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 and rapid recovery in demand for air travel. 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 second quarter of 2022 down 8.5% as compared to the second quarter of 2019. Domestic capacity in the second quarter of 2022 was down 6.6% while international capacity was down 12.1% as compared to the second 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 ofJune 30, 2022 , we had$15.6 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 six 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$2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain covenants requiring us to meet certain loan to value, collateral coverage and/or peak debt service coverage ratios. Given our current assumptions about the future impact of the COVID-19 pandemic on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings) and projected cash flows from operations. 45
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AAG's Second Quarter 2022 Results
The selected financial data presented below is derived from AAG's unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto. Three Months Ended June 30, Percent 2022 2021 Increase Increase (2) (In millions, except percentage changes) Passenger revenue$ 12,223 $ 6,545 $ 5,678 86.8 Cargo revenue 328 326 2 0.5 Other operating revenue 871 607 264 43.5 Total operating revenues 13,422 7,478 5,944 79.5 Aircraft fuel and related taxes 4,020 1,611 2,409 nm (3) Salaries, wages and benefits 3,235 2,862 373 13.0 Total operating expenses 12,405 7,037 5,368 76.3 Operating income 1,017 441 576 nm Pre-tax income 603 9 594 nm Income tax provision (benefit) 127 (10) 137 nm Net income 476 19 457 nm Pre-tax income - GAAP $ 603$ 9 $ 594 nm Adjusted for: pre-tax net special items (1) 84 (1,418) 1,502 nm Pre-tax income (loss) excluding net special items $ 687$ (1,409) $ 2,096 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)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 Income and Net Income
Pre-tax income and net income were$603 million and$476 million , respectively, in the second quarter of 2022. This compares to second quarter 2021 pre-tax income and net income of$9 million and$19 million , respectively. The quarter-over-quarter increase in our pre-tax income on a GAAP basis was due to higher passenger revenue driven by a significant recovery in demand for air travel, offset in part by increased aircraft fuel and related taxes, primarily as a result of an increase in the average price per gallon of aircraft fuel and a 21.3% increase in capacity as compared to the second quarter of 2021. The second quarter of 2021 also includes the recognition of$1.4 billion of net pre-tax special credits principally related to PSP Financial Assistance. 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 income was$687 million in the second quarter of 2022 and pre-tax loss was$1.4 billion in the second quarter of 2021. The quarter-over-quarter improvement in our pre-tax income excluding pre-tax net special items was primarily due to higher passenger revenue driven by a significant recovery in demand for air travel, offset in part by increased aircraft fuel and related taxes, as described above. 46
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Revenue
In the second quarter of 2022, we reported total operating revenues of$13.4 billion , an increase of$5.9 billion , or 79.5%, as compared to the second quarter of 2021. Passenger revenue was$12.2 billion in the second quarter of 2022, an increase of$5.7 billion , or 86.8%, as compared to the second quarter of 2021. The increase in passenger revenue in the second quarter of 2022 was due to a 36.9% increase in revenue passenger miles (RPMs), driven by a significant recovery in demand for air travel, resulting in an 86.9% load factor in the second quarter of 2022, and a 36.4% increase in passenger yield. Other operating revenue increased$264 million , or 43.5%, as compared to the second quarter of 2021, driven primarily by higher revenue associated with our loyalty program. During the three months endedJune 30, 2022 and 2021, cash payments from co-branded credit card and other partners were$1.0 billion and$684 million , respectively.
Our total revenue per available seat mile (TRASM) was
Fuel
Aircraft fuel expense was$4.0 billion in the second quarter of 2022, which was$2.4 billion higher as compared to the second quarter of 2021. This increase was primarily driven by an increase in the average price per gallon of aircraft fuel including related taxes to$4.03 in the second quarter of 2022 from$1.91 in the second quarter of 2021 and an 18.1% increase in gallons of fuel consumed principally due to increased capacity. As ofJune 30, 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, and the subsequent rapid economic expansion resulted in significant inflationary pressures, including on the cost of fuel. Our 2022 second quarter total operating cost per available seat mile (CASM) was18.75 cents , an increase of 45.3%, from12.90 cents in the second quarter of 2021. This increase in CASM was primarily driven by higher aircraft fuel and related taxes in the second quarter of 2022, as described above, and the recognition of$1.5 billion of net special credits in the second quarter of 2021 related to PSP Financial Assistance.
Our 2022 second quarter CASM excluding net special items and fuel was
For a reconciliation of CASM to CASM excluding net special items and fuel, see below "Reconciliation of GAAP to Non-GAAP Financial Measures."
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Reconciliation of GAAP to Non-GAAP Financial Measures
We sometimes use financial measures that are derived from the condensed consolidated financial statements but that are not presented in accordance with accounting principles generally accepted in theU.S. (GAAP) to understand and evaluate our current operating performance and to allow for period-to-period comparisons. We believe these non-GAAP financial measures may also provide useful information to investors and others. These non-GAAP measures may not be comparable to similarly titled non-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with GAAP. We are providing a reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. The following table presents the reconciliation of pre-tax income (loss) (GAAP measure) to pre-tax income (loss) excluding net special items (non-GAAP measure). Management uses this non-GAAP financial measure to evaluate our current operating performance and to allow for period-to-period comparisons. As net special items may vary from period-to-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (In millions) Reconciliation of Pre-Tax Income (Loss) Excluding Net Special Items: Pre-tax income (loss) - GAAP$ 603 $ 9 $ (1,483) $ (1,564) Pre-tax net special items (1): Operating special items, net (5) (1,455) 152 (3,377) Nonoperating special items, net 89 37 92 13 Total pre-tax net special items 84 (1,418) 244 (3,364) Pre-tax income (loss) excluding net special items$ 687 $ (1,409) $ (1,239) $ (4,928)
(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 Six Months Ended June 30, June 30, 2022 2021 2022 2021 Reconciliation of CASM Excluding Net Special Items and Fuel: (In millions) Total operating expenses - GAAP$ 12,405 $ 7,037 $ 23,027 $ 12,360 Operating net special items (1): Mainline operating special items, net 5 1,288 (152) 2,996 Regional operating special items, net - 167 - 381 Aircraft fuel and related taxes (4,020) (1,611) (6,522) (2,644)
Total operating expenses, excluding net special items and fuel
$ 8,390
Total Available Seat Miles (ASM) 66,163 54,555 125,697 92,319 (In cents) CASM 18.75 12.90 18.32 13.39 Operating net special items per ASM (1): Mainline operating special items, net 0.01 2.36 (0.12) 3.25 Regional operating special items, net - 0.31 - 0.41 Aircraft fuel and related taxes per ASM (6.08) (2.95) (5.19) (2.86) CASM, excluding net special items and fuel 12.68 12.61 13.01 14.18
(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 and six months
ended
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 Increase 2022 2021 Increase Revenue passenger miles (millions) (a) 57,516 42,022 36.9% 101,806 64,486
57.9%
Available seat miles (millions) (b) 66,163 54,555 21.3% 125,697 92,319
36.2%
Passenger load factor (percent) (c) 86.9 77.0 9.9pts 81.0 69.9 11.1pts Yield (cents) (d) 21.25 15.57 36.4% 19.69 15.08 30.5% Passenger revenue per available seat mile (cents) (e) 18.47 12.00 54.0% 15.94 10.53
51.4%
Total revenue per available seat mile (cents) (f) 20.29 13.71 48.0% 17.76 12.44
42.7%
Fuel consumption (gallons in millions) 997 844 18.1% 1,891 1,452
30.2%
Average aircraft fuel price including related taxes (dollars per gallon) 4.03 1.91 nm 3.45 1.82
89.4%
Total operating cost per available seat mile (cents) (g) 18.75 12.90 45.3% 18.32 13.39
36.8%
Aircraft at end of period (h) 1,471 1,413 4.1% 1,471 1,413
4.1%
Full-time equivalent employees at end of period 129,200 117,400 10.1% 129,200 117,400 10.1%
(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 20 mainline aircraft and 19 regional aircraft that are in temporary storage atJune 30, 2022 as follows: 20 Boeing 737-800, 15 Embraer 145 and four Embraer 170. 50
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Three Months EndedJune 30, 2022 Compared to Three Months EndedJune 30, 2021 Operating Revenues Three Months Ended June 30, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 12,223 $ 6,545 $ 5,678 86.8 Cargo 328 326 2 0.5 Other 871 607 264 43.5 Total operating revenues$ 13,422 $ 7,478 $ 5,944 79.5
This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics:
Increase vs. Three Months Ended June 30, 2021 Three Months Ended Load Passenger June 30, 2022 RPMs ASMs Factor Yield PRASM (In millions) Passenger revenue$ 12,223 36.9% 21.3% 9.9pts 36.4% 54.0% Passenger revenue increased$5.7 billion , or 86.8%, in the second quarter of 2022 from the second quarter of 2021 primarily due to a 36.9% increase in RPMs, driven by a significant recovery in demand for air travel, resulting in an 86.9% load factor in the second quarter of 2022, and a 36.4% increase in passenger yield. Other operating revenue increased$264 million , or 43.5%, as compared to the second quarter of 2021, driven primarily by higher revenue associated with our loyalty program. Total operating revenues in the second quarter of 2022 increased$5.9 billion , or 79.5%, from the second quarter of 2021 driven principally by the increase in passenger revenue as described above. Our TRASM increased 48.0% to20.29 cents in the second quarter of 2022 from13.71 cents in the second quarter of 2021. Operating Expenses Three Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Aircraft fuel and related taxes$ 4,020 $ 1,611 $ 2,409 nm Salaries, wages and benefits 3,235 2,862 373 13.0 Regional expenses 1,072 635 437 68.5 Maintenance, materials and repairs 647 459 188 40.9 Other rent and landing fees 694 686 8 1.2 Aircraft rent 345 356 (11) (2.9) Selling expenses 504 277 227 82.2 Depreciation and amortization 504 481 23 4.8 Mainline operating special items, net (5) (1,288) 1,283 (99.6) Other 1,389 958 431 45.0 Total operating expenses$ 12,405 $ 7,037 $ 5,368 76.3 Total operating expenses increased$5.4 billion , or 76.3%, in the second quarter of 2022 from the second 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 related to the$1.5 billion of PSP Financial Assistance recognized as a net special credit in the second quarter of 2021. See further discussion of operating special items, net below. 51
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Aircraft fuel and related taxes increased$2.4 billion in the second quarter of 2022 from the second quarter of 2021 primarily due to an increase in the average price per gallon of aircraft fuel including related taxes to$4.03 in the second quarter of 2022 from$1.91 in the second quarter of 2021 and an 18.1% increase in gallons of fuel consumed principally due to increased capacity. Salaries, wages and benefits increased$373 million , or 13.0%, in the second quarter of 2022 from the second quarter of 2021 primarily due to a 12.1% increase in mainline full-time equivalent employees subsequent to the second quarter of 2021. Regional expenses increased$437 million , or 68.5%, in the second quarter of 2022 from the second quarter of 2021 primarily due to pay rate increases and retention bonuses offered at our wholly-owned regional carriers as well as contractual rate increases with our third-party regional carriers. The second quarter of 2021 also includes the recognition of$167 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased$188 million , or 40.9%, in the second quarter of 2022 from the second 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
Other operating expenses increased$431 million , or 45.0%, in the second quarter of 2022 from the second 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 June 30, 2022 2021 (In millions) PSP Financial Assistance (1) $ -$ (1,288) Other operating special items, net (5)
-
Mainline operating special items, net (5) (1,288) PSP Financial Assistance (1) - (167) Regional operating special items, net - (167) Operating special items, net$ (5) $ (1,455) (1)The PSP Financial Assistance represents recognition of a portion of the financial assistance received from theU.S. Department of Treasury (Treasury ) pursuant to the payroll support program established under the PSP Extension Law (PSP2) and the American Rescue Plan Act of 2021 (ARP) (PSP3). Nonoperating Results Three Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Interest income$ 29 $ 5 $ 24 nm Interest expense, net (468) (486) 18 (3.7) Other income, net 25 49 (24) (50.4) Total nonoperating expense, net$ (414) $ (432) $
18 (4.0)
Interest income increased in the second quarter of 2022 compared to the second quarter of 2021 primarily as a result of higher returns on our short-term investments.
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In the second quarter of 2022, other nonoperating income, net primarily included$106 million of non-service related pension and other postretirement benefit plan income, offset in part by$89 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investments in Vertical Aerospace Ltd. (Vertical), GOL Linhas AéreasInteligentes S.A. (GOL) and China Southern Airlines Company Limited (China Southern Airlines). In the second quarter of 2021, other nonoperating income, net included$85 million of non-service related pension and other postretirement benefit plan income, offset in part by$37 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investment in China Southern Airlines. Income Taxes
In the second quarter of 2022, we recorded an income tax provision of
See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.
Six Months Ended
Operating Revenues Six Months Ended June 30, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 20,041 $ 9,724 $ 10,317 nm Cargo 692 641 51 7.8 Other 1,588 1,121 467 41.7 Total operating revenues$ 22,321 $ 11,486 $ 10,835 94.3
This table presents our passenger revenue and the period-over-period change in certain operating statistics:
Increase vs. Six Months Ended June 30, 2021 Six Months Ended Load Passenger June 30, 2022 RPMs ASMs Factor Yield PRASM (In millions) Passenger revenue $ 20,041 57.9% 36.2% 11.1pts 30.5% 51.4% Passenger revenue increased$10.3 billion in the first six months of 2022 from the first six months of 2021 primarily due to a 57.9% increase in RPMs, driven by a significant recovery in demand for air travel, resulting in an 81.0% load factor in the first six months of 2022, and a 30.5% increase in passenger yield. Cargo revenue increased$51 million , or 7.8%, in the first six months of 2022 from the first six months of 2021 primarily due to a 13.1% increase in cargo yield, offset in part by a 4.7% decrease in cargo ton miles driven by the reduced operation of cargo-only flights.
Other operating revenue increased
Total operating revenues in the first six months of 2022 increased$10.8 billion , or 94.3%, from the first six months of 2021 driven principally by the increase in passenger revenue as described above. Our TRASM increased 42.7% to17.76 cents in the first six months of 2022 from12.44 cents in the first six months of 2021. 53
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Table of Contents Operating Expenses Six Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Aircraft fuel and related taxes$ 6,522 $ 2,644 $ 3,878 nm Salaries, wages and benefits 6,389 5,593 796 14.2 Regional expenses 2,124 1,261 863 68.4 Maintenance, materials and repairs 1,264 835 429 51.3 Other rent and landing fees 1,372 1,256 116 9.2 Aircraft rent 698 706 (8) (1.1) Selling expenses 836 427 409 95.8 Depreciation and amortization 995 959 36 3.8 Mainline operating special items, net 152 (2,996) 3,148 nm Other 2,675 1,675 1,000 59.8 Total operating expenses$ 23,027 $ 12,360 $ 10,667 86.3 Total operating expenses increased$10.7 billion , or 86.3%, in the first six months of 2022 from the first six months 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$3.6 billion of PSP Financial Assistance recognized as a net special credit in the first six months of 2021. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased$3.9 billion in the first six months of 2022 from the first six months of 2021 primarily due to an 89.4% increase in the average price per gallon of aircraft fuel including related taxes to$3.45 in the first six months of 2022 from$1.82 in the first six months of 2021 and a 30.2% increase in gallons of fuel consumed principally due to increased capacity. Salaries, wages and benefits increased$796 million , or 14.2%, in the first six months of 2022 from the first six months of 2021 primarily due to a 12.1% increase in mainline full-time equivalent employees subsequent to the second quarter of 2021. Regional expenses increased$863 million , or 68.4%, in the first six months of 2022 from the first six months of 2021 primarily due to increased capacity, pay rate increases and retention bonuses offered at our wholly-owned regional carriers, as well as contractual rate increases with our third-party regional carriers. The first six months of 2021 also includes the recognition of$410 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased$429 million , or 51.3%, in the first six months of 2022 from the first six months 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. Other rent and landing fees increased$116 million , or 9.2%, in the first six months of 2022 from the first six months of 2021 primarily due to an increase in landing fees as a result of increased departures.
Selling expenses increased
Other operating expenses increased
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Operating Special Items, Net
Six Months Ended June 30, 2022 2021 (In millions) Fleet impairment (1)$ 149 $ - PSP Financial Assistance (2) - (3,170) Severance expenses (3) - 168 Mark-to-market adjustments on bankruptcy obligations, net - 6 Other operating special items, net 3 - Mainline operating special items, net 152 (2,996) PSP Financial Assistance (2) - (410) Fleet impairment (1) - 27 Severance expenses (3) - 2 Regional operating special items, net - (381) Operating special items, net$ 152 $ (3,377) (1)Fleet impairment for the six months endedJune 30, 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 for the six months ended
(2)The PSP Financial Assistance represents recognition of a portion of the
financial assistance received from
(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 related to our voluntary early retirement programs for the six months endedJune 30, 2022 and 2021 were approximately$140 million and$290 million , respectively. Nonoperating Results Six Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Interest income$ 37 $ 8 $ 29 nm Interest expense, net (932) (856) (76) 8.8 Other income, net 118 158
(40) (25.7)
Total nonoperating expense, net
Interest income increased in the first six months of 2022 compared to the first six months of 2021 primarily as a result of higher returns on our short-term investments. Interest expense, net increased in the first six months of 2022 compared to the first six months 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. 55
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In the first six months of 2022, other nonoperating income, net primarily included$211 million of non-service related pension and other postretirement benefit plan income, offset in part by$92 million of net special charges principally for mark-to-market net unrealized losses associated with our equity investments in GOL,Vertical and China Southern Airlines. In the first six months of 2021, other nonoperating income, net included$172 million of non-service related pension and other postretirement benefit plan income and$13 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments, offset in part by mark-to-market net unrealized gains associated with our equity investment in China Southern Airlines and other instruments.
Income Taxes
In the first six months of 2022, we recorded an income tax benefit of
See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for additional information on income taxes.
American's Results of Operations
Three Months EndedJune 30, 2022 Compared to Three Months EndedJune 30, 2021 Operating Revenues Three Months Ended June 30, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 12,223 $ 6,545 $ 5,678 86.8 Cargo 328 326 2 0.5 Other 870 607 263 43.4 Total operating revenues$ 13,421 $ 7,478 $ 5,943 79.5
Passenger revenue increased
Other operating revenue increased
Total operating revenues in the second quarter of 2022 increased$5.9 billion , or 79.5%, from the second quarter of 2021 driven principally by the increase in passenger revenue as described above. 56
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Table of Contents Operating Expenses Three Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Aircraft fuel and related taxes$ 4,020 $ 1,611 $ 2,409 nm Salaries, wages and benefits 3,233 2,860 373 13.0 Regional expenses 1,058 639 419 65.3 Maintenance, materials and repairs 647 459 188 40.9 Other rent and landing fees 694 686 8 1.2 Aircraft rent 345 356 (11) (2.9) Selling expenses 504 277 227 82.2 Depreciation and amortization 501 481 20 4.3 Mainline operating special items, net (5) (1,288) 1,283 (99.6) Other 1,390 958 432 45.0 Total operating expenses$ 12,387 $ 7,039 $ 5,348 76.0 Total operating expenses increased$5.3 billion , or 76.0%, in the second quarter of 2022 from the second 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 related to the$1.5 billion of PSP Financial Assistance recognized as a net special credit in the second quarter of 2021. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased$2.4 billion in the second quarter of 2022 from the second quarter of 2021 primarily due to an increase in the average price per gallon of aircraft fuel including related taxes to$4.03 in the second quarter of 2022 from$1.91 in the second quarter of 2021 and an 18.1% increase in gallons of fuel consumed principally due to increased capacity. Salaries, wages and benefits increased$373 million , or 13.0%, in the second quarter of 2022 from the second quarter of 2021 primarily due to a 12.1% increase in mainline full-time equivalent employees subsequent to the second quarter of 2021. Regional expenses increased$419 million , or 65.3%, in the second quarter of 2022 from the second quarter of 2021 primarily due to contractual rate increases with American's third-party regional carriers. The second quarter of 2021 also includes the recognition of$167 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased$188 million , or 40.9%, in the second quarter of 2022 from the second 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
Other operating expenses increased$432 million , or 45.0%, in the second quarter of 2022 from the second quarter of 2021 primarily as a result of increased capacity and expenses associated with improving American's product offerings, customer experience and operational reliability. 57
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Table of Contents Operating Special Items, Net Three Months Ended June 30, 2022 2021 (In millions) PSP Financial Assistance (1) $ -$ (1,288) Other operating special items, net (5)
-
Mainline operating special items, net (5) (1,288) PSP Financial Assistance (1) - (167) Regional operating special items, net - (167) Operating special items, net$ (5) $ (1,455)
(1)The PSP Financial Assistance represents recognition of a portion of the
financial assistance received from
Nonoperating Results Three Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Interest income$ 41 $ 9 $ 32 nm Interest expense, net (437) (447) 10 (2.2) Other income, net 23 49 (26) (51.5) Total nonoperating expense, net$ (373) $ (389) $
16 (4.2)
Interest income increased in the second quarter of 2022 compared to the second quarter of 2021 primarily as a result of higher returns on American's short-term investments. In the second quarter of 2022, other nonoperating income, net primarily included$105 million of non-service related pension and other postretirement benefit plan income, offset in part by$89 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investments in Vertical,GOL and China Southern Airlines. In the second quarter of 2021, other nonoperating income, net included$85 million of non-service related pension and other postretirement benefit plan income, offset in part by$37 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investment in China Southern Airlines.
Income Taxes
American is a member of AAG's consolidated federal and certain state income tax returns.
In the second quarter of 2022, American recorded an income tax provision of$140 million . Substantially all of American's income or loss before income taxes is attributable tothe United States .
See Note 5 to American's Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes.
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Six Months Ended
Operating Revenues Six Months Ended June 30, Percent 2022 2021 Increase Increase (In millions, except percentage changes) Passenger$ 20,041 $ 9,724 $ 10,317 nm Cargo 692 641 51 7.8 Other 1,584 1,120 464 41.4 Total operating revenues$ 22,317 $ 11,485 $ 10,832 94.3 Passenger revenue increased$10.3 billion in the first six months of 2022 from the first six months of 2021 primarily due to an increase in RPMs, driven by a significant recovery in demand for air travel, resulting in an increased load factor in the first six months of 2022, and an increase in passenger yield. Cargo revenue increased$51 million , or 7.8%, in the first six months of 2022 from the first six months of 2021 primarily due to an increase in cargo yield, offset in part by a decrease in cargo ton miles driven by the reduced operation of cargo-only flights.
Other operating revenue increased
Total operating revenues in the first six months of 2022 increased
Operating Expenses Six Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Aircraft fuel and related taxes$ 6,522 $ 2,644 $ 3,878 nm Salaries, wages and benefits 6,385 5,590 795 14.2 Regional expenses 2,081 1,264 817 64.6 Maintenance, materials and repairs 1,264 835 429 51.3 Other rent and landing fees 1,372 1,256 116 9.2 Aircraft rent 698 706 (8) (1.1) Selling expenses 836 427 409 95.8 Depreciation and amortization 992 959 33 3.5 Mainline operating special items, net 152 (2,996) 3,148 nm Other 2,676 1,676 1,000 59.7 Total operating expenses$ 22,978 $ 12,361 $ 10,617 85.9 Total operating expenses increased$10.6 billion , or 85.9%, in the first six months of 2022 from the first six months 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$3.6 billion of PSP Financial Assistance recognized as a net special credit in the first six months of 2021. See further discussion of operating special items, net below. Aircraft fuel and related taxes increased$3.9 billion in the first six months of 2022 from the first six months of 2021 primarily due to an 89.4% increase in the average price per gallon of aircraft fuel including related taxes to$3.45 in the first six months of 2022 from$1.82 in the first six months of 2021 and a 30.2% increase in gallons of fuel consumed principally due to increased capacity. 59
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Salaries, wages and benefits increased$795 million , or 14.2%, in the first six months of 2022 from the first six months of 2021 primarily due to a 12.1% increase in mainline full-time equivalent employees subsequent to the second quarter of 2021. Regional expenses increased$817 million , or 64.6%, in the first six months of 2022 from the first six months of 2021 primarily due to increased capacity and contractual rate increases with American's third-party regional carriers. The first six months of 2021 also includes the recognition of$410 million of PSP Financial Assistance as a regional operating special credit. Maintenance, materials and repairs increased$429 million , or 51.3%, in the first six months of 2022 from the first six months 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. Other rent and landing fees increased$116 million , or 9.2%, in the first six months of 2022 from the first six months of 2021 primarily due to an increase in landing fees as a result of increased departures.
Selling expenses increased
Other operating expenses increased
Operating Special Items, Net
Six Months Ended June 30, 2022 2021 (In millions) Fleet impairment (1)$ 149 $ - PSP Financial Assistance (2) - (3,170) Severance expenses (3) - 168 Mark-to-market adjustments on bankruptcy obligations, net - 6 Other operating special items, net 3 - Mainline operating special items, net 152 (2,996) PSP Financial Assistance (2) - (410) Fleet impairment (1) - 27 Regional operating special items, net - (383) Operating special items, net$ 152 $ (3,379) (1)Fleet impairment for the six months endedJune 30, 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 for the six months ended
(2)The PSP Financial Assistance represents recognition of a portion of the
financial assistance received from
(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 related to American's voluntary early retirement programs for the six months endedJune 30, 2022 and 2021 were approximately$140 million and$290 million , respectively. 60
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Table of Contents Nonoperating Results Six Months Ended Percent June 30, Increase Increase 2022 2021 (Decrease) (Decrease) (In millions, except percentage changes) Interest income$ 52 $ 18 $ 34 nm Interest expense, net (861) (780) (81) 10.4 Other income, net 117 158
(41) (25.0)
Total nonoperating expense, net
Interest income increased in the first six months of 2022 compared to the first six months of 2021 primarily as a result of higher returns on American's short-term investments.
Interest expense, net increased in the first six months of 2022 compared to the first six months 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 six months of 2022, other nonoperating income, net primarily included$211 million of non-service related pension and other postretirement benefit plan income, offset in part by$90 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investments in GOL,Vertical and China Southern Airlines. In the first six months of 2021, other nonoperating income, net included$171 million of non-service related pension and other postretirement benefit plan income and$13 million of net special charges principally for non-cash charges associated with debt refinancings and extinguishments, offset in part by mark-to-market net unrealized gains associated with American's equity investment in China Southern Airlines and other instruments.
Income Taxes
American is a member of AAG's consolidated federal and certain state income tax returns.
In the first six months of 2022, American recorded an income tax benefit of$296 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
AtJune 30, 2022 , AAG had$15.6 billion in total available liquidity and$997 million in restricted cash and short-term investments. Additional detail regarding our available liquidity is provided in the table below (in millions): AAG American June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 Cash $ 401 $ 273 $ 373 $ 265 Short-term investments 12,121 12,158 12,118 12,155 Undrawn facilities 3,063 3,411 3,063 3,411 Total available liquidity$ 15,585 $ 15,842$ 15,554 $ 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. 61
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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 six months 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 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$2.9 billion and$3.6 billion for the first six months of 2022 and 2021, respectively, a$720 million period-over-period decrease. In the first six months of 2021, we received cash proceeds of approximately$4.7 billion associated with the PSP Financial Assistance. Excluding the PSP Financial Assistance, our operating cash flows increased$4.0 billion compared to the first six months of 2021 primarily due to higher profitability. In addition, during the first six months of 2022, we had approximately$140 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$50 million in the remainder of 2022 and approximately$20 million in 2023. Investing Activities
Our net cash used in investing activities was
Our principal investing activities in the first six months of 2022 included$1.4 billion of capital expenditures, which principally related to the purchase of 14 Airbus A321neo aircraft and 10 spare engines. We also made a$200 million equity investment in GOL. Additionally, we incurred$156 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$52 million in net sales of short-term investments. Our principal investing activities in the first six months of 2021 included$11.0 billion in net purchases of short-term investments as well as a$404 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. Additionally, we incurred$77 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$163 million of proceeds primarily from aircraft sale-leaseback transactions and$161 million of proceeds from the sale of property and equipment. Additionally, aircraft purchase deposit returns of$772 million exceeded our capital expenditures for the first six months of 2021, which expenditures were principally related to the harmonization of interior configurations across our mainline fleet and the purchase of two Airbus A321neo aircraft. 62
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Financing Activities
Our net cash used in financing activities was$1.1 billion for the first six months of 2022 as compared to net cash provided by financing activities of$7.5 billion for the first six months of 2021. Our principal financing activities in the first six months of 2022 included$1.7 billion in repayments of debt and finance lease obligations, consisting of$1.3 billion of scheduled debt repayments including the repayment of$401 million in connection with the maturity of our 5.000% unsecured notes, and the repurchase of$349 million of unsecured notes on the open market. These cash outflows were offset in part by$574 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 six months of 2021 included$12.1 billion in proceeds from the issuance of debt, including approximately$10.0 billion associated with the AAdvantage Financing,$1.0 billion in aggregate principal amount under the PSP2 Promissory Note,$946 million in aggregate principal amount under the PSP3 Promissory Note and the$150 million issuance of special facility revenue bonds related to JFK. We also had$460 million in net proceeds from the issuance of equity pursuant to an at-the-market offering. These cash inflows were offset in part by$5.0 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$1.6 billion in scheduled debt repayments. In addition, we had$166 million of deferred financing cost cash outflows.
American
Operating Activities
American's net cash provided by operating activities was$2.1 billion and$6.1 billion for the first six months of 2022 and 2021, respectively, a$4.0 billion period-over-period decrease. American had a$2.9 billion net decrease in intercompany cash receipts principally from AAG's financing transactions. Additionally, in the first six months of 2021, American received cash proceeds of approximately$4.2 billion associated with PSP Financial Assistance. Excluding the PSP Financial Assistance and decrease in AAG's financing transactions, American's operating cash flows increased$3.1 billion compared to the first six months of 2021 primarily due to higher profitability. Also, during the first six months of 2022, American had approximately$140 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$50 million in the remainder of 2022 and approximately$20 million in 2023.
Investing Activities
American's net cash used in investing activities was
American's principal investing activities in the first six months of 2022 included$1.4 billion of capital expenditures, which principally related to the purchase of 14 Airbus A321neo aircraft and 10 spare engines. American also made a$200 million equity investment in GOL. Additionally, American incurred$156 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$52 million in net sales of short-term investments. American's principal investing activities in the first six months of 2021 included$11.0 billion in net purchases of short-term investments as well as a$404 million increase in restricted short-term investments primarily related to collateral for the AAdvantage Financing. Additionally, American incurred$77 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$163 million of proceeds primarily from aircraft sale-leaseback transactions and$161 million of proceeds from the sale of property and equipment. Additionally, aircraft purchase deposit returns of$772 million exceeded American's capital expenditures for the first six months of 2021, which expenditures were principally related to the harmonization of interior configurations across its mainline fleet and the purchase of two Airbus A321neo aircraft. Financing Activities American's net cash used in financing activities was$319 million for the first six months of 2022 as compared to net cash provided by financing activities of$4.9 billion for the first six months of 2021. 63
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American's principal financing activities in the first six months of 2022
included
American's principal financing activities in the first six months of 2021 included$10.1 billion in proceeds from the issuance of debt, including approximately$10.0 billion associated with the AAdvantage Financing and the$150 million issuance of special facility revenue bonds related to JFK. These cash inflows were offset in part by$5.0 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$1.6 billion in scheduled debt repayments. In addition, American had$165 million of deferred financing cost cash outflows.
Commitments
Significant Indebtedness
As ofJune 30, 2022 , AAG had$36.8 billion in long-term debt, including current maturities of$1.9 billion . As ofJune 30, 2022 , American had$31.5 billion in long-term debt, including current maturities of$1.9 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 12 - 14 25 15 - 66 Boeing 737 MAX Family (2) - 27 21 20 20 - 88 787 Family 9 4 12 9 4 5 43 Embraer 175 3 - - - - - 3 Total 24 31 47 54 39 5 200 (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 reflect our exercise of purchase options for four Airbus A320neo Family aircraft inJuly 2022 and 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 56 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 four Boeing 787 Family aircraft scheduled to be delivered in 2023 and five Boeing 787 Family aircraft scheduled to be delivered in 2024. 64
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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 ofJune 30, 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)$ 807 $ 4,202 $ 3,502 $ 7,784 $ 4,447 $ 10,786 $ 31,528 Interest obligations (b), (c) 854 1,822 1,501 1,249 673 867
6,966
Finance lease obligations 127 186 181 118 93 105
810
Aircraft and engine purchase commitments (d) 859 1,935 3,203 3,728 2,270 702
12,697
Operating lease commitments 993 1,957 1,646 1,294 1,024 5,083
11,997
Regional capacity purchase agreements (e) 801 1,831 1,867 1,710 1,093 2,159
9,461
Minimum pension obligations (f) - 31 23 - - -
54
Retiree medical and other postretirement benefits 47 89 84 81 78 312
691
Other purchase obligations (g) 3,545 3,083 2,332 1,133 604 933
11,630
Total American Contractual Obligations 8,033 15,136 14,339 17,097 10,282 20,947
85,834
AAG Parent and Other AAG Subsidiaries Long-term debt: Principal amount (a) - - - 1,500 - 3,746 5,246 Interest obligations (b) 61 122 121 138 139 699 1,280 Finance lease obligations 3 10 10 - - - 23 Operating lease commitments 11 19 14 10 8 34
96
Minimum pension obligations (f) - 1 - - - 1 2
Total AAG Contractual Obligations
$ 14,484 $ 18,745 $ 10,429 $ 25,427 $ 92,481 (a)Amounts represent contractual amounts due. Excludes$396 million and$25 million of unamortized debt discount, premium and issuance costs as ofJune 30, 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 $9.4 billion of future principal payments and$1.5 billion of future interest payments as ofJune 30, 2022 , related to EETCs associated 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
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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 nine and four 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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