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, 2021 (the 2021 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 2021 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. Ongoing global vaccination efforts and the corresponding lifting of government restrictions in and between many markets resulted in a significant recovery in demand for air travel, with$8.9 billion of total revenue in the first quarter of 2022, a recovery of 84% as compared to the first quarter of 2019. The continued impact of the COVID-19 pandemic, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 cannot be estimated. Our capacity (as measured by available seat miles) continues to be reduced compared to pre-COVID-19 pandemic levels, with total capacity in the first quarter of 2022 down 10.7% as compared to the first quarter of 2019. Domestic capacity in the first quarter of 2022 was down 7.5% while international capacity was down 17.4% as compared to the first quarter of 2019. While demand for domestic and short-haul international markets has largely recovered to 2019 levels, uncertainty remains regarding the timing of a full recovery. We will continue to match our forward capacity with observed booking trends for future travel and make further adjustments to our capacity as needed.
Liquidity
As ofMarch 31, 2022 , we had$15.5 billion in total available liquidity, consisting of$12.5 billion in unrestricted cash and short-term investments,$2.8 billion in undrawn capacity under revolving credit facilities and a total of$220 million in undrawn short-term revolving and other facilities.
During the first three months of 2022, we completed the following financing transactions (see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information):
•received approximately
•repurchased
A significant portion 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 covenants requiring us to meet certain loan to value, collateral coverage and/or peak debt service coverage ratios. Given our current assumptions about the future impact of the COVID-19 pandemic 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 projected cash flows from operations. 42
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AAG's First Quarter 2022 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
2022 2021 (Decrease) (Decrease) (2)
(In millions, except percentage changes)
Passenger revenue $ 7,818 $ 3,179 $ 4,639 nm (3)
Cargo revenue 364 315 49 15.4
Other operating revenue 717 514 203 39.6
Total operating revenues 8,899 4,008 4,891 nm
Aircraft fuel and related taxes 2,502 1,034 1,468 nm
Salaries, wages and benefits 3,154 2,730 424 15.5
Total operating expenses 10,622 5,323 5,299 99.6
Operating loss (1,723) (1,315) 408 31.0
Pre-tax loss (2,086) (1,573) 513 32.6
Income tax benefit (451) (323) 128 39.6
Net loss (1,635) (1,250) 385 30.8
Pre-tax loss - GAAP $ (2,086) $ (1,573) $ 513 32.6
Adjusted for: pre-tax net special items (1) 160 (1,946) (2,106) nm
Pre-tax loss excluding net special items
(45.3)
(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)Fluctuations may not be meaningful due to the volatility caused by the COVID-19 pandemic.
(3)Not meaningful or greater than 100% change.
Pre-Tax Loss and Net Loss
Pre-tax loss and net loss were$2.1 billion and$1.6 billion , respectively, in the first quarter of 2022. This compares to first quarter 2021 pre-tax loss and net loss of$1.6 billion and$1.3 billion , respectively. The quarter-over-quarter increase in our pre-tax loss on a GAAP basis was driven by higher aircraft fuel and related taxes and other operating expenses, primarily as a result of a 64.7% increase in the average price per gallon of aircraft fuel and a 57.6% increase in capacity as compared to the first quarter of 2021. The first quarter of 2021 also includes the recognition of$1.9 billion of net special credits principally related to PSP Financial Assistance. These increases in operating expenses were offset in part by higher revenues driven by a significant recovery in domestic and short-haul international demand. See Note 2 to AAG's Condensed Consolidated Financial Statement 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$1.9 billion and$3.5 billion in the first quarter of 2022 and 2021, respectively. The quarter-over-quarter improvement in our pre-tax loss excluding pre-tax net special items was primarily due to higher revenues driven by a significant recovery in domestic and short-haul international demand, offset in part by an increase in our aircraft fuel and related taxes and other operating expenses primarily as a result of a 64.7% increase in the average price per gallon of aircraft fuel and a 57.6% increase in capacity as compared to the first quarter of 2021. 43
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Revenue
In the first quarter of 2022, we reported total operating revenues of$8.9 billion , an increase of$4.9 billion as compared to the first quarter of 2021. Passenger revenue was$7.8 billion in the first quarter of 2022, an increase of$4.6 billion as compared to the first quarter of 2021. The increase in passenger revenue in the first quarter of 2022 was due to a 97.2% increase in revenue passenger miles (RPMs) driven by a significant recovery in domestic and short-haul international demand, resulting in a 74.4% load factor in the first quarter of 2022. In the first quarter of 2022, cargo revenue was$364 million , an increase of$49 million , or 15.4%, as compared to the first quarter of 2021. The increase in cargo revenue was primarily due to a 14.6% increase in cargo yield as a result of higher rates. Other operating revenue increased$203 million , or 39.6%, as compared to the first quarter of 2021, driven primarily by higher revenue associated with our loyalty program. During the three months endedMarch 31, 2022 and 2021, cash payments from co-branded credit card and other partners were$1.4 billion and$1.0 billion , respectively.
Our total revenue per available seat mile (TRASM) was
Fuel
Aircraft fuel expense was$2.5 billion in the first quarter of 2022, which was$1.5 billion higher as compared to the first quarter of 2021. This increase was primarily driven by a 64.7% increase in the average price per gallon of aircraft fuel including related taxes to$2.80 in the first quarter of 2022 from$1.70 in the first quarter of 2021 and a 47.0% increase in gallons of fuel consumed principally due to increased capacity. As ofMarch 31, 2022 , 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. 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 onset of the COVID-19 pandemic resulted in a very rapid deterioration in general economic conditions. Our 2022 first quarter total operating cost per available seat mile (CASM) was17.84 cents , an increase of 26.6%, from14.09 cents in the first quarter of 2021. This increase in CASM was primarily driven by higher aircraft fuel and related taxes and other operating expenses as described above. In addition, the 2021 first quarter CASM includes the recognition of$1.9 billion of net special credits principally related to PSP Financial Assistance. Our 2022 first quarter CASM excluding net special items and fuel was13.38 cents , a decrease of 18.7%, from16.45 cents in the first quarter of 2021. This decrease in CASM excluding net special items and fuel was primarily driven by higher capacity due to increased passenger demand as described above.
For a reconciliation of CASM to CASM excluding net special items and fuel, see below "Reconciliation of GAAP to Non-GAAP Financial Measures."
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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 accounting principles generally accepted in theU.S. (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 loss (GAAP measure) to pre-tax 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 EndedMarch 31, 2022 2021 (In millions)
Reconciliation of Pre-Tax Loss Excluding Net Special Items: Pre-tax loss - GAAP
$ (2,086) $ (1,573) Pre-tax net special items (1): Operating special items, net 157
(1,923)
Nonoperating special items, net 3
(23)
Total pre-tax net special items 160
(1,946)
Pre-tax loss excluding net special items$ (1,926) $ (3,519)
(1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.
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Additionally, the table below presents the reconciliation of total operating
costs (GAAP measure) to total operating costs excluding net special items and
fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel.
Management uses total operating costs excluding net special items and fuel and
CASM 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 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
March 31,
2022 2021Reconciliation of CASM Excluding Net Special Items and Fuel: (In millions) Total operating expenses - GAAP
$ 10,622 $ 5,323 Operating net special items (1): Mainline operating special items, net (157) 1,708 Regional operating special items, net - 215 Aircraft fuel and related taxes (2,502) (1,034)
Total operating expenses, excluding net special items and fuel
Total Available Seat Miles (ASM) 59,533 37,764 (In cents) CASM 17.84 14.09 Operating net special items per ASM (1): Mainline operating special items, net (0.26) 4.52 Regional operating special items, net - 0.57 Aircraft fuel and related taxes per ASM (4.20) (2.74) CASM, excluding net special items and fuel 13.38 16.45
(1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.
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Table of Contents AAG's Results of Operations Operating Statistics
The table below sets forth selected operating data for the three months ended
Three Months Ended
March 31,
2022 2021 Increase
Revenue passenger miles (millions) (a) 44,290 22,464 97.2%
Available seat miles (millions) (b) 59,533 37,764 57.6%
Passenger load factor (percent) (c) 74.4 59.5 14.9pts
Yield (cents) (d) 17.65 14.15 24.7%
Passenger revenue per available seat mile (cents) (e) 13.13 8.42 56.0%
Total revenue per available seat mile (cents) (f) 14.95 10.61 40.8%
Fuel consumption (gallons in millions) 894 608 47.0%
Average aircraft fuel price including related taxes (dollars per gallon)
2.80 1.70 64.7%
Total operating cost per available seat mile (cents) (g) 17.84 14.09 26.6%
Aircraft at end of period (h) 1,453 1,399 3.9%
Full-time equivalent employees at end of period 127,000 113,200 12.2%
(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)Total operating cost per available seat mile (CASM) - Total operating expenses divided by ASMs.
(h)Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excludes 29 mainline aircraft and 12 regional aircraft that are in temporary storage atMarch 31, 2022 as follows: 29 Boeing 737-800, 11 Embraer 145 and one Embraer 170. 47
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Three Months EndedMarch 31, 2022 Compared to Three Months EndedMarch 31, 2021 Operating Revenues Three Months Ended March 31, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 7,818 $ 3,179 $ 4,639 nm Cargo 364 315 49 15.4 Other 717 514 203 39.6 Total operating revenues$ 8,899 $ 4,008 $ 4,891 nm
This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics:
Increase
vs. Three Months Ended March 31, 2021
Three Months
Ended Load Passenger
March 31, 2022 RPMs ASMs Factor Yield PRASM
(In millions)
Passenger revenue $ 7,818 97.2% 57.6% 14.9pts 24.7% 56.0%
Passenger revenue increased $4.6 billion in the first quarter of 2022 from the
first quarter of 2021 primarily due to a 97.2% increase in RPMs driven by a
significant recovery in domestic and short-haul international demand, resulting
in a 74.4% load factor in the first quarter of 2022.
Cargo revenue increased $49 million , or 15.4%, in the first quarter of 2022 from
the first quarter of 2021 primarily due to a 14.6% increase in cargo yield as a
result of higher rates.
Other operating revenue increased $203 million , or 39.6%, as compared to the
first quarter of 2021, driven primarily by higher revenue associated with our
loyalty program.
Total operating revenues in the first quarter of 2022 increased $4.9 billion
from the first quarter of 2021 driven principally by the increase in passenger
revenue as described above. Our TRASM increased 40.8% to 14.95 cents in the
first quarter of 2022 from 10.61 cents in the first quarter of 2021.
Operating Expenses
Three Months Ended
March 31, Percent
2022 2021 Increase Increase
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 2,502 $ 1,034 $ 1,468 nm
Salaries, wages and benefits 3,154 2,730 424 15.5
Regional expenses 1,052 625 427 68.3
Maintenance, materials and repairs 617 376 241 64.0
Other rent and landing fees 678 570 108 18.9
Aircraft rent 353 351 2 0.7
Selling expenses 332 151 181 nm
Depreciation and amortization 492 478 14 2.8
Mainline operating special items, net 157 (1,708) 1,865 nm
Other 1,285 716 569 79.5
Total operating expenses $ 10,622 $ 5,323 $ 5,299 99.6
Total operating expenses increased $5.3 billion , or 99.6%, in the first quarter
of 2022 from the first quarter of 2021 driven by higher aircraft fuel and
related taxes and other expenses, primarily as a result of an increase in the
average price per gallon of aircraft fuel and increased capacity, as well as an
increase in net operating special items principally
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related to the PSP Financial Assistance recognized as a net special credit in the first quarter of 2021. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased$1.5 billion in the first quarter of 2022 from the first quarter of 2021 primarily due to a 64.7% increase in the average price per gallon of aircraft fuel including related taxes to$2.80 in the first quarter of 2022 from$1.70 in the first quarter of 2021 and a 47.0% increase in gallons of fuel consumed principally due to increased capacity.
Salaries, wages and benefits increased
Maintenance, materials and repairs increased$241 million , or 64.0%, in the first quarter of 2022 from the first quarter of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Selling expenses increased$181 million in the first quarter of 2022 from the first quarter of 2021 due to higher credit card fees, commission expense and booking fees driven by the overall increase in revenues. Other operating expenses increased$569 million , or 79.5%, in the first quarter of 2022 from the first quarter of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability.
Operating Special Items, Net
Three Months Ended
2022 2021
(In millions)
Fleet impairment (1) $ 149 $ -
PSP Financial Assistance (2) - (1,882)
Severance expenses (3) - 168
Mark-to-market adjustments on bankruptcy obligations, net - 6
Other operating special items, net 8 -
Mainline operating special items, net 157 (1,708)
PSP Financial Assistance (2) - (244)
Fleet impairment (1) - 27
Severance expenses (3) - 2
Regional operating special items, net - (215)
Operating special items, net $ 157 $ (1,923)
(1)Fleet impairment in the first quarter of 2022 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 current 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.
Fleet impairment in the first quarter of 2021 included a non-cash impairment charge to write down regional aircraft resulting from the retirement of the remaining Embraer 140 fleet earlier than planned.
(2)The PSP Financial Assistance represents recognition of a portion of the
financial assistance received from the
(3)Severance expenses include salary and medical costs primarily associated with certain team memberswho opted into voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic. Cash payments primarily associated with our voluntary early retirement programs were approximately$90 million and$170 million for the first quarter of 2022 and 2021, respectively. 49
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Nonoperating Results
Three Months Ended Percent
March 31, Increase Increase
2022 2021 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 8 $ 4 $ 4 nm
Interest expense, net (463) (371) (92) 25.1
Other income, net 92 109 (17) (14.5)
Total nonoperating expense, net $ (363) $ (258) $ (105) 40.5
Interest expense, net increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved our liquidity position in response to the COVID-19 pandemic. In the first quarter of 2022, other nonoperating income, net primarily included$106 million of non-service related pension and other postretirement benefit plan income. In the first quarter of 2021, other nonoperating income, net included$87 million of non-service related pension and other postretirement benefit plan income and$23 million of net special credits principally for mark-to-market net unrealized gains associated with our equity investment in China Southern Airlines and other instruments, offset in part by non-cash charges associated with debt refinancings and extinguishments.
Income Taxes
In the first quarter of 2022, we recorded an income tax benefit of$451 million . Substantially all of our income or loss before income taxes is attributable tothe United States .
See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.
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American's Results of Operations
Three Months EndedMarch 31, 2022 Compared to Three Months EndedMarch 31, 2021 Operating Revenues Three Months Ended March 31, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 7,818 $ 3,179 $ 4,639 nm Cargo 364 315 49 15.4 Other 714 514 200 39.1 Total operating revenues$ 8,896 $ 4,008 $ 4,888 nm Passenger revenue increased$4.6 billion in the first quarter of 2022 from the first quarter of 2021 primarily due to an increase in RPMs driven by a significant recovery in domestic and short-haul international demand, resulting in an increased load factor in the first quarter of 2022.
Cargo revenue increased
Other operating revenue increased
Total operating revenues in the first quarter of 2022 increased$4.9 billion from the first quarter of 2021 driven principally by the increase in passenger revenue as described above. Operating Expenses Three Months Ended March 31, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Aircraft fuel and related taxes$ 2,502 $ 1,034 $ 1,468 nm Salaries, wages and benefits 3,152 2,729 423 15.5 Regional expenses 1,023 624 399 63.8 Maintenance, materials and repairs 617 376 241 64.0 Other rent and landing fees 678 570 108 18.9 Aircraft rent 353 351 2 0.7 Selling expenses 332 151 181 nm Depreciation and amortization 492 478 14 2.8 Mainline operating special items, net 157 (1,708) 1,865 nm Other 1,286 717 569 79.3 Total operating expenses$ 10,592 $ 5,322 $ 5,270 99.0 Total operating expenses increased$5.3 billion , or 99.0%, in the first quarter of 2022 from the first quarter of 2021 driven by higher aircraft fuel and related taxes and other expenses, primarily as a result of an increase in the average price per gallon of aircraft fuel and increased capacity, as well as an increase in net operating special items principally related to the PSP Financial Assistance recognized as a net special credit in the first quarter of 2021. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased$1.5 billion in the first quarter of 2022 from the first quarter of 2021 primarily due to a 64.7% increase in the average price per gallon of aircraft fuel including related taxes to$2.80 in the first quarter of 2022 from$1.70 in the first quarter of 2021 and a 47.0% increase in gallons of fuel consumed principally due to increased capacity. 51
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Salaries, wages and benefits increased
Maintenance, materials and repairs increased$241 million , or 64.0%, in the first quarter of 2022 from the first quarter of 2021 primarily due to increased capacity and an increase in the volume of engine overhauls performed under time and material contracts where expense is incurred and recognized as maintenance is performed. Selling expenses increased$181 million in the first quarter of 2022 from the first quarter of 2021 due to higher credit card fees, commission expense and booking fees driven by the overall increase in revenues. Other operating expenses increased$569 million , or 79.3%, in the first quarter of 2022 from the first quarter of 2021 primarily as a result of increased capacity and expenses associated with improving our product offerings, customer experience and operational reliability.
Operating Special Items, Net
Three Months Ended
2022 2021
(In millions)
Fleet impairment (1) $ 149 $ -
PSP Financial Assistance (2) - (1,882)
Severance expenses (3) - 168
Mark-to-market adjustments on bankruptcy obligations, net - 6
Other operating special items, net 8 -
Mainline operating special items, net 157 (1,708)
PSP Financial Assistance (2) - (244)
Fleet impairment (1) - 27
Regional operating special items, net - (217)
Operating special items, net $ 157 $ (1,925)
(1)Fleet impairment in the first quarter of 2022 included a non-cash impairment
charge to write down the carrying value of American's retired Airbus A330 fleet
to the estimated fair value due to current market conditions for certain used
aircraft. American retired its Airbus A330 fleet in 2020 as a result of the
decline in demand for air travel due to the COVID-19 pandemic.
Fleet impairment in the first quarter of 2021 included a non-cash impairment charge to write down regional aircraft resulting from the retirement of the remaining Embraer 140 fleet earlier than planned.
(2)The PSP Financial Assistance represents recognition of a portion of the
financial assistance received from the
(3)Severance expenses include salary and medical costs primarily associated with certain team memberswho opted into voluntary early retirement programs offered as a result of reductions to American's operation due to the COVID-19 pandemic. Cash payments primarily associated with American's voluntary early retirement programs were approximately$90 million and$170 million for the first quarter of 2022 and 2021, respectively. 52
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Nonoperating Results
Three Months Ended Percent
March 31, Increase Increase
2022 2021 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 11 $ 9 $ 2 20.0
Interest expense, net (424) (333) (91) 27.1
Other income, net 95 109 (14) (13.0)
Total nonoperating expense, net $ (318) $ (215) $ (103) 47.7
Interest expense, net increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to the impact of the AAdvantage Financing issued at the end of the first quarter of 2021, which improved American's liquidity position in response to the COVID-19 pandemic. In the first quarter of 2022, other nonoperating income, net primarily included$105 million of non-service related pension and other postretirement benefit plan income. In the first quarter of 2021, other nonoperating income, net included$87 million of non-service related pension and other postretirement benefit plan income and$23 million of net special credits principally for mark-to-market net unrealized gains associated with American's equity investment in China Southern Airlines and other instruments, offset in part by non-cash charges associated with debt refinancings and extinguishments.
Income Taxes
American is a member of AAG's consolidated federal and certain state income tax returns.
In the first quarter of 2022, American recorded an income tax benefit of$436 million . Substantially all of American's income or loss before income taxes is attributable tothe 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
AtMarch 31, 2022 , AAG had$15.5 billion in total available liquidity and$952 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, 2022 December 31, 2021 March 31, 2022 December 31, 2021 Cash $ 376 $ 273 $ 361 $ 265 Short-term investments 12,108 12,158 12,093 12,155 Undrawn facilities 3,063 3,411 3,063 3,411 Total available liquidity$ 15,547 $ 15,842$ 15,517 $ 15,831 Given the actions we have taken in response to the COVID-19 pandemic 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 projected cash flows from operations. 53
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In the ordinary course of our business, we or our affiliates may, at any time and from time to time, seek to prepay, retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. For further information regarding our debt repurchases during the first quarter of 2022, see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A.
Certain Covenants
Certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV), collateral coverage or peak debt service coverage ratio covenants and certain agreements require us to appraise the related collateral annually or semiannually. Pursuant to such agreements, if the applicable LTV, collateral coverage or peak debt service coverage ratio exceeds or falls below a specified threshold, as the case may be, we will be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), withhold additional cash in certain accounts, or to pay down such financing, in whole or in part, or the interest rate for the relevant financing will be increased. As of the most recent applicable measurement dates, we were in compliance with each of the foregoing LTV, collateral coverage and peak debt service coverage tests. Additionally, a significant portion 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 our AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing. For further information regarding our debt covenants, see Note 5 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. Sources and Uses of Cash AAG Operating Activities Our net cash provided by operating activities was$1.2 billion and$174 million for the first quarter of 2022 and 2021, respectively, a$1.0 billion quarter-over-quarter increase. In the first quarter of 2021, we received cash proceeds of approximately$2.1 billion associated with PSP Financial Assistance. Excluding the PSP Financial Assistance, our operating cash flows increased$3.1 billion compared to the first quarter of 2021 primarily due to higher profitability as well as working capital increases, principally in our air traffic liability as passenger demand for travel returned. In addition, during the first quarter of 2022, we had approximately$90 million in cash payments associated with our voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, we estimate cash payments under these programs to be approximately$90 million in the remainder of 2022 and approximately$20 million in 2023 and beyond.
Investing Activities
Our net cash used in investing activities was
Our principal investing activities in the first quarter of 2022 included$807 million of capital expenditures, which principally related to the purchase of nine Airbus A321neo aircraft. Additionally, we incurred$62 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 atJohn F. Kennedy International Airport (JFK) and the modernization of Terminals 4 and 5 atLos Angeles International Airport (LAX). These cash outflows were offset in part by$54 million in net sales of short-term investments as well as a$36 million decrease in restricted short-term investments primarily related to money market funds to be used to finance the renovation and expansion of Terminal 8 at JFK. Our principal investing activities in the first quarter of 2021 included$7.1 billion in net purchases of short-term investments as well as a$194 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. These cash outflows were offset in part by$108 million of proceeds from the sale of property and equipment and$99 million of proceeds primarily from aircraft sale-leaseback transactions. Additionally, aircraft purchase deposit returns exceeded our capital expenditures for the first quarter of 2021, which expenditures were principally related to the harmonization of interior configurations across our mainline fleet and the purchase of one Airbus A321neo aircraft. 54
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Financing Activities
Our net cash used in financing activities was$310 million for the first quarter of 2022 as compared to net cash provided by financing activities of$7.0 billion for the first quarter of 2021. Our principal financing activities in the first quarter of 2022 included$661 million in debt repayments, including$344 million in scheduled debt repayments and the repurchase of$317 million of unsecured notes on the open market. These cash outflows were offset in part by$367 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs. Our principal financing activities in the first quarter of 2021 included$10.9 billion in proceeds from the issuance of debt, including approximately$10.0 billion associated with the AAdvantage Financing and$896 million in aggregate principal amount under the PSP2 Promissory Note. We also had$316 million in net proceeds from the issuance of equity pursuant to an at-the-market offering. These cash inflows were offset in part by$4.1 billion in debt repayments, including prepayments totaling$2.8 billion for our revolving credit facilities and$550 million of outstanding loans under the Treasury Loan Agreement, and$661 million in scheduled debt repayments. In addition, we had$162 million of deferred financing cost cash outflows.
American
Operating Activities
American's net cash provided by operating activities was$810 million and$1.4 billion for the first quarter of 2022 and 2021, respectively, a$618 million quarter-over-quarter decrease. American had a$1.6 billion net decrease in intercompany cash receipts principally from AAG's financing transactions. Additionally, in the first quarter of 2021, American received cash proceeds of approximately$1.9 billion associated with PSP Financial Assistance. Excluding the PSP Financial Assistance and decrease in AAG's financing transactions, American's operating cash flows increased$2.9 billion compared to the first quarter of 2021 primarily due to higher profitability as well as working capital increases principally in American's air traffic liability as passenger demand for travel returned. Also, during the first quarter of 2022, American had approximately$90 million in cash payments associated with its voluntary early retirement programs. Excluding the enhanced healthcare benefits provided to eligible team members, American estimates cash payments under these programs to be approximately$90 million in the remainder of 2022 and approximately$20 million in 2023 and beyond.
Investing Activities
American's net cash used in investing activities was
American's principal investing activities in the first quarter of 2022 included$790 million of capital expenditures, which principally related to the purchase of nine Airbus A321neo aircraft. Additionally, American incurred$62 million related to airport construction projects, net of reimbursements, principally in connection with the renovation and expansion of Terminal 8 at JFK and the modernization of Terminals 4 and 5 at LAX. These cash outflows were offset in part by$67 million in net sales of short-term investments as well as a$36 million decrease in restricted short-term investments primarily related to money market funds to be used to finance the renovation and expansion of Terminal 8 at JFK. American's principal investing activities in the first quarter of 2021 included$7.1 billion in net purchases of short-term investments as well as a$194 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. These cash outflows were offset in part by$108 million of proceeds from the sale of property and equipment and$99 million of proceeds primarily from aircraft sale-leaseback transactions. Additionally, aircraft purchase deposit returns exceeded American's capital expenditures for the first quarter of 2021, which expenditures were principally related to the harmonization of interior configurations across its mainline fleet and the purchase of one Airbus A321neo aircraft.
Financing Activities
American's net cash provided by financing activities was
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American's principal financing activities in the first quarter of 2022 included$367 million of long-term debt proceeds from the issuance of equipment notes related to the 2021-1 Aircraft EETCs offset in part by$339 million in scheduled debt repayments. American's principal financing activities in the first quarter of 2021 included$10.0 billion in proceeds associated with the AAdvantage Financing. These cash inflows were offset in part by$4.1 billion in debt repayments, including prepayments totaling$2.8 billion for American's revolving credit facilities and$550 million of outstanding loans under the Treasury Loan Agreement, and$661 million in scheduled debt repayments. In addition, American had$162 million of deferred financing cost cash outflows.
Commitments
Significant Indebtedness
As ofMarch 31, 2022 , AAG had$37.5 billion in long-term debt, including current maturities of$2.2 billion . As ofMarch 31, 2022 , American had$31.9 billion in long-term debt, including current maturities of$1.8 billion . All material changes in our significant indebtedness since our 2021 Form 10-K are discussed in Note 5 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
Remainder
of 2022 2023 2024 2025 2026 2027 and Thereafter Total
Airbus
A320neo Family 17 5 18 22 5 - 67
Boeing
737 MAX Family (2) - 27 21 20 20 - 88
787 Family 7 6 12 9 4 5 43
Embraer
175 3 - - - - - 3
Total 27 38 51 51 29 5 201
(1)Delivery schedule represents our best estimate as of the date of this report.
Actual delivery dates are subject to change, which could be material, based on
various potential factors including production delays by the manufacturer and
regulatory concerns, such as those that have recently prevented The Boeing
Company (Boeing) from timely delivering 787 Family aircraft.
(2)The table above and the "Contractual Obligations" table below assume our exercise of seven purchase options for 737 MAX Family aircraft that we previously announced our intention to exercise over the course of 2022.
We also have agreements for 32 spare engines to be delivered in 2022 and beyond.
We currently have financing commitments in place for all aircraft on order and
scheduled to be delivered in 2022 except for five Airbus A320neo Family aircraft
and three 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 (2) the performance by the counterparty providing such
financing commitments of its obligations thereunder. We do not have financing
commitments in place for any of the aircraft scheduled to be delivered in 2023
and beyond, except for six Boeing 787 Family aircraft scheduled to be delivered
in 2023 and five Boeing 787 Family aircraft scheduled to be delivered in 2024.
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Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us.
There have been no material changes in our off-balance sheet arrangements as discussed in our 2021 Form 10-K.
Contractual Obligations
The following table provides details of our material cash requirements from known contractual obligations as ofMarch 31, 2022 (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 2027 and of 2022 2023 2024 2025 2026 Thereafter Total American Long-term debt: Principal amount (a), (c)$ 1,339 $ 4,189 $ 3,489 $ 7,772 $ 4,434 $ 10,630 $ 31,853 Interest obligations (b), (c) 1,117 1,775 1,511 1,251 652 821 7,127 Finance lease obligations 169 186 181 118 92 105 851 Aircraft and engine purchase commitments (d) 1,282 2,056 3,310 3,559 1,677 700 12,584 Operating lease commitments 1,464 1,947 1,632 1,275 995 4,939 12,252 Regional capacity purchase agreements (e) 1,165 1,823 1,864 1,718 1,104 2,253
9,927
Minimum pension obligations (f) - 31 23 - - -
54
Retiree medical and other postretirement benefits 71 89 84 81 78 312
715
Other purchase obligations (g) 3,898 2,263 1,845 548 639 937
10,130
Total American Contractual Obligations 10,505 14,359 13,939 16,322 9,671 20,697
85,493
AAG Parent and Other AAG Subsidiaries Long-term debt: Principal amount (a) 433 - - 1,500 - 3,746 5,679 Interest obligations (b) 72 121 121 137 127 598 1,176 Finance lease obligations 8 10 10 - - - 28 Operating lease commitments 14 17 13 10 8 34 96 Minimum pension obligations (f) - 1 - - - 1
2
Total AAG Contractual Obligations
$ 14,083 $ 17,969 $ 9,806 $ 25,076 $ 92,474 (a)Amounts represent contractual amounts due. Excludes$412 million and$27 million of unamortized debt discount, premium and issuance costs as ofMarch 31, 2022 for American and AAG Parent, respectively. For additional information, see Note 5 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
(c)Includes $9.6 billion of future principal payments and
(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
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uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate; however, the actual delivery schedule may differ from the table above, potentially materially. Additionally, the amounts in the table exclude seven and six Boeing 787-8 aircraft to be delivered in 2022 and 2023, respectively, as well as five Boeing 787-9 aircraft to be delivered in 2024, in each case, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above. (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)Represents minimum pension contributions based on actuarially determined
estimates as of
(g)Includes purchase commitments for aircraft fuel, flight equipment maintenance, construction projects and information technology support.
Capital Raising Activity and Other Possible Actions
In light of our significant cash needs, in particular during periods in which we incur operating losses (such as during the COVID-19 pandemic), as well as our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount 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 impact of the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, 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 5 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, lease and other 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 2021 Form 10-K.
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