Embraer
175 aircraft, four Boeing 737 MAX aircraft, two Boeing 787 Family aircraft and
two Airbus 321neo aircraft. These cash outflows were offset in part by $481
million in net sales of short-term investments and $352 million of proceeds from
aircraft sale-leaseback transactions.
Financing Activities
Our net cash provided by financing activities was $526 million for the first
quarter of 2020 as compared to net cash used in financing activities of $1.1
billion for the first quarter of 2019.
Our principal financing activities in the first quarter of 2020 included $1.7
billion in proceeds from the issuance of debt, including $1.0 billion provided
under the senior secured delayed draw term loan credit facility, $500 million
aggregate principal amount of 3.75% senior notes and $197 million in other
aircraft financings. These cash inflows were offset in part by $926 million
primarily in scheduled debt repayments, including repayment of $500 million of
4.625% senior notes, $171 million in share repurchases and $43 million in
dividend payments.
Our principal financing activities in the first quarter of 2019 included $849
million in scheduled debt repayments, $608 million in share repurchases and $46
million in dividend payments. These cash outflows were offset in part by $400
million in proceeds from the issuance of debt for the financing of certain
aircraft.
American
Operating Activities
American's net cash used in operating activities was $401 million for the first
quarter of 2020 as compared to net cash provided by operating activities of $956
million for the first quarter of 2019. The $1.4 billion quarter-over-quarter
decrease in operating cash flows was primarily due to a net loss in the first
quarter of 2020 driven by lower revenues as a result of declining passenger
demand and U.S. government travel restrictions related to COVID-19.
57
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Investing Activities
American's net cash used in investing activities was $147 million and $438
million for the first quarter of 2020 and 2019, respectively.
American's principal investing activities in the first quarter of 2020 included
expenditures of $829 million for property and equipment, including five Airbus
321neo aircraft, three Embraer 175 aircraft and three Bombardier CRJ900
aircraft. These cash outflows were offset in part by $417 million in net sales
of short-term investments and $280 million of proceeds from aircraft
sale-leaseback transactions.
American's principal investing activities in the first quarter of 2019 included
expenditures of $1.3 billion for property and equipment, including seven Embraer
175 aircraft, four Boeing 737 MAX aircraft, two Boeing 787 Family aircraft and
two Airbus 321neo aircraft. These cash outflows were offset in part by $481
million in net sales of short-term investments and $352 million of proceeds from
aircraft sale-leaseback transactions.
Financing Activities
American's net cash provided by financing activities was $747 million for the
first quarter of 2020 as compared to net cash used in financing activities of
$455 million for the first quarter of 2019.
American's principal financing activities in the first quarter of 2020 included
$1.2 billion in proceeds from the issuance of debt, including $1.0 billion
provided under the senior secured delayed draw term loan credit facility and
$197 million in other aircraft financings, offset in part by $426 million
primarily in scheduled debt repayments.
American's principal financing activities in the first quarter of 2019 included
$849 million in scheduled debt repayments. These cash outflows were offset in
part by $400 million in proceeds from the issuance of debt for the financing of
certain aircraft.
Commitments
Significant Indebtedness
As of March 31, 2020 , AAG had $24.7 billion in long-term debt, including current
maturities of $3.4 billion . As of March 31, 2020 , American had $23.4 billion in
long-term debt, including current maturities of $3.4 billion . During the three
months ended March 31, 2020 , there have been no material changes in our
significant indebtedness as discussed in our 2019 Form 10-K, except as discussed
in Note 6 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A and Note 4 to American's Condensed Consolidated Financial Statements in
Part I, Item 1B.
Aircraft and Engine Purchase Commitments
As of March 31, 2020 , we had definitive purchase agreements with Airbus, Boeing
and Embraer for the acquisition of the following mainline and regional aircraft
(1):
Remainder
of 2020 2021 2022 2023 2024 2025 and Thereafter Total
Airbus
A320 Family (2) 13 10 30 8 22 20 103
Boeing
737 MAX Family (3) 17 9 10 - - 40 76
787 Family 11 10 - 6 6 13 46
Embraer
E175 6 5 - - - - 11
Total 47 34 40 14 28 73 236
(1) Delivery schedule represents our best estimate as of the date of this
report. Actual delivery dates are subject to change based on many potential
factors including production delays by the manufacturer.
58--------------------------------------------------------------------------------
(2) In
10% tariff on new Airbus aircraft imported from
2020, this tariff rate increased to 15%. We continue to take every effort
to mitigate the effect of these tariffs on our Airbus deliveries. See Part
II, Item 1A. Risk Factors - "We operate a global business with
international operations that are subject to economic and politicalinstability and have been, and in the future may continue to be, adversely
affected by numerous events, circumstances or government actions beyond our
control."
(3) On
(
currently includes 24 Boeing 737 MAX aircraft with an additional 76 on
order. We have removed all Boeing 737 MAX aircraft flying from our flight
schedule through
addition, we have not taken delivery of any Boeing 737 MAX Family aircraft
since the grounding. The extent of the delay to the scheduled deliveries of
the Boeing 737 MAX aircraft included in the table above is expected to be
impacted by the length of time the
production rate and the pace at which Boeing can deliver aircraft following
the lifting of the
our estimate of future Boeing 737 MAX aircraft deliveries based on
information currently available to us; however, the actual delivery
schedule may differ from the table above, potentially materially.
We also have agreements for 32 spare engines to be delivered in 2020 and beyond.
We currently have financing commitments in place for all aircraft on order and
scheduled to be delivered through 2020 with the exception of two Boeing 737 MAX
Family aircraft and four Airbus 320 Family aircraft. Additionally, we have
financing commitments in place for 22 aircraft scheduled to be delivered in
2021: 10 Boeing 787 Family aircraft, seven Boeing 737 MAX Family aircraft and
five Embraer 175 aircraft. Our ability to draw on the financing commitments we
have in place is subject to (1) the satisfaction of various terms and
conditions, including in some cases, on our acquisition of the aircraft by a
certain date and the lifting of the grounding directive from the FAA of the
Boeing 737 MAX aircraft by a certain date and (2) the performance by the
counterparty providing such financing commitments of its obligations thereunder.
We do not have financing commitments in place for the remaining 12 aircraft
scheduled to be delivered in 2021. See Part II, Item 1A. Risk Factors - "We will
need to obtain sufficient financing or other capital to operate successfully"
for additional discussion.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other
contractual arrangement involving an unconsolidated entity under which a company
has (1) made guarantees, (2) a retained or a contingent interest in transferred
assets, (3) an obligation under derivative instruments classified as equity or
(4) any obligation arising out of a material variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit
risk support to us, or that engages in leasing, hedging or research and
development arrangements with us.
There have been no material changes in our off-balance sheet arrangements as
discussed in our 2019 Form 10-K.
Labor Contracts
On March 26, 2020 , a new five-year joint collective bargaining agreement was
ratified between us and the TWU-IAM Association . The new agreement will
significantly increase the cost of providing compensation and benefits to our
mainline maintenance and fleet service team members.
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Contractual Obligations
The following table provides details of our future cash contractual obligations
as of March 31, 2020 (in millions). Except to the extent set forth in the
applicable accompanying footnotes, the table does not include commitments that
are contingent on events or other factors that are uncertain or unknown at this
time.
Payments Due by Period
Remainder 2025 and
of 2020 2021 2022 2023 2024 Thereafter Total
American
Long-term debt:
Principal amount (a), (c) $ 1,895 $ 3,362 $ 1,576 $ 4,097 $ 1,546 $ 10,926 $ 23,402
Interest obligations
(b), (c) 583 629 545 471 372 889 3,489
Finance lease obligations 106 128 132 110 116 171 763
Aircraft and engine purchase
commitments (d) 993 608 1,864 1,538 2,573 4,853 12,429
Operating lease commitments 1,485 1,990 1,817 1,632 1,253
4,574 12,751
Regional capacity purchase
agreements (e) 796 1,105 1,052 1,025 1,037 3,280 8,295
Minimum pension obligations
(f) - 686 607 618 654 413 2,978
Retiree medical and other
postretirement benefits 18 18 18 17 29 265 365
Other purchase obligations
(g) 1,949 2,618 1,180 486 248 1,095 7,576
Total American Contractual
Obligations $ 7,825 $ 11,144 $ 8,791 $ 9,994 $ 7,828 $ 26,466 $ 72,048
AAG Parent and Other AAG
Subsidiaries
Long-term debt:
Principal amount (a) 5 2 752 2 2 516 1,279
Interest obligations (b) 49 58 39 20 20 13 199
Operating lease commitments 12 16 14 9 5 19 75
Minimum pension obligations
(f) - 7 4 4 5 13 33
Total AAG Contractual
Obligations $ 7,891 $ 11,227 $ 9,600 $ 10,029 $ 7,860 $ 27,027 $ 73,634
(a) Amounts represent contractual amounts due. Excludes $221 million and $12
million of unamortized debt discount, premium and issuance costs as of
information, see Note 6 and Note 4 to AAG's and American's Condensed
Consolidated Financial Statements in Part I, Items 1A and 1B, respectively.
(b) For variable-rate debt, future interest obligations are estimated using the
current forward rates at March 31, 2020 .
(c) Includes $11.7 billion of future principal payments and $2.2 billion of
future interest payments as of
with mortgage financings of certain aircraft and spare engines.
(d) See "Aircraft and Engine Purchase Commitments" in Part I, Item 2.Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional information about the firm commitment aircraft
delivery schedule, in particular the footnotes to the table thereunder as to
potential changes to such delivery schedule. Due to uncertainty surrounding
the timing of delivery of certain aircraft, the amounts in the table
represent our current best estimate, including with respect to the delivery
of Boeing 737 MAX and Embraer 175 aircraft; however, the actual delivery
schedule may differ from the table above, potentially materially.
Additionally, the amounts in the table exclude 21 787-8 aircraft to be
delivered in 2020 and 2021 for which we have obtained committed lease
financing. This financing is reflected in the operating lease commitments
line above.
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(e) Represents minimum payments under capacity purchase agreements with
third-party regional carriers. These commitments are estimates of costs
based on assumed minimum levels of flying under the capacity purchase
agreements and our actual payments could differ materially. Rental payments
under operating leases for certain aircraft flown under these capacity
purchase agreements are reflected in the operating lease commitments line
above.
(f) Includes minimum pension contributions based on actuarially determined
estimates as of
2029. Pursuant to the CARES Act passed in
pension contributions to be made in the calendar year 2020 can be deferred
to
new payment date. We expect to defer our
contribution to
(g) Includes purchase commitments for aircraft fuel, construction projects,
flight equipment maintenance and information technology support.
Capital Raising Activity and Other Possible Actions In light of the cash needs imposed by the current operating losses due to reduced demand in response to COVID-19 as well as our significant financial commitments related to, among other things, new flight equipment, the servicing and amortization of existing debt and equipment leasing arrangements, and future pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising activity, which may include the entry into leasing transactions and future issuances of secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing global outbreak of COVID-19), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. See Part II, Item 1A. Risk Factors - "The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity" for additional discussion. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 6 and Note 4 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt or lease obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions. Critical Accounting Policies and Estimates For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2019 Form 10-K and Note 13 and Note 12 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. Recent Accounting Pronouncement Accounting Standards Update (ASU) 2016-13: Financial Instruments - Credit Losses (Topic 326) This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. We adopted this accounting standard prospectively as ofJanuary 1, 2020 , and it did not have a material impact on our condensed consolidated financial statements. 61
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