FORM 10-K
FORM | 10-K |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act:
Commission File Number | Exact Name of Registrant as Specified in its Charter, Principal Executive Office Address and Telephone Number | State of Incorporation | I.R.S. Employer Identification No. | ||||||||
001-06033 | United | Delaware | 36-2675207 | ||||||||
233 South Wacker Drive, | Chicago, | Illinois | 60606 | ||||||||
(872) | 825-4000 | ||||||||||
001-10323 | United Airlines, Inc. | Delaware | 74-2099724 | ||||||||
233 South Wacker Drive, | Chicago, | Illinois | 60606 | ||||||||
(872) | 825-4000 |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||
United Airlines Holdings, Inc. | Common Stock, $0.01 par value | UAL | The Nasdaq Stock Market LLC | |||
United Airlines, Inc. | None | None | None |
United Airlines Holdings, Inc. | None | ||||
United Airlines, Inc. | None | ||||
United | Yes | ☒ | No | ☐ | ||||||||
United Airlines, Inc. | Yes | ☒ | No | ☐ |
United | Yes | ☐ | No | ☒ | ||||||||
United Airlines, Inc. | Yes | ☐ | No | ☒ |
United | Yes | ☒ | No | ☐ | ||||||||
United Airlines, Inc. | Yes | ☒ | No | ☐ |
United | Yes | ☒ | No | ☐ | ||||||||
United Airlines, Inc. | Yes |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.
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United Airlines Holdings, Inc. | Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | Smaller reporting company | ☐ | Emerging growth company | ☐ | |||
United Airlines, Inc. | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | Smaller reporting company | ☐ | Emerging growth company | ☐ |
United | ☐ | |||||
United Airlines, Inc. | ☐ |
United | Yes | ☐ | No | ☒ | |||||
United Airlines, Inc. | Yes | ☐ | No | ☒ |
United | shares of common stock ($0.01 par value) | ||
United Airlines, Inc. | 1,000 | shares of common stock ($0.01 par value) (100% owned by United |
Information
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PART I | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 1B. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
PART II | ||||||
Item 5. | ||||||
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Item 7A. | ||||||
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Item 8. | ||||||
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Item 9. | ||||||
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Item 9A. | ||||||
Item 9B. | ||||||
PART III | ||||||
Item | ||||||
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| Directors, Executive Officers and Corporate Governance | |||||
Item 11. | ||||||
Item | ||||||
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||||
Item 13. | ||||||
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Item 14. | ||||||
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PART IV | ||||||
Item 15. | ||||||
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Item 16. | ||||||
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hub system also allows us to add service to a new destination from a large number of cities using only one or a limited number of aircraft. As discussed underAlliances below, United is a member of Star Alliance, the world’sworld's largest alliance network.
Financial information on the Company’s operating revenues by geographic region, as reported to the U.S. Department of Transportation (the “DOT”), can be found in Note 15 to the financial statements included in Part II, Item 8 of this report.
venturesJBAs with ANA for transpacific cargo services and continues to implement a cargo joint venture with Lufthansa for transatlantic cargo services. These cargo joint venturesJBAs offer expanded and more seamless access to cargo space across the carriers’carriers' respective combined networks.
Approximately 5.4 million and 5.2
Year | Gallons Consumed (in millions) | Fuel Expense (in millions) | Average Price Per Gallon | Percentage of Total Operating Expense | ||||||||||||||||||
2017 | 3,978 | $ | 6,913 | $ | 1.74 | 20% | ||||||||||||||||
2016 | 3,904 | $ | 5,813 | $ | 1.49 | 18% | ||||||||||||||||
2015 | 3,886 | $ | 7,522 | $ | 1.94 | 23% |
Year | Gallons Consumed (in millions) | Fuel Expense (in millions) | Average Price Per Gallon | Percentage of Total Operating Expense | ||||||||||
2019 | 4,292 | $ | 8,953 | $ | 2.09 | 23 | % | |||||||
2018 | 4,137 | $ | 9,307 | $ | 2.25 | 24 | % | |||||||
2017 | 3,978 | $ | 6,913 | $ | 1.74 | 20 | % |
Non-travel redemptions expenses are recorded to Other operating revenue.
primarily sold using global distribution systems (“GDS”("GDS"). United has developed and expects to continue to develop capabilities to sell certain ancillary products through the GDS channel to provide an enhanced buying experience for customers who purchase in that channel. To increase the Company’s opportunities to sell its full range of products and services and lower distribution costs, the Company will continue to develop new selling capabilities in third-party channels and expand the capabilities of its website and mobile applications.
Regulation.
All carriers engaged in air transportation in the United States are subject to regulation by the DOT. Absent an exemption, no air carrier may provide air transportation of passengers or property without first being issued a DOT certificate of public convenience and necessity. The DOT also grants international route authority, approves international codeshare arrangements and regulates methods of competition. The DOT regulates consumer protection and maintains jurisdiction over advertising, denied boarding compensation, tarmac delays, baggage liability and other areas and may add additional expensive regulatory burdens in the future. The DOT haslaunched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide variety of contexts.
airline industry.
enforcement by regulatory agencies.
Regulation.
International air transportation is subject to extensive government regulation. In connection with theRegulation.
The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes.Certain states may also elect to impose restrictions apart from the revised national standards. Finally, environmental cleanup laws could require the Company to undertake or subject the Company to liability for investigation and remediation costs at certain owned or leased locations or third partythird-party disposal locations.
"
Employee Group | Number of Employees | Union | Agreement Open for Amendment | ||||||||
Flight Attendants | 24,203 | Association of Flight Attendants (the | August 2021 | ||||||||
| 13,803 | International Association of Machinists and Aerospace Workers (the | December 2021 | ||||||||
| 12,135 | IAM | December 2021 | ||||||||
Pilots | 12,251 | January 2019 | |||||||||
Technicians | 9,318 | International Brotherhood of Teamsters (the | December 2022 (a) | ||||||||
4,155 | IAM | March 2025 | |||||||||
Catering | 2,577 | UNITE HERE | N/A | ||||||||
Storekeepers | 989 | IAM | December 2021 | ||||||||
Dispatchers | 412 | Professional Airline Flight Control Association | December 2021 | ||||||||
Fleet Tech Instructors | 130 | IAM | December 2021 | ||||||||
Load Planners | 62 | IAM | December 2021 | ||||||||
Security Officers | 45 | IAM | December 2021 | ||||||||
Maintenance Instructors | 40 | IAM | December 2021 |
UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so
ITEM 1A. | RISK FACTORS. |
Robust demand for the our business, operating results and financial condition.Company’sCompany's business and the forward-looking statements contained in this report and other statements the Company or its representatives make from time to time. Any of the following risks could materially and adversely affect the Company’sCompany's business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.Globalindustry conditions constantly change and unfavorable conditionsglobally, may have a material adverse effect on the Company’sour business, operating results and financial condition. of operations.The Company’s business and results of operations are significantly impacted by U.S. and global economic and industrypolitical conditions. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. The Company is a global business with operations outside of the United States from which it derives significant operating revenues. The Company’s international operations are a vital part of its worldwide airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company’s operating results and its ability to achieve its business objectives.Company’sCompany's air transportation services depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times. Short-haul travelers, in particular, have the option to replace air travel with surface travel. In addition, during periods of unfavorable economic conditions, business travelers usually reducehistorically have reduced the volume of their travel, either due to cost-saving initiatives, the replacement of travel with alternatives such as videoconferencing, or as a result of decreased business activity requiring travel. During such periods, the Company’sCompany's business and operating results of operations may be adversely affected due to significant declines in industry passenger demand, particularly with respect to the Company’sCompany's business and premium cabin travelers, and a reduction in fare levels.and any future volatility in U.S. and global financial and credit markets may have a material adverse effect on the Company’sCompany's revenues, operating results of operations and liquidity. If such economic conditions were to disrupt capital markets in the future, the Company may be unable to obtain financing on acceptable terms (or at all) to refinance certain maturing debt and to satisfy future capital commitments.In June 2016, United Kingdom (“UK”) voters voted for the UK to exit the EU. UK parliament voted in favor of allowing the government to commence negotiations to determine the future terms of the UK’s relationship with the EU, including the terms of trade between the UK and the EU and other nations. A process of negotiation is now taking place to determine the future terms of the UK’s relationship with the EU. Depending on the outcome of these negotiations, we could face new challenges in our operations, such as instability in global financial and foreign exchange markets, including volatility in the value of the British pound and European euro, additional travel restrictions on passengers traveling between the UK and other EU countries and legal uncertainty and potentially divergent national laws and regulations. These adverse effects in European market conditions could negatively impact the Company’s business, results of operations and financial condition.In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon the Company’s liquidity, revenues, costs and operating results.The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on the Company. U.S. airline industry is characterizedhighly competitive, marked by substantial pricesignificant competition including fromlow-cost carriers. The significant market presencewith respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs. Consolidation in the airline industry, the rise oflow-cost well-funded government sponsored international carriers, which engagechanges in substantial price discounting, may diminish our abilityinternational alliances and the creation of immunized JBAs have altered and are expected to achieve sustained profitability on domesticcontinue to alter the competitive landscape in the industry, resulting in the formation of airlines and international routes.alliances with increased financial resources, more extensive global networks and services and competitive cost structures.
Airlines also compete for market share by increasing or decreasing their capacity, including route systems and the number of marketsdestinations served. Several of the Company’sCompany's domestic and international competitors have increased their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served, and therefore, increasing competition for those destinations. This increased competition in both domestic and international markets may have
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.
The terrorist attacks on September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’s financial condition and results of operations, as well as the prospects for the airline industry. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by theFAA-imposed temporary grounding of the U.S. airline industry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and passenger revenue.
Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings, travel restrictions or selective cancellation or redirection of flights) couldbe materially and adversely affectaffected.
Increasing privacy and data security obligations or a significant data breach may adversely affect the Company’s business.
fuel requirements. The Company is subjectdoes not currently hedge its future fuel requirements. However, to increasing legislative, regulatorythe extent the Company decides to start a hedging program, such hedging program may not be successful in mitigating higher fuel costs, and customer focus on privacy issuesany price protection provided may be limited due to the choice of hedging instruments and data security. Also, a numbermarket conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the Company’s commercial partners, including credit card companies, have imposed data security standardsextent that the Company must meetdecides to hedge a portion of its future fuel requirements and these standards continueuses hedge contracts that have the potential to evolve. Thecreate an obligation
future.
An accident, catastrophe or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner, one of the Company's regional carriers or another airline, or an incident involving the Company's operations, or the operations of a codeshare partner, one of the Company's regional carriers or of another airline, could have a material adverse effect on the Company if such accident, catastrophe or incident created a public perception that the Company's operations, or the operations of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines. Additionally, any accident, catastrophe or incident involving an aircraft type that is operated by the Company, its codeshare partners or regional carriers could have a material adverse effect on the Company if such accident, catastrophe or incident creates a public perception that such aircraft type was not safe or reliable. Such public perception could, in turn, result in adverse publicity for the Company, cause harm to the Company's brand and reduce travel demand on the Company's flights, or the flights of its codeshare partners or regional carriers.
Disruptions
The Company has contractualglobal business strategy. These transactions and relationships with various regional carriersinvolve significant challenges and risks, and we face competition in forming and maintaining these relationships, since there are a limited number of potential arrangements and other airlines are looking to provide regional aircraft service branded as United Express. These regional operations are an extension of the Company’s mainline network and complement the Company’s operations by carrying traffic that connects to mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. The Company’s business and operationsenter into similar relationships. We are dependent on its regional flightthese other carriers for significant aspects of our network in the regions in which they operate. While we work closely with regional capacity accounting for approximately 11%these carriers, each is a separately certificated commercial air carrier, and we do not have control over their operations, strategy, management or business methods. And not only are these airlines subject to a number of the Company’s totalsame risks as our business, which are described elsewhere in this Part I, Item 1A. Risk Factors, including competitive pressures on pricing, demand and capacity, forchanges in aircraft fuel pricing, and the year ended December 31, 2017.
Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, the Company does not control theimpact of global and local political and economic conditions on operations and customer travel patterns, among others, they are also subject to their own distinct financial and operational risks.
If a significant disruption occurs to the Company’s regional networkresults if those carriers are impacted by general business risks or flightsperform below our expectations or ifneeds. Any one or more of these events could have a material adverse effect on our operating results or financial condition.
The Company’s business relies extensively on third-party service providers. Failuremay continue to face, strong competition from other carriers due to the modification of these partiesalliances and formation of new JBAs. Carriers may improve their competitive positions through airline alliances, slot swaps and/or JBAs. Certain types of airline JBAs further competition by allowing multiple airlines to performcoordinate routes, pool revenues and costs,
future. The Company has engaged third-party service providers to perform a large numberroutinely engages in analyses and discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future discussions with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of functions that are integral to its business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraft
fueling operations, and catering services, among other vital functions and services. The Company does not directly control these third-party service providers, although it does enter into agreements with most of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their service performance commitments to the Company, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and travel agencies via third-party GDSs may be adversely affected by disruptions in the business relationships between the Company and GDS operators. Such disruptions, including a failurepotentially impairing the Company's ability to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company’s flight information to be limited or unavailable for display, significantly increase fees for both the Company and GDS users and impair the Company’s relationships withrealize expected benefits from its customers and travel agencies. The failure of any of the Company’s third-party service providers to perform their service obligations adequately, or other interruptions of services, may reduce the Company’s revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to its brand. In addition, the Company’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
own strategic relationships.
new aircraft on less favorable terms.
Theunavailability of these engines and other parts.
An accident, catastrophe, or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner or one of the Company’s regional carriers, or an incident involving the Company’s operations,coronavirus, could have a material adverse effectimpact on the Company ifCompany's business, operating results and financial condition.
In addition, any such accident, catastrophe, or incident could expose the Company to significant tort liability. Although the Company currently maintains liability insurance in amounts andrest of the typeCompany's trans-Pacific routes. The extent of the Company believes to be consistent with industry practice to cover damages arising from any such accident or catastrophe,impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the Company’s codeshare partnersimpact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and regional carriers carry similar insurance and generally indemnify the Company for their operations, if the Company’s liability exceeds the applicable policy limits or the ability of
another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result in a material adverse effectcannot be predicted. If traffic on the Company’sCompany's trans-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations or financial position.
for full year 2020 may be materially adversely affected.
High and/
Aircraft fuel is critical to the Company’s operations and is one of its single largest operating expenses. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it can neither predict nor guarantee the continued timely availability of aircraft fuel throughout the Company’s system. The Company generally sources fuelworld. An extended interruption or disruption at prevailing market prices.
Aircraft fuel has historically been the Company’s most volatile operating expense due to the highly unpredictable nature of market prices for fuel. Market prices for aircraft fuelan airport where we have historically fluctuated substantially in short periods of time and continue to be highly volatile due to a dependence on a multitude of unpredictable factors beyond the Company’s control. These factors include changes in global crude oil prices, the balance between aircraft fuel supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by indirect factors that may potentially impact fuel supply or demand balance, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, environmental concerns and financial investments in energy markets. Both actual changes in these factors, as well as changes in market expectations of these factors can potentially drive rapid changes in fuel price levels in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be able to increase its fares and fees sufficiently to offset the full impact of increases in fuel prices, especially if these increases are significant rapid and sustained. Further, any such fare and fee increases may not be sustainable, may reduce the general demand for air travel and may also eventually impact the Company’s strategic growth and investment plans for the future. In addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share and lower fares or surcharges in general. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future fuel requirements. However, the Company’s hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to choice of hedging instruments and market conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the extent that the Company decides to hedge a portion of its future fuel requirements and uses hedge contracts that have the potential to create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company’s ability to benefit fully from lower fuel costs in the future. If fuel prices decline significantly from the levels existing at the time the Company enters into a hedge contract, the Company may be required to post collateral (margin) beyond certain thresholds. There can be no assurance that the Company’s hedging arrangements will provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company’s hedging arrangements.
Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in the future.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company’s operations and could result in increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2017, the Company and its subsidiaries had approximately 89,800 active employees, of whom approximately 80% were represented by various U.S. labor organizations.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in job actions such as slowdowns,work-to-rule campaigns, sick-outs or other actions designed to disrupt the Company’s normal operations, in an attempt to pressure the Company in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. In addition, collective bargaining agreements with the Company’s represented employee groups increase the Company’s labor costs, which increase could be material for any applicable reporting period.
An outbreak of a disease or similar public health threat could have a material adverse impact on the Company’s business, financial position and results of operations.
An outbreak of a disease or similar public health threat that affects travel demand, travel behavior, or travel restrictions could have a material adverse impact on the Company’sour business, financial condition and results of operations.
Extensiveoperation.
may adversely impact our business, operating results and financial condition.
The airline industry is heavily taxed and additional taxation could negatively impact our business.
In addition, the Company’s operations may also be adversely impacted due to the existing antiquated ATC system utilized by the U.S. government.government and regulated by the FAA. During peak travel periods in certain markets, the current ATC system’ssystem's inability to handle ATC demand has led to short-term capacity constraints imposed by government agencies and resulted in delays and disruptions of air traffic. In addition, the current system will not be able to effectively handle projected future air traffic growth. The outdated technologies also cause the ATC to be less resilient in the event of a failure, causing flight cancellations and delays. Imposition of these ATC constraints on a long-term basis may have a material adverse effect on the Company’sCompany's operations. Failure to update the ATC system in a timely manner and the substantial funding requirements of a modernized ATC system that may be imposed on air carriers may have an adverse impact on the Company’sCompany's financial condition or results of operations.
operating results.
Many aspects of the Company’s operations are also subject to increasingly stringent federal, state, local and international laws protecting the environment. Future environmental regulatory developments, such as climate change regulations in the United States and abroad could adversely affect operations and increase operating costs in the airline industry. In addition, there is the potential for additional regulatory actions in regard to the emission of GHGs by the aviation industry. The precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry would likely be adverse and could be significant.
See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
Extensive government regulation on international routes could restrict the Company’s ability to conduct its business and have a material adverse effect on the Company’s financial position and results of operations.
material adverse impact on the Company’sCompany's financial positioncondition and operating results of operations and could result in the impairment of material amounts of related tangible and intangible assets. In addition, competition from revenue-sharing joint venturesJBAs and other alliance arrangements by and among other airlines could impair the value of the Company’sCompany's business and assets on the Open Skies routes. The Company’sCompany's plans to enter into or expand U.S. antitrust immunized alliances and joint venturesJBAs on various international routes are subject to receipt of approvals from applicable U.S. federal authorities and obtaining other applicable foreign government clearances or satisfying the necessary applicable regulatory requirements. There can be no assurance that such approvals and clearances will be granted or will continue in effect upon further regulatory review or that changes in regulatory requirements or standards can be satisfied.
The airline industry
Insufficientinsufficient liquidity may have a material adverse effect on the Company’sCompany's financial positioncondition and business.
report. If the Company’sCompany's liquidity is materially diminished, due to the various risk factors noted in this report, or otherwise, the Company might not be able to timely pay its leases and debts or comply with certain operating and financial covenants under its financing and credit card processing agreements or with other material provisions of its contractual obligations. Certain of these covenants require the Company or United, as applicable, to maintain minimum liquidity and/or minimum collateral coverage ratios.
If the Company does not timely pay its leases and debts or comply with such covenants, a variety of adverse consequences could result. These potential adverse consequences include an increase of required reserves under credit card processing agreements, withholding of credit card sale proceeds by its credit card service providers, loss of undrawn lines of credit, the occurrence of one or more events of default under the relevant agreements, the acceleration of the maturity of debt and/or the exercise of other remedies by its creditors and equipment lessors that could result in a material adverse effect on the Company’s financial position and results of operations. The Company cannot provide assurance that it would have sufficient liquidity to repay or refinance such debt if it were accelerated. In addition, an event of default or acceleration of debt under certain of its financing agreements could result in one or more events of default under certain of the Company’s other financing agreements due to cross default and cross acceleration provisions.
Furthermore, insufficient liquidity may limit the Company’s ability to withstand competitive pressures and downturns in the travel business and the economy in general.
The Company’sCompany's substantial level of indebtedness andnon-investment grade credit rating, as well as market conditions and the availability of assets as collateral for loans or other indebtedness, may make it difficult for the Company to raise additional capital if needed to meet its liquidity needs on acceptable terms, or at all.
Increases
The Company could be exposedratios. UAL's or United's ability to significant liability or loss if its property or operations were tocomply with these covenants may be affected by a natural catastrophe orevents beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral. In addition, our financing agreements contain other event, including aircraft accidents. The Company maintains insurance policies, including, but not limitednegative covenants customary for such financings. These covenants are subject to terrorism, aviation hullimportant exceptions and liability, workers’ compensationqualifications. If we fail to comply with these covenants and property and business interruption insurance, but we are not fully insured against all potential hazards and risks incident to our business. If the Company is unable to remedy or obtain sufficient insurance with acceptable termsa waiver or ifamendment, an event of default would result.
The Company’s results of operations fluctuate due to seasonality and other factors associated withrefinance the airline industry.
Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year, which are periods of lower travel demand. The Company’s results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including, among others, the imposition of excise and similar taxes, extreme or severe weather, ATC congestion, geological events, natural disasters, changes in the competitive environment due to industry consolidation, general economic conditions and other factors. As a result, the Company’s quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.
obligations under our financing arrangements.
operating results.
The Company may be required to recognize impairmentslosses in the future due to, among other factors, extreme fuel price volatility, tight credit markets, agovernment regulatory changes, decline in the fair valuevalues of certain tangible or intangible assets, such as aircraft, route authorities, airport slots and frequent flyer database, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties. For example, in 2019 and 2018, the Company recorded impairment charges of $90 million and $206 million, respectively, associated with its Hong Kong routes, resulting in the full impairment of these assets. The Company can provide no assurance that a material impairment chargeloss of tangible or intangible assets will not occur in a future period. The value of the Company’sCompany's aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from the grounding of aircraft by the Company or other carriers.aircraft. An impairment chargeloss could have a material adverse effect on the Company’sCompany's financial positioncondition and results of operations.
operating results.
As of December 31, 2017, UAL reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $2.4 billion.
The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change.
There is no assurance that the Company will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate its ability to use its NOL carryforwards. Potential future transactions involving the sale or issuance of UAL common stock, including the exercise of conversion options under the terms of any convertible debt that UAL may issue in the future, the repurchase of such debt with UAL common stock, any issuance of UAL common stock for cash, and the acquisition or disposition of such stock by a stockholder owning 5% or more of UAL common stock, or a combination of such transactions, may increase the possibility that the Company will experience a future ownership change under Section 382.
Under Section 382, a future ownership change would subject the Company to additional annual limitations that apply to the amount ofpre-ownership change NOLs that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a corporation’s stock immediately before the ownership change by the applicable long-termtax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may, under certain circumstances, be increased bybuilt-in gains in the assets held by such corporation at the time of the ownership change. This limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in future periods. The Company’s NOL carryforwards may expire before it can generate sufficient taxable income to use them in full.
The final impacts of the Tax Cuts and Jobs Actbrand image could be materially different from our current estimates.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law (the “Tax Act”). The Tax Act introduced significant changesadversely impacted by any failure to the Code. We continue to examine the impact the Tax Act may have on our business. Notwithstanding the reduction in the federal corporate income tax rate as a result of Tax Act, the estimated impact of the new law is based on management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates based upon our further analysis of the new law.
Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect.
An important partmaintain satisfactory practices for all of our strategyoperations and activities, any failure to expandachieve and/or make progress toward our global network includes making significant investments in airlines in other parts of the worldenvironmental and expandingsustainability goals, public pressure from investors or policy groups to change our commercial relationships with these carriers. In 2015, we made a $100 million investment in Azul Linhas Aéreas Brasileiras S.A. (“Azul”) and enhanced our commercial arrangements with Azul. We expect to continue exploring similarnon-controlling investments in, and entering into joint ventures, commercial agreements, loan transactions and strategic alliances with, other carriers as partpolicies, customer perceptions of our global business strategy. These transactions and relationships (including our strategic partnership with, and investment in, Azul) involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that we may not receive repayment of invested funds, that they may distract management from our operationsadvertising campaigns, sponsorship arrangements or that they may not generate the expected revenue synergies. These events could have a material adverse effect on our operating results or financial condition.
In addition, we are dependent on these other carriers for significant aspectsmarketing programs, customer perceptions of our networkuse of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in the regions in which they operate. While we work closely with these carriers, we do not have control over their operations orour services could adversely affect our business methods. We may be subjectand financial results, as well as require additional resources to consequences from any improper behavior of joint venture partners, including for failure to comply with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act. Furthermore,rebuild our relationships with these carriers may be subject to the laws and regulations ofnon-U.S. jurisdictions in which these carriers are located or conduct business. Any political or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with these carriers could have an adverse effect on our results of operations or financial condition. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected.
ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
ITEM 2. | PROPERTIES. |
Fleet
Including aircraft operated by United’s regional carriers, United’s fleet consisted of 1,262 aircraft as
Aircraft Type | Total | Owned | Leased | Seats in Standard Configuration | Average Age (In Years) | |||||||||||||||||||||||
Mainline: | ||||||||||||||||||||||||||||
777-300ER | 14 | 14 | — | 366 | 0.7 | |||||||||||||||||||||||
777-200ER | 55 | 40 | 15 | 267-269 | 17.8 | |||||||||||||||||||||||
777-200 | 19 | 19 | — | 364 | 20.5 | |||||||||||||||||||||||
787-9 | 21 | 21 | — | 252 | 2.1 | |||||||||||||||||||||||
787-8 | 12 | 12 | — | 219 | 4.5 | |||||||||||||||||||||||
767-400ER | 16 | 14 | 2 | 242 | 16.3 | |||||||||||||||||||||||
767-300ER | 35 | 22 | 13 | 183-214 | 22.5 | |||||||||||||||||||||||
757-300 | 21 | 9 | 12 | 213 | 15.3 | |||||||||||||||||||||||
757-200 | 56 | 50 | 6 | 142-169 | 21.7 | |||||||||||||||||||||||
737-900ER | 136 | 136 | — | 179 | 5.0 | |||||||||||||||||||||||
737-900 | 12 | 8 | 4 | 179 | 16.3 | |||||||||||||||||||||||
737-800 | 141 | 77 | 64 | 154-166 | 13.8 | |||||||||||||||||||||||
737-700 | 40 | 20 | 20 | 118-126 | 18.8 | |||||||||||||||||||||||
A320-200 | 99 | 66 | 33 | 150 | 19.3 | |||||||||||||||||||||||
A319-100 | 67 | 50 | 17 | 128 | 16.7 | |||||||||||||||||||||||
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Total mainline | 744 | 558 | 186 | 14.3 | ||||||||||||||||||||||||
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Aircraft Type | Capacity Purchase Agreement Total | Owned | Leased | Owned or Leased by Regional Carrier | Regional Carrier Operator and Number of Aircraft | Seats in Standard Configuration | ||||||||||||||||||||||
Regional: | ||||||||||||||||||||||||||||
Embraer E175 | 152 | 54 | — | 98 | | SkyWest: Mesa: Republic: |
| | 65 59 28 |
| 76 | |||||||||||||||||
Embraer 170 | 38 | — | — | 38 | Republic: | 38 | 70 | |||||||||||||||||||||
CRJ700 | 65 | — | — | 65 | | SkyWest: GoJet: Mesa: |
| | 20 25 20 |
| 70 | |||||||||||||||||
CRJ200 | 85 | — | — | 85 | | SkyWest: Air Wisconsin: |
| | 55 30 |
| 50 | |||||||||||||||||
Embraer ERJ 145 (XR/LR/ER) | 168 | 29 | 139 | — | | ExpressJet: Trans States: CommutAir: |
| | 110 36 22 |
| 50 | |||||||||||||||||
Q200 (a) | 7 | — | — | 7 | CommutAir: | 7 | 37 | |||||||||||||||||||||
Embraer ERJ 135 (a) | 3 | — | 3 | — | ExpressJet: | 3 | 37 | |||||||||||||||||||||
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Total regional | 518 | 83 | 142 | 293 | ||||||||||||||||||||||||
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Total | 1,262 | 641 | 328 | 293 | ||||||||||||||||||||||||
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(a) United exited service of both the Q200 and ERJ 135 aircraft types in January 2018.
Aircraft Type Total Owned Leased Seats in Standard Configuration Average Age (In Years) Mainline: 777-300ER 20 20 — 350 2.2 777-200ER 55 51 4 267-276 19.8 777-200 19 19 — 364 22.5 787-10 11 11 — 318 0.7 787-9 25 25 — 252 3.8 787-8 12 12 — 219 6.5 767-400ER 16 14 2 240 18.3 767-300ER 38 25 13 167-214 23.9 757-300 21 9 12 234 17.3 757-200 53 48 5 142-176 23.5 737-900ER 136 136 — 179 7.0 737-900 12 8 4 179 18.3 737-800 141 95 46 166 15.8 737-700 41 29 12 126 20.8 A320-200 97 76 21 150 21.3 A319-100 80 57 23 126-128 18.1 Total mainline 777 635 142 15.6
Aircraft Type | Total | Owned | Owned or Leased by Regional Carrier | Regional Carrier Operator and Number of Aircraft | Seats in Standard Configuration | |||||||||||
Regional: | ||||||||||||||||
Embraer E175/E175LL | 170 | 71 | 99 | SkyWest: Mesa: Republic: ExpressJet: | 65 60 28 17 | 70-76 | ||||||||||
Embraer 170 | 38 | — | 38 | Republic: | 38 | 70 | ||||||||||
CRJ700 | 47 | — | 47 | Mesa: SkyWest: GoJet: | 20 19 8 | 70 | ||||||||||
CRJ550 | 18 | — | 18 | GoJet: | 18 | 50 | ||||||||||
CRJ200 | 133 | — | 133 | SkyWest: Air Wisconsin: | 70 63 | 50 | ||||||||||
Embraer ERJ 145 (XR/LR/ER) | 175 | 168 | 7 | ExpressJet: Trans States: CommutAir: | 95 43 37 | 50 | ||||||||||
Total regional | 581 | 239 | 342 |
Aircraft. Aircraft2017,2019, United had firm commitments and options to purchase new aircraft from Boeing, Airbus and AirbusEmbraer as presented in the table below:Aircraft TypeNumber of FirmCommitments (a) Airbus A35045 Boeing 737 MAX161 Boeing777-300ER4 Boeing 78718 (a) United also has options and purchase rights for additional aircraft. Scheduled Aircraft Deliveries Aircraft Type Number of Firm
Commitments (a) 2020 After 2020 Airbus A321XLR 50 — 50 Airbus A350 45 — 45 Boeing 737 MAX 171 44 127 Boeing 777-300ER 2 2 — Boeing 787 16 15 1 Embraer E175 20 20 — from 2018 through 2027. In 2018, United2030. The Company expects to takeassign the purchase obligation for each of the 20 Embraer E175 aircraft to one of its regional partners at the time of such aircraft's delivery, of 10 Boeing 737 MAX aircraft, seven Boeing 787 aircraft and four Boeing777-300ER aircraft.subject to certain conditions. To the extent the Company and the aircraft manufacturers with whomwhich the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’sCompany's future capital commitments could change. Additionally, the CompanyUnited also has entered into a contractagreements to purchase three20 used Boeing767-300ERAirbus A319 aircraft from Hawaiian Airlines, Inc. with expected delivery dates through 2022 and 19 used Boeing 737-700 aircraft with expected delivery dates through 2021.second halftable above include 16 Boeing B737 MAX aircraft of 2018. which the Company planned to take delivery in 2019, and 28 aircraft of which the Company planned to take delivery of in 2020; however, following the FAA Order, Boeing suspended deliveries of new Boeing 737 MAX aircraft. The extent of the delay to the scheduled deliveries of new 737 MAX aircraft is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors. As a result, the Company is unable to estimate the number of Boeing 737 MAX aircraft of which it will take delivery in 2020.FacilitiesUnited’s principal facilities relate to of airport facilities, gates, hangar sites, terminal buildings and other airport facilities in the municipalities it serves. United has major terminal facility leases at SFO, Washington Dulles, Chicago O’Hare,O'Hare, LAX, Denver, Newark, Houston Bush Cleveland Hopkins International Airport and Guam with expiration dates ranging from 20182020 through 2054.2053. Substantially all of these facilities are leased on anet-rental basis, resulting in the Company’sCompany's responsibility for maintenance, insurance and other facility-related expenses and services.offices, catering, cargo, training, facilities, maintenance facilities and other facilities to support its operations in the cities served.it serves. In addition, United also has multiple leases, which expire from 20182020 through 2029,2033, for its principal executive office and operations center in downtown Chicago and administrative offices in downtown Houston.ITEM 3. LEGAL PROCEEDINGS.
On October 13, 2015, United received a CID from the Civil Division of the DOJ. The CID requested documents and oral testimony from United in connection with an industry-wide DOJ investigation related to delivery scan and other data purportedly required for payment for the carriage of mail under United’sUnited's International Commercial Air Contracts with the U.S. Postal Service. The Company has been responding to the DOJ’sDOJ's request and cooperating in the investigation since that time. On November 8, 2016, the DOJ Criminal Division met with representatives from the Company and advised they are conducting an industry-wide investigation into the same matter. The Company is also cooperatingcontinues to cooperate with the government in this aspect of their investigation and on December 21, 2016, representatives from the Company have met with both the Civil and Criminal Divisions to provide additional information. The Company cannot predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of these investigations.
Proceedings.
The Company is involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business. Additionally, from time to time, the Company becomes aware of potentialnon-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these other claims and legal actions will not materially affect its consolidated financial position or results of operations. However, the ultimate resolutions of these matters are inherently unpredictable. As such, theITEM 4. | MINE SAFETY DISCLOSURES. |
ITEM 5. | MARKET FOR |
UAL’s
UAL | ||||||||||||||||
2017 | 2016 | |||||||||||||||
High | Low | High | Low | |||||||||||||
1st quarter | $ | 76.75 | $ | 64.16 | $ | 61.41 | $ | 42.17 | ||||||||
2nd quarter | 83.04 | 67.55 | 58.90 | 37.41 | ||||||||||||
3rd quarter | 81.39 | 57.34 | 54.53 | 37.64 | ||||||||||||
4th quarter | 69.62 | 56.51 | 76.80 | 51.34 |
"UAL." As of February 14, 2018,18, 2020, there were 7,5345,073 holders of record of UAL common stock.
UAL did not pay any dividends in 2017 or 2016. Under debt agreements and certain indentures, UAL’s ability to pay dividends on or repurchase UAL’s common stock is subject to limits on the amount of such payments and to certain conditions, including that no default or event of default exists under those instruments and that after giving effect to the making of any such payments, UAL would be in compliance with a minimum fixed charge coverage ratio. Any future determination regarding dividend or distribution payments will be at the discretion of the UAL Board of Directors, subject to the foregoing limits and applicable limitations under Delaware law.
United paid dividends of $1.8 billion and $2.6 billion to UAL in 2017 and 2016, respectively.
Period |
| Total number of shares purchased (a)(b) | Average price paid per share (b)(c) | Total number of shares purchased as part of publicly announced plans or programs (a) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) | |||||||||||||
October 2017 | 2,852,917 | $ | 59.59 | 2,852,917 | $ | 383 | ||||||||||||
November 2017 | 5,342,435 | 58.93 | 5,342,435 | 68 | ||||||||||||||
December 2017 | 1,084,498 | 63.06 | 1,084,498 | 3,000 | ||||||||||||||
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Total | 9,279,850 | 9,279,850 | ||||||||||||||||
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2019:
Period | Total number of shares purchased (a) (b) | Average price paid per share (b)(c) | Total number of shares purchased as part of publicly announced plans or programs (a) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) | ||||||||||
October 2019 | 1,071,915 | $ | 87.65 | 1,071,915 | $ | 3,231 | ||||||||
November 2019 | 430,400 | 92.70 | 430,400 | 3,191 | ||||||||||
December 2019 | 922,600 | 88.72 | 922,600 | 3,109 | ||||||||||
Total | 2,424,915 | 2,424,915 |
ITEM 6. | SELECTED FINANCIAL DATA. |
UAL’s
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Income Statement Data (in millions, except per share amounts): | ||||||||||||||||||||
Operating revenue | $ | 37,736 | $ | 36,556 | $ | 37,864 | $ | 38,901 | $ | 38,279 | ||||||||||
Operating expense | 34,238 | 32,218 | 32,698 | 36,528 | 37,030 | |||||||||||||||
Operating income | 3,498 | 4,338 | 5,166 | 2,373 | 1,249 | |||||||||||||||
Net income | 2,131 | 2,263 | 7,340 | 1,132 | 571 | |||||||||||||||
Basic earnings per share | 7.04 | 6.86 | 19.52 | 3.05 | 1.64 | |||||||||||||||
Diluted earnings per share | 7.02 | 6.85 | 19.47 | 2.93 | 1.53 | |||||||||||||||
Balance Sheet Data at December 31 (in millions): | ||||||||||||||||||||
Unrestricted cash, cash equivalents and short-term investments | $ | 3,798 | $ | 4,428 | $ | 5,196 | $ | 4,384 | $ | 5,121 | ||||||||||
Total assets | 42,326 | 40,140 | 40,861 | 36,595 | 36,021 | |||||||||||||||
Debt and capital lease obligations | 14,392 | 11,705 | 11,759 | 11,947 | 12,293 |
Year Ended December 31, | ||||||||||||||||||||
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Mainline | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Passengers (thousands) (a) | 108,017 | 101,007 | 96,327 | 91,475 | 91,329 | |||||||||||||||
Revenue passenger miles (“RPMs”) (millions) (b) | 193,444 | 186,181 | 183,642 | 179,015 | 178,578 | |||||||||||||||
Available seat miles (“ASMs”) (millions) (c) | 234,576 | 224,692 | 219,989 | 214,105 | 213,007 | |||||||||||||||
Cargo ton miles (millions) | 3,316 | 2,805 | 2,614 | 2,487 | 2,213 | |||||||||||||||
Passenger load factor (d) | 82.5% | 82.9% | 83.5% | 83.6% | 83.8% | |||||||||||||||
Passenger revenue per available seat mile (“PRASM”) (cents) | 11.32 | 11.31 | 11.97 | 12.51 | 12.20 | |||||||||||||||
Total revenue per available seat mile (cents) | 13.51 | 13.50 | 14.19 | 14.81 | 14.51 | |||||||||||||||
Average yield per revenue passenger mile (“Yield”) (cents) (e) | 13.73 | 13.65 | 14.34 | 14.96 | 14.56 | |||||||||||||||
Cost per available seat mile (“CASM”) (cents) | 12.59 | 12.22 | 12.42 | 14.03 | 14.31 | |||||||||||||||
Average price per gallon of fuel, including fuel taxes | $ | 1.72 | $ | 1.49 | $ | 1.96 | $ | 2.98 | $ | 3.12 | ||||||||||
Fuel gallons consumed (millions) | 3,357 | 3,261 | 3,216 | 3,183 | 3,204 | |||||||||||||||
Average stage length (miles) (f) | 1,806 | 1,859 | 1,922 | 1,958 | 1,934 | |||||||||||||||
Average daily utilization of each aircraft (hours) (g) | 10:27 | 10:06 | 10:24 | 10:26 | 10:28 | |||||||||||||||
Consolidated | ||||||||||||||||||||
Passengers (thousands) (a) | 148,067 | 143,177 | 140,369 | 138,029 | 139,209 | |||||||||||||||
RPMs (millions) (b) | 216,261 | 210,309 | 208,611 | 205,559 | 205,167 | |||||||||||||||
ASMs (millions) (c) | 262,386 | 253,590 | 250,003 | 246,021 | 245,354 | |||||||||||||||
Passenger load factor (d) | 82.4% | 82.9% | 83.4% | 83.6% | 83.6% | |||||||||||||||
PRASM (cents) | 12.35 | 12.40 | 13.11 | 13.72 | 13.50 | |||||||||||||||
Total revenue per available seat mile (cents) | 14.38 | 14.42 | 15.15 | 15.81 | 15.60 | |||||||||||||||
Yield (cents) (e) | 14.98 | 14.96 | 15.72 | 16.42 | 16.14 | |||||||||||||||
CASM (cents) | 13.05 | 12.70 | 13.08 | 14.85 | 15.09 | |||||||||||||||
Average price per gallon of fuel, including fuel taxes | $ | 1.74 | $ | 1.49 | $ | 1.94 | $ | 2.99 | $ | 3.13 | ||||||||||
Fuel gallons consumed (millions) | 3,978 | 3,904 | 3,886 | 3,905 | 3,947 | |||||||||||||||
Average stage length (miles) (f) | 1,460 | 1,473 | 1,487 | 1,480 | 1,445 |
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 (a) | 2017 (a) | 2016 | 2015 | ||||||||||||||||
Income Statement Data (in millions, except per share amounts): | ||||||||||||||||||||
Operating revenue | $ | 43,259 | $ | 41,303 | $ | 37,784 | $ | 36,558 | $ | 37,864 | ||||||||||
Operating expense | 38,958 | 38,074 | 34,166 | 32,214 | 32,698 | |||||||||||||||
Operating income | 4,301 | 3,229 | 3,618 | 4,344 | 5,166 | |||||||||||||||
Net income | 3,009 | 2,122 | 2,143 | 2,234 | 7,340 | |||||||||||||||
Basic earnings per share | 11.63 | 7.70 | 7.08 | 6.77 | 19.52 | |||||||||||||||
Diluted earnings per share | 11.58 | 7.67 | 7.06 | 6.76 | 19.47 | |||||||||||||||
Balance Sheet Data at December 31 (in millions): | ||||||||||||||||||||
Unrestricted cash, cash equivalents and short-term investments | $ | 4,944 | $ | 3,950 | $ | 3,798 | $ | 4,428 | $ | 5,196 | ||||||||||
Total assets | 52,611 | 49,024 | 47,469 | 40,208 | 40,861 | |||||||||||||||
Debt and finance lease obligations (b) | 14,818 | 13,792 | 13,576 | 11,705 | 11,759 |
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Select operating statistics (a) | ||||||||||||||||||||
Passengers (thousands) (b) | 162,443 | 158,330 | 148,067 | 143,177 | 140,369 | |||||||||||||||
Revenue passenger miles ("RPMs") (millions) (c) | 239,360 | 230,155 | 216,261 | 210,309 | 208,611 | |||||||||||||||
Available seat miles ("ASMs") (millions) (d) | 284,999 | 275,262 | 262,386 | 253,590 | 250,003 | |||||||||||||||
Cargo revenue ton miles (millions) (e) | 3,329 | 3,425 | 3,316 | 2,805 | 2,614 | |||||||||||||||
Passenger load factor (f) | 84.0 | % | 83.6 | % | 82.4 | % | 82.9 | % | 83.4 | % | ||||||||||
Passenger revenue per available seat mile ("PRASM") (cents) | 13.90 | 13.70 | 13.13 | 13.18 | 13.11 | |||||||||||||||
Total revenue per available seat mile ("TRASM") (cents) | 15.18 | 15.00 | 14.40 | 14.42 | 15.15 | |||||||||||||||
Average yield per revenue passenger mile ("Yield") (cents) (g) | 16.55 | 16.38 | 15.93 | 15.90 | 15.72 | |||||||||||||||
Cost per available seat mile ("CASM") (cents) | 13.67 | 13.83 | 13.02 | 12.70 | 13.08 | |||||||||||||||
Average price per gallon of fuel, including fuel taxes | $ | 2.09 | $ | 2.25 | $ | 1.74 | $ | 1.49 | $ | 1.94 | ||||||||||
Fuel gallons consumed (millions) | 4,292 | 4,137 | 3,978 | 3,904 | 3,886 | |||||||||||||||
Average stage length (miles) (h) | 1,460 | 1,446 | 1,460 | 1,473 | 1,487 | |||||||||||||||
Average daily utilization of each mainline aircraft (hours:minutes) (i) | 10:39 | 10:45 | 10:27 | 10:06 | 10:24 |
(b)
(c)
(d)
(e)
(f)
(g)
ITEM 7. |
2017 Financial
2017 Operational Highlights
Outlook
Set forth below is a
In 2017, the Company had its best operational performance in its post-merger history. Operational reliability, service and experience underpin the Company’s long-term strategy. Our prioritiesmaterial changes therein for 2018 are continuedtop-tier operational reliability while strengthening our domestic network through growth, driving efficiency and productivity and continued investment in our employees, product and technology.
Economic Conditions. The aviation industry in 2018 is expected to show continued growth in the demand for air travel. Passenger numbers are expected to increase. Cargo volumes are also expected to grow, with some recovery in yields. Passenger revenue in all regions are expected to demonstrate improved performance in 2018.
Capacity. In 2018, the Company expects its consolidated ASMs to grow between 4% and 6% year-over-year. Most of this growth will be concentrated in our domestic network, especially in ourmid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers. Rebanking at our hubs is expected to drive significant additional connection opportunities. We will also expand flights innon-peak times of the year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability.
Fuel.The Company’s average aircraft fuel price per gallon including related taxes was $1.74 in 20172019 as compared to $1.492018. See "Results of Operations" in 2016. The pricePart II, Item 7. Management's Discussion and Analysis of jet fuel has increased since January 2016Financial Condition and remains volatile. Based on projected fuel consumption in 2018, a one dollar changeResults of Operations in the priceCompany's 2018 Annual Report on Form 10-K, filed with the SEC on February 28, 2019 (the "2018 Annual Report"), for analysis of a barrel of crude oil would change the Company’s annual fuel expense by approximately $96 million.
Results of Operations
In this section, we compare2018 results of operations for the year ended December 31, 2017 with results of operations for the year ended December 31, 2016, and results of operations for the year ended December 31, 2016 with results of operations for the year ended December 31, 2015.
2017as compared to 2016
2017.
Revenue.
The table below illustrates the year-over-year percentage change in the2017 | 2016 | Increase (Decrease) | % Change | |||||||||||||
Passenger—Mainline | $ | 26,552 | $ | 25,414 | $ | 1,138 | 4.5 | |||||||||
Passenger—Regional | 5,852 | 6,043 | (191) | (3.2) | ||||||||||||
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Total passenger revenue | 32,404 | 31,457 | 947 | 3.0 | ||||||||||||
Cargo | 1,035 | 876 | 159 | 18.2 | ||||||||||||
Other operating revenue | 4,297 | 4,223 | 74 | 1.8 | ||||||||||||
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Total operating revenue | $ | 37,736 | $ | 36,556 | $ | 1,180 | 3.2 | |||||||||
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2019 2018 Increase (Decrease) % Change Passenger revenue $ 39,625 $ 37,706 $ 1,919 5.1 Cargo 1,179 1,237 (58 ) (4.7 ) Other operating revenue 2,455 2,360 95 4.0 Total operating revenue $ 43,259 $ 41,303 $ 1,956 4.7
Increase (decrease) from 2016 (a): | ||||||||||||||||||||||||||||
Domestic | Atlantic | Pacific | Latin | Total Consolidated | Mainline | Regional | ||||||||||||||||||||||
Passenger revenue (in millions) | $ | 809 | $ | 103 | $ | (128) | $ | 163 | $ | 947 | $ | 1,138 | $ | (191) | ||||||||||||||
Passenger revenue | 4.2 % | 1.9% | (3.1)% | 5.8% | 3.0 % | 4.5 % | (3.2)% | |||||||||||||||||||||
Average fare per passenger | 0.1 % | 1.4% | — % | 4.1% | (0.4)% | (2.3)% | 2.0 % | |||||||||||||||||||||
Yield | (0.4)% | 0.9% | (2.2)% | 4.1% | 0.1 % | 0.6 % | 2.4 % | |||||||||||||||||||||
PRASM | (0.6)% | 1.5% | (5.8)% | 3.3% | (0.4)% | 0.1 % | 0.6 % | |||||||||||||||||||||
Passengers | 4.2 % | 0.5% | (3.1)% | 1.7% | 3.4 % | 6.9 % | (5.0)% | |||||||||||||||||||||
RPMs (traffic) | 4.7 % | 0.9% | (0.9)% | 1.6% | 2.8 % | 3.9 % | (5.4)% | |||||||||||||||||||||
ASMs (capacity) | 4.9 % | 0.4% | 2.9 % | 2.4% | 3.5 % | 4.4 % | (3.8)% | |||||||||||||||||||||
Passenger load factor (points) | (0.2) | 0.4 | (3.0) | (0.7) | (0.5) | (0.4) | (1.5) |
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger
Increase (decrease) from 2018 (a): | |||||||||||||||
Domestic | Atlantic | Pacific | Latin | Total | |||||||||||
Average fare per passenger | 3.4 | % | (1.9 | )% | (4.0 | )% | 5.9 | % | 2.4 | % | |||||
Passengers | 2.1 | % | 6.5 | % | 4.0 | % | 3.9 | % | 2.6 | % | |||||
RPMs (traffic) | 3.5 | % | 6.9 | % | 2.4 | % | 4.0 | % | 4.0 | % | |||||
ASMs (capacity) | 3.8 | % | 5.8 | % | 0.5 | % | 2.9 | % | 3.5 | % | |||||
Passenger load factor (points) | (0.2 | ) | 0.8 | 1.5 | 0.9 | 0.4 | |||||||||
(a) See Part II, Item 6. Selected Financial Data, of this report for the definition of these statistics. |
Cargo revenue increased $159 million, rest of the Company's trans-Pacific routes. The extent of the impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted. If traffic on the Company's trans-Pacific routes were to remain at these levels for an extended period, and/or 18.2%,routes in 2017 as comparedother parts of the Company's network begin to 2016 due to higher year-over-year international freight volume and yield.
see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected.
Expense.
The table below includes data related to the2017 | 2016 | Increase (Decrease) | % Change | |||||||||||||
Salaries and related costs | $ | 11,045 | $ | 10,275 | $ | 770 | 7.5 | |||||||||
Aircraft fuel | 6,913 | 5,813 | 1,100 | 18.9 | ||||||||||||
Landing fees and other rent | 2,240 | 2,165 | 75 | 3.5 | ||||||||||||
Regional capacity purchase | 2,232 | 2,197 | 35 | 1.6 | ||||||||||||
Depreciation and amortization | 2,149 | 1,977 | 172 | 8.7 | ||||||||||||
Aircraft maintenance materials and outside repairs | 1,856 | 1,749 | 107 | 6.1 | ||||||||||||
Distribution expenses | 1,349 | 1,303 | 46 | 3.5 | ||||||||||||
Aircraft rent | 621 | 680 | (59) | (8.7) | ||||||||||||
Special charges | 176 | 638 | (462) | NM | ||||||||||||
Other operating expenses | 5,657 | 5,421 | 236 | 4.4 | ||||||||||||
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Total operating expenses | $ | 34,238 | $ | 32,218 | $ | 2,020 | 6.3 | |||||||||
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2019 | 2018 | Increase (Decrease) | % Change | |||||||||||
Salaries and related costs | $ | 12,071 | $ | 11,458 | $ | 613 | 5.3 | |||||||
Aircraft fuel | 8,953 | 9,307 | (354 | ) | (3.8 | ) | ||||||||
Regional capacity purchase | 2,849 | 2,649 | 200 | 7.6 | ||||||||||
Landing fees and other rent | 2,543 | 2,449 | 94 | 3.8 | ||||||||||
Depreciation and amortization | 2,288 | 2,165 | 123 | 5.7 | ||||||||||
Aircraft maintenance materials and outside repairs | 1,794 | 1,767 | 27 | 1.5 | ||||||||||
Distribution expenses | 1,651 | 1,558 | 93 | 6.0 | ||||||||||
Aircraft rent | 288 | 433 | (145 | ) | (33.5 | ) | ||||||||
Special charges | 246 | 487 | (241 | ) | NM | |||||||||
Other operating expenses | 6,275 | 5,801 | 474 | 8.2 | ||||||||||
Total operating expenses | $ | 38,958 | $ | 38,074 | $ | 884 | 2.3 |
in average full-time equivalent employees,employees. Employee incentives included $157 million increase in profit sharing in 2019 as compared to 2018.
Aircraft fuel expense increased $1.1 billion, or 18.9%, primarily due to increased fuel prices and a 3.5% increase in capacity. The table below presents the significant changes in aircraft fuel cost per
(In millions) | % Change | Average price per gallon | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | % Change | ||||||||||||||||||||
Total aircraft fuel purchase cost excluding fuel hedge impacts | $ | 6,911 | $ | 5,596 | 23.5 | $ | 1.74 | $ | 1.43 | 21.7 | ||||||||||||||
Hedge losses reported in fuel expense | 2 | 217 | NM | — | 0.06 | NM | ||||||||||||||||||
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Fuel expense | 6,913 | 5,813 | 18.9 | 1.74 | 1.49 | 16.8 | ||||||||||||||||||
Total fuel consumption (gallons) | 3,978 | 3,904 | 1.9 |
Landing feeschanges and other rent increased $75 million, or 3.5%, in 2017 as compared to theyear-ago period due to higher rental and landing fee rates.
per gallon data):
2019 | 2018 | % Change | |||||||||
Fuel expense | $ | 8,953 | $ | 9,307 | (3.8 | ) | |||||
Total fuel consumption (gallons) | 4,292 | 4,137 | 3.7 | ||||||||
Average price per gallon | $ | 2.09 | $ | 2.25 | (7.1 | ) |
regional flying.
information technology.
Aircraft rent decreased $59 million, or 8.7%, in 2017 as compared to 20162018, primarily due to the purchase of leased aircraft and lower lease renewal rates.
the conversion of certain operating leases to finance leases.
2017 | 2016 | |||||||
Severance and benefit costs | $ | 116 | $ | 37 | ||||
Impairment of assets | 25 | 412 | ||||||
Cleveland airport lease restructuring | — | 74 | ||||||
Labor agreement costs | — | 64 | ||||||
(Gains) losses on sale of assets and other special charges | 35 | 51 | ||||||
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Total special charges | $ | 176 | $ | 638 | ||||
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2019 | 2018 | ||||||
Impairment of assets | $ | 171 | $ | 377 | |||
Severance and benefit costs | 16 | 41 | |||||
Termination of an engine maintenance service agreement | — | 64 | |||||
(Gains) losses on sale of assets and other special charges | 59 | 5 | |||||
Total special charges | $ | 246 | $ | 487 |
Nonoperating Income (Expense)
. The following table illustrates the year-over-year dollar and percentage changes in the Company’sCompany's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):
2017 | 2016 | Increase (Decrease) | % Change | |||||||||||||
Interest expense | $ | (643) | $ | (614) | $ | 29 | 4.7 | |||||||||
Interest capitalized | 84 | 72 | 12 | 16.7 | ||||||||||||
Interest income | 57 | 42 | 15 | 35.7 | ||||||||||||
Miscellaneous, net | 3 | (19) | (22) | NM | ||||||||||||
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Total nonoperating expense, net | $ | (499) | $ | (519) | $ | (20) | (3.9) | |||||||||
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2016 compared to 2015
Operating Revenue
The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except percentage changes):
2016 | 2015 | Increase (Decrease) | % Change | |||||||||||||
Passenger—Mainline | $ | 25,414 | $ | 26,333 | $ | (919) | (3.5) | |||||||||
Passenger—Regional | 6,043 | 6,452 | (409) | (6.3) | ||||||||||||
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Total passenger revenue | 31,457 | 32,785 | (1,328) | (4.1) | ||||||||||||
Cargo | 876 | 937 | (61) | (6.5) | ||||||||||||
Other operating revenue | 4,223 | 4,142 | 81 | 2.0 | ||||||||||||
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Total operating revenue | $ | 36,556 | $ | 37,864 | $ | (1,308) | (3.5) | |||||||||
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The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:
Increase (decrease) in 2016 from 2015 (a): | ||||||||||||||||||||||||||||
Domestic | Atlantic | Pacific | Latin | Total Consolidated | Mainline | Regional | ||||||||||||||||||||||
Passenger revenue (in millions) | $ | (523) | $ | (512) | $ | (215) | $ | (78) | $ | (1,328) | $ | (919) | $ | (409) | ||||||||||||||
Passenger revenue | (2.7)% | (8.6)% | (4.9)% | (2.7)% | (4.1)% | (3.5)% | (6.3)% | |||||||||||||||||||||
Average fare per passenger | (4.7)% | (5.2)% | (5.6)% | (7.9)% | (5.9)% | (8.0)% | (2.2)% | |||||||||||||||||||||
Yield | (3.8)% | (4.6)% | (7.4)% | (7.7)% | (4.8)% | (4.8)% | (3.1)% | |||||||||||||||||||||
PRASM | (4.2)% | (8.4)% | (6.7)% | (5.5)% | (5.4)% | (5.5)% | (2.7)% | |||||||||||||||||||||
Passengers | 2.1 % | (3.7)% | 0.7 % | 5.7 % | 2.0 % | 4.9 % | (4.3)% | |||||||||||||||||||||
RPMs (traffic) | 1.1 % | (4.3)% | 2.7 % | 5.4 % | 0.8 % | 1.4 % | (3.4)% | |||||||||||||||||||||
ASMs (capacity) | 1.6 % | (0.2)% | 2.0 % | 2.9 % | 1.4 % | 2.1 % | (3.7)% | |||||||||||||||||||||
Passenger load factor (points) | (0.3) | (3.3) | 0.6 | 2.0 | (0.5) | (0.6) | 0.3 |
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger revenue decreased $1.3 billion,
2019 | 2018 | Increase (Decrease) | % Change | |||||||||||
Interest expense | $ | (731 | ) | $ | (670 | ) | $ | 61 | 9.1 | |||||
Interest capitalized | 85 | 65 | 20 | 30.8 | ||||||||||
Interest income | 133 | 101 | 32 | 31.7 | ||||||||||
Unrealized gains (losses) on investments, net | 153 | (5 | ) | 158 | NM | |||||||||
Miscellaneous, net | (27 | ) | (72 | ) | (45 | ) | (62.5 | ) | ||||||
Total nonoperating expense, net | $ | (387 | ) | $ | (581 | ) | $ | (194 | ) | (33.4 | ) |
Cargo revenue decreased $61 million, or 6.5%, in 2016 as compared to 2015 due to lower freight yields and lower mail volumes year-over-year, partially offset by an increase in freight volumes. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel prices. Another contributing factor to the year-over-year decrease was a U.S. West Coast port labor dispute that resulted in an increase in air freight results in the first quarter of 2015. The labor dispute was resolved during the first quarter of 2015.
Operating Expense
The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):
2016 | 2015 | Increase (Decrease) | % Change | |||||||||||||
Salaries and related costs | $ | 10,275 | $ | 9,713 | $ | 562 | 5.8 | |||||||||
Aircraft fuel | 5,813 | 7,522 | (1,709) | (22.7) | ||||||||||||
Regional capacity purchase | 2,197 | 2,290 | (93) | (4.1) | ||||||||||||
Landing fees and other rent | 2,165 | 2,203 | (38) | (1.7) | ||||||||||||
Depreciation and amortization | 1,977 | 1,819 | 158 | 8.7 | ||||||||||||
Aircraft maintenance materials and outside repairs | 1,749 | 1,651 | 98 | 5.9 | ||||||||||||
Distribution expenses | 1,303 | 1,342 | (39) | (2.9) | ||||||||||||
Aircraft rent | 680 | 754 | (74) | (9.8) | ||||||||||||
Special charges | 638 | 326 | 312 | NM | ||||||||||||
Other operating expenses | 5,421 | 5,078 | 343 | 6.8 | ||||||||||||
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Total operating expenses | $ | 32,218 | $ | 32,698 | $ | (480) | (1.5) | |||||||||
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Salaries and related costs increased $562 million, or 5.8%, in 2016 as compared to 20152018, primarily due to higher pay rates and benefit expenses driven by new and extended collective bargaining agreements, an increaselevels of cash balances throughout the year.
The decrease in aircraft fuel expense was primarily attributable to decreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of a 1.4% increase in capacity. 2016 fuel expense includes the benefit of a $20 million fuel tax refund. The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):
(In millions) | % Change | Average price per gallon | ||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | % Change | ||||||||||||||||||||
Total aircraft fuel purchase cost excluding fuel hedge impacts | $ | 5,596 | $ | 6,918 | (19.1) | $ | 1.43 | $ | 1.78 | (19.7) | ||||||||||||||
Hedge losses reported in fuel expense | 217 | 604 | NM | 0.06 | 0.16 | NM | ||||||||||||||||||
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Fuel expense | 5,813 | 7,522 | (22.7) | 1.49 | 1.94 | (23.2) | ||||||||||||||||||
Total fuel consumption (gallons) | 3,904 | 3,886 | 0.5 |
Depreciation and amortization increased $158 million, or 8.7%, in 2016 as compared to 20152018, primarily due to additions of new aircraft, conversions of operating leases to capital leases, aircraft improvements, accelerated depreciationthe change in market value of certain assets related to several fleet typesof its equity investments and increases in information technologyderivative assets.
Aircraft maintenance materials See Notes 9 and outside repairs increased $98 million, or 5.9%, in 2016 as compared to 2015 primarily due to a year-over-year increase in airframe maintenance visits as a result of the cyclical timing of these visits and volume-driven increases in component costs, partially offset by a reduction in costs due to the timing of maintenance on certain engines.
Aircraft rent decreased $74 million, or 9.8%, in 2016 as compared to 2015 primarily due to lease expirations, the purchase or capital lease conversion of several operating leased aircraft and lower lease renewal rates for certain aircraft.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
2016 | 2015 | |||||||
Impairment of assets | $ | 412 | $ | 79 | ||||
Cleveland airport lease restructuring | 74 | — | ||||||
Labor agreement costs | 64 | 18 | ||||||
Severance and benefit costs | 37 | 107 | ||||||
(Gains) losses on sale of assets and other special charges | 51 | 122 | ||||||
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Total special charges | $ | 638 | $ | 326 | ||||
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See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $343
Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):
2016 | 2015 | Increase (Decrease) | % Change | |||||||||||||
Interest expense | $ | (614) | $ | (669) | $ | (55) | (8.2) | |||||||||
Interest capitalized | 72 | 49 | 23 | 46.9 | ||||||||||||
Interest income | 42 | 25 | 17 | 68.0 | ||||||||||||
Miscellaneous, net | (19) | (352) | (333) | (94.6) | ||||||||||||
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Total nonoperating expense, net | $ | (519) | $ | (947) | $ | (428) | (45.2) | |||||||||
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The decrease in interest expense of $55 million, or 8.2%, in 2016 as compared to 2015 was primarily due to the prepayment of certain debt issuances in 2015 and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft, the conversion of certain operating leases to capital leases and certain constructed airport assets accounted for as capital leases.
In 2015, Miscellaneous, net included losses of $80 million from fuel derivatives not qualifying for hedge accounting. Foreign currency losses were approximately $43 million and $129 million in 2016 and 2015, respectively. Foreign currency results included $8 million and $61 million of foreign exchange losses for 2016 and 2015, respectively, related to the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 also includes a $134 million special charge related to thewrite-off of unamortizednon-cash debt discounts for the early redemption of the 6% Notes due 2026 (the “2026 Notes”) and the 6% Notes due 2028 (the “2028 Notes”).
2019.
The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest.
Operating Activities
2017for 2019 as compared to 2016
2018. See "Liquidity and Capital Resources" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report for a discussion of the Company's sources and uses of cash in 2018 as compared to 2017.
2016 compared to 2015
Cash flow provided by operations for the year ended December 31, 2016 was $5.5 billion compared to $6.0 billion in the same period in 2015. Working capital changes reduced cash flow from operations by
$0.5 billion year-over-year in 2016 as compared to 2015. The following were significant working capital items in 2016:
Investing Activities
2017 compared to 2016
The Company’sCompany's capital expenditures were $4.0$4.5 billion and $3.2$4.1 billion in 2017and 2016,2019and 2018, respectively. The Company’sCompany's capital expenditures for both years were primarily attributable to the purchase of new aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.
2016 compared to 2015
The Company’s capital expenditures were $3.2 billion and $2.7 billion in 2016and 2015, respectively. The Company’s capital expenditures for both years were primarily attributable
regarding the BRW Term Loan Agreement and related agreements, see Notes 8, 9 and 13 to the financial statements included in Part II, Item 8 of this report.
Activities.
Significant financing events inRepurchases.
The Company usedprograms.
Issuances.
DuringIn 2017, UAL issued, Also, United received and United guaranteed, (i) $400recorded $350 million aggregate principal amount of unsecured 4.25%proceeds from the 4.875% Senior Notes due October 1, 2022,January 15, 2025 and (ii) $300 million aggregate principal amount of unsecured 5% Senior Notes due February 1, 2024.
In 2017, United and UAL, as borrower and guarantor, respectively, increased the term loan under the 2017 Credit Agreement by approximately $440 million.
During 2017, United borrowed approximately $497$105 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017.
2019. As of December 31, 2019, United had recorded approximately $39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport.
Payments.
During the year ended December 31,Significant financing events in 20162018 were as follows:
Repurchases.
The Company used2018.
In 2016, United completed two EETC offerings for a total principal amount of $2.0 billion. Of the $2.0 billion,Issuances.
In 2016, Also, United borrowed approximately $369$424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016.
2018.
Payments.
During the year ended December 31,Significant financing events in 2015 were as follows:
Share Repurchases
The Company used $1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs.
Debt Issuances
During 2015, United issued $1.4 billion of debt related to EETC offerings to finance aircraft.
In 2015, United borrowed approximately $590 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2015.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2015, the Company made debt and capital lease principal payments of $2.3 billion, including the following prepayments:
For additional information regarding these Liquidity and Capital Resource matters, see Notes 3,2, 10, 11 and 12 13to the financial statements included in Part II, Item 8 of this report. For information regardingnon-cash investing and financing activities, see the Company’sCompany's statements of consolidated cash flows.
S&P | Fitch | |||||||||
UAL | Ba2 | BB | ||||||||
United | * | BB | ||||||||
*The credit agency does not issue corporate credit ratings for subsidiary entities. |
These credit ratings are below investment grade levels.levels; however, the Company has been able to secure financing with investment grade credit ratings for certain EETCs and term loans. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company.
Pension and other postretirement plans | Note | |
Long-term debt and debt covenants | Note 10 | |
Leases and capacity purchase agreements | Note 11 | |
Commitments and contingencies | Note 13 |
2018 | 2019 | 2020 | 2021 | 2022 | After 2022 | Total | ||||||||||||||||||||||
Long-term debt (a) | $ | 1.6 | $ | 1.2 | $ | 1.2 | $ | 1.2 | $ | 1.5 | $ | 6.9 | $ | 13.4 | ||||||||||||||
Capital lease obligations—principal portion | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.8 | 1.1 | |||||||||||||||||||||
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Total debt and capital lease obligations | 1.7 | 1.3 | 1.3 | 1.3 | 1.6 | 7.7 | 14.5 | |||||||||||||||||||||
Interest on debt and capital lease obligations (b) | 0.6 | 0.5 | 0.5 | 0.4 | 0.4 | 1.0 | 3.4 | |||||||||||||||||||||
Aircraft operating lease obligations | 1.0 | 0.9 | 0.6 | 0.5 | 0.4 | 1.5 | 4.9 | |||||||||||||||||||||
Regional CPAs (c) | 2.0 | 1.8 | 1.6 | 1.5 | 1.4 | 3.2 | 11.5 | |||||||||||||||||||||
Other operating lease obligations | 1.2 | 1.1 | 1.2 | 0.9 | 0.8 | 6.1 | 11.3 | |||||||||||||||||||||
Postretirement obligations (d) | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.6 | 1.1 | |||||||||||||||||||||
Pension obligations (e) | — | — | — | — | 0.1 | 0.7 | 0.8 | |||||||||||||||||||||
Capital purchase obligations (f) | 3.2 | 2.9 | 2.1 | 2.4 | 1.8 | 9.8 | 22.2 | |||||||||||||||||||||
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Total contractual obligations | $ | 9.8 | $ | 8.6 | $ | 7.4 | $ | 7.1 | $ | 6.6 | $ | 30.6 | $ | 69.7 | ||||||||||||||
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2020 | 2021 | 2022 | 2023 | 2024 | After 2024 | Total | ||||||||||||||||||||||
Long-term debt (a) | $ | 1.4 | $ | 1.4 | $ | 1.8 | $ | 0.8 | $ | 3.1 | $ | 6.2 | $ | 14.7 | ||||||||||||||
Finance lease obligations—principal portion | 0.1 | 0.1 | — | — | — | 0.1 | 0.3 | |||||||||||||||||||||
Total debt and finance lease obligations | 1.5 | 1.5 | 1.8 | 0.8 | 3.1 | 6.3 | 15.0 | |||||||||||||||||||||
Interest on debt and finance lease obligations (b) | 0.6 | 0.5 | 0.4 | 0.4 | 0.3 | 0.7 | 2.9 | |||||||||||||||||||||
Operating lease obligations | 0.9 | 0.8 | 0.6 | 0.6 | 0.6 | 4.2 | 7.7 | |||||||||||||||||||||
Regional CPAs (c) | 2.9 | 2.9 | 2.4 | 1.5 | 1.3 | 4.7 | 15.7 | |||||||||||||||||||||
Postretirement obligations (d) | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.3 | 0.8 | |||||||||||||||||||||
Pension obligations (e) | — | — | — | — | 0.4 | 0.6 | 1.0 | |||||||||||||||||||||
Capital purchase obligations (f) | 6.9 | 4.3 | 2.0 | 1.0 | 1.2 | 11.3 | 26.7 | |||||||||||||||||||||
Total contractual obligations | $ | 12.9 | $ | 10.1 | $ | 7.3 | $ | 4.4 | $ | 7.0 | $ | 28.1 | $ | 69.8 |
Surety Bonds.
As of December 31,As of December 31, 2017,2019, United also had $414 million of surety bonds securing various obligations with expiration dates through 2023.
As of December 31, 2017, United is the guarantor of $157$132 million of aircraft mortgage debt issued by one of United’sUnited's regional carriers. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased cost provisions in the $157$132 million of aircraft mortgage debt are similar to those in certain of the Company’sCompany's debt agreements. See discussion underIncreased Cost Provisions,
The total amount of EETC funds held in escrow was $328 million as of December 31, 2019. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information.
Fuel Consortia.United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The
consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed throughtax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2017, approximately $1.5 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2017, the Company’s contingent exposure was approximately $244 million principal amount of such bonds based on its recent consortia participation. The Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when thetax-exempt bonds are paid in full, which ranges from 2022 to 2049. The Company did not record a liability at the time these indirect guarantees were made.
Revenue Recognition. The Company records passenger ticket sales
Fees charged in association with changes or extensions tonon-refundable tickets are recorded as other revenue at the time the fee is incurred. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided. Change fees related tonon-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous sale. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. Refundable tickets expire after one year from the date of issuance.
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards UpdateNo. 2014-09,Revenue from Contracts with Customers (Topic 606)(“Topic 606”). Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard impacts the classification of certain revenue streams and affects the timing of revenue and expense recognition for others. For the Company, the most significant impact of the standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated operations. For 2016 and 2017, the amount to be
reclassified at adoption of the new standard from other operating revenue into passenger revenue under Topic 606 is approximately $2.0 billion and $2.1 billion, respectively. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees, and will no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees, which were previously recognized when received, will be recognized when transportation is provided. On January 1, 2018, we adopted Topic 606 using the full-retrospective approach. See Note 1 to the financial statements included in Part II, Item 8 of this report for additional information on recently issued accounting standards.
Frequent Flyer Accounting.United’s MileagePlus program is designed to increase customer loyalty. Program participants earn miles by flying on United Express, Star Alliance members and certain other participating airlines. Program participantsairlines that participate in the program. Members can also earn miles through purchasesby purchasing goods and services from otherour network of non-airline partners that participate in United’s loyalty program. partners. We have contracts to sell miles to these partners whichwith the terms extending from one to nine years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposedgovernment-imposed fees), discounted or upgraded air travel andnon-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.
The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected redemption of miles, as the best estimate of selling priceare redeemed for these miles. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty statusair travel and geographic region. The estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors, including redemption patterns of various customer groups.
non-air travel awards.
• | MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue. |
• | Marketing – United has a performance obligation to provide Chase access to United's customer list and the use of United's brand. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase. |
• | Advertising – United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and in-flight advertising. Advertising revenue is recorded to Other operating revenue as miles are delivered to Chase. |
• | Other travel-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel. |
separately identifiable performance obligations. The fair value of the elementsseparately identifiable performance obligations is determined using management’smanagement's estimated selling price of each element.component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of theCo-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elementscomponents to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated selling priceconsideration from the Co-Brand Agreement on a prospective basis.
The Company accounts forprobability that an account will redeem its current miles sold and awarded that will never be redeemed by program members, which we refer to as breakage.balance. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account
inactivity.information. The Company’sCompany's estimate of the expected expirationbreakage of miles requires significant management judgment. Current and future changes to expirationbreakage assumptions, or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the programs.
program. For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed.
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Long-Lived Assets.
Frequent flyer deferred revenue at December 31, 2019 (in millions) | $ | 5,276 | ||
Percentage of miles earned not expected to be redeemed | 14 | % | ||
Impact of 1% change in outstanding miles expected to be redeemed or weighted average ticket value on deferred revenue (in millions) | $ | 53 |
The Company records assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets. The Company has generally estimated the lives of those aircraft to be between 25 and 30 years. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets. Residual values are based on whencollateral and determined that the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both depreciable lives and residual values are revised periodically as facts and circumstances arise to recognize changes in the Company’s fleet plan and other relevant information. Aone-year increase in the average depreciable lifevalue of the Company’s flight equipment would reduce annual depreciation expense on flight equipment by approximately $76 million.
The Company evaluatescollateral is sufficient to recover the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing,the BRW Term Loan. As a result, the Company has generally identifiedconcluded that the aircraft fleet type as the lowest level of identifiable cash flows for purposes of testing aircraft for impairment. An impairment chargeBRW Term Loan is recognized when the asset’snot impaired. The carrying value exceeds its net undiscountedof the BRW Term Loan represents the original loan amount plus accrued and unpaid interest and certain expenses associated with the loan origination.
comparable companies, along with AVH's own EBITDAR levels.
material impact on future results.
Defined Benefit Plan Accounting.We sponsor defined benefit pension plans for eligible employees and retirees. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-term rate of return on the plan assets.
United’s pension plans’ under-funded status was $1.9 billion at December 31, 2017. Funding requirements fortax-qualified defined benefit pension plans are determined by government regulations. In 2018, we anticipate
contributing at least $420 million to our pension plans. The fair value of the plans’ assets was $3.9 billion at December 31, 2017.
When calculating pension expense for 2018, the Company assumed that its plans’ assets would generate a long-term rate of return of approximately 7.3%. The expected long-term rate of return assumption was developed based on historical experience and input from the trustee managing the plans’ assets. The expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on a goal of earning the highest rate of return while maintaining risk at acceptable levels. Our projected long-term rate of return reflects the active management of our plans’ assets. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review actual asset allocation and the pension plans’ investments are periodically rebalanced to the targeted allocation when considered appropriate.
The defined benefit pension plans’ assets consist of return generating investments and risk mitigating investments which are held through direct ownership or through interests in common collective trusts. Return generating investments include primarily equity securities, fixed-income securities and alternative investments (e.g. private equity and hedge funds). Risk mitigating investments include primarily U.S. government and investment grade corporate fixed-income securities. The allocation of assets was as follows at December 31, 2017:
Percent of Total | Expected Long-Term Rate of Return | |||||||
Equity securities | 36 % | 9.5 % | ||||||
Fixed-income securities | 37 | 5.5 | ||||||
Alternatives | 16 | 7.3 | ||||||
Other | 11 | 7.3 |
Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on plan assets by 50 basis points (from 7.3% to 6.8%) would increase estimated 2018 pension expense by approximately $20 million. Future pension obligations for United’s plans were discounted using a weighted average rate of 3.65% at December 31, 2017. The Company selected the discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2017 that would provide the necessary cash flows to match the projected benefit payments. The pension liability and future pension expense both increase as the discount rate is reduced. Lowering the discount rate by 50 basis points (from 3.65% to 3.15%) would increase the pension liability at December 31, 2017 by approximately $651 million and increase the estimated 2018 pension expense by approximately $80 million. Future changes in plan asset returns, plan provisions, assumed discount rates, pension funding law and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future.
Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting standards for defined benefit pension plans, those gains and losses are not required to be recognized currently as pension benefit expense, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees. All gains and losses in accumulated other comprehensive income are amortized to expense over the remaining years of service of the covered active employees. At December 31, 2017 and 2016, the Company had unrecognized actuarial losses for pension benefit plans of $1.6 billion and $1.5 billion, respectively, recorded in accumulated other comprehensive income.
Other Postretirement Benefit Plan Accounting.United’s postretirement plan provides certain health care benefits, primarily in the United States, to retirees and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as “Other Benefits.” United also has retiree medical programs that permit retirees who meet certain age and service requirements to continue medical coverage between retirement and
Medicare eligibility. Eligible employees are required to pay a portion of the costs of their retiree medical benefits, which in some cases may be offset by accumulated unused sick time at the time of their retirement. Plan benefits are subject toco-payments, deductibles and other limits as described in the plans.
The Company accounts for other postretirement benefits by recognizing the difference between plan assets and obligations, or the plan’s funded status, in its financial statements. Other postretirement benefit expense is recognized on an accrual basis over employees’ approximate service periods and is generally calculated independently of funding decisions or requirements. United has not been required topre-fund its plan obligations, which has resulted in a significant net obligation, as discussed below. The Company’s benefit obligation was $1.7 billion for the other postretirement benefit plans at December 31, 2017 and 2016.
The calculation of other postretirement benefit expense and obligations requires the use of a number of assumptions, including the assumed discount rate for measuring future payment obligations and the health care cost trend rate. The Company determines the appropriate discount rate for each of the plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The Company’s weighted average discount rate to determine its benefit obligations as of December 31, 2017 was 3.63%, as compared to 4.07% for December 31, 2016. The health care cost trend rate assumed for 2017 was 6.50%, declining to 5.0% in 2023, as compared to assumed trend rate for 2018 of 6.25%, declining to 5.0% in 2023. A 1% increase in assumed health care trend rates would increase the Company’s total service and interest cost for the year ended December 31, 2017 by $11 million; whereas, a 1% decrease in assumed health care trend rates would decrease the Company’s total service and interest cost for the year ended December 31, 2017 by $8 million. A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement benefit liability by approximately $185 million and increase the estimated 2017 benefits expense by approximately $8 million.
Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions and prior service credits result from a retroactive reduction in benefits due under the plans. Under the applicable accounting standards for postretirement welfare benefit plans, actuarial gains and losses and prior service credits are not required to be recognized currently, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees or the average life expectancy of inactive participants. At December 31, 2017 and 2016, the Company had unrecognized actuarial gains for postretirement welfare benefit plans of $301 million and $384 million, respectively, recorded in accumulated other comprehensive income.
Income Taxes. The Tax Act, among other changes, reduces the federal corporate income tax rate to 21% beginning in 2018, requires companies to pay aone-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, we had not completed our analysis of all aspects of the Tax Act. However, we have made a provisional estimate for its effect on our existing deferred tax balances and theone-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Forward-Looking Information
Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Variable rate debt Carrying value of variable rate debt at December 31 Fixed rate debt Carrying value of fixed rate debt at December 31 Fair value of fixed rate debt at December 31 Impact of 100 basis point increase in market rates on fair value 2020.Company’sCompany's policy is to manage interest rate risk through a combination of fixed and variable rate debt. The following table summarizes information related to the Company’sCompany's interest rate market risk at December 31 (in millions): 2017 2016 $ 3,342 $ 2,582 Impact of 100 basis point increase on projected interest expense for the following year 33 25 9,926 8,185 10,349 8,469 (403) (340) 2019 2018 Variable rate debt Carrying value of variable rate debt at December 31 $ 3,408 $ 3,500 Impact of 100 basis point increase on projected interest expense for the following year 33 35 Fixed rate debt Carrying value of fixed rate debt at December 31 11,144 9,945 Fair value of fixed rate debt at December 31 11,736 9,901 Impact of 100 basis point increase in market rates on fair value (458 ) (378 ) 20172019 levels, a 100 basis point increase in interest rates would result in a corresponding increase in the Company’sCompany's interest income of approximately $45$47 million during 2018. level of aircraft fuel can significantly affect the Company’sCompany's operations, results of operations, financial position and liquidity.price of aircraft fuel has fluctuated substantially in the past several years and in order to lower its exposure to unpredictable increases in the market prices of aircraft fuel, the Company has historically hedged a portion of its planned fuel requirements. The Company’sCompany's current strategy is to not enter into transactions to hedge fuel price volatility, although the Company regularly reviews its policy based on market conditions and other factors. The Company’s 2018Company's 2020 forecasted fuel consumption is presently approximately four4.5 billion gallons, and based on this forecast, a one dollarone-dollar change in the price of a barrel of crude oil would change the Company’sCompany's annual fuel expense by approximately $96$108 million.Company’sCompany's results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Some of the Company’sCompany's more significant foreign currency exposures include the Canadian dollar, Chinese renminbi, European euro, British pound and Japanese yen. The Company’sCompany's current strategy is to not enter into transactions to hedge its foreign currency sales, although the Company regularly reviews its policy based on market conditions and other factors.10 percent1% strengthening in the value of the U.S. dollar from December 31, 20172019 levels relative to each of the currencies in which the Company has foreign currency exposure would result in a decrease inpre-tax income of approximately $245$23 million for the year ending December 31, 2018.2020. This sensitivity analysis was prepared based upon projected 20182020 foreign currency-denominated revenues and expenses as of December 31, 2017.2019.
United ContinentalAirlines Holdings, Inc.
Frequent Flyer Deferred Revenue Estimate of Miles not Expected to be Redeemed | ||
Description of the Matter | At December 31, 2019, the Company's frequent flyer deferred revenue liability was $5.3 billion. As described in Note 1 of the consolidated financial statements, members of the Company's MileagePlus program earn miles through the Company's flights, purchases with other airlines or non-airline partners or through co-branded credit card partnerships. Consideration is attributed to the miles earned or sold and deferred until the miles are redeemed and air travel is completed, or non-air awards are shipped. Miles can be redeemed for air travel and non-travel awards. | |
Auditing management's breakage estimate (the estimate of miles earned that will not be redeemed) was complex and highly judgmental due to the significant assumptions used in the estimate. Breakage is estimated annually using prior years' data and a regression analysis to estimate future breakage, which can be impacted by changes in customer behavior driven by program changes or redemption opportunities that would not be reflected in historical redemption data. | ||
How We Addressed the Matter in Our Audit | We tested the Company's design and operating effectiveness of internal controls that address the risk of material misstatement relating to the breakage estimate. This included testing controls over management's review of the significant assumptions and other inputs used in the estimate, including redemption patterns of various customer groups. | |
Our audit procedures included, among others, testing the methodology and assumptions used to develop the breakage estimate, including testing the completeness and accuracy of the underlying data used to develop these assumptions. In addition, we assessed the trending of the breakage rate over time to ensure changes were in line with expectations. We involved a valuation specialist to test management's statistical analysis supporting the breakage assumption. | ||
BRW Term Loan Impairment Analysis | ||
Description of the Matter | At December 31, 2019, the Company had a term loan agreement with, among others, BRW Aviation Holdings LLC and BRW Aviation LLC, dated as of November 29, 2018 (the "BRW Term Loan"), which had a carrying value of $499 million. The BRW Term Loan is collateralized by common shares of Avianca Holdings S.A. ("AVH") and the equity of BRW (such shares and equity, collectively, the "BRW Loan Collateral"). As discussed in Note 8 of the consolidated financial statements, the fair market value of the BRW Loan Collateral is estimated using an income approach and a market approach, with equal weight applied to each approach. Under the income approach, the value was estimated by discounting expected future cash flows to a single present value amount. Under the market approach, the value was estimated by reference to multiples of enterprise value to earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR") for a group of publicly-traded market comparable companies, along with AVH's own EBITDAR levels. | |
Auditing management's valuation of the BRW Loan Collateral was highly judgmental due to the significant estimation required in determining the fair value. The fair value estimate was sensitive to significant assumptions such as multiples of enterprise value to EBITDAR, revenue and cost growth rates and the discount rate, each of which is affected by expectations about future market or economic conditions. As a result of the subjectivity of the assumptions, adverse changes to management's estimates could reduce the underlying cash flows used to estimate fair value and trigger impairment of the loan. | ||
How We Addressed the Matter in Our Audit | We tested the Company's design and operating effectiveness of internal controls that address the risk of material misstatement relating to the fair market value of the BRW Loan Collateral. This included testing controls over management's review of the significant assumptions used in the income approach and market approach such as multiples of enterprise value to EBITDAR, revenue growth rates, costs per available seat kilometer and the discount rate, which is affected by expectations about future market or economic conditions. | |
To test the estimated fair value of the BRW Loan Collateral, we performed audit procedures that included, among others, assessing the fair value methodology used by management and evaluating the significant assumptions used in the valuation model. We compared significant assumptions to current industry, market and economic trends, and to AVH's historical results and/or other guideline companies within the same industry. We performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the BRW Loan Collateral that would result from changes in assumptions. We also involved a valuation specialist to assist in our evaluation of the Company's valuation methodology and discount rate. |
Indefinite-lived Intangible Assets (Route Authorities) Impairment Analysis | ||
Description of the Matter | At December 31, 2019, the Company's route authorities indefinite-lived intangible assets were $1.15 billion. As discussed in Note 1 of the consolidated financial statements, indefinite-lived assets are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. | |
Auditing management's annual route authorities indefinite-lived intangibles impairment test was complex and highly judgmental due to the significant estimation required in determining the fair value. The fair value estimate was sensitive to significant assumptions such as revenue growth rate, cost per available seat mile and the discount rate, each of which is affected by expectations about future market or economic conditions. As a result of the subjectivity of the assumptions, adverse changes to management's estimates could reduce the underlying cash flows used to estimate fair value and trigger impairment charges. | ||
How We Addressed the Matter in Our Audit | We tested the Company's design and operating effectiveness of internal controls that address the risk of material misstatement relating to the estimate of fair value of route authorities used in the annual impairment test. This included testing controls over management's review of the significant assumptions used in the discounted cash flow methodology, including revenue growth rate, cost per available seat mile and the discount rate. | |
To test the estimated fair value of the Company's route authorities indefinite-lived intangibles, we performed audit procedures that included, among others, assessing the fair value methodology used by management and evaluating the significant assumptions used in the valuation model. We compared significant assumptions to current industry, market and economic trends, and to the Company's historical results. We assessed the historical accuracy of management's estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the intangible assets that would result from changes in assumptions. We also involved a valuation specialist to assist in our evaluation of the Company's valuation methodology and discount rate. |
United Airlines, Inc.
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating revenue: | ||||||||||||
Passenger—Mainline | $ | 26,552 | $ | 25,414 | $ | 26,333 | ||||||
Passenger—Regional | 5,852 | 6,043 | 6,452 | |||||||||
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Total passenger revenue | 32,404 | 31,457 | 32,785 | |||||||||
Cargo | 1,035 | 876 | 937 | |||||||||
Other operating revenue | 4,297 | 4,223 | 4,142 | |||||||||
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Total operating revenue | 37,736 | 36,556 | 37,864 | |||||||||
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Operating expense: | ||||||||||||
Salaries and related costs | 11,045 | 10,275 | 9,713 | |||||||||
Aircraft fuel | 6,913 | 5,813 | 7,522 | |||||||||
Landing fees and other rent | 2,240 | 2,165 | 2,203 | |||||||||
Regional capacity purchase | 2,232 | 2,197 | 2,290 | |||||||||
Depreciation and amortization | 2,149 | 1,977 | 1,819 | |||||||||
Aircraft maintenance materials and outside repairs | 1,856 | 1,749 | 1,651 | |||||||||
Distribution expenses | 1,349 | 1,303 | 1,342 | |||||||||
Aircraft rent | 621 | 680 | 754 | |||||||||
Special charges (Note 14) | 176 | 638 | 326 | |||||||||
Other operating expenses | 5,657 | 5,421 | 5,078 | |||||||||
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Total operating expenses | 34,238 | 32,218 | 32,698 | |||||||||
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Operating income | 3,498 | 4,338 | 5,166 | |||||||||
Nonoperating income (expense): | ||||||||||||
Interest expense | (643) | (614) | (669) | |||||||||
Interest capitalized | 84 | 72 | 49 | |||||||||
Interest income | 57 | 42 | 25 | |||||||||
Miscellaneous, net (Note 14) | 3 | (19) | (352) | |||||||||
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Total nonoperating expense, net | (499) | (519) | (947) | |||||||||
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Income before income taxes | 2,999 | 3,819 | 4,219 | |||||||||
Income tax expense (benefit) (Note 14) | 868 | 1,556 | (3,121) | |||||||||
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Net income | $ | 2,131 | $ | 2,263 | $ | 7,340 | ||||||
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Earnings per share, basic | $ | 7.04 | $ | 6.86 | $ | 19.52 | ||||||
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Earnings per share, diluted | $ | 7.02 | $ | 6.85 | $ | 19.47 | ||||||
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2019 | 2018 (a) | 2017 (a) | |||||||||
Operating revenue: | |||||||||||
Passenger revenue | $ | 39,625 | $ | 37,706 | $ | 34,460 | |||||
Cargo | 1,179 | 1,237 | 1,114 | ||||||||
Other operating revenue | 2,455 | 2,360 | 2,210 | ||||||||
Total operating revenue | 43,259 | 41,303 | 37,784 | ||||||||
Operating expense: | |||||||||||
Salaries and related costs | 12,071 | 11,458 | 10,941 | ||||||||
Aircraft fuel | 8,953 | 9,307 | 6,913 | ||||||||
Regional capacity purchase | 2,849 | 2,649 | 2,268 | ||||||||
Landing fees and other rent | 2,543 | 2,449 | 2,310 | ||||||||
Depreciation and amortization | 2,288 | 2,165 | 2,096 | ||||||||
Aircraft maintenance materials and outside repairs | 1,794 | 1,767 | 1,856 | ||||||||
Distribution expenses | 1,651 | 1,558 | 1,435 | ||||||||
Aircraft rent | 288 | 433 | 621 | ||||||||
Special charges | 246 | 487 | 176 | ||||||||
Other operating expenses | 6,275 | 5,801 | 5,550 | ||||||||
Total operating expense | 38,958 | 38,074 | 34,166 | ||||||||
Operating income | 4,301 | 3,229 | 3,618 | ||||||||
Nonoperating income (expense): | |||||||||||
Interest expense | (731 | ) | (670 | ) | (626 | ) | |||||
Interest capitalized | 85 | 65 | 74 | ||||||||
Interest income | 133 | 101 | 57 | ||||||||
Unrealized gains (losses) on investments, net | 153 | (5 | ) | — | |||||||
Miscellaneous, net | (27 | ) | (72 | ) | (100 | ) | |||||
Total nonoperating expense, net | (387 | ) | (581 | ) | (595 | ) | |||||
Income before income taxes | 3,914 | 2,648 | 3,023 | ||||||||
Income tax expense | 905 | 526 | 880 | ||||||||
Net income | $ | 3,009 | $ | 2,122 | $ | 2,143 | |||||
Earnings per share, basic | $ | 11.63 | $ | 7.70 | $ | 7.08 | |||||
Earnings per share, diluted | $ | 11.58 | $ | 7.67 | $ | 7.06 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income | $ | 2,131 | $ | 2,263 | $ | 7,340 | ||||||
Other comprehensive income (loss), net change related to: | ||||||||||||
Employee benefit plans, net of taxes | (195) | (313) | 70 | |||||||||
Fuel derivative financial instruments, net of taxes | 1 | 316 | 182 | |||||||||
Investments and other, net of taxes | (6) | (1) | (4) | |||||||||
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Total other comprehensive income (loss), net | (200) | 2 | 248 | |||||||||
|
|
|
|
|
| |||||||
Total comprehensive income, net | $ | 1,931 | $ | 2,265 | $ | 7,588 | ||||||
|
|
|
|
|
|
Year Ended December 31, | |||||||||||
2019 | 2018 (a) | 2017 (a) | |||||||||
Net income | $ | 3,009 | $ | 2,122 | $ | 2,143 | |||||
Other comprehensive income (loss), net of tax: | |||||||||||
Employee benefit plans | 80 | 342 | (195 | ) | |||||||
Investments and other | 5 | (4 | ) | (5 | ) | ||||||
Total other comprehensive income (loss), net of tax | 85 | 338 | (200 | ) | |||||||
Total comprehensive income, net | $ | 3,094 | $ | 2,460 | $ | 1,943 |
At December 31, | |||||||
ASSETS | 2019 | 2018 (a) | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,762 | $ | 1,694 | |||
Short-term investments | 2,182 | 2,256 | |||||
Receivables, less allowance for doubtful accounts (2019—$9; 2018—$8) | 1,364 | 1,426 | |||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019—$425; 2018—$412) | 1,072 | 985 | |||||
Prepaid expenses and other | 814 | 733 | |||||
Total current assets | 8,194 | 7,094 | |||||
Operating property and equipment: | |||||||
Flight equipment | 35,421 | 32,599 | |||||
Other property and equipment | 7,926 | 6,889 | |||||
Purchase deposits for flight equipment | 1,360 | 1,177 | |||||
Total operating property and equipment | 44,707 | 40,665 | |||||
Less—Accumulated depreciation and amortization | (14,537 | ) | (13,266 | ) | |||
Total operating property and equipment, net | 30,170 | 27,399 | |||||
Operating lease right-of-use assets | 4,758 | 5,262 | |||||
Other assets: | |||||||
Goodwill | 4,523 | 4,523 | |||||
Intangibles, less accumulated amortization (2019—$1,440; 2018—$1,380) | 3,009 | 3,159 | |||||
Restricted cash | 106 | 105 | |||||
Notes receivable, net | 671 | 516 | |||||
Investments in affiliates and other, net | 1,180 | 966 | |||||
Total other assets | 9,489 | 9,269 | |||||
Total assets | $ | 52,611 | $ | 49,024 |
At December 31, | ||||||||
|
|
|
| |||||
ASSETS | 2017 | 2016 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,482 | $ | 2,179 | ||||
Short-term investments | 2,316 | 2,249 | ||||||
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10) | 1,340 | 1,176 | ||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance | 924 | 873 | ||||||
Prepaid expenses and other | 1,051 | 832 | ||||||
|
|
|
| |||||
Total current assets | 7,113 | 7,309 | ||||||
|
|
|
| |||||
Operating property and equipment: | ||||||||
Owned— | ||||||||
Flight equipment | 28,692 | 25,873 | ||||||
Other property and equipment | 6,946 | 5,652 | ||||||
|
|
|
| |||||
Total owned property and equipment | 35,638 | 31,525 | ||||||
Less—Accumulated depreciation and amortization | (11,159) | (9,975) | ||||||
|
|
|
| |||||
Total owned property and equipment, net | 24,479 | 21,550 | ||||||
|
|
|
| |||||
Purchase deposits for flight equipment | 1,344 | 1,059 | ||||||
Capital leases— | ||||||||
Flight equipment | 1,151 | 1,319 | ||||||
Other property and equipment | 11 | 331 | ||||||
|
|
|
| |||||
Total capital leases | 1,162 | 1,650 | ||||||
Less—Accumulated amortization | (777) | (941) | ||||||
|
|
|
| |||||
Total capital leases, net | 385 | 709 | ||||||
|
|
|
| |||||
Total operating property and equipment, net | 26,208 | 23,318 | ||||||
|
|
|
| |||||
Other assets: | ||||||||
Goodwill | 4,523 | 4,523 | ||||||
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234) | 3,539 | 3,632 | ||||||
Deferred income taxes | — | 655 | ||||||
Restricted cash | 91 | 124 | ||||||
Investments in affiliates and other, net | 852 | 579 | ||||||
|
|
|
| |||||
Total other assets | 9,005 | 9,513 | ||||||
|
|
|
| |||||
Total assets | $ | 42,326 | $ | 40,140 | ||||
|
|
|
|
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
At December 31, | ||||||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | 2017 | 2016 | ||||||
Current liabilities: | ||||||||
Advance ticket sales | $ | 3,876 | $ | 3,730 | ||||
Frequent flyer deferred revenue | 2,176 | 2,135 | ||||||
Accounts payable | 2,196 | 2,139 | ||||||
Accrued salaries and benefits | 2,166 | 2,307 | ||||||
Current maturities of long-term debt | 1,565 | 849 | ||||||
Current maturities of capital leases | 128 | 116 | ||||||
Other | 569 | 1,010 | ||||||
|
|
|
| |||||
Total current liabilities | 12,676 | 12,286 | ||||||
|
|
|
| |||||
Long-term debt | 11,703 | 9,918 | ||||||
Long-term obligations under capital leases | 996 | 822 | ||||||
Other liabilities and deferred credits: | ||||||||
Frequent flyer deferred revenue | 2,565 | 2,748 | ||||||
Postretirement benefit liability | 1,602 | 1,581 | ||||||
Pension liability | 1,921 | 1,892 | ||||||
Advanced purchase of miles | — | 430 | ||||||
Deferred income taxes | 225 | — | ||||||
Lease fair value adjustment, net | 198 | 277 | ||||||
Other | 1,634 | 1,527 | ||||||
|
|
|
| |||||
Total other liabilities and deferred credits | 8,145 | 8,455 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock | — | — | ||||||
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 286,973,195 and 314,612,744 shares at December 31, 2017 and 2016, respectively | 3 | 3 | ||||||
Additional capital invested | 6,098 | 6,569 | ||||||
Retained earnings | 4,621 | 3,427 | ||||||
Stock held in treasury, at cost | (769) | (511) | ||||||
Accumulated other comprehensive loss | (1,147) | (829) | ||||||
|
|
|
| |||||
Total stockholders’ equity | 8,806 | 8,659 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 42,326 | $ | 40,140 | ||||
|
|
|
|
At December 31, | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | 2019 | 2018 (a) | |||||
Current liabilities: | |||||||
Advance ticket sales | $ | 4,819 | $ | 4,381 | |||
Accounts payable | 2,703 | 2,363 | |||||
Frequent flyer deferred revenue | 2,440 | 2,286 | |||||
Accrued salaries and benefits | 2,271 | 2,184 | |||||
Current maturities of long-term debt | 1,407 | 1,230 | |||||
Current maturities of finance leases | 46 | 123 | |||||
Current maturities of operating leases | 686 | 719 | |||||
Other | 566 | 553 | |||||
Total current liabilities | 14,938 | 13,839 | |||||
Long-term debt | 13,145 | 12,215 | |||||
Long-term obligations under finance leases | 220 | 224 | |||||
Long-term obligations under operating leases | 4,946 | 5,276 | |||||
Other liabilities and deferred credits: | |||||||
Frequent flyer deferred revenue | 2,836 | 2,719 | |||||
Postretirement benefit liability | 789 | 1,295 | |||||
Pension liability | 1,446 | 1,576 | |||||
Deferred income taxes | 1,736 | 828 | |||||
Other | 1,024 | 1,010 | |||||
Total other liabilities and deferred credits | 7,831 | 7,428 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Preferred stock | — | — | |||||
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 251,216,381 and 269,914,769 shares at December 31, 2019 and 2018, respectively | 3 | 3 | |||||
Additional capital invested | 6,129 | 6,120 | |||||
Stock held in treasury, at cost | (3,599 | ) | (1,993 | ) | |||
Retained earnings | 9,716 | 6,715 | |||||
Accumulated other comprehensive loss | (718 | ) | (803 | ) | |||
Total stockholders' equity | 11,531 | 10,042 | |||||
Total liabilities and stockholders' equity | $ | 52,611 | $ | 49,024 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating Activities: | ||||||||||||
Net income | $ | 2,131 | $ | 2,263 | $ | 7,340 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||||||
Deferred income taxes | 945 | 1,648 | (3,177) | |||||||||
Depreciation and amortization | 2,149 | 1,977 | 1,819 | |||||||||
Special charges,non-cash portion | 35 | 391 | 247 | |||||||||
Other operating activities | 142 | 109 | 115 | |||||||||
Changes in operating assets and liabilities - | ||||||||||||
Decrease in fuel hedge collateral | — | 26 | 551 | |||||||||
Decrease in fuel derivatives | — | (20) | (305) | |||||||||
Decrease in other liabilities | (478) | (446) | (180) | |||||||||
Decrease in advanced purchase of miles | (865) | (249) | (224) | |||||||||
Increase (decrease) in frequent flyer deferred revenue | (142) | (60) | 6 | |||||||||
Increase in other assets | (533) | (298) | (160) | |||||||||
Increase (decrease) in accounts payable | 66 | 239 | (77) | |||||||||
Increase (decrease) in advance ticket sales | 146 | (22) | 52 | |||||||||
Increase in receivables | (183) | (16) | (15) | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 3,413 | 5,542 | 5,992 | |||||||||
|
|
|
|
|
| |||||||
Investing Activities: | ||||||||||||
Capital expenditures | (3,998) | (3,223) | (2,747) | |||||||||
Purchases of short-term and other investments | (3,241) | (2,768) | (2,517) | |||||||||
Proceeds from sale of short-term and other investments | 3,177 | 2,712 | 2,707 | |||||||||
Proceeds from sale of property and equipment | 12 | 28 | 86 | |||||||||
Other, net | 120 | 13 | (136) | |||||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (3,930) | (3,238) | (2,607) | |||||||||
|
|
|
|
|
| |||||||
Financing Activities: | ||||||||||||
Proceeds from issuance of long-term debt and airport construction financing | 2,765 | 808 | 1,073 | |||||||||
Repurchases of common stock | (1,844) | (2,614) | (1,233) | |||||||||
Payments of long-term debt | (901) | (1,215) | (2,178) | |||||||||
Principal payments under capital leases | (124) | (136) | (123) | |||||||||
Capitalized financing costs | (80) | (64) | (37) | |||||||||
Proceeds from the exercise of stock options | 2 | 6 | 16 | |||||||||
Other, net | (13) | 2 | (13) | |||||||||
|
|
|
|
|
| |||||||
Net cash used in financing activities | (195) | (3,213) | (2,495) | |||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (712) | (909) | 890 | |||||||||
Cash, cash equivalents and restricted cash at beginning of year | 2,303 | 3,212 | 2,322 | |||||||||
|
|
|
|
|
| |||||||
Cash, cash equivalents and restricted cash at end of year | $ | 1,591 | $ | 2,303 | $ | 3,212 | ||||||
|
|
|
|
|
| |||||||
Investing and Financing Activities Not Affecting Cash: | ||||||||||||
Property and equipment acquired through the issuance of debt and capital leases | $ | 935 | $ | 386 | $ | 866 | ||||||
Equity interest in Republic Airways Holdings, Inc. received in consideration for | 92 | — | — | |||||||||
Airport construction financing | 42 | 91 | 17 | |||||||||
Operating lease conversions to capital lease | — | 12 | 285 | |||||||||
Exchange of convertible notes for common stock | — | — | 202 | |||||||||
Cash Paid During the Period for: | ||||||||||||
Interest | $ | 571 | $ | 584 | $ | 660 | ||||||
Income taxes | 20 | 14 | 15 |
Year Ended December 31, | |||||||||||
2019 | 2018 (a) | 2017 (a) | |||||||||
Operating Activities: | |||||||||||
Net income | $ | 3,009 | $ | 2,122 | $ | 2,143 | |||||
Adjustments to reconcile net income to net cash provided by operating activities - | |||||||||||
Deferred income taxes | 882 | 512 | 957 | ||||||||
Depreciation and amortization | 2,288 | 2,165 | 2,096 | ||||||||
Special charges, non-cash portion | 175 | 416 | 35 | ||||||||
Unrealized (gains) losses on investments | (153 | ) | 5 | — | |||||||
Other operating activities | 185 | 161 | 142 | ||||||||
Changes in operating assets and liabilities - | |||||||||||
(Increase) decrease in receivables | 44 | 17 | (73 | ) | |||||||
(Increase) decrease in other assets | (252 | ) | 265 | (432 | ) | ||||||
Increase in advance ticket sales | 438 | 441 | 145 | ||||||||
Increase (decrease) in frequent flyer deferred revenue | 271 | 222 | (107 | ) | |||||||
Increase in accounts payable | 324 | 130 | 66 | ||||||||
Decrease in advanced purchase of miles | — | — | (942 | ) | |||||||
Decrease in other liabilities | (302 | ) | (292 | ) | (556 | ) | |||||
Net cash provided by operating activities | 6,909 | 6,164 | 3,474 | ||||||||
Investing Activities: | |||||||||||
Capital expenditures | (4,528 | ) | (4,070 | ) | (3,870 | ) | |||||
Purchases of short-term and other investments | (2,897 | ) | (2,552 | ) | (3,241 | ) | |||||
Proceeds from sale of short-term and other investments | 2,996 | 2,616 | 3,177 | ||||||||
Loans made to others | (174 | ) | (466 | ) | (30 | ) | |||||
Investment in affiliates | (36 | ) | (139 | ) | (2 | ) | |||||
Other, net | 79 | 156 | 163 | ||||||||
Net cash used in investing activities | (4,560 | ) | (4,455 | ) | (3,803 | ) | |||||
Financing Activities: | |||||||||||
Repurchases of common stock | (1,645 | ) | (1,235 | ) | (1,844 | ) | |||||
Proceeds from issuance of long-term debt | 1,847 | 1,594 | 2,537 | ||||||||
Payments of long-term debt | (1,240 | ) | (1,727 | ) | (901 | ) | |||||
Principal payments under finance leases | (151 | ) | (79 | ) | (84 | ) | |||||
Capitalized financing costs | (61 | ) | (37 | ) | (80 | ) | |||||
Other, net | (30 | ) | (17 | ) | (11 | ) | |||||
Net cash used in financing activities | (1,280 | ) | (1,501 | ) | (383 | ) | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 1,069 | 208 | (712 | ) | |||||||
Cash, cash equivalents and restricted cash at beginning of year | 1,799 | 1,591 | 2,303 | ||||||||
Cash, cash equivalents and restricted cash at end of year | $ | 2,868 | $ | 1,799 | $ | 1,591 | |||||
Investing and Financing Activities Not Affecting Cash: | |||||||||||
Property and equipment acquired through the issuance of debt | $ | 493 | $ | 143 | $ | 897 | |||||
Right-of-use assets acquired through operating leases | 498 | 663 | 319 | ||||||||
Property and equipment acquired through finance lease | 22 | 17 | 16 | ||||||||
Lease modifications and lease conversions | (2 | ) | 52 | — | |||||||
Debt associated with termination of a maintenance service agreement | — | 163 | — | ||||||||
Investment in Republic Airways Holdings Inc. received from bankruptcy claims | — | — | 92 | ||||||||
Cash Paid During the Period for: | |||||||||||
Interest | $ | 648 | $ | 651 | $ | 571 | |||||
Income taxes | 29 | 19 | 20 |
Common Stock | Additional Capital Invested | Treasury Stock | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
Balance at December 31, 2014 | 375 | $ | 4 | $ | 7,721 | $ | (367) | $ | (3,883) | $ | (1,079) | $ | 2,396 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | — | — | — | — | 7,340 | — | 7,340 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 248 | 248 | |||||||||||||||||||||
Convertible debt redemptions | 11 | — | 202 | — | — | — | 202 | |||||||||||||||||||||
Share-based compensation | — | — | 7 | — | — | — | 7 | |||||||||||||||||||||
Proceeds from exercise of stock options | — | — | 16 | — | — | — | 16 | |||||||||||||||||||||
Repurchases of common stock | (21) | — | — | (1,232) | — | — | (1,232) | |||||||||||||||||||||
Other | — | — | — | (11) | — | — | (11) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2015 | 365 | 4 | 7,946 | (1,610) | 3,457 | (831) | 8,966 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | — | — | — | — | 2,263 | — | 2,263 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 2 | 2 | |||||||||||||||||||||
Share-based compensation | — | — | 32 | — | — | — | 32 | |||||||||||||||||||||
Proceeds from exercise of stock options | — | — | 6 | — | — | — | 6 | |||||||||||||||||||||
Repurchases of common stock | (50) | — | — | (2,607) | — | — | (2,607) | |||||||||||||||||||||
Treasury stock retired | — | (1) | (1,415) | 3,709 | (2,293) | — | — | |||||||||||||||||||||
Other | — | — | — | (3) | — | — | (3) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2016 | 315 | 3 | 6,569 | (511) | 3,427 | (829) | 8,659 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | — | — | — | — | 2,131 | — | 2,131 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (200) | (200) | |||||||||||||||||||||
Share-based compensation | — | — | 56 | — | — | — | 56 | |||||||||||||||||||||
Proceeds from exercise of stock options | — | — | 2 | — | — | — | 2 | |||||||||||||||||||||
Repurchases of common stock | (28) | — | — | (1,844) | — | — | (1,844) | |||||||||||||||||||||
Treasury stock retired | — | — | (508) | 1,576 | (1,068) | — | — | |||||||||||||||||||||
Net treasury stock issued for share-based awards | — | — | (21) | 10 | (1) | — | (12) | |||||||||||||||||||||
Excess tax benefits from share-based awards | — | — | — | — | 14 | — | 14 | |||||||||||||||||||||
Reclassification of stranded tax effects (Note 1) | — | — | — | — | 118 | (118) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2017 | 287 | $ | 3 | $ | 6,098 | $ | (769) | $ | 4,621 | $ | (1,147) | $ | 8,806 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | Additional Capital Invested | Treasury Stock | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
Balance at December 31, 2016 | 314.6 | $ | 3 | $ | 6,569 | $ | (511 | ) | $ | 3,342 | $ | (829 | ) | $ | 8,574 | |||||||||||
Net income (a) | — | — | — | — | 2,143 | — | 2,143 | |||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (200 | ) | (200 | ) | |||||||||||||||||
Stock-settled share-based compensation | — | — | 56 | — | — | — | 56 | |||||||||||||||||||
Proceeds from exercise of stock options | — | — | 2 | — | — | — | 2 | |||||||||||||||||||
Repurchases of common stock | (27.8 | ) | — | — | (1,844 | ) | — | — | (1,844 | ) | ||||||||||||||||
Treasury stock retired | — | — | (508 | ) | 1,576 | (1,068 | ) | — | — | |||||||||||||||||
Net treasury stock issued for share-based awards | 0.2 | — | (21 | ) | 10 | (1 | ) | — | (12 | ) | ||||||||||||||||
Excess tax benefits from share-based awards | — | — | — | — | 14 | — | 14 | |||||||||||||||||||
Reclassification of stranded tax effects | — | — | — | — | 118 | (118 | ) | — | ||||||||||||||||||
Other (a) | — | — | — | — | 55 | — | 55 | |||||||||||||||||||
Balance at December 31, 2017 | 287.0 | 3 | 6,098 | (769 | ) | 4,603 | (1,147 | ) | 8,788 | |||||||||||||||||
Net income (a) | — | — | — | — | 2,122 | — | 2,122 | |||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 338 | 338 | |||||||||||||||||||
Stock-settled share-based compensation | — | — | 60 | — | — | — | 60 | |||||||||||||||||||
Repurchases of common stock | (17.5 | ) | — | — | (1,250 | ) | — | — | (1,250 | ) | ||||||||||||||||
Net treasury stock issued for share-based awards | 0.4 | — | (38 | ) | 26 | (4 | ) | — | (16 | ) | ||||||||||||||||
Adoption of accounting standard related to equity investments | — | — | — | — | (6 | ) | 6 | — | ||||||||||||||||||
Balance at December 31, 2018 | 269.9 | 3 | 6,120 | (1,993 | ) | 6,715 | (803 | ) | 10,042 | |||||||||||||||||
Net income | — | — | — | — | 3,009 | — | 3,009 | |||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 85 | 85 | |||||||||||||||||||
Stock-settled share-based compensation | — | — | 66 | — | — | — | 66 | |||||||||||||||||||
Repurchases of common stock | (19.2 | ) | — | — | (1,641 | ) | — | — | (1,641 | ) | ||||||||||||||||
Net treasury stock issued for share-based awards | 0.5 | — | (57 | ) | 35 | (8 | ) | — | (30 | ) | ||||||||||||||||
Balance at December 31, 2019 | 251.2 | $ | 3 | $ | 6,129 | $ | (3,599 | ) | $ | 9,716 | $ | (718 | ) | $ | 11,531 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating revenue: | ||||||||||||
Passenger—Mainline | $ | 26,552 | $ | 25,414 | $ | 26,333 | ||||||
Passenger—Regional | 5,852 | 6,043 | 6,452 | |||||||||
|
|
|
|
|
| |||||||
Total passenger revenue | 32,404 | 31,457 | 32,785 | |||||||||
Cargo | 1,035 | 876 | 937 | |||||||||
Other operating revenue | 4,297 | 4,223 | 4,142 | |||||||||
|
|
|
|
|
| |||||||
Total operating revenue | 37,736 | 36,556 | 37,864 | |||||||||
|
|
|
|
|
| |||||||
Operating expense: | ||||||||||||
Salaries and related costs | 11,045 | 10,275 | 9,713 | |||||||||
Aircraft fuel | 6,913 | 5,813 | 7,522 | |||||||||
Landing fees and other rent | 2,240 | 2,165 | 2,203 | |||||||||
Regional capacity purchase | 2,232 | 2,197 | 2,290 | |||||||||
Depreciation and amortization | 2,149 | 1,977 | 1,819 | |||||||||
Aircraft maintenance materials and outside repairs | 1,856 | 1,749 | 1,651 | |||||||||
Distribution expenses | 1,349 | 1,303 | 1,342 | |||||||||
Aircraft rent | 621 | 680 | 754 | |||||||||
Special charges (Note 14) | 176 | 638 | 326 | |||||||||
Other operating expenses | 5,655 | 5,418 | 5,076 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 34,236 | 32,215 | 32,696 | |||||||||
|
|
|
|
|
| |||||||
Operating income | 3,500 | 4,341 | 5,168 | |||||||||
|
|
|
|
|
| |||||||
Nonoperating income (expense): | ||||||||||||
Interest expense | (643) | (614) | (670) | |||||||||
Interest capitalized | 84 | 72 | 49 | |||||||||
Interest income | 57 | 42 | 25 | |||||||||
Miscellaneous, net (Note 14) | 3 | (19) | (351) | |||||||||
|
|
|
|
|
| |||||||
Total nonoperating expense, net | (499) | (519) | (947) | |||||||||
|
|
|
|
|
| |||||||
Income before income taxes | 3,001 | 3,822 | 4,221 | |||||||||
Income tax expense (benefit) (Note 14) | 852 | 1,558 | (3,080) | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 2,149 | $ | 2,264 | $ | 7,301 | ||||||
|
|
|
|
|
|
Year Ended December 31, | |||||||||||
2019 | 2018 (a) | 2017 (a) | |||||||||
Operating revenue: | |||||||||||
Passenger revenue | $ | 39,625 | $ | 37,706 | $ | 34,460 | |||||
Cargo | 1,179 | 1,237 | 1,114 | ||||||||
Other operating revenue | 2,455 | 2,360 | 2,210 | ||||||||
Total operating revenue | 43,259 | 41,303 | 37,784 | ||||||||
Operating expense: | |||||||||||
Salaries and related costs | 12,071 | 11,458 | 10,941 | ||||||||
Aircraft fuel | 8,953 | 9,307 | 6,913 | ||||||||
Regional capacity purchase | 2,849 | 2,649 | 2,268 | ||||||||
Landing fees and other rent | 2,543 | 2,449 | 2,310 | ||||||||
Depreciation and amortization | 2,288 | 2,165 | 2,096 | ||||||||
Aircraft maintenance materials and outside repairs | 1,794 | 1,767 | 1,856 | ||||||||
Distribution expenses | 1,651 | 1,558 | 1,435 | ||||||||
Aircraft rent | 288 | 433 | 621 | ||||||||
Special charges | 246 | 487 | 176 | ||||||||
Other operating expenses | 6,273 | 5,799 | 5,548 | ||||||||
Total operating expense | 38,956 | 38,072 | 34,164 | ||||||||
Operating income | 4,303 | 3,231 | 3,620 | ||||||||
Nonoperating income (expense): | |||||||||||
Interest expense | (731 | ) | (670 | ) | (626 | ) | |||||
Interest capitalized | 85 | 65 | 74 | ||||||||
Interest income | 133 | 101 | 57 | ||||||||
Unrealized gains (losses) on investments, net | 153 | (5 | ) | — | |||||||
Miscellaneous, net | (27 | ) | (72 | ) | (100 | ) | |||||
Total nonoperating expense, net | (387 | ) | (581 | ) | (595 | ) | |||||
Income before income taxes | 3,916 | 2,650 | 3,025 | ||||||||
Income tax expense | 905 | 527 | 864 | ||||||||
Net income | $ | 3,011 | $ | 2,123 | $ | 2,161 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income | $ | 2,149 | $ | 2,264 | $ | 7,301 | ||||||
Other comprehensive income (loss), net change related to: | ||||||||||||
Employee benefit plans, net of taxes | (195) | (313) | 70 | |||||||||
Fuel derivative financial instruments, net of taxes | 1 | 316 | 182 | |||||||||
Investments and other, net of taxes | (6) | (1) | (4) | |||||||||
|
|
|
|
|
| |||||||
Total other comprehensive income (loss), net | (200) | 2 | 248 | |||||||||
|
|
|
|
|
| |||||||
Total comprehensive income, net | $ | 1,949 | $ | 2,266 | $ | 7,549 | ||||||
|
|
|
|
|
|
Year Ended December 31, | |||||||||||
2019 | 2018 (a) | 2017 (a) | |||||||||
Net income | $ | 3,011 | $ | 2,123 | $ | 2,161 | |||||
Other comprehensive income (loss), net of tax: | |||||||||||
Employee benefit plans | 80 | 342 | (195 | ) | |||||||
Investments and other | 5 | (4 | ) | (5 | ) | ||||||
Total other comprehensive income (loss), net of tax | 85 | 338 | (200 | ) | |||||||
Total comprehensive income, net | $ | 3,096 | $ | 2,461 | $ | 1,961 |
At December 31, | ||||||||
|
|
|
| |||||
ASSETS | 2017 | 2016 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,476 | $ | 2,173 | ||||
Short-term investments | 2,316 | 2,249 | ||||||
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10) | 1,340 | 1,176 | ||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$354; 2016—$295) | 924 | 873 | ||||||
Prepaid expenses and other | 1,051 | 832 | ||||||
|
|
|
| |||||
Total current assets | 7,107 | 7,303 | ||||||
|
|
|
| |||||
Operating property and equipment: | ||||||||
Owned— | ||||||||
Flight equipment | 28,692 | 25,873 | ||||||
Other property and equipment | 6,946 | 5,652 | ||||||
|
|
|
| |||||
Total owned property and equipment | 35,638 | 31,525 | ||||||
Less—Accumulated depreciation and amortization | (11,159) | (9,975) | ||||||
|
|
|
| |||||
Total owned property and equipment, net | 24,479 | 21,550 | ||||||
|
|
|
| |||||
Purchase deposits for flight equipment | 1,344 | 1,059 | ||||||
Capital leases— | ||||||||
Flight equipment | 1,151 | 1,319 | ||||||
Other property and equipment | 11 | 331 | ||||||
|
|
|
| |||||
Total capital leases | 1,162 | 1,650 | ||||||
Less—Accumulated amortization | (777) | (941) | ||||||
|
|
|
| |||||
Total capital leases, net | 385 | 709 | ||||||
|
|
|
| |||||
Total operating property and equipment, net | 26,208 | 23,318 | ||||||
|
|
|
| |||||
Other assets: | ||||||||
Goodwill | 4,523 | 4,523 | ||||||
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234) | 3,539 | 3,632 | ||||||
Deferred income taxes | — | 612 | ||||||
Restricted cash | 91 | 124 | ||||||
Investments in affiliates and other, net | 852 | 579 | ||||||
|
|
|
| |||||
Total other assets | 9,005 | 9,470 | ||||||
|
|
|
| |||||
Total assets | $ | 42,320 | $ | 40,091 | ||||
|
|
|
|
57
At December 31, | |||||||
ASSETS | 2019 | 2018 (a) | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,756 | $ | 1,688 | |||
Short-term investments | 2,182 | 2,256 | |||||
Receivables, less allowance for doubtful accounts (2019—$9; 2018—$8) | 1,364 | 1,426 | |||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019—$425; 2018—$412) | 1,072 | 985 | |||||
Prepaid expenses and other | 814 | 733 | |||||
Total current assets | 8,188 | 7,088 | |||||
Operating property and equipment: | |||||||
Flight equipment | 35,421 | 32,599 | |||||
Other property and equipment | 7,926 | 6,889 | |||||
Purchase deposits for flight equipment | 1,360 | 1,177 | |||||
Total operating property and equipment | 44,707 | 40,665 | |||||
Less—Accumulated depreciation and amortization | (14,537 | ) | (13,266 | ) | |||
Total operating property and equipment, net | 30,170 | 27,399 | |||||
Operating lease right-of-use assets | 4,758 | 5,262 | |||||
Other assets: | |||||||
Goodwill | 4,523 | 4,523 | |||||
Intangibles, less accumulated amortization (2019—$1,440; 2018—$1,380) | 3,009 | 3,159 | |||||
Restricted cash | 106 | 105 | |||||
Notes receivable, net | 671 | 516 | |||||
Investments in affiliates and other, net | 1,180 | 966 | |||||
Total other assets | 9,489 | 9,269 | |||||
Total assets | $ | 52,605 | $ | 49,018 |
At December 31, | ||||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | 2017 | 2016 | ||||||
Current liabilities: | ||||||||
Advance ticket sales | $ | 3,876 | $ | 3,730 | ||||
Frequent flyer deferred revenue | 2,176 | 2,135 | ||||||
Accounts payable | 2,196 | 2,144 | ||||||
Accrued salaries and benefits | 2,166 | 2,307 | ||||||
Current maturities of long-term debt | 1,565 | 849 | ||||||
Current maturities of capital leases | 128 | 116 | ||||||
Other | 574 | 1,009 | ||||||
|
|
|
| |||||
Total current liabilities | 12,681 | 12,290 | ||||||
|
|
|
| |||||
Long-term debt | 11,703 | 9,918 | ||||||
Long-term obligations under capital leases | 996 | 822 | ||||||
Other liabilities and deferred credits: | ||||||||
Frequent flyer deferred revenue | 2,565 | 2,748 | ||||||
Postretirement benefit liability | 1,602 | 1,581 | ||||||
Pension liability | 1,921 | 1,892 | ||||||
Advanced purchase of miles | — | 430 | ||||||
Deferred income taxes | 252 | — | ||||||
Lease fair value adjustment, net | 198 | 277 | ||||||
Other | 1,634 | 1,527 | ||||||
|
|
|
| |||||
Total other liabilities and deferred credits | 8,172 | 8,455 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Stockholder’s equity: | ||||||||
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at December 31, 2017 and 2016 | — | — | ||||||
Additional capital invested | 1,787 | 3,573 | ||||||
Retained earnings | 8,218 | 5,937 | ||||||
Accumulated other comprehensive loss | (1,147) | (829) | ||||||
Receivable from related parties | (90) | (75) | ||||||
|
|
|
| |||||
Total stockholder’s equity | 8,768 | 8,606 | ||||||
|
|
|
| |||||
Total liabilities and stockholder’s equity | $ | 42,320 | $ | 40,091 | ||||
|
|
|
|
At December 31, | |||||||
LIABILITIES AND STOCKHOLDER'S EQUITY | 2019 | 2018 (a) | |||||
Current liabilities: | |||||||
Advance ticket sales | $ | 4,819 | $ | 4,381 | |||
Accounts payable | 2,703 | 2,363 | |||||
Frequent flyer deferred revenue | 2,440 | 2,286 | |||||
Accrued salaries and benefits | 2,271 | 2,184 | |||||
Current maturities of long-term debt | 1,407 | 1,230 | |||||
Current maturities of finance leases | 46 | 123 | |||||
Current maturities of operating leases | 686 | 719 | |||||
Other | 571 | 558 | |||||
Total current liabilities | 14,943 | 13,844 | |||||
Long-term debt | 13,145 | 12,215 | |||||
Long-term obligations under finance leases | 220 | 224 | |||||
Long-term obligations under operating leases | 4,946 | 5,276 | |||||
Other liabilities and deferred credits: | |||||||
Frequent flyer deferred revenue | 2,836 | 2,719 | |||||
Postretirement benefit liability | 789 | 1,295 | |||||
Pension liability | 1,446 | 1,576 | |||||
Deferred income taxes | 1,763 | 855 | |||||
Other | 1,025 | 1,010 | |||||
Total other liabilities and deferred credits | 7,859 | 7,455 | |||||
Commitments and contingencies | |||||||
Stockholder's equity: | |||||||
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at December 31, 2019 and 2018 | — | — | |||||
Additional capital invested | — | 598 | |||||
Retained earnings | 12,353 | 10,319 | |||||
Accumulated other comprehensive loss | (718 | ) | (803 | ) | |||
Receivable from related parties | (143 | ) | (110 | ) | |||
Total stockholder's equity | 11,492 | 10,004 | |||||
Total liabilities and stockholder's equity | $ | 52,605 | $ | 49,018 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating Activities: | ||||||||||||
Net income | $ | 2,149 | $ | 2,264 | $ | 7,301 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities - | ||||||||||||
Deferred income taxes | 929 | 1,650 | (3,136) | |||||||||
Depreciation and amortization | 2,149 | 1,977 | 1,819 | |||||||||
Special charges,non-cash portion | 35 | 391 | 247 | |||||||||
Other operating activities | 142 | 108 | 115 | |||||||||
Changes in operating assets and liabilities - | ||||||||||||
Decrease in fuel hedge collateral | — | 26 | 551 | |||||||||
Decrease in fuel derivatives | — | (20) | (305) | |||||||||
Decrease in other liabilities | (479) | (444) | (181) | |||||||||
Decrease in advanced purchase of miles | (865) | (249) | (224) | |||||||||
Increase (decrease) in frequent flyer deferred revenue | (142) | (60) | 6 | |||||||||
Increase in other assets | (533) | (251) | (160) | |||||||||
Increase (decrease) in accounts payable | 66 | 239 | (77) | |||||||||
Increase (decrease) in advance ticket sales | 146 | (22) | 52 | |||||||||
Increase in receivables | (183) | (16) | (15) | |||||||||
Increase in intercompany receivables | (15) | (58) | (12) | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 3,399 | 5,535 | 5,981 | |||||||||
|
|
|
|
|
| |||||||
Investing Activities: | ||||||||||||
Capital expenditures | (3,998) | (3,223) | (2,747) | |||||||||
Purchases of short-term and other investments | (3,241) | (2,768) | (2,517) | |||||||||
Proceeds from sale of short-term and other investments | 3,177 | 2,712 | 2,707 | |||||||||
Proceeds from sale of property and equipment | 12 | 28 | 86 | |||||||||
Other, net | 120 | 13 | (136) | |||||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (3,930) | (3,238) | (2,607) | |||||||||
|
|
|
|
|
| |||||||
Financing Activities: | ||||||||||||
Dividend to UAL | (1,844) | (2,614) | (1,233) | |||||||||
Payments of long-term debt | (901) | (1,215) | (2,178) | |||||||||
Proceeds from issuance of long-term debt | 2,765 | 808 | 1,073 | |||||||||
Principal payments under capital leases | (124) | (136) | (123) | |||||||||
Capitalized financing costs | (80) | (64) | (37) | |||||||||
UAL contributions related to stock plans | 2 | 6 | 16 | |||||||||
Other, net | 1 | 9 | (2) | |||||||||
|
|
|
|
|
| |||||||
Net cash used in financing activities | (181) | (3,206) | (2,484) | |||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (712) | (909) | 890 | |||||||||
Cash, cash equivalents and restricted cash at beginning of year | 2,297 | 3,206 | 2,316 | |||||||||
|
|
|
|
|
| |||||||
Cash, cash equivalents and restricted cash at end of year | $ | 1,585 | $ | 2,297 | $ | 3,206 | ||||||
|
|
|
|
|
| |||||||
Investing and Financing Activities Not Affecting Cash: | ||||||||||||
Property and equipment acquired through the issuance of debt and capital leases | $ | 935 | $ | 386 | $ | 866 | ||||||
Equity interest in Republic Airways Holdings, Inc. received in consideration for bankruptcy claims | 92 | — | — | |||||||||
Airport construction financing | 42 | 91 | 17 | |||||||||
Operating lease conversions to capital lease | — | 12 | 285 | |||||||||
Cash Paid During the Period for: | ||||||||||||
Interest | $ | 571 | $ | 584 | $ | 660 | ||||||
Income taxes | 20 | 14 | 15 |
Year Ended December 31, | |||||||||||
2019 | 2018 (a) | 2017 (a) | |||||||||
Operating Activities: | |||||||||||
Net income | $ | 3,011 | $ | 2,123 | $ | 2,161 | |||||
Adjustments to reconcile net income to net cash provided by operating activities - | |||||||||||
Deferred income taxes | 882 | 513 | 941 | ||||||||
Depreciation and amortization | 2,288 | 2,165 | 2,096 | ||||||||
Special charges, non-cash portion | 175 | 416 | 35 | ||||||||
Unrealized (gains) losses on investments | (153 | ) | 5 | — | |||||||
Other operating activities | 186 | 162 | 141 | ||||||||
Changes in operating assets and liabilities - | |||||||||||
(Increase) decrease in receivables | 44 | 17 | (73 | ) | |||||||
Increase in intercompany receivables | (33 | ) | (20 | ) | (15 | ) | |||||
(Increase) decrease in other assets | (252 | ) | 265 | (432 | ) | ||||||
Increase in advance ticket sales | 438 | 441 | 145 | ||||||||
Increase (decrease) in frequent flyer deferred revenue | 271 | 222 | (107 | ) | |||||||
Increase in accounts payable | 324 | 130 | 66 | ||||||||
Decrease in advanced purchase of miles | — | — | (942 | ) | |||||||
Decrease in other liabilities | (302 | ) | (293 | ) | (556 | ) | |||||
Net cash provided by operating activities | 6,879 | 6,146 | 3,460 | ||||||||
Investing Activities: | |||||||||||
Capital expenditures | (4,528 | ) | (4,070 | ) | (3,870 | ) | |||||
Purchases of short-term and other investments | (2,897 | ) | (2,552 | ) | (3,241 | ) | |||||
Proceeds from sale of short-term and other investments | 2,996 | 2,616 | 3,177 | ||||||||
Loans made to others | (174 | ) | (466 | ) | (30 | ) | |||||
Investment in affiliates | (36 | ) | (139 | ) | (2 | ) | |||||
Other, net | 79 | 156 | 163 | ||||||||
Net cash used in investing activities | (4,560 | ) | (4,455 | ) | (3,803 | ) | |||||
Financing Activities: | |||||||||||
Proceeds from issuance of long-term debt | 1,847 | 1,594 | 2,537 | ||||||||
Payments of long-term debt | (1,240 | ) | (1,727 | ) | (901 | ) | |||||
Dividend to UAL | (1,645 | ) | (1,235 | ) | (1,844 | ) | |||||
Principal payments under finance leases | (151 | ) | (79 | ) | (84 | ) | |||||
Capitalized financing costs | (61 | ) | (37 | ) | (80 | ) | |||||
Other, net | — | 1 | 3 | ||||||||
Net cash used in financing activities | (1,250 | ) | (1,483 | ) | (369 | ) | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 1,069 | 208 | (712 | ) | |||||||
Cash, cash equivalents and restricted cash at beginning of year | 1,793 | 1,585 | 2,297 | ||||||||
Cash, cash equivalents and restricted cash at end of year | $ | 2,862 | $ | 1,793 | $ | 1,585 | |||||
Investing and Financing Activities Not Affecting Cash: | |||||||||||
Property and equipment acquired through the issuance of debt | $ | 493 | $ | 143 | $ | 897 | |||||
Right-of-use assets acquired through operating leases | 498 | 663 | 319 | ||||||||
Property and equipment acquired through finance lease | 22 | 17 | 16 | ||||||||
Lease modifications and lease conversions | (2 | ) | 52 | — | |||||||
Debt associated with termination of a maintenance service agreement | — | 163 | — | ||||||||
Investment in Republic Airways Holdings Inc. received from bankruptcy claims | — | — | 92 | ||||||||
Cash Paid During the Period for: | |||||||||||
Interest | $ | 648 | $ | 651 | $ | 571 | |||||
Income taxes | 29 | 19 | 20 |
Additional Capital Invested | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Receivable from Related Parties, Net | Total | ||||||||||||||||
Balance at December 31, 2014 | $ | 7,347 | $ | (3,628) | $ | (1,079) | $ | (5) | $ | 2,635 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | — | 7,301 | — | — | 7,301 | |||||||||||||||
Other comprehensive income | — | — | 248 | — | 248 | |||||||||||||||
Dividend to UAL | (1,232) | — | — | — | (1,232) | |||||||||||||||
Share-based compensation | 7 | — | — | — | 7 | |||||||||||||||
UAL contribution related to stock plans | 16 | — | — | — | 16 | |||||||||||||||
Other | — | — | — | (12) | (12) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2015 | 6,138 | 3,673 | (831) | (17) | 8,963 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | — | 2,264 | — | — | 2,264 | |||||||||||||||
Other comprehensive income | — | — | 2 | — | 2 | |||||||||||||||
Dividend to UAL | (2,603) | — | — | — | (2,603) | |||||||||||||||
Share-based compensation | 32 | — | — | — | 32 | |||||||||||||||
UAL contribution related to stock plans | 6 | — | — | — | 6 | |||||||||||||||
Other | — | — | — | (58) | (58) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2016 | 3,573 | 5,937 | (829) | (75) | 8,606 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | — | 2,149 | — | — | 2,149 | |||||||||||||||
Other comprehensive loss | — | — | (200) | — | (200) | |||||||||||||||
Dividend to UAL | (1,844) | — | — | — | (1,844) | |||||||||||||||
Share-based compensation | 56 | — | — | — | 56 | |||||||||||||||
UAL contribution related to stock plans | 2 | — | — | — | 2 | |||||||||||||||
Excess tax benefits from share-based awards | — | 14 | — | — | 14 | |||||||||||||||
Reclassification of stranded tax effects (Note 1) | — | 118 | (118) | — | — | |||||||||||||||
Other | — | — | — | (15) | (15) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2017 | $ | 1,787 | $ | 8,218 | $ | (1,147) | $ | (90) | $ | 8,768 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Additional Capital Invested | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Receivable from Related Parties, Net | Total | |||||||||||||||
Balance at December 31, 2016 | $ | 3,573 | $ | 5,851 | $ | (829 | ) | $ | (75 | ) | $ | 8,520 | |||||||
Net income (a) | — | 2,161 | — | — | 2,161 | ||||||||||||||
Other comprehensive loss | — | — | (200 | ) | — | (200 | ) | ||||||||||||
Dividend to UAL | (1,844 | ) | — | — | — | (1,844 | ) | ||||||||||||
Stock-settled share-based compensation | 56 | — | — | — | 56 | ||||||||||||||
UAL contribution related to stock plans | 2 | — | — | — | 2 | ||||||||||||||
Excess tax benefits from share-based awards | — | 14 | — | — | 14 | ||||||||||||||
Reclassification of stranded tax effects | — | 118 | (118 | ) | — | — | |||||||||||||
Other (a) | — | 57 | — | (15 | ) | 42 | |||||||||||||
Balance at December 31, 2017 | 1,787 | 8,201 | (1,147 | ) | (90 | ) | 8,751 | ||||||||||||
Net income (a) | — | 2,123 | — | — | 2,123 | ||||||||||||||
Other comprehensive loss | — | — | 338 | — | 338 | ||||||||||||||
Dividend to UAL | (1,249 | ) | — | — | — | (1,249 | ) | ||||||||||||
Stock-settled share-based compensation | 60 | — | — | — | 60 | ||||||||||||||
Other | — | (5 | ) | 6 | (20 | ) | (19 | ) | |||||||||||
Balance at December 31, 2018 | 598 | 10,319 | (803 | ) | (110 | ) | 10,004 | ||||||||||||
Net income | — | 3,011 | — | — | 3,011 | ||||||||||||||
Other comprehensive loss | — | — | 85 | — | 85 | ||||||||||||||
Dividend to UAL | (664 | ) | (977 | ) | — | — | (1,641 | ) | |||||||||||
Stock-settled share-based compensation | 66 | — | — | — | 66 | ||||||||||||||
Other | — | — | — | (33 | ) | (33 | ) | ||||||||||||
Balance at December 31, 2019 | $ | — | $ | 12,353 | $ | (718 | ) | $ | (143 | ) | $ | 11,492 |
(a) | Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America |
(b) | Revenue Recognition—The Company |
Fees charged
The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. any segments flown by other airlines.
Non-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date. The Company recognizes cargorecords breakage revenue on the travel date for its estimate of tickets that will expire unused. To determine breakage, the Company uses its historical experience with refundable and nonrefundable expired tickets and other revenuefacts, such as servicerecent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets. Fees charged in association with changes or extensions to non-refundable tickets are considered part of the Company's passenger travel obligation. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided.
Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all
Revenue by Geography. The Company further disaggregates revenue by geographic regions. |
Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo transportation services. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not materialTransportation) for the years ended December 31 is presented in the table below (in millions):
2019 | 2018 | 2017 | ||||||||||
Domestic (U.S. and Canada) | $ | 26,960 | $ | 25,552 | $ | 23,114 | ||||||
Atlantic | 7,387 | 7,103 | 6,340 | |||||||||
Pacific | 5,132 | 5,188 | 4,914 | |||||||||
Latin America | 3,780 | 3,460 | 3,416 | |||||||||
Total | $ | 43,259 | $ | 41,303 | $ | 37,784 |
(c) | Ticket Taxes—Certain governmental taxes are imposed on the Company's ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis and, as a result, are excluded from revenue. |
(d) | Frequent Flyer Accounting— |
Travel.
When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when themiles are redeemed for air travel and non-air travel awards.
Co-branded Credit Card Partner Mileage Sales
The Company's breakage model is based on the assumption that the likelihood that an account will redeem its miles can be estimated
• | MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non-travel award redemptions. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non-travel awards when the goods or services are delivered. The Company records the cost associated with non-travel awards in Other operating revenue. |
• | Marketing – United has a performance obligation to provide Chase access to United's customer list and the use of United's brand. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase. |
• | Advertising – United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and in-flight advertising. Advertising revenue is recorded to Other operating revenue as miles are delivered to Chase. |
• | Other travel-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel. |
separately identifiable performance obligations. The fair value of the elementsseparately identifiable performance obligations is determined using management’smanagement's estimated selling price of each element.component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of theCo-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elementscomponents to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated selling priceconsideration from the Co-Brand Agreement on a prospective basis.
Frequent Flyer Deferred Revenue. Miles in MileagePlus members' accounts are combined into one homogeneous pool and are thus not separately identifiable, for award redemption purposes, between miles earned in the current period and those in their beginning balance. Of the miles expected to be redeemed, the Company expects the majority of these miles to be redeemed within two years. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
Twelve Months Ended December 31, | |||||||
2019 | 2018 | ||||||
Total Frequent flyer deferred revenue - beginning balance | $ | 5,005 | $ | 4,783 | |||
Total miles awarded | 2,621 | 2,451 | |||||
Travel miles redeemed (Passenger revenue) | (2,213 | ) | (2,068 | ) | |||
Non-travel miles redeemed (Other operating revenue) | (137 | ) | (161 | ) | |||
Total Frequent flyer deferred revenue - ending balance | $ | 5,276 | $ | 5,005 |
Expiration of Miles
The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account inactivity.
The Company’s estimatetravel-related benefits of the expected expiration of miles requires significant management judgment. Current and future changesmileage revenue associated with our various partner agreements including, but not limited to, expiration assumptions orour Chase co-brand agreement. The portion related to the expiration policy, or to program rulesMileagePlus miles awarded of the total amounts received is deferred and program redemption opportunities, may resultpresented in material changes to the deferred revenue balancetable above as well as recognized revenues from the programs.
Other Information
The following table provides additional information relatedan increase to the frequent flyer program (in millions):
Year Ended December 31, | Cash Proceeds from Miles Sold and Earned | Other Revenue Recognized Upon Award of Miles to Third-Party Customers (a) | Increase in Frequent Flyer Deferred Revenue for Miles Awarded (b) | Decrease in Advanced Purchase of Miles (c) | ||||||||||||
2017 | $ | 2,343 | $ | 1,183 | $ | 2,025 | $ | (865) | ||||||||
2016 | 3,022 | 1,221 | 2,050 | (249) | ||||||||||||
2015 | 2,999 | 1,050 | 2,173 | (224) | ||||||||||||
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(a) This amount represents other revenue recognized during the period from the sale of miles to third parties, representing the marketing-related deliverable services component of the sale. | ||||||||||||||||
(b) This amount represents the increase to Frequent flyer deferred revenue during the period. | ||||||||||||||||
(c) This amount represents the net decrease in the advance purchase of miles obligation due to cash payments for the sale of miles less than miles awarded to customers. |
(e) | Cash and Cash Equivalents and Restricted Cash—Highly liquid investments with a maturity of three months or less on their acquisition date are classified as cash and cash equivalents. |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of consolidated cash flows:
UAL | United | UAL | United | ||||||||||||||||||||||||||||||||||||||||||||||
At December 31, | At December 31, | At December 31, | At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||
Current assets: | Current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,482 | $ | 2,179 | $ | 3,006 | $ | 1,476 | $ | 2,173 | $ | 3,000 | Cash and cash equivalents | $ | 2,762 | $ | 1,694 | $ | 1,482 | $ | 2,756 | $ | 1,688 | $ | 1,476 | ||||||||||||||||||||||||
Restricted cash included in Prepaid expenses and other | 18 | — | 2 | 18 | — | 2 | Restricted cash included in Prepaid expenses and other | — | — | 18 | — | — | 18 | ||||||||||||||||||||||||||||||||||||
Other assets: | Other assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash | 91 | 124 | 204 | 91 | 124 | 204 | Restricted cash | 106 | 105 | 91 | 106 | 105 | 91 | ||||||||||||||||||||||||||||||||||||
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Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows | $ | 1,591 | $ | 2,303 | $ | 3,212 | $ | 1,585 | $ | 2,297 | $ | 3,206 | Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows | $ | 2,868 | $ | 1,799 | $ | 1,591 | $ | 2,862 | $ | 1,793 | $ | 1,585 | ||||||||||||||||||||||||
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(f) | Investments— |
(g) | Accounts Receivable—Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not material for the year ended December 31, 2019 and 2018. |
(h) | Aircraft Fuel, Spare Parts and Supplies—The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an obsolescence allowance for aircraft spare parts with an assumed residual value of 10% of original cost. |
(i) | Property and Equipment—The Company records additions to owned operating property and equipment at cost when acquired. Property under |
Estimated Useful Life (in years) | ||||
Aircraft, spare engines and related rotable parts | 25 to 30 | |||
Aircraft seats | 10 to 15 | |||
Buildings | 25 to 45 | |||
Other property and equipment | 3 to 15 | |||
Computer software | 5 to 15 | |||
Building improvements | 1 to 40 |
$93 $117 million, respectively. Aircraft and aircraft spare parts were assumed to have residual values of approximately 10% of original cost, and other categories of property and equipment were assumed to have no residual value.
(j) | Long-Lived Asset Impairments—The Company evaluates the carrying value of long-lived assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset's carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset's carrying value and fair market value. See Note 14 of this report for additional information related to impairments. |
(k) | Intangibles—The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as of October 1, or more frequently if events or circumstances indicate that the asset may be impaired. See Note 14 of this report for additional information related to impairments. |
2019 | 2018 | |||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
Goodwill | $ | 4,523 | $ | 4,523 | ||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||
Route authorities | $ | 1,150 | $ | 1,240 | ||||||||||||
Airport slots | 546 | 546 | ||||||||||||||
Tradenames and logos | 593 | 593 | ||||||||||||||
Alliances | 404 | 404 | ||||||||||||||
Total | $ | 2,693 | $ | 2,783 | ||||||||||||
Finite-lived intangible assets | ||||||||||||||||
Frequent flyer database | $ | 1,177 | $ | 931 | $ | 1,177 | $ | 884 | ||||||||
Hubs | 145 | 104 | 145 | 97 | ||||||||||||
Contracts | 120 | 111 | 120 | 106 | ||||||||||||
Other | 314 | 294 | 314 | 293 | ||||||||||||
Total | $ | 1,756 | $ | 1,440 | $ | 1,756 | $ | 1,380 |
(l) | Labor Costs—The Company records expenses associated with new or amendable labor agreements when the amounts are probable and estimable. These include costs associated with lump sum cash payments that would be made in conjunction with the ratification of labor agreements. To the extent these upfront costs are in lieu of future pay increases, they would be capitalized and amortized over the term of the labor agreements. If not, these amounts would be expensed. |
(m) | Share-Based Compensation—The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Obligations for cash-settled restricted stock units ("RSUs") are remeasured at fair value throughout the requisite service period at the close of the reporting period based upon UAL's stock price. In addition to the service requirement, certain RSUs have performance metrics that must be achieved prior to vesting. These awards are accrued based on the expected level of achievement at each reporting period. An adjustment is recorded each reporting period to adjust compensation expense based on the then current level of expected performance achievement for the performance-based awards. See Note 4 of this report for additional information on UAL's share-based compensation plans. |
(n) | Maintenance and Repairs—The cost of maintenance and repairs, including the cost of minor replacements, is charged to expense as incurred, except for costs incurred under ourpower-by-the-hour |
Advertising—Advertising costs, which are included in Other operating expenses, are expensed as incurred. Advertising expenses were |
(p) | Third-Party Business—The Company has |
(q) | Uncertain Income Tax Positions—The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The |
(r) |
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StatementsThe adoption of Consolidated Operations for the Years Ended December 31,
As Reported | Adjustment | As Adjusted for Adoption of Topic 606 | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Operating revenue: | ||||||||||||||||||||||||
Passenger—Mainline | $ | 26,552 | $ | 25,414 | $ | 1,707 | $ | 1,615 | $ | 28,259 | $ | 27,029 | ||||||||||||
Passenger—Regional | 5,852 | 6,043 | 349 | 357 | 6,201 | 6,400 | ||||||||||||||||||
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Total passenger revenue | 32,404 | 31,457 | 2,056 | 1,972 | 34,460 | 33,429 | ||||||||||||||||||
Cargo | 1,035 | 876 | 79 | 58 | 1,114 | 934 | ||||||||||||||||||
Other operating revenue | 4,297 | 4,223 | (2,087) | (2,028) | 2,210 | 2,195 | ||||||||||||||||||
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Total operating revenue | 37,736 | 36,556 | 48 | 2 | 37,784 | 36,558 | ||||||||||||||||||
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Operating expenses | 34,238 | 32,218 | (21) | (12) | 34,217 | 32,206 | ||||||||||||||||||
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Operating income | 3,498 | 4,338 | 69 | 14 | 3,567 | 4,352 | ||||||||||||||||||
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Nonoperating expense, net | (499) | (519) | (28) | (60) | (527) | (579) | ||||||||||||||||||
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Income before income taxes | 2,999 | 3,819 | 41 | (46) | 3,040 | 3,773 | ||||||||||||||||||
Income tax expense (benefit) | 868 | 1,556 | 28 | (17) | 896 | 1,539 | ||||||||||||||||||
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Net income | $ | 2,131 | $ | 2,263 | $ | 13 | $ | (29) | $ | 2,144 | $ | 2,234 | ||||||||||||
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Earnings per share, basic | $ | 7.04 | $ | 6.86 | $ | 0.04 | $ | (0.09) | $ | 7.08 | $ | 6.77 | ||||||||||||
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Earnings per share, diluted | $ | 7.02 | $ | 6.85 | $ | 0.04 | $ | (0.09) | $ | 7.06 | $ | 6.76 | ||||||||||||
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Consolidated Balance SheetsNew Lease Standard had the same impact on the financial statements of United as it had on the financial statements of December 31,
As Reported | Adjustment | As Adjusted for Adoption of Topic 606 | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Prepaid expenses and other | $ | 1,051 | $ | 832 | $ | 20 | $ | 20 | $ | 1,071 | $ | 852 | ||||||||||||
Other assets: | ||||||||||||||||||||||||
Deferred income taxes | — | 655 | — | 48 | — | 703 | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Advance ticket sales | 3,876 | 3,730 | 64 | 65 | 3,940 | 3,795 | ||||||||||||||||||
Frequent flyer deferred revenue | 2,176 | 2,135 | 16 | 14 | 2,192 | 2,149 | ||||||||||||||||||
Other | 569 | 1,010 | 7 | 79 | 576 | 1,089 | ||||||||||||||||||
Other liabilities and deferred credits: | ||||||||||||||||||||||||
Frequent flyer deferred revenue | 2,565 | 2,748 | 26 | (8 | ) | 2,591 | 2,740 | |||||||||||||||||
Advanced purchase of miles | — | 430 | — | 3 | — | 433 | ||||||||||||||||||
Deferred income taxes | 225 | — | (21) | — | 204 | — | ||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||
Retained earnings | 4,621 | 3,427 | (72) | (85 | ) | 4,549 | 3,342 |
In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,Leases(“Topic 842”).UAL. The guidance requires lessees to recognize aright-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840,Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 842 using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. We have not completed our evaluation oftable below presents the impact of the new standard, but believeadoption of the New Lease Standard on select accounts and captions of UAL's statement of consolidated operations for the year ended December 31 (in millions, except per share amounts):
As Reported | New Lease Standard Adjustments | As Adjusted | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Regional capacity purchase | $ | 2,601 | $ | 2,232 | $ | 48 | $ | 36 | $ | 2,649 | $ | 2,268 | |||||||||||
Landing fees and other rent | 2,359 | 2,240 | 90 | 70 | 2,449 | 2,310 | |||||||||||||||||
Depreciation and amortization | 2,240 | 2,149 | (75 | ) | (53 | ) | 2,165 | 2,096 | |||||||||||||||
Interest expense | (729 | ) | (671 | ) | 59 | 45 | (670 | ) | (626 | ) | |||||||||||||
Interest capitalized | 70 | 84 | (5 | ) | (10 | ) | 65 | 74 | |||||||||||||||
Income tax expense | 529 | 896 | (3 | ) | (16 | ) | 526 | 880 | |||||||||||||||
Net income | 2,129 | 2,144 | (7 | ) | (1 | ) | 2,122 | 2,143 | |||||||||||||||
Earnings per share, basic | 7.73 | 7.08 | (0.03 | ) | — | 7.70 | 7.08 | ||||||||||||||||
Earnings per share, diluted | 7.70 | 7.06 | (0.03 | ) | — | 7.67 | 7.06 |
December 31, 2018 | ||||||||||||
As Reported | New Lease Standard Adjustments | As Adjusted | ||||||||||
Receivables, less allowance for doubtful accounts | $ | 1,346 | $ | 80 | $ | 1,426 | ||||||
Prepaid expenses and other | 913 | (180 | ) | 733 | ||||||||
Flight equipment, owned and finance leases (a) | 32,636 | (37 | ) | 32,599 | ||||||||
Other property and equipment, owned and finance leases (a) | 7,930 | (1,041 | ) | 6,889 | ||||||||
Accumulated depreciation and amortization, owned and finance leases (a) | (13,414 | ) | 148 | (13,266 | ) | |||||||
Operating lease right-of-use assets | — | 5,262 | 5,262 | |||||||||
Current maturities of finance leases (a) | 149 | (26 | ) | 123 | ||||||||
Current maturities of operating leases | — | 719 | 719 | |||||||||
Other current liabilities | 619 | (66 | ) | 553 | ||||||||
Long-term obligations under finance leases (a) | 1,134 | (910 | ) | 224 | ||||||||
Long-term obligations under operating leases | — | 5,276 | 5,276 | |||||||||
Deferred income taxes | 814 | 14 | 828 | |||||||||
Other long-term liabilities | 1,832 | (822 | ) | 1,010 | ||||||||
Retained earnings | 6,668 | 47 | 6,715 |
As Reported | New Lease Standard Adjustments | As Adjusted | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Cash Flows from Operating Activities: | |||||||||||||||||||||||
Net cash provided by operating activities | $ | 6,181 | $ | 3,413 | $ | (17 | ) | $ | 61 | $ | 6,164 | $ | 3,474 | ||||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||||||
Capital expenditures | (4,177 | ) | (3,998 | ) | 107 | 128 | (4,070 | ) | (3,870 | ) | |||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||||||
Proceeds from issuance of long-term debt | 1,740 | 2,765 | (146 | ) | (228 | ) | 1,594 | 2,537 | |||||||||||||||
Principal payments under finance leases | (134 | ) | (124 | ) | 55 | 40 | (79 | ) | (84 | ) |
In 2016, the FASB issued Accounting Standards UpdateNo. 2016-01,Financial Instruments—Overall (Subtopic825-10) (“ASU2016-01”). This standard makes several changes, including the elimination of theavailable-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. It is effective for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of December 31, 2017, the Company does not expect the adoption of ASU2016-01 to have a material impact on itsCompany's consolidated financial statements.
In 2017, the FASB issued Accounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU2017-07”). The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement.ASU2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company does not expect the adoption of ASU2017-07 to have a material impact on its consolidated financial statements. Early adoption of ASU2017-07 would have impacted the statement of consolidated operations as shown in the table below:
Statements of Consolidated Operations for the Years Ended December 31,
As Reported | Adjustment | As Adjusted for Adoption of ASU2017-07 | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Operating expense: | ||||||||||||||||||||||||
Salaries and related costs | $ | 11,045 | $ | 10,275 | $ | (104) | $ | (99 | ) | $ | 10,941 | $ | 10,176 | |||||||||||
Special charges | 176 | 638 | — | 107 | 176 | 745 | ||||||||||||||||||
Nonoperating income (expense): | ||||||||||||||||||||||||
Miscellaneous, net | 3 | (19) | (104) | 8 | (101) | (11) |
In February 2018, the FASB issued Accounting Standards UpdateNo. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income(“ASU2018-02”). This standard focuses on a targeted improvement to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017 from accumulated other comprehensive income (“AOCI”) to retained earnings (“RE”). The amount of the reclassification would be the difference between the amount initially charged
or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in AOCI and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. ASU2018-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We have elected to early adopt this standard for the year ended December 31, 2017. We have reclassified $118 million from AOCI to RE as a result of this adoption. See Note 6 of this report for additional information.
NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents information about the Company’s goodwill and other intangible assets at December 31 (in millions):
2017 | 2016 | |||||||||||||||||||
Item | Asset life (a) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||
Goodwill | $ | 4,523 | $ | 4,523 | ||||||||||||||||
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Finite-lived intangible assets | ||||||||||||||||||||
Frequent flyer database (b) | 22 | $ | 1,177 | $ | 832 | $ | 1,177 | $ | 771 | |||||||||||
Hubs | 20 | 145 | 89 | 145 | 82 | |||||||||||||||
Contracts | 13 | 121 | 103 | 135 | 95 | |||||||||||||||
Patents and tradenames | 3 | 108 | 108 | 108 | 108 | |||||||||||||||
Airport slots and gates | 8 | 97 | 97 | 97 | 97 | |||||||||||||||
Other | 25 | 109 | 84 | 109 | 81 | |||||||||||||||
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Total | $ | 1,757 | $ | 1,313 | $ | 1,771 | $ | 1,234 | ||||||||||||
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Indefinite-lived intangible assets | ||||||||||||||||||||
Route authorities | $ | 1,562 | $ | 1,562 | ||||||||||||||||
Airport slots and gates | 536 | 536 | ||||||||||||||||||
Tradenames and logos | 593 | 593 | ||||||||||||||||||
Alliances | 404 | 404 | ||||||||||||||||||
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Total | $ | 3,095 | $ | 3,095 | ||||||||||||||||
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(a) Weighted average life expressed in years.
(b) The frequent flyer database is amortized based on an accelerated amortization schedule to reflect utilization of the assets. Estimated cash flows correlating to the expected attrition rate of customers in the frequent flyer database is considered in the determination of the amortization schedules.
Amortization expense in 2017, 2016 and 2015 was $79 million, $90 million and $105 million, respectively. Projected amortization expense in 2018, 2019, 2020, 2021 and 2022 is $67 million, $61 million, $55 million, $50 million and $40 million, respectively.
See Note 14 of this report for additional information related to impairment of intangible assets.
In 2017, the Company retired 25 million treasury shares that were originally acquired at an average cost of approximately $63 per share.
At December 31, 2017,2019, approximately 108 million shares of UAL’sUAL's common stock were reserved for future issuance related to the issuance of equity-based awards under the Company’sCompany's incentive compensation plans.
2017 | 2016 | 2015 | ||||||||||
Earnings available to common stockholders | $ | 2,131 | $ | 2,263 | $ | 7,340 | ||||||
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Basic weighted-average shares outstanding | 302.7 | 329.9 | 376.1 | |||||||||
Effect of convertible notes | — | — | 0.3 | |||||||||
Effect of employee stock awards | 0.9 | 0.4 | 0.5 | |||||||||
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Diluted weighted-average shares outstanding | 303.6 | 330.3 | 376.9 | |||||||||
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Earnings per share, basic | $ | 7.04 | $ | 6.86 | $ | 19.52 | ||||||
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Earnings per share, diluted | $ | 7.02 | $ | 6.85 | $ | 19.47 | ||||||
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2019 | 2018 (a) | 2017 (a) | ||||||||||
Earnings available to common stockholders | $ | 3,009 | $ | 2,122 | $ | 2,143 | ||||||
Basic weighted-average shares outstanding | 258.8 | 275.5 | 302.7 | |||||||||
Effect of employee stock awards | 1.1 | 1.2 | 0.9 | |||||||||
Diluted weighted-average shares outstanding | 259.9 | 276.7 | 303.6 | |||||||||
Earnings per share, basic | $ | 11.63 | $ | 7.70 | $ | 7.08 | ||||||
Earnings per share, diluted | $ | 11.58 | $ | 7.67 | $ | 7.06 |
of grant. TheseThe amount of performance-based RSUs that vest will be based on the Company's relative improvement in pre-tax margin compared to a group of airline industry peers for the three years ending December 31, 2021. The RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees. The cash payments are based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The performance-based RSUs vest based on the Company’s relative improvement inpre-tax margin compared to a group of airline industry peers for the three years ending December 31, 2019. If the performance condition is achieved, cash payments will be made after the end of the performance period based on the20-day average closing price of UAL common stock immediately prior to the vesting date and based on the level, if any, of the performance goal achieved. The Company accounts for the performance-based RSUs as liability awards. The stock options have aten-year term and vestpro-rata annually over six years, at variable rates, beginning on the third fourth and fifth anniversariesanniversary of the dateUAL's 2020 Annual Meeting of grant.
Stockholders.
2017 | 2016 | 2015 | ||||||||||
Compensation cost: | ||||||||||||
RSUs | $ | 63 | $ | 58 | $ | 52 | ||||||
Restricted stock | 8 | 11 | 6 | |||||||||
Stock options | 2 | 1 | — | |||||||||
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Total | $ | 73 | $ | 70 | $ | 58 | ||||||
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2019 | 2018 | 2017 | ||||||||||
Compensation cost: | ||||||||||||
RSUs | $ | 98 | $ | 98 | $ | 63 | ||||||
Restricted stock | 1 | 2 | 8 | |||||||||
Stock options | 1 | 1 | 2 | |||||||||
Total | $ | 100 | $ | 101 | $ | 73 |
Unearned Compensation | Weighted- Average Remaining Period (in years) | |||||||
RSUs | $ | 46 | 1.9 | |||||
Stock options | 4 | 3.9 | ||||||
Restricted stock | 3 | 1.2 | ||||||
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Total | $ | 53 | ||||||
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Unearned Compensation | Weighted-Average Remaining Period (in years) | |||||
RSUs | $ | 66 | 2.0 | |||
Stock options | 11 | 5.3 | ||||
Total | $ | 77 |
The table below summarizes UAL’sUAL's RSUs and restricted stock activity for the years ended December 31 (shares in millions):
RSUs | Restricted Stock | Weighted- Average Grant Price | ||||||||||
Outstanding at December 31, 2014 | 3.8 | 0.7 | $ | 32.55 | ||||||||
Granted | 1.0 | 0.2 | 66.53 | |||||||||
Vested | (1.6) | (0.4) | 31.14 | |||||||||
Forfeited | (0.6) | (0.2) | 46.23 | |||||||||
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Outstanding at December 31, 2015 | 2.6 | 0.3 | 48.68 | |||||||||
Granted | 1.9 | 0.4 | 50.63 | |||||||||
Vested | (1.4) | (0.1) | 41.47 | |||||||||
Forfeited | (0.2) | (0.1) | 53.42 | |||||||||
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Outstanding at December 31, 2016 | 2.9 | 0.5 | 52.00 | |||||||||
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Granted | 1.6 | — | — | |||||||||
Vested | (1.0) | (0.2) | 51.60 | |||||||||
Forfeited | (0.3) | — | 51.88 | |||||||||
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Outstanding at December 31, 2017 | 3.2 | 0.3 | 52.30 | |||||||||
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Liability Awards | Equity Awards | ||||||||||||||||
RSUs | RSUs | Weighted- Average Grant Price | Restricted Stock | Weighted- Average Grant Price | |||||||||||||
Outstanding at December 31, 2016 | 2.1 | 0.8 | $ | 51.67 | 0.5 | $ | 52.00 | ||||||||||
Granted | 0.6 | 1.0 | 71.68 | — | — | ||||||||||||
Vested | (0.7 | ) | (0.3 | ) | 51.81 | (0.2 | ) | 51.60 | |||||||||
Forfeited | (0.2 | ) | (0.1 | ) | 57.49 | — | — | ||||||||||
Outstanding at December 31, 2017 | 1.8 | 1.4 | 63.99 | 0.3 | 52.30 | ||||||||||||
Granted | 0.7 | 1.1 | 67.74 | — | — | ||||||||||||
Vested | (0.5 | ) | (0.5 | ) | 63.02 | (0.2 | ) | 53.24 | |||||||||
Forfeited | (0.1 | ) | (0.2 | ) | 67.34 | — | — | ||||||||||
Outstanding at December 31, 2018 | 1.9 | 1.8 | 66.29 | 0.1 | 51.17 | ||||||||||||
Granted | 0.1 | 1.1 | 86.72 | — | — | ||||||||||||
Vested | (0.5 | ) | (0.8 | ) | 64.85 | (0.1 | ) | 51.17 | |||||||||
Forfeited | (0.9 | ) | (0.1 | ) | 76.48 | — | — | ||||||||||
Outstanding at December 31, 2019 | 0.6 | 2.0 | 78.03 | — | — |
Stock Options. Duringawards during 2018. In 2017, UAL granted approximately 36,000 stock options with an exercise pricesprice equal to the fair market value of UAL’sUAL's common stock on the date of grant, with a weighted-averagerepresenting an exercise price of $77.56 and a weighted-average grant date fair value of approximately $0.7 million. In 2016, UAL granted approximately 0.1 million stock options with exercise prices equal to the fair market value of UAL’s common stock on the date of grant and an additional approximately 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-average exercise price of $56.19 and a weighted-average grant date fair value of approximately $2.3 million. UAL did not grant any stock options in 2015. Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options.
As of December 31, 2017,2019, there were approximately 0.50.7 million outstanding stock option awards, 0.10.2 million of which were exercisable, with weighted-average exercise prices of $51.67$82.12 and $34.74,$56.89, respectively, intrinsic values of $8$11 million and $5$6 million, respectively, and weighted-average remaining contractual lives (in years) of 6.37.3 and 3.7, respectively.
("AOCI")
Pension and Other Postretirement Liabilities | Fuel Derivatives Contracts | Investments and Other | Deferred Taxes | Total | ||||||||||||||||
Balance at December 31, 2014 | $ | (472) | $ | (499) | $ | 8 | $ | (116) | $ | (1,079) | ||||||||||
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Other comprehensive income (loss) before reclassifications | 78 | (a) | (320) | (5) | 88 | (159) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income | 31 | 604 | — | (228) | 407 | |||||||||||||||
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Net other comprehensive income (loss) | 109 | 284 | (5) | (140) | 248 | |||||||||||||||
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Balance at December 31, 2015 | $ | (363) | $ | (215) | $ | 3 | $ | (256) | $ | (831) | ||||||||||
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Other comprehensive income (loss) before reclassifications | (517) | (a) | (4) | — | 187 | (334) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income | 26 | 217 | (2) | 95 | 336 | |||||||||||||||
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Net other comprehensive income (loss) | (491) | 213 | (2) | 282 | 2 | |||||||||||||||
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Balance at December 31, 2016 | $ | (854) | $ | (2) | $ | 1 | $ | 26 | $ | (829) | ||||||||||
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Other comprehensive income (loss) before reclassifications | (306) | (a) | — | (7) | 74 | (239) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income | 58 | 2 | — | (21) | 39 | |||||||||||||||
Reclassification of stranded tax effects | — | — | — | (118) | (b) | (118) | ||||||||||||||
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Net other comprehensive income (loss) | (248) | 2 | (7) | (65) | (318) | |||||||||||||||
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Balance at December 31, 2017 | $ | (1,102) | $ | — | $ | (6) | $ | (39) | (c) | $ | (1,147) | |||||||||
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Details about AOCI Components | Amount Reclassified from AOCI to Income | Affected Line Item in the Statement Where Net Income is Presented | ||||||||||||||
Year Ended December 31, | ||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||
Fuel derivative contracts | ||||||||||||||||
Fuel contracts-reclassifications of losses into earnings (d) | $ | 2 | $ | 217 | $ | 604 | Aircraft fuel | |||||||||
Pension and Postretirement liabilities | ||||||||||||||||
Amortization of unrecognized (gains) losses and prior service cost (e) | 58 | 26 | 31 | Salaries and related costs | ||||||||||||
Investments and other | ||||||||||||||||
Available-for-sale securities—reclassifications of gains into earnings | — | (2 | ) | — | Miscellaneous, net |
Investments and Other Deferred Taxes Balance at December 31, 2016 $ (854 ) $ (1 ) $ 26 $ (829 ) Change in value (306 ) (a) (7 ) 74 (239 ) Amounts reclassified to earnings 58 2 (21 ) 39 Reclassification of stranded tax effects — — (118 ) (b) (118 ) Balance at December 31, 2017 (1,102 ) (6 ) (39 ) (1,147 ) Change in value 377 (a) (5 ) (83 ) 289 Amounts reclassified to earnings 62 — (13 ) 49 Amounts reclassified to retained earnings ("RE") — 7 (c) (1 ) (c) 6 Balance at December 31, 2018 (663 ) (4 ) (136 ) (803 ) Change in value 105 (a) 7 (24 ) 88 Amounts reclassified to earnings (2 ) (1 ) — (3 ) Balance at December 31, 2019 $ (560 ) $ 2 $ (160 ) $ (718 )
other postretirement liabilities.
Cuts and Jobs Act (the "Tax Act").
(d) The lastRE of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expiredunrealized loss, and related tax, on the Company's investment in December 2016. The 2017 amount reclassified from AOCI into fuel expense represents hedge losses on December 2016 settled trades, but forAzul Linhas Aéreas Brasileiras S.A. ("Azul") which the associated fuel purchased in December 2016 was not consumed until January 2017. The Company’s current strategy isclassified as an available-for-sale security prior to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.
(e) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 8 of this report for additional information).
Prior to the release of the deferred income tax valuation allowance in the third quarter of 2015, the Company recorded approximately $465 million of valuation allowance adjustments in AOCI. Subsequent to the release of the deferred income tax valuation allowance in 2015, the $465 million debit remained within AOCI, of which $180 million related to losses on fuel hedges designated for hedge accounting and $285 million related to pension and other postretirement liabilities.adopting Accounting rules required the adjustments to remain in AOCI as long as the Company had fuel derivatives designated for cash flow hedge accounting and the Company continues to provide pension and postretirement benefits. In 2016, the Company settled all of its fuel hedges and has not entered into any new fuel derivative contracts for hedge accounting. Accordingly, the Company reclassified the $180 million to income tax expense in 2016.
UAL | 2017 | 2016 | 2015 | |||||||||
Income tax provision at statutory rate | $ | 1,050 | $ | 1,337 | $ | 1,477 | ||||||
State income taxes, net of federal income tax benefit | 29 | 38 | 38 | |||||||||
Foreign tax rate differential | (43) | — | — | |||||||||
Foreign income taxes | 3 | 3 | 4 | |||||||||
Nondeductible employee meals | 17 | 16 | 15 | |||||||||
Impact of Tax Act | (192) | — | — | |||||||||
Income tax adjustment from AOCI | — | 180 | — | |||||||||
State rate change | 12 | (12) | — | |||||||||
Valuation allowance | (16) | 20 | (4,662) | |||||||||
Other, net | 8 | (26) | 7 | |||||||||
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$ | 868 | $ | 1,556 | $ | (3,121) | |||||||
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Current | $ | (77) | $ | (92) | $ | 56 | ||||||
Deferred | 945 | 1,648 | (3,177) | |||||||||
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$ | 868 | $ | 1,556 | $ | (3,121) | |||||||
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United | 2017 | 2016 | 2015 | |||||||||
Income tax provision at statutory rate | $ | 1,051 | $ | 1,338 | $ | 1,477 | ||||||
State income taxes, net of federal income tax | 29 | 38 | 38 | |||||||||
Foreign tax rate differential | (43) | — | — | |||||||||
Foreign income taxes | 3 | 3 | 4 | |||||||||
Nondeductible employee meals | 17 | 16 | 15 | |||||||||
Impact of Tax Act | (209) | — | — | |||||||||
Income tax adjustment from AOCI | — | 180 | — | |||||||||
State rate change | 12 | (12) | — | |||||||||
Valuation allowance | (16) | 20 | (4,621) | |||||||||
Other, net | 8 | (25) | 7 | |||||||||
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$ | 852 | $ | 1,558 | $ | (3,080) | |||||||
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Current | $ | (77) | $ | (92) | $ | 56 | ||||||
Deferred | 929 | 1,650 | (3,136) | |||||||||
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$ | 852 | $ | 1,558 | $ | (3,080) | |||||||
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UAL | 2019 | 2018 (a) | 2017 (a) | |||||||||
Income tax provision at statutory rate | $ | 822 | $ | 556 | $ | 1,058 | ||||||
State income taxes, net of federal income tax benefit | 50 | 29 | 30 | |||||||||
Foreign tax rate differential | (90 | ) | (84 | ) | (43 | ) | ||||||
Global intangible low-taxed income | 90 | 4 | — | |||||||||
Foreign income taxes | 1 | 2 | 3 | |||||||||
Nondeductible employee meals | 12 | 12 | 17 | |||||||||
Impact of Tax Act | — | (5 | ) | (189 | ) | |||||||
State rate change | — | 3 | 12 | |||||||||
Valuation allowance | (4 | ) | (3 | ) | (16 | ) | ||||||
Other, net | 24 | 12 | 8 | |||||||||
$ | 905 | $ | 526 | $ | 880 | |||||||
Current | $ | 23 | $ | 14 | $ | (77 | ) | |||||
Deferred | 882 | 512 | 957 | |||||||||
$ | 905 | $ | 526 | $ | 880 | |||||||
United | 2019 | 2018 (a) | 2017 (a) | |||||||||
Income tax provision at statutory rate | $ | 822 | $ | 557 | $ | 1,059 | ||||||
State income taxes, net of federal income tax | 50 | 29 | 30 | |||||||||
Foreign tax rate differential | (90 | ) | (84 | ) | (43 | ) | ||||||
Global intangible low-taxed income | 90 | 4 | — | |||||||||
Foreign income taxes | 1 | 2 | 3 | |||||||||
Nondeductible employee meals | 12 | 12 | 17 | |||||||||
Impact of Tax Act | — | (5 | ) | (206 | ) | |||||||
State rate change | — | 3 | 12 | |||||||||
Valuation allowance | (4 | ) | (3 | ) | (16 | ) | ||||||
Other, net | 24 | 12 | 8 | |||||||||
$ | 905 | $ | 527 | $ | 864 | |||||||
Current | $ | 23 | $ | 14 | $ | (77 | ) | |||||
Deferred | 882 | 513 | 941 | |||||||||
$ | 905 | $ | 527 | $ | 864 |
35% primarily because of thenon-cash income tax expense of $180 million that was related to losses on fuel derivatives designated for hedge accounting. Subsequent to the release of the valuation allowance in 2015, this deferred income tax expense of $180 million remained in AOCI until all fuel derivatives were settled in December 2016.
Total income tax expense in 2017 includes the provisionalone-time transition tax of $19 million on previously deferred foreign earnings. The undistributed cumulative earnings of foreign subsidiaries contributing to theone-time transition tax were $122 million. The Company expects to repatriate these earnings in 2018.
As of December 31, 2017, we had not completed our analysis of all aspects of50% GILTI deduction provided by the Tax Act. However, we have made a provisional estimate for its effect on our existing deferred tax balances and theone-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
UAL | United | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Deferred income tax asset (liability): | ||||||||||||||||
Federal and state net operating loss (“NOL”) carryforwards | $ | 601 | $ | 1,613 | $ | 574 | $ | 1,571 | ||||||||
Deferred revenue | 1,069 | 2,096 | 1,069 | 2,096 | ||||||||||||
Employee benefits, including pension, postretirement and medical | 1,051 | 1,662 | 1,051 | 1,662 | ||||||||||||
Alternative minimum tax credit carryforwards | — | 116 | — | 116 | ||||||||||||
Other | 351 | 523 | 351 | 522 | ||||||||||||
Less: Valuation allowance | (63) | (68) | (63) | (68) | ||||||||||||
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Total deferred tax assets | $ | 3,009 | $ | 5,942 | $ | 2,982 | $ | 5,899 | ||||||||
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Depreciation | $ | (2,431) | $ | (3,961) | $ | (2,431) | $ | (3,961) | ||||||||
Intangibles | (803) | (1,326) | (803) | (1,326) | ||||||||||||
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Total deferred tax liabilities | $ | (3,234) | $ | (5,287) | $ | (3,234) | $ | (5,287) | ||||||||
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Net deferred tax asset (liability) | $ | (225) | $ | 655 | $ | (252) | $ | 612 | ||||||||
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UAL | United | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Deferred income tax asset (liability): | ||||||||||||||||
Federal and state net operating loss ("NOL") carryforwards | $ | 695 | $ | 398 | $ | 668 | $ | 371 | ||||||||
Deferred revenue | 1,287 | 1,232 | 1,287 | 1,232 | ||||||||||||
Employee benefits, including pension, postretirement and medical | 715 | 885 | 715 | 885 | ||||||||||||
Operating lease liabilities | 1,256 | 1,338 | 1,256 | 1,338 | ||||||||||||
Other | 165 | 229 | 165 | 229 | ||||||||||||
Less: Valuation allowance | (58 | ) | (59 | ) | (58 | ) | (59 | ) | ||||||||
Total deferred tax assets | $ | 4,060 | $ | 4,023 | $ | 4,033 | $ | 3,996 | ||||||||
Depreciation | $ | (4,011 | ) | $ | (2,929 | ) | $ | (4,011 | ) | $ | (2,929 | ) | ||||
Operating lease right-of-use asset | (1,061 | ) | (1,173 | ) | (1,061 | ) | (1,173 | ) | ||||||||
Intangibles | (724 | ) | (749 | ) | (724 | ) | (749 | ) | ||||||||
Total deferred tax liabilities | $ | (5,796 | ) | $ | (4,851 | ) | $ | (5,796 | ) | $ | (4,851 | ) | ||||
Net deferred tax liability | $ | (1,736 | ) | $ | (828 | ) | $ | (1,763 | ) | $ | (855 | ) |
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. The Company establishes valuation allowances if it is not more
likely than not that it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U.S. and global economies; and (3) the future impact of taxable temporary differences. In 2015, the Company concluded that its deferred income tax assets were more likely than not to be realized and released almost all of its We have recorded a $45 million valuation allowance in 2015, resulting in a $3.1 billion benefit in its provision for income taxes.
The Company has a valuation allowance of $63 million for certain state and local NOLs and credit carryforwards. The Company expects these NOLs and credits will expire unused due to limited carryforward periods. The ability to utilizeagainst these state NOLs and credits will be evaluated on a quarterly basis to determine if there are any significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these deferred tax assets.
NOLs.
There are no material amounts included in the balance at December 31, 20172019 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
Plans.
United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S.non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and anPlans.
United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions,co-payments, deductibles and other limits as described in the specific plan documentation.During 2019, United notified participants of a refresh to the plan options offered under its retiree medical benefit program. Non-HMO (health maintenance organization) medical plan options for post-Medicare retirees were converted to fully-insured Medicare Advantage plans. The plan design changes impacted all current and future eligible post-Medicare retirees, through updates in plan design and/or premium rate/contribution setting refinements. Benefit levels were not reduced as a result of this change, and in many cases the refresh resulted in reduced retiree contributions. As a result of this modification to its retiree medical plan options, the Company remeasured retiree medical benefit program liabilities using a discount rate of 3.39%. The projected benefit obligation of the retiree medical benefit program decreased by $421 million with an offset to Accumulated other comprehensive loss ($597 million in prior service credits related to the plan changes, partially offset by $176 million in actuarial losses related to the remeasurement), which will be amortized over the average years of future service to full eligibility for the participants in the retiree medical benefit program (approximately seven years).
The following table setstables set forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):
Pension Benefits | ||||||||
Year Ended December 31, 2017 | Year Ended December 31, 2016 | |||||||
Accumulated benefit obligation: | $ | 4,739 | $ | 4,158 | ||||
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Change in projected benefit obligation: | ||||||||
Projected benefit obligation at beginning of year | $ | 5,253 | $ | 4,473 | ||||
Service cost | 195 | 112 | ||||||
Interest cost | 220 | 200 | ||||||
Actuarial loss | 525 | 738 | ||||||
Gross benefits paid and settlements | (366) | (243) | ||||||
Other | 25 | (27) | ||||||
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Projected benefit obligation at end of year | $ | 5,852 | $ | 5,253 | ||||
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Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 3,355 | $ | 2,975 | ||||
Actual return on plan assets | 510 | 230 | ||||||
Employer contributions | 419 | 421 | ||||||
Gross benefits paid and settlements | (366) | (243) | ||||||
Other | 14 | (28) | ||||||
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Fair value of plan assets at end of year | $ | 3,932 | $ | 3,355 | ||||
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Funded status—Net amount recognized | $ | (1,920) | $ | (1,898) | ||||
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Pension Benefits | ||||||||
December 31, 2017 | December 31, 2016 | |||||||
Amounts recognized in the consolidated balance sheets consist of: | ||||||||
Noncurrent asset | $ | 9 | $ | 2 | ||||
Current liability | (8) | (8) | ||||||
Noncurrent liability | (1,921) | (1,892) | ||||||
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Total liability | $ | (1,920) | $ | (1,898) | ||||
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Amounts recognized in accumulated other comprehensive loss consist of: | ||||||||
Net actuarial loss | $ | (1,610) | $ | (1,482) | ||||
Prior service cost | (1) | (1) | ||||||
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Total accumulated other comprehensive loss | $ | (1,611) | $ | (1,483) | ||||
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Pension Benefits | |||||||
Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||
Accumulated benefit obligation: | $ | 5,333 | $ | 4,448 | |||
Change in projected benefit obligation: | |||||||
Projected benefit obligation at beginning of year | $ | 5,396 | $ | 5,852 | |||
Service cost | 184 | 228 | |||||
Interest cost | 226 | 217 | |||||
Actuarial (gain) loss | 784 | (601 | ) | ||||
Gross benefits paid and settlements | (200 | ) | (292 | ) | |||
Other | 8 | (8 | ) | ||||
Projected benefit obligation at end of year | $ | 6,398 | $ | 5,396 | |||
Change in plan assets: | |||||||
Fair value of plan assets at beginning of year | $ | 3,827 | $ | 3,932 | |||
Actual (loss) return on plan assets | 684 | (215 | ) | ||||
Employer contributions | 649 | 413 | |||||
Gross benefits paid and settlements | (200 | ) | (292 | ) | |||
Other | 4 | (11 | ) | ||||
Fair value of plan assets at end of year | $ | 4,964 | $ | 3,827 | |||
Funded status—Net amount recognized | $ | (1,434 | ) | $ | (1,569 | ) |
Other Postretirement Benefits | ||||||||
Year Ended December 31, 2017 | Year Ended December 31, 2016 | |||||||
Change in benefit obligation: | ||||||||
Benefit obligation at beginning of year | $ | 1,687 | $ | 2,002 | ||||
Service cost | 13 | 19 | ||||||
Interest cost | 66 | 86 | ||||||
Plan participants’ contributions | 68 | 69 | ||||||
Benefits paid | (178) | (191) | ||||||
Actuarial loss (gain) | 40 | (165) | ||||||
Plan amendments | — | (138) | ||||||
Other | 14 | 5 | ||||||
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Benefit obligation at end of year | $ | 1,710 | $ | 1,687 | ||||
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Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 55 | $ | 56 | ||||
Actual return on plan assets | 1 | 2 | ||||||
Employer contributions | 108 | 119 | ||||||
Plan participants’ contributions | 68 | 69 | ||||||
Benefits paid | (178) | (191) | ||||||
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Fair value of plan assets at end of year | 54 | 55 | ||||||
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Funded status—Net amount recognized | $ | (1,656) | $ | (1,632) | ||||
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Other Postretirement Benefits | ||||||||
December 31, 2017 | December 31, 2016 | |||||||
Amounts recognized in the consolidated balance sheets consist of: | ||||||||
Current liability | $ | (54) | $ | (51) | ||||
Noncurrent liability | (1,602) | (1,581) | ||||||
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Total liability | $ | (1,656) | $ | (1,632) | ||||
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Amounts recognized in accumulated other comprehensive income consist of: | ||||||||
Net actuarial gain | $ | 301 | $ | 384 | ||||
Prior service credit | 208 | 245 | ||||||
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Total accumulated other comprehensive income | $ | 509 | $ | 629 | ||||
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Pension Benefits | |||||||
December 31, 2019 | December 31, 2018 | ||||||
Amounts recognized in the consolidated balance sheets consist of: | |||||||
Noncurrent asset | $ | 14 | $ | 13 | |||
Current liability | (2 | ) | (6 | ) | |||
Noncurrent liability | (1,446 | ) | (1,576 | ) | |||
Total liability | $ | (1,434 | ) | $ | (1,569 | ) | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||
Net actuarial loss | $ | (1,652 | ) | $ | (1,382 | ) | |
Prior service cost | (4 | ) | (5 | ) | |||
Total accumulated other comprehensive loss | $ | (1,656 | ) | $ | (1,387 | ) | |
Other Postretirement Benefits | |||||||
Year Ended December 31, 2019 | Year Ended December 31, 2018 | ||||||
Change in benefit obligation: | |||||||
Benefit obligation at beginning of year | $ | 1,391 | $ | 1,710 | |||
Service cost | 10 | 12 | |||||
Interest cost | 47 | 61 | |||||
Plan participants' contributions | 67 | 68 | |||||
Benefits paid | (180 | ) | (181 | ) | |||
Actuarial loss (gain) | 99 | (285 | ) | ||||
Plan amendments | (597 | ) | — | ||||
Other | 5 | 6 | |||||
Benefit obligation at end of year | $ | 842 | $ | 1,391 | |||
Change in plan assets: | |||||||
Fair value of plan assets at beginning of year | $ | 53 | $ | 54 | |||
Actual return on plan assets | 1 | 1 | |||||
Employer contributions | 111 | 111 | |||||
Plan participants' contributions | 67 | 68 | |||||
Benefits paid | (180 | ) | (181 | ) | |||
Fair value of plan assets at end of year | 52 | 53 | |||||
Funded status—Net amount recognized | $ | (790 | ) | $ | (1,338 | ) |
Other Postretirement Benefits | |||||||
December 31, 2019 | December 31, 2018 | ||||||
Amounts recognized in the consolidated balance sheets consist of: | |||||||
Current liability | $ | (1 | ) | $ | (43 | ) | |
Noncurrent liability | (789 | ) | (1,295 | ) | |||
Total liability | $ | (790 | ) | $ | (1,338 | ) | |
Amounts recognized in accumulated other comprehensive income consist of: | |||||||
Net actuarial gain | $ | 403 | $ | 554 | |||
Prior service credit | 693 | 170 | |||||
Total accumulated other comprehensive income | $ | 1,096 | $ | 724 |
2017 | 2016 | |||||||
Projected benefit obligation | $ | 5,637 | $ | 5,025 | ||||
Accumulated benefit obligation | 4,567 | 3,985 | ||||||
Fair value of plan assets | 3,709 | 3,164 |
2019 | 2018 | ||||||
Projected benefit obligation | $ | 6,161 | $ | 5,196 | |||
Accumulated benefit obligation | 5,137 | 4,286 | |||||
Fair value of plan assets | 4,714 | 3,614 |
2017 | 2016 | 2015 | ||||||||||||||||||||||
Pension Benefits | Other Postretirement Benefits | Pension Benefits | Other Postretirement Benefits | Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
Service cost | $ | 195 | $ | 13 | $ | 112 | $ | 19 | $ | 124 | $ | 21 | ||||||||||||
Interest cost | 220 | 66 | 200 | 86 | 200 | 82 | ||||||||||||||||||
Expected return on plan assets | (243) | (2) | (216) | (2) | (194) | (2) | ||||||||||||||||||
Curtailment gain | — | — | — | (107) | — | — | ||||||||||||||||||
Amortization of unrecognized actuarial (gain) loss | 128 | (33) | 76 | (19) | 85 | (22) | ||||||||||||||||||
Amortization of prior service credits | — | (37) | — | (31) | — | (32) | ||||||||||||||||||
Other | 5 | — | 5 | — | 4 | — | ||||||||||||||||||
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Net periodic benefit cost (credit) | $ | 305 | $ | 7 | $ | 177 | $ | (54) | $ | 219 | $ | 47 | ||||||||||||
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See Note 14 of this report for additional information related to the curtailment gain
2019 | 2018 | 2017 | |||||||||||||||||||||
Pension Benefits | Other Postretirement Benefits | Pension Benefits | Other Postretirement Benefits | Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||
Service cost | $ | 184 | $ | 10 | $ | 228 | $ | 12 | $ | 195 | $ | 13 | |||||||||||
Interest cost | 226 | 47 | 217 | 61 | 220 | 66 | |||||||||||||||||
Expected return on plan assets | (291 | ) | (1 | ) | (292 | ) | (2 | ) | (243 | ) | (2 | ) | |||||||||||
Amortization of unrecognized actuarial (gain) loss | 118 | (52 | ) | 130 | (32 | ) | 128 | (33 | ) | ||||||||||||||
Amortization of prior service credits | — | (73 | ) | — | (37 | ) | — | (37 | ) | ||||||||||||||
Other | 5 | — | 1 | — | 5 | — | |||||||||||||||||
Net periodic benefit cost (credit) | $ | 242 | $ | (69 | ) | $ | 284 | $ | 2 | $ | 305 | $ | 7 |
The estimated amounts that will be amortized in 2018 outSalaries and related costs on the statement of accumulatedconsolidated operations. All other comprehensive income (loss) intocomponents of net periodic benefit costcosts are as follows (in millions):
Pension Benefits | Other Postretirement Benefits | |||||||
Actuarial (gain) loss | $ | 132 | $ | (32) | ||||
Prior service (credit) cost | — | (37) |
recorded in Miscellaneous, net on the statement of consolidated operations.
| Pension Benefits | |||||||
Assumptions used to determine benefit obligations | 2017 | 2016 | ||||||
Discount rate | 3.65% | 4.18% | ||||||
Rate of compensation increase | 3.89% | 3.54% | ||||||
Assumptions used to determine net expense | ||||||||
Discount rate | 4.19% | 4.58% | ||||||
Expected return on plan assets | 7.02% | 7.04% | ||||||
Rate of compensation increase | 3.54% | 3.53% |
| Other Postretirement Benefits | |||||||
Assumptions used to determine benefit obligations | 2017 | 2016 | ||||||
Discount rate | 3.63% | 4.07% | ||||||
Assumptions used to determine net expense | ||||||||
Discount rate | 4.07% | 4.49% | ||||||
Expected return on plan assets | 3.00% | 3.00% | ||||||
Health care cost trend rate assumed for next year | 6.25% | 6.50% | ||||||
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023) | 5.00% | 5.00% |
Pension Benefits | ||||||
Assumptions used to determine benefit obligations | 2019 | 2018 | ||||
Discount rate | 3.52 | % | 4.20 | % | ||
Rate of compensation increase | 3.89 | % | 3.89 | % | ||
Assumptions used to determine net expense | ||||||
Discount rate | 4.21 | % | 3.65 | % | ||
Expected return on plan assets | 7.40 | % | 7.31 | % | ||
Rate of compensation increase | 3.89 | % | 3.89 | % |
Other Postretirement Benefits | ||||||
Assumptions used to determine benefit obligations | 2019 | 2018 | ||||
Discount rate | 3.35 | % | 4.30 | % | ||
Assumptions used to determine net expense | ||||||
Discount rate | 4.30 | % | 3.63 | % | ||
Expected return on plan assets | 3.00 | % | 3.00 | % | ||
Health care cost trend rate assumed for next year | 6.00 | % | 6.00 | % | ||
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2033) | 5.00 | % | 5.00 | % |
Percent of Total | Expected Long-Term Rate of Return | |||||||
Equity securities | 30-45 | % | 10 | % | ||||
Fixed-income securities | 35-50 |
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Alternatives | ||||||||
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One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans.
1% Increase | 1% Decrease | |||||||
Effect on total service and interest cost for the year ended December 31, 2017 | $ | 11 | $ | (8) | ||||
Effect on postretirement benefit obligation at December 31, 2017 | 170 | (149) |
A one percentage point50 basis points decrease in the weighted average discountexpected long-term rate of return on plan assets would increase the Company’s postretirement benefit liability by approximately $185 million and increase thehave increased estimated 2017 benefits2019 pension expense by approximately $8$20 million.
Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
Level 1 | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value | |||||||
Level 2 | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs | |||||||
Level 3 | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities |
2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||
Pension Plan Assets: | Total | Level 1 | Level 2 | Level 3 | Assets Measured at NAV(a) | Total | Level 1 | Level 2 | Level 3 | Assets Measured at NAV(a) | ||||||||||||||||||||||||||||||||||
Equity securities funds | $ | 1,406 | $ | 269 | $ | 133 | $ | — | $ | 1,004 | $ | 1,173 | $ | 230 | $ | 111 | $ | — | $ | 832 | ||||||||||||||||||||||||
Fixed-income securities | 1,470 | — | 834 | 18 | 618 | 1,298 | — | 824 | 11 | 463 | ||||||||||||||||||||||||||||||||||
Alternatives | 637 | — | — | 139 | 498 | 586 | — | — | 134 | 452 | ||||||||||||||||||||||||||||||||||
Other investments | 419 | 32 | 124 | 172 | 91 | 298 | 47 | 68 | 87 | 96 | ||||||||||||||||||||||||||||||||||
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Total | $ | 3,932 | $ | 301 | $ | 1,091 | $ | 329 | $ | 2,211 | $ | 3,355 | $ | 277 | $ | 1,003 | $ | 232 | $ | 1,843 | ||||||||||||||||||||||||
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Other Postretirement Benefit Plan Assets: | ||||||||||||||||||||||||||||||||||||||||||||
Deposit administration fund | $ | 54 | $ | — | $ | — | $ | 54 | $ | — | $ | 55 | $ | — | $ | — | $ | 55 | $ | — | ||||||||||||||||||||||||
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2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||
Pension Plan Assets: | Total | Level 1 | Level 2 | Level 3 | Assets Measured at NAV(a) | Total | Level 1 | Level 2 | Level 3 | Assets Measured at NAV(a) | |||||||||||||||||||||||||||||||
Equity securities funds | $ | 1,957 | $ | 47 | $ | 117 | $ | 71 | $ | 1,722 | $ | 1,457 | $ | 254 | $ | 106 | $ | 63 | $ | 1,034 | |||||||||||||||||||||
Fixed-income securities | 1,732 | — | 687 | 69 | 976 | 1,520 | — | 628 | 87 | 805 | |||||||||||||||||||||||||||||||
Alternatives | 776 | — | — | 205 | 571 | 596 | — | — | 134 | 462 | |||||||||||||||||||||||||||||||
Other investments | 499 | 466 | 21 | 12 | — | 254 | 224 | 17 | 13 | — | |||||||||||||||||||||||||||||||
Total | $ | 4,964 | $ | 513 | $ | 825 | $ | 357 | $ | 3,269 | $ | 3,827 | $ | 478 | $ | 751 | $ | 297 | $ | 2,301 | |||||||||||||||||||||
Other Postretirement Benefit Plan Assets: | |||||||||||||||||||||||||||||||||||||||||
Deposit administration fund | $ | 52 | $ | — | $ | — | $ | 52 | $ | — | $ | 53 | $ | — | $ | — | $ | 53 | $ | — |
semiannually.
The reconciliation of United’s definedUnited's benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 20172019 and 20162018 is as follows (in millions):
2017 | 2016 | |||||||
Balance at beginning of year | $ | 287 | $ | 208 | ||||
Actual return on plan assets: | ||||||||
Sold during the year | 7 | 4 | ||||||
Held at year end | 16 | 3 | ||||||
Purchases, sales, issuances and settlements (net) | 73 | 72 | ||||||
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Balance at end of year | $ | 383 | $ | 287 | ||||
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2019 | 2018 | ||||||
Balance at beginning of year | $ | 350 | $ | 383 | |||
Actual return (loss) on plan assets: | |||||||
Sold during the year | 12 | 10 | |||||
Held at year end | (1 | ) | (21 | ) | |||
Purchases, sales, issuances and settlements (net) | 48 | (22 | ) | ||||
Balance at end of year | $ | 409 | $ | 350 |
Pension | Other Postretirement | Other Postretirement— subsidy receipts | ||||||||||
2018 | $ | 305 | $ | 113 | $ | 6 | ||||||
2019 | 326 | 118 | 6 | |||||||||
2020 | 331 | 121 | 6 | |||||||||
2021 | 357 | 124 | 7 | |||||||||
2022 | 369 | 126 | 7 | |||||||||
Years 2023 – 2027 | 1,912 | 646 | 43 |
Pension | Other Postretirement | ||||||
2020 | $ | 361 | $ | 53 | |||
2021 | 386 | 56 | |||||
2022 | 399 | 59 | |||||
2023 | 410 | 62 | |||||
2024 | 399 | 64 | |||||
Years 2025 – 2029 | 2,219 | 328 |
Plans.
Depending upon the employee group, employer contributions consist of matching contributions and/ornon-elective employer contributions.Multi-Employer Plans
United’sPlans.United's participation in the IAM National Pension Plan (“("IAM Plan”Plan") for the annual period ended December 31, 20172019 is outlined in the table below. ThereExcept as described in table below, there have been no significantother changes that affect the comparability of 20172019 and 20162018 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported $414$467 million in employers’employers' contributions for the year ended December 31, 2016.2018. For 2016,2018, the Company’sCompany's contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan.
Pension Fund | IAM National Pension Fund | |
EIN/ Pension Plan Number | 51-6031295 - 002 | |
Pension Protection Act Zone Status | Red Zone (2019) and Green | |
FIP/RP Status Pending/Implemented | ||
| $ | |
Surcharge Imposed | No | |
Expiration Date of Collective Bargaining Agreement | N/A |
At the date the Consolidated Financial Statements were issued, Forms 5500 were not available for the plan year ending in 2017.
Sharing.
Substantially all employees participate in profit sharing based on a percentage ofpre-tax earnings, excluding special charges, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certainpre-tax margin thresholds. Eligible U.S.co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified2017 | 2016 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,482 | $ | 1,482 | $ | — | $ | — | $ | 2,179 | $ | 2,179 | $ | — | $ | — | ||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||
Corporate debt | 958 | — | 958 | — | 835 | — | 835 | — | ||||||||||||||||||||||||
Asset-backed securities | 753 | — | 753 | — | 792 | — | 792 | — | ||||||||||||||||||||||||
Certificates of deposit placed through an account registry service (“CDARS”) | 120 | — | 120 | — | 246 | — | 246 | — | ||||||||||||||||||||||||
U.S. government and agency notes | 113 | — | 113 | — | 140 | — | 140 | — | ||||||||||||||||||||||||
Other fixed-income securities | 188 | — | 188 | — | 54 | — | 54 | — | ||||||||||||||||||||||||
Other investments measured at NAV | 184 | — | — | — | 182 | — | — | — | ||||||||||||||||||||||||
Restricted cash | 109 | 109 | — | — | 124 | 124 | — | — | ||||||||||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||
Equity securities | 99 | 99 | — | — | — | — | — | — | ||||||||||||||||||||||||
Enhanced equipment trust certificates (“EETC”) | 22 | — | — | 22 | 23 | — | — | 23 |
2019 | 2018 | ||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 2,762 | $ | 2,762 | $ | — | $ | — | $ | 1,694 | $ | 1,694 | $ | — | $ | — | |||||||||||||||
Short-term investments: | |||||||||||||||||||||||||||||||
Corporate debt | 1,045 | — | 1,045 | — | 1,023 | — | 1,023 | — | |||||||||||||||||||||||
Asset-backed securities | 690 | — | 690 | — | 746 | — | 746 | — | |||||||||||||||||||||||
U.S. government and agency notes | 124 | — | 124 | — | 108 | — | 108 | — | |||||||||||||||||||||||
Certificates of deposit placed through an account registry service ("CDARS") | 35 | — | 35 | — | 75 | — | 75 | — | |||||||||||||||||||||||
Other fixed-income securities | 95 | — | 95 | — | 116 | — | 116 | — | |||||||||||||||||||||||
Other investments measured at NAV | 193 | — | — | — | 188 | — | — | — | |||||||||||||||||||||||
Restricted cash | 106 | 106 | — | — | 105 | 105 | — | — | |||||||||||||||||||||||
Long-term investments: | |||||||||||||||||||||||||||||||
Equity securities | 385 | 385 | — | — | 249 | 249 | — | — | |||||||||||||||||||||||
AVH Derivative Assets | 24 | — | — | 24 | 11 | — | — | 11 |
two years or less.
other insurance-related obligations.
Investments presented in the table above have the same fair value as their carrying value.
Fair Value of Debt by Fair Value Hierarchy Level | ||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||
Long-term debt | $ | 13,268 | $ | 13,787 | $ | — | $ | 10,115 | $ | 3,672 | $ | 10,767 | $ | 11,055 | $ | — | $ | 8,184 | $ | 2,871 |
. Carrying amounts include any related discounts, premiums and issuance costs:
2019 | 2018 | ||||||||||||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||
Long-term debt | $ | 14,552 | $ | 15,203 | $ | — | $ | 11,398 | $ | 3,805 | $ | 13,445 | $ | 13,450 | $ | — | $ | 9,525 | $ | 3,925 |
Description | Fair Value Methodology | |
Cash and cash equivalents | The carrying amounts approximate fair value because of the short-term maturity of these assets. | |
| Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services. | |
Other investments measured at NAV | In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. andnon-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to athree-day settlement period. | |
AVH Derivative Assets | Fair values are calculated using a Monte Carlo simulation approach. Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums. | |
Long-term debt | Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar |
Investments in Regional Carriers. United holds investments in several regional carriers that fly for the Company as United Express under its capacity purchase agreements ("CPAs"). The combined carrying value of the investments was approximately $126 million as of December 31, 2019. United accounts for each investment using the equity method. Each investment and United's ownership stake are listed below.
(In millions) | At December 31, | |||||||
2017 | 2016 | |||||||
Secured | ||||||||
Notes payable, fixed interest rates of 2.88% to 9.52% (weighted average rate of 4.39% as of December 31, 2017), payable through 2028 | $ | 8,661 | $ | 7,586 | ||||
Notes payable, floating interest rates of the London interbank offered rate (“LIBOR”) plus 0.2% to 2.25%, payable through 2028 | 1,880 | 1,546 | ||||||
Term loan, LIBOR plus 2.00%, or alternative rate based on certain market rates plus 1.00%, due 2024 | 1,489 | — | ||||||
Term loan, LIBOR subject to a 0.75% floor, plus 2.50%, or alternative rate based on certain market rates plus 1.50%, due 2019 | — | 866 | ||||||
Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2021 | — | 192 | ||||||
Unsecured | ||||||||
6.375% Senior Notes due 2018 (a) | 300 | 300 | ||||||
6% Senior Notes due 2020 (a) | 300 | 300 | ||||||
4.25% Senior Notes due 2022 (a) | 400 | — | ||||||
5% Senior Notes due 2024 (a) | 300 | — | ||||||
Other | 101 | 101 | ||||||
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13,431 | 10,891 | |||||||
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Less: unamortized debt discount, premiums and debt issuance costs | (163) | (124) | ||||||
Less: current portion of long-term debt | (1,565) | (849) | ||||||
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Long-term debt, net | $ | 11,703 | $ | 9,918 | ||||
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(In millions) | At December 31, | |||||||
2019 | 2018 | |||||||
Secured | ||||||||
Notes payable, fixed interest rates of 2.7% to 9.8% (weighted average rate of 3.95% as of December 31, 2019), payable through 2032 | $ | 9,615 | $ | 8,811 | ||||
Notes payable, floating interest rates of the London interbank offered rate ("LIBOR") plus 1.05% to 2.25%, payable through 2030 | 1,970 | 2,051 | ||||||
Term loan, LIBOR plus 1.75%, or alternative rate based on certain market rates plus 0.75%, due 2024 | 1,459 | 1,474 | ||||||
Unsecured | ||||||||
6% Senior Notes due 2020 (a) | 300 | 300 | ||||||
4.25% Senior Notes due 2022 (a) | 400 | 400 | ||||||
5% Senior Notes due 2024 (a) | 300 | 300 | ||||||
4.875% Senior Notes due 2025 (a) | 350 | — | ||||||
Other | 339 | 300 | ||||||
14,733 | 13,636 | |||||||
Less: unamortized debt discount, premiums and debt issuance costs | (181 | ) | (191 | ) | ||||
Less: current portion of long-term debt | (1,407 | ) | (1,230 | ) | ||||
Long-term debt, net | $ | 13,145 | $ | 12,215 |
2018 | $ | 1,565 | ||
2019 | 1,165 | |||
2020 | 1,170 | |||
2021 | 1,157 | |||
2022 | 1,492 | |||
After 2022 | 6,882 | |||
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$ | 13,431 | |||
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2020 | $ | 1,407 | ||
2021 | 1,415 | |||
2022 | 1,765 | |||
2023 | 815 | |||
2024 | 3,122 | |||
After 2024 | 6,209 | |||
$ | 14,733 |
2017
also includes a $2.0 billion revolving credit facility available for drawing until its maturity date on April 1, 2022, which increased the available capacity under the revolving credit facility by $650 million as compared to that in the 2013 Credit Agreement. The primary purpose of the November 2017 Amendment was to reduce the interest rate on borrowings by 0.25%.2022. The obligations of United under the amended 2017 Credit Agreement are secured by liens on certain international route authorities, certaintake-off and landing rights and related assets of United.
Borrowings
If drawn, revolving loans under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.25% per annum, or another rate based on certain market interest rates, plus a margin of 1.25% per annum.
As of December 31, 2017, United had cash collateralized $75 million of letters of credit. United also had $362 million of surety bonds securing various obligations at December 31, 2017. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis. The surety bonds have expiration dates through 2021.
EETCs. As of December 31, 2017, United had $8.6$9.6 billion principal amount of equipment notes outstanding issued under EETCenhanced equipment trust certificates ("EETC") financings included in notes payable in the table of outstanding debt above. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’sUnited's consolidated balance sheet because the proceeds held by the depositary are not United’sUnited's assets.
EETC Date | Class | Principal | Final expected distribution date | Stated interest rate | Total debt recorded as of December 31, 2017 | Proceeds received from issuance of debt during 2017 | Remaining proceeds from issuance of debt to be received in future periods | |||||||||||||||||
February 2018 | AA | $ | 677 | March 2030 | 3.50% | $ | — | $ | — | $ | 677 | |||||||||||||
February 2018 | A | 258 | March 2030 | 3.70% | — | — | 258 | |||||||||||||||||
November 2017 | B | 258 | January 2026 | 3.65% | 258 | 258 | — | |||||||||||||||||
November 2017 | B | 236 | October 2025 | 3.65% | 236 | 236 | — | |||||||||||||||||
September 2016 | AA | 637 | October 2028 | 2.875% | 637 | 557 | — | |||||||||||||||||
September 2016 | A | 283 | October 2028 | 3.10% | 283 | 247 | — | |||||||||||||||||
June 2016 | AA | 729 | July 2028 | 3.10% | 729 | 319 | — | |||||||||||||||||
June 2016 | A | 324 | July 2028 | 3.45% | 324 | 142 | — | |||||||||||||||||
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$ | 3,402 | $ | 2,467 | $ | 1,759 | $ | 935 | |||||||||||||||||
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EETC Issuance Date | Class | Principal | Final expected distribution date | Stated interest rate | Total proceeds received from issuance of debt during 2019 and recorded as debt as of December 31, 2019 | Amounts returned to the holders of the Pass-Through Certificates (a) | Remaining proceeds from issuance of debt to be received in future periods | |||||||||||||||
September 2019 | AA | $ | 702 | May 2032 | 2.70% | $ | 513 | $ | — | $ | 189 | |||||||||||
September 2019 | A | 287 | May 2028 | 2.90% | 210 | — | 77 | |||||||||||||||
September 2019 | B | 232 | May 2028 | 3.50% | 170 | — | 62 | |||||||||||||||
February 2019 | AA | 717 | August 2031 | 4.15% | 651 | 66 | — | |||||||||||||||
February 2019 | A | 296 | August 2031 | 4.55% | 269 | 27 | — | |||||||||||||||
$ | 2,234 | $ | 1,813 | $ | 93 | $ | 328 |
(a) These proceeds were expected to be used to purchase equipment notes issued by United and secured by 3 Boeing 737 MAX aircraft, which aircraft were scheduled for delivery by Boeing in 2019. However, as a result of the Federal Aviation Administration Order prohibiting the operation of Boeing 737 MAX series aircraft by U.S. certificated operators (the "FAA Order"), United did not take delivery of these aircraft. These amounts were distributed to the holders of February 2019 Pass Through Certificates together with accrued and unpaid interest thereon but without premium. As a result of the FAA Order, the Company did not contemplate using any proceeds from the September 2019 issuance of the EETC pass-through trusts to fund any Boeing 737 MAX deliveries.
4.25%
5% Senior Notes due 2024.In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5% Senior Notes due 2024”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.
Debt Instrument | Collateral, Covenants and Cross Default Provisions | |
Various equipment notes and other notes payable | Secured by certain aircraft. The indentures contain events of default that are customary for aircraft financing, including in certain cases cross default to other related aircraft. | |
Credit Agreement | Secured by certain of
programs. | |
6% Senior Notes due 2020 4.25% Senior Notes due 2022 5% Senior Notes due 2024 | 4.875% Senior Notes due 2025 | The indentures for these notes contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries (as defined in the indentures) to incur additional indebtedness and pay dividends on or repurchase stock, although the Company currently has ample ability under these restrictions to repurchase stock under the |
AtFor leases with terms greater than 12 months, we record the related right-of-use asset and lease liability at the present value of fixed lease payments over the lease term. To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, we have recognized those amounts as part of our right-of-use assets and lease liabilities. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the term of the lease. We combine lease and non-lease components, such as common area maintenance costs, in calculating the right-of-use assets and lease liabilities for all asset groups except for our CPAs, which contain embedded leases for regional aircraft. In addition to the lease component cost for regional aircraft, our CPAs also include non-lease components primarily related to the regional carriers' operating costs incurred in providing regional aircraft services. We allocate consideration for the lease components and non-lease components of each CPA based on their relative standalone values.
2019 | 2018 | 2017 | ||||||||||
Operating lease cost | $ | 1,038 | $ | 1,213 | $ | 1,433 | ||||||
Variable and short-term lease cost | 2,548 | 2,569 | 2,209 | |||||||||
Amortization of finance lease assets | 68 | 75 | 77 | |||||||||
Interest on finance lease liabilities | 85 | 44 | 24 | |||||||||
Sublease income | (32 | ) | (38 | ) | (36 | ) | ||||||
Total lease cost | $ | 3,707 | $ | 3,863 | $ | 3,707 |
Capital Leases (a) | Facility and Other Operating Leases | Aircraft Operating Leases | ||||||||||
2018 | $ | 200 | $ | 1,234 | $ | 1,038 | ||||||
2019 | 133 | 1,075 | 855 | |||||||||
2020 | 113 | 1,169 | 628 | |||||||||
2021 | 110 | 935 | 510 | |||||||||
2022 | 105 | 797 | 388 | |||||||||
After 2022 | 1,156 | 6,109 | 1,513 | |||||||||
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Minimum lease payments | $ | 1,817 | $ | 11,319 | $ | 4,932 | ||||||
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Imputed interest | (693) | |||||||||||
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Present value of minimum lease payments | 1,124 | |||||||||||
Current portion | (128) | |||||||||||
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Long-term obligations under capital leases | $ | 996 | ||||||||||
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(a) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns. The Company recorded an asset for project costs and a related liability equal to project costs funded by parties other than United. As of December 31, 2017, United had an asset balance of $814 million recorded in operating property and equipment and $777 million recorded in current and long-term obligations under capital leases for these airport construction projects.
As of December 31, 2017, United’s aircraft capital lease minimum payments relate to leases of 31114 mainline and 43325 regional aircraft as well aswhile finance leases relate to leases of nonaircraft assets. Imputed interest rate ranges are 3.5% to 20.8%.
Aircraft operating28 mainline and 17 regional aircraft. United's aircraft leases have initialremaining lease terms of fiveone month to 2610 years with expiration dates ranging from 20182020 through 2029. Under the terms of most aircraft leases, United has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value, and in others, at fair market value or a percentage of cost.
During 2015,
Operating Leases | Finance Leases | |||||||
2020 | $ | 920 | $ | 62 | ||||
2021 | 754 | 75 | ||||||
2022 | 591 | 49 | ||||||
2023 | 633 | 38 | ||||||
2024 | 626 | 35 | ||||||
After 2024 | 4,214 | 57 | ||||||
Minimum lease payments | 7,738 | 316 | ||||||
Imputed interest | (2,106 | ) | (50 | ) | ||||
Present value of minimum lease payments | 5,632 | 266 | ||||||
Less: current maturities of lease obligations | (686 | ) | (46 | ) | ||||
Long-term lease obligations | $ | 4,946 | $ | 220 |
United is the lessee of real property under long-term operatingadditional leases at a number of airports where we are also the guarantor of approximately $1.4 billion$500 million for several mainline aircraft, regional jets under a CPA and airport facilities and office space leases that have not yet commenced. These leases will commence in 2020 and 2021 with lease terms of underlying debt and interest thereonup to 13 years.
2019 | 2018 | |||||
Weighted-average remaining lease term - operating leases | 11 years | 10 years | ||||
Weighted-average remaining lease term - finance leases | 6 years | 5 years | ||||
Weighted-average discount rate - operating leases | 5.2 | % | 5.2 | % | ||
Weighted-average discount rate - finance leases | 5.7 | % | 45.8 | % |
United’s nonaircraft rent expense was approximately $1.3 billion, $1.2 billion and $1.3 billion for the yearsyear ended December 31 2017, 2016 and 2015, respectively.
In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of (in millions):
2019 | 2018 | 2017 | |||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
Operating cash flows for operating leases | $ | 902 | $ | 1,078 | $ | 1,451 | |||||
Operating cash flows for finance leases | 70 | 53 | 24 | ||||||||
Financing cash flows for finance leases | 151 | 79 | 84 |
In connection with UAL Corporation’s and United Air Lines, Inc.’s (predecessors to UAL and United) fresh-start reporting requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the Company’s
acquisition accounting adjustments related to the Company’s merger transaction in 2010, lease valuation adjustments for operating leases were initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease rates for similar leased assets at the time. An asset (liability) results when the contractual lease rates are more (less) favorable than market lease terms at the valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the individual applicable remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related remaining lease terms, primarily related to aircraft which make up the majority of the fair value lease adjustment balance, are one to seven years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion amounts are $79 million, $82 million and $107 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Regional CPAs
CPAs. United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable reimbursement (incentive payment for operational performance)rate adjustment based on agreed performance metrics, subject to annual inflation adjustments. The fees for carrier costs are based on specific rates for various operating expenses of the regional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures), while others areas well as fixed monthly amounts. Under these CPAs, the Company is also responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. United’sIn some cases, the Company owns some or all of the aircraft subject to the CPA and leases such aircraft to the regional carrier. United's CPAs are for 518581 regional aircraft as of December 31, 2017,2019, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased from third-party lessors and operated by the regional carriers. See Part I, Item 2,2. Properties, of this report for additional information.
United holds a minority equity interest in two of its regional carriers, Champlain Enterprises, Inc. and Republic Airways Holdings, Inc. The contracts with these related parties are executed in the ordinary course of business. for an additional 5 years.
2018. The CPAs with these related parties were executed in the ordinary course of business.
assumptions as of December 31, 2017,2019, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):
2018 | $ | 2.0 | ||
2019 | 1.8 | |||
2020 | 1.6 | |||
2021 | 1.5 | |||
2022 | 1.4 | |||
After 2022 | 3.2 | |||
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$ | 11.5 | |||
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2020 | $ | 2.9 | |
2021 | 2.9 | ||
2022 | 2.4 | ||
2023 | 1.5 | ||
2024 | 1.3 | ||
After 2024 | 4.7 | ||
$ | 15.7 |
("VIE")
The Company’s evaluation of its association with VIEs is described below:
The primary risk of the pass-through trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments). The primary purpose of the pass-through trust structure is to enhance the credit worthiness of United’sUnited's debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improvedloan-to-value ratios for more senior debt classes. These credit enhancements lower United’sUnited's total borrowing cost. Pass-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass-through trusts from United and remit these proceeds to the pass-through trusts’trusts' certificate holders.
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Scheduled Aircraft Deliveries | |||||||||
Aircraft Type | Number of Firm Commitments (a) | 2020 | After 2020 | ||||||
Airbus A321XLR | 50 | — | 50 | ||||||
Airbus A350 | 45 | — | 45 | ||||||
Boeing 737 MAX | 171 | 44 | 127 | ||||||
Boeing 777-300ER | 2 | 2 | — | ||||||
Boeing 787 | 16 | 15 | 1 | ||||||
Embraer E175 | 20 | 20 | — |
which the Company planned to take delivery in 2019, and 28 aircraft of which the Company planned to take delivery in 2020; however, following the FAA Order, Boeing suspended deliveries of new Boeing 737 MAX aircraft. The extent of the delay to the scheduled deliveries of new 737 MAX aircraft is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors. As a result, the Company is unable to estimate the number of Boeing 737 MAX aircraft of which it will take delivery in 2020.
2018 | $ | 3.2 | ||
2019 | 2.9 | |||
2020 | 2.1 | |||
2021 | 2.4 | |||
2022 | 1.8 | |||
After 2022 | 9.8 | |||
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$ | 22.2 | |||
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In February 2018, the(in billions):
2020 | $ | 6.9 | ||
2021 | 4.3 | |||
2022 | 2.0 | |||
2023 | 1.0 | |||
2024 | 1.2 | |||
After 2024 | 11.3 | |||
$ | 26.7 |
conditions. Financing may be necessary to satisfy the Company’sCompany's capital commitments for its firm order aircraft and other related capital expenditures.
As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt, and the Company would potentially be responsible for those costs under the guarantees.
general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2017,2019, approximately $1.5$1.9 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2017,2019, the Company’sCompany's contingent exposure was approximately $244$175 million principal amount of such bonds
UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so with the National Mediation Board on January 24, 2018.
AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS
Operating: | 2017 | 2016 | 2015 | |||||||||
Severance and benefit costs | $ | 116 | $ | 37 | $ | 107 | ||||||
Impairment of assets | 25 | 412 | 79 | |||||||||
Cleveland airport lease restructuring | — | 74 | — | |||||||||
Labor agreement costs | — | 64 | 18 | |||||||||
(Gains) losses on sale of assets and other special charges | 35 | 51 | 122 | |||||||||
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| |||||||
Total operating special charges | 176 | 638 | 326 | |||||||||
Nonoperating: | ||||||||||||
(Gains) losses on extinguishment of debt and other | — | (1) | 202 | |||||||||
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| |||||||
Total operating and nonoperating special charges before income taxes | 176 | 637 | 528 | |||||||||
Income tax benefit related to special charges | (63) | (229) | (11) | |||||||||
Income tax adjustments (Notes 6 and 7) | (192) | 180 | (3,130) | |||||||||
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Total operating and nonoperating special charges, net of income taxes and income tax adjustments | $ | (79) | $ | 588 | �� | $ | (2,613) | |||||
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2017
During 2017,
Operating: | 2019 | 2018 | 2017 | |||||||||
Impairment of assets | $ | 171 | $ | 377 | $ | 25 | ||||||
Severance and benefit costs | 16 | 41 | 116 | |||||||||
Termination of an engine maintenance service agreement | — | 64 | — | |||||||||
(Gains) losses on sale of assets and other special charges | 59 | 5 | 35 | |||||||||
Total operating special charges | 246 | 487 | 176 | |||||||||
Nonoperating unrealized (gains) losses on investments | (153 | ) | 5 | — | ||||||||
Total special charges and unrealized (gains) losses on investments | 93 | 492 | 176 | |||||||||
Income tax benefit | (21 | ) | (110 | ) | (63 | ) | ||||||
Income tax adjustments (Note 6) | — | (5 | ) | (189 | ) | |||||||
Total special charges and unrealized (gains) losses on investments, net of income taxes and income tax adjustments | $ | 72 | $ | 377 | $ | (76 | ) |
the AVH Derivative Assets.
2016
In April 2016, the Federal Aviation Administration (“FAA”) announced that it will designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governstake-off and landing rights. Accordingly,
In 2016, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D)severance and related facilities at Hopkins International Airport (“Cleveland”). The Company recorded an accrual for remaining payments under the lease for facilities
that the Company no longer uses and will continue to incurbenefit costs under the lease without economic benefit to the Company. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a net charge of $74 million ($47 million net of taxes) related to the amended lease.
The fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021. Thevoluntary early-out program for its technicians and related employees represented by the IBT ratified asix-year joint collective bargaining agreement which extended the contract through 2022. During 2016, the Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreementsas described above. As part of the ratified contract with the IBT, the Company amended some of its technicians and related employees’ postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of aone-time $60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans. Also as part of the ratified contract with the Association of Flight Attendants, the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of aone-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.
During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntaryearly-out program for the Company’s flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
2015
During its annual assessment in the fourth quarter,during 2017, the Company recorded $33 million ($22 million net of related income tax benefit) related toother management severance.
The Company recorded $107 million of severance and benefit costs primarily related to a voluntaryearly-out program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
During 2015, the Company also recorded $18 million related to collective bargaining agreements, $60 million of integration-related costs primarily related to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease use of an aircraft under lease and $14weather-related damages, $11 million for losses on the sale of aircraftassets, and other miscellaneous gains and losses.
The Company recorded $202$12 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to thewrite-off of $134 million related to the unamortizednon-cash debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028. During 2015, the Company also recorded a $61 million foreign exchange loss related to its cash holdings in Venezuela. The Venezuelan government has maintained currency controls and fixed official exchange rates (i.e. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas (“SIMADI”)) for many years. Previously, airlines were permitted to use the more favorable SICAD rate (13.5 Venezuelan bolivars to one U.S. dollar) if repatriating profits and for payments of local goods and services in Venezuela. During 2015, many of the payments for local goods and services transitioned to utilizing the SIMADI rate (200 Venezuelan bolivars to one U.S. dollar) or were required to be paid in U.S. dollars. Furthermore, the Venezuelan government has not permitted the exchange and repatriations of local currency sincemid-2014. As a result, the Company changed the exchange
rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash payments. Including this adjustment, the Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million.
Accrual Activity
Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions):
Severance/ Benefit Costs | Permanently Grounded Aircraft | |||||||
Balance at December 31, 2014 | $ | 109 | $ | 102 | ||||
Accrual | 107 | 30 | ||||||
Payments | (189) | (54) | ||||||
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Balance at December 31, 2015 | 27 | 78 | ||||||
Accrual and related adjustments | 37 | (17) | ||||||
Payments | (50) | (20) | ||||||
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Balance at December 31, 2016 | 14 | 41 | ||||||
Accrual | 116 | (4) | ||||||
Payments | (93) | (15) | ||||||
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Balance at December 31, 2017 | $ | 37 | $ | 22 | ||||
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The Company’s accrual and payment activity is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs.
charges.
Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments.
The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value. When making resource allocation decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics. The Company’s chief operating decision maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Managing the Company as one segment allows management the opportunity to maximize the value of its route network.
The Company’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended December 31 is presented in the table below (in millions):
2017 | 2016 | 2015 | ||||||||||
Domestic (U.S. and Canada) | $ | 23,131 | $ | 22,202 | $ | 21,931 | ||||||
Pacific | 4,898 | 4,959 | 5,498 | |||||||||
Atlantic | 6,285 | 6,157 | 7,068 | |||||||||
Latin America | 3,422 | 3,238 | 3,367 | |||||||||
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Total | $ | 37,736 | $ | 36,556 | $ | 37,864 | ||||||
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The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. The Company’s operations involve an insignificant level of dedicated revenue-producing assets in
geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) can be deployed in any of its geographic regions.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
UAL | Quarter Ended | |||||||||||||||
(In millions, except per share amounts) | March 31 | June 30 | September 30 | December 31 | ||||||||||||
2017 | ||||||||||||||||
Operating revenue | $ | 8,420 | $ | 10,000 | $ | 9,878 | $ | 9,438 | ||||||||
Income from operations | 278 | 1,399 | 1,092 | 729 | ||||||||||||
Net income | 96 | 818 | 637 | 580 | ||||||||||||
Basic earnings per share | 0.31 | 2.67 | 2.12 | 1.99 | ||||||||||||
Diluted earnings per share | 0.31 | 2.66 | 2.12 | 1.99 | ||||||||||||
2016 | ||||||||||||||||
Operating revenue | $ | 8,195 | $ | 9,396 | $ | 9,913 | $ | 9,052 | ||||||||
Income from operations | 649 | 1,060 | 1,624 | 1,005 | ||||||||||||
Net income | 313 | 588 | 965 | 397 | ||||||||||||
Basic earnings per share | 0.88 | 1.78 | 3.02 | 1.26 | ||||||||||||
Diluted earnings per share | 0.88 | 1.78 | 3.01 | 1.26 |
UAL’s
Quarter Ended | ||||||||||||||||
(In millions, except per share amounts) | March 31 | June 30 | September 30 | December 31 | ||||||||||||
2019 | ||||||||||||||||
Operating revenue | $ | 9,589 | $ | 11,402 | $ | 11,380 | $ | 10,888 | ||||||||
Income from operations | 495 | 1,472 | 1,473 | 861 | ||||||||||||
Net income | 292 | 1,052 | 1,024 | 641 | ||||||||||||
Basic earnings per share | 1.09 | 4.03 | 4.01 | 2.54 | ||||||||||||
Diluted earnings per share | 1.09 | 4.02 | 3.99 | 2.53 | ||||||||||||
2018 | ||||||||||||||||
Operating revenue | $ | 9,032 | $ | 10,777 | $ | 11,003 | $ | 10,491 | ||||||||
Income from operations (a) | 262 | 1,145 | 1,187 | 635 | ||||||||||||
Net income (a) | 145 | 683 | 833 | 461 | ||||||||||||
Basic earnings per share (a) | 0.51 | 2.48 | 3.06 | 1.70 | ||||||||||||
Diluted earnings per share (a) | 0.51 | 2.48 | 3.05 | 1.69 |
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2017 | ||||||||||||||||
Operating: | ||||||||||||||||
Severance and benefit costs | $ | 37 | $ | 41 | $ | 23 | $ | 15 | ||||||||
Impairment of assets | — | — | 15 | 10 | ||||||||||||
(Gains) losses on sale of assets and other special charges | 14 | 3 | 12 | 6 | ||||||||||||
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Total operating special charges | 51 | 44 | 50 | 31 | ||||||||||||
Income taxes: | ||||||||||||||||
Income tax benefit related to special charges | (18) | (16) | (18) | (11) | ||||||||||||
Income tax adjustments (Note 7) | — | — | — | (192) | ||||||||||||
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Total operating special charges, net of income taxes and income tax adjustments | $ | 33 | $ | 28 | $ | 32 | $ | (172) | ||||||||
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2016 | ||||||||||||||||
Operating: | ||||||||||||||||
Labor agreement costs and related items | $ | 100 | $ | 10 | $ | 14 | $ | (60) | ||||||||
Cleveland airport lease restructuring | 74 | — | — | — | ||||||||||||
Severance and benefit costs | 8 | 6 | 13 | 10 | ||||||||||||
Impairment of assets | — | 412 | — | — | ||||||||||||
(Gains) losses on sale of assets and other special charges | 8 | 6 | 18 | 19 | ||||||||||||
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Total operating special charges | 190 | 434 | 45 | (31) | ||||||||||||
Nonoperating and income taxes: | ||||||||||||||||
Losses (gain) on extinguishment of debt and other | 8 | (9) | — | — | ||||||||||||
Income tax expense (benefit) related to special charges | (72) | (153) | (16) | 12 | ||||||||||||
Income tax adjustments (Note 6) | — | — | — | 180 | ||||||||||||
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Total operating and nonoperating special charges, net of income taxes and income tax adjustments | $ | 126 | $ | 272 | $ | 29 | $ | 161 | ||||||||
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Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2019 | ||||||||||||||||
Impairment of assets | 8 | 61 | — | 102 | ||||||||||||
Severance and benefit costs | 6 | 6 | 2 | 2 | ||||||||||||
(Gains) losses on sale of assets and other special charges | 4 | 4 | 25 | 26 | ||||||||||||
Total operating special charges | 18 | 71 | 27 | 130 | ||||||||||||
Nonoperating unrealized (gains) losses on investments | (17 | ) | (34 | ) | (21 | ) | (81 | ) | ||||||||
Total special charges and unrealized (gains) losses on investments | 1 | 37 | 6 | 49 | ||||||||||||
Income tax benefit related to special charges and unrealized (gains) losses on investments | — | (8 | ) | (2 | ) | (11 | ) | |||||||||
Total special charges and unrealized (gains) losses on investments, net of income tax | 1 | 29 | 4 | 38 | ||||||||||||
2018 | ||||||||||||||||
Impairment of assets | $ | 23 | $ | 111 | $ | 11 | $ | 232 | ||||||||
Termination of an engine maintenance service agreement | — | — | — | 64 | ||||||||||||
Severance and benefit costs | 14 | 11 | 9 | 7 | ||||||||||||
(Gains) losses on sale of assets and other special charges | 3 | 7 | (3 | ) | (2 | ) | ||||||||||
Total operating special charges | 40 | 129 | 17 | 301 | ||||||||||||
Nonoperating unrealized (gains) losses on investments | (45 | ) | 135 | (29 | ) | (56 | ) | |||||||||
Total special charges and unrealized (gains) losses on investments | (5 | ) | 264 | (12 | ) | 245 | ||||||||||
Income tax benefit related to special charges and unrealized (gains) losses on investments | 1 | (59 | ) | 3 | (55 | ) | ||||||||||
Income tax adjustments | — | — | — | (5 | ) | |||||||||||
Total special charges and unrealized (gains) losses on investments, net of income tax | $ | (4 | ) | $ | 205 | $ | (9 | ) | $ | 185 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
ITEM 9A. | CONTROLS AND PROCEDURES |
2019SEC’sSEC's rules and forms, and is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL’sUAL's and United’sUnited's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of December 31, 2017,2019, disclosure controls and procedures were effective.20172017,2019, there was no change in UAL’sUAL's or United’sUnited's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting.
24, 2020
2019.
24, 2020
2019.
ITEM 9B. | OTHER INFORMATION. |
Information required byin Part I, Item 1 of this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form10-K.
EXECUTIVE OFFICERS OF UAL
The executive officers of UAL as of February 23, 2018 are listed below, along with their ages, tenure as officer and business background for at least the last five years.
Kate Gebo.Age 49. Ms. Gebo has served as Executive Vice President Human Resources and Labor Relations of UAL and United since December 2017. From November 2016 to November 2017, Ms. Gebo served as Senior Vice President Global Customer Service Delivery and Chief Customer Officer of United. From October 2015 to November 2016, Ms. Gebo served as Vice President of the Office of the Chief Executive Officer. From November 2009 to October 2015, Ms. Gebo served as Vice President of Corporate Real Estate of United.
Brett J. Hart.Age 48. Mr. Hart has served as Executive Vice President, Chief Administrative Officer and General Counsel of UAL and United since May 2017. From February 2012 to May 2017, he served as Executive Vice President and General Counsel of UAL and United. Mr. Hart served as acting Chief Executive Officer and principal executive officer of the Company, on an interim basis, from October 2015 to March 2016. From December 2010 to February 2012, he served as Senior Vice President, General Counsel and Secretary of UAL, United and Continental Airlines, Inc. (“Continental”). From June 2009 to December 2010, Mr. Hart served as Executive Vice President, General Counsel and Corporate Secretary at Sara Lee Corporation, a consumer food and beverage company. From March 2005 to May 2009, Mr. Hart served as Deputy General Counsel and Chief Global Compliance Officer of Sara Lee Corporation.
Gregory L. Hart.Age 52. Mr. Hart has served as Executive Vice President and Chief Operations Officer of UAL and United since February 2014. From December 2013 to February 2014, he served as Senior Vice President Operations of UAL and United. From September 2012 to December 2013, Mr. Hart served as Senior Vice President Technical Operations of United. From October 2010 to September 2012, Mr. Hart served as Senior Vice President Network of United and Continental. From September 2008 to September 2010, Mr. Hart served as Vice President Network Strategy of Continental. Mr. Hart joined Continental in 1997.
Linda P. Jojo.Age 52. Ms. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017. From November 2014 to May 2017, Ms. Jojo served as Executive Vice President and Chief Information Officer of UAL and United. From July 2011 to October 2014, Ms. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc., a Canadian communications and media company. From October 2008 to June 2011, Ms. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas-based privately held energy company and electrical utility provider.
Chris Kenny. Age 53. Mr. Kenny has served as Vice President and Controller of UAL and United since October 2010. From September 2003 to September 2010, Mr. Kenny served as Vice President and Controller of Continental. Mr. Kenny joined Continental in 1997.
J. Scott Kirby. Age 50. Mr. Kirby has served as President of UAL and United since August 2016. Prior to joining the Company, from December 2013 to August 2016, Mr. Kirby served as President of American Airlines
Group and American Airlines, Inc. Mr. Kirby also previously served as President of US Airways from October 2006 to December 2013. Mr. Kirby held significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales and Marketing (2001 to 2006); Senior Vice President,e-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000); Vice President, Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998). Prior to joining America West, Mr. Kirby worked for American Airlines Decision Technologies and at the Pentagon.
Andrew C. Levy. Age 48. Mr. Levy has served as Executive Vice President and Chief Financial Officer of UAL and United since August 2016. From November 2014 to August 2016, he was the Chief Executive Officer and Managing Partner of AML Ventures, LLC, an investment and advisory firm specializing in the airline industry. Previously, Mr. Levy held leadership roles at Allegiant Travel Company (“Allegiant”) for thirteen years, including as Chief Operating Officer and a Director from September 2013 to October 2014; President from September 2009 to October 2014; Chief Financial Officer from October 2007 to May 2010; and Managing Director, Planning & Treasurer from April 2001 to October 2010. Prior to joining Allegiant, Mr. Levy worked at Mpower Communications, Inc., Savoy Capital and ValuJet Airlines, Inc.
Oscar Munoz. Age 59. Mr. Munoz has served as Chief Executive Officer of UAL and United since September 2015, and also as President of UAL and United from September 2015 until August 2016. From February 2015 to September 2015, Mr. Munoz served as President and Chief Operating Officer of CSX Corporation (“CSX”), a railroad and intermodal transportation services company, overseeing operations, sales and marketing, human resources, service design and information technology. Prior to his appointment as President and Chief Operating Officer of CSX, Mr. Munoz served as Executive Vice President and Chief Operating Officer of CSX from January 2012 to February 2015 and as Executive Vice President and Chief Financial Officer of CSX from 2003 to 2012. Mr. Munoz has been a member of the UAL Board of Directors since 2010.
Andrew P. Nocella.Age 48. Mr. Nocella has served as Executive Vice President and Chief Commercial Officer of UAL and United since September 2017. From February 2017 to September 2017, he served as Executive Vice President and Chief Revenue Officer of UAL and United. Prior to joining the Company, from August 2016 to February 2017, Mr. Nocella served as Senior Vice President, Alliances and Sales of American Airlines, Inc. From December 2013 to August 2016, he served as Senior Vice President and Chief Marketing Officer of American Airlines, Inc. From August 2007 to December 2013, he served as Senior Vice President, Marketing and Planning of US Airways.
report. There are no family relationships among the executive officers or the directors of UAL. The executive officers are elected by UAL’sUAL's Board of Directors each year and hold office until the next annual meeting of stockholders, until their successors are elected and qualified, or until their earlier death, resignation or removal.
ITEM 11. | EXECUTIVE COMPENSATION. |
Stockholders under the captions "Executive Compensation," "2019 Director Compensation" and "Corporate Governance—Compensation Committee Interlocks and Insider Participation."
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Stockholders under the caption "Beneficial Ownership of Securities."
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Stockholders under the captions "Corporate Governance—Certain Relationships and Related Transactions," "Corporate Governance—Committees of the Board" and "Corporate Governance—Director Independence."
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Service | 2017 | 2016 | ||||||
Audit Fees | $ | 4,548 | $ | 3,751 | ||||
Audit Related Fees | 565 | 215 | ||||||
Tax Fees | 584 | 1,252 | ||||||
All Other Fees | 2 | 2 | ||||||
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$ | 5,699 | $ | 5,220 | |||||
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Note: UAL and United amounts are the same. |
AUDIT FEES
Service 2019 2018 Audit Fees $ 4,323 $ 3,992 Audit Related Fees 403 375 Tax Fees 174 166 All Other Fees — 2 Total Fees $ 4,900 $ 4,535 Note: UAL and United amounts are the same.
AUDIT RELATED FEES
TAX FEES
standards prior to adoption.
ALL OTHER FEES
(a) | List of documents filed as part of this report: | |
(1) | Financial Statements. The financial statements required by this item are listed in Part II, Item 8,Financial Statements and Supplementary Data herein. | |
(2) | Financial Statement Schedules. The financial statement schedule required by this item is listed below and included in this report after the signature page hereto. |
ScheduleII-Valuation and Qualifying Accounts for the years ended December 31, | ||
All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto. | ||
(b) | Exhibits. The exhibits required by this item are provided in the Exhibit Index. |
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4.6 | UAL United | |||||
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4.7 | UAL United | |||||
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4.8 | UAL United | |||||
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4.9 | UAL United | |||||
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4.10 | UAL United | |||||
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4.11 | UAL United | |||||
4.12 | UAL United | |||||
4.13 | UAL United | |||||
4.14 | UAL United | |||||
Material Contracts | ||||||
†10.1 | UAL | |||||
†10.2 | UAL | |||||
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†10.3 | UAL United | |||||
†10.4 | UAL United | |||||
†10.5 | UAL United | |||||
†10.6 | UAL United |
†10.13 | UAL | |||||
†10.14 | UAL | |||||
†10.15 | UAL | |||||
†10.16 | UAL | |||||
†10.17 | UAL | |||||
†10.18 | UAL | |||||
United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan) (filed as Exhibit 10.31 to | ||||||
†10.19 | UAL | |||||
†10.20 | UAL | |||||
†10.21 | UAL |
†10.23 | UAL | |||||
Form of Performance-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc. Performance-Based Restricted Stock Unit Program (RelativePre-tax Margin awards) (for performance periods beginning on or after January 1, 2015) (filed as Exhibit 10.2 to | ||||||
†10.24 | UAL | |||||
†10.25 | UAL | |||||
†10.26 | UAL | |||||
†10.27 | UAL | |||||
†10.28 | UAL | |||||
†10.29 | UAL | |||||
†10.30 | UAL | |||||
†10.31 | UAL | |||||
†10.32 | UAL | |||||
†10.33 | UAL | |||||
†10.34 | UAL |
^10.50 | UAL United | |||||
^10.51 | UAL United | |||||
^10.52 | UAL United | |||||
^10.53 | UAL United | |||||
^10.54 | UAL United | |||||
^10.55 | UAL United | |||||
^10.56 | UAL United | |||||
^10.57 | UAL United | |||||
^10.58 | UAL United | |||||
^10.59 | UAL United | |||||
^10.60 | UAL United | |||||
^10.61 | UAL United | |||||
^10.62 | UAL United | |||||
^10.63 | UAL United |
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Section 1350 Certifications | ||||||
32.1 | UAL | |||||
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32.2 | United | |||||
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| Interactive Data File | |
| UAL United | The following |
104 | UAL United | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
† | Indicates management contract or compensatory plan or arrangement. Pursuant to Item 601(b)(10), United is permitted to omit certain compensation-related exhibits from this report and therefore only UAL is identified as the registrant for purposes of those items. |
^ |
UNITED UNITED AIRLINES, INC. (Registrants) | ||
By: |
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Executive Vice President and Chief Financial Officer | ||
Date: | February 24, 2020 |
Date: February 22, 2018
Signature | Capacity | |
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/s/ Oscar Munoz | Chief Executive Officer, Director | |
Oscar Munoz | (Principal Executive Officer) | |
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/s/ Gerald Laderman | Executive Vice President and Chief Financial Officer | |
Gerald Laderman | (Principal Financial Officer) | |
/s/ Chris Kenny | Vice President and Controller | |
Chris Kenny | (Principal Accounting Officer) | |
/s/ Carolyn Corvi | Director | |
Carolyn Corvi | ||
/s/ Jane C. Garvey | Director | |
Jane C. Garvey | ||
/s/ Barney Harford | Director | |
Barney Harford | ||
/s/ Michele J. Hooper | Director | |
Michele J. Hooper | ||
/s/ Todd M. Insler | Director | |
Todd M. Insler |
/s/ Walter Isaacson | Director | |
Walter Isaacson | ||
/s/ James A.C. Kennedy | Director | |
James A.C. Kennedy | ||
/s/ Sito Pantoja | Director | |
Sito Pantoja | ||
/s/ Edward M. Philip | Director | |
Edward M. Philip | ||
/s/ Edward L. Shapiro | Director | |
Edward L. Shapiro | ||
/s/ David J. Vitale | Director | |
David J. Vitale | ||
/s/ James M. Whitehurst | Director | |
James M. Whitehurst |
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Date: February 22, 2018
Signature | Capacity | |
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/s/ Oscar Munoz | Chief Executive Officer, Director | |
Oscar Munoz | (Principal Executive Officer) | |
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/s/ Gerald Laderman | Executive Vice President and Chief Financial Officer, Director | |
Gerald Laderman | (Principal Financial Officer) | |
/s/ Chris Kenny | Vice President and Controller | |
Chris Kenny | (Principal Accounting Officer) | |
/s/ Gregory L. Hart | Director | |
Gregory L. Hart | ||
/s/ J. Scott Kirby | Director | |
J. Scott Kirby | ||
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Date: February 22, 2018
(In millions)
Description | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Deductions (a) | Other | Balance at End of Period | |||||||||||||||
Allowance for doubtful accounts—UAL and United: | ||||||||||||||||||||
2017 | $ | 10 | $ | 20 | $ | 23 | $ | — | $ | 7 | ||||||||||
2016 | 18 | 18 | 26 | — | 10 | |||||||||||||||
2015 | 22 | 25 | 29 | — | 18 | |||||||||||||||
Obsolescence allowance—spare parts—UAL and United: | ||||||||||||||||||||
2017 | $ | 295 | $ | 75 | $ | 17 | $ | 1 | $ | 354 | ||||||||||
2016 | 235 | 61 | 16 | 15 | 295 | |||||||||||||||
2015 | 169 | 38 | — | 28 | 235 | |||||||||||||||
Valuation allowance for deferred tax assets—UAL: | ||||||||||||||||||||
2017 | $ | 68 | $ | 11 | $ | 27 | $ | 11 | $ | 63 | ||||||||||
2016 | 48 | 47 | 27 | — | 68 | |||||||||||||||
2015 | 4,751 | — | 4,703 | — | 48 | |||||||||||||||
Valuation allowance for deferred tax assets—United: | ||||||||||||||||||||
2017 | $ | 68 | $ | 11 | $ | 27 | $ | 11 | $ | 63 | ||||||||||
2016 | 48 | 47 | 27 | — | 68 | |||||||||||||||
2015 | 4,721 | — | 4,673 | — | 48 |
(a) Deduction from reserve for purpose for which reserve was created.
135
(In millions) Description | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Deductions | Other | Balance at End of Period | ||||||||||||||
Allowance for doubtful accounts: | |||||||||||||||||||
2019 | $ | 8 | $ | 17 | $ | 16 | $ | — | $ | 9 | |||||||||
2018 | 7 | 17 | 16 | — | 8 | ||||||||||||||
2017 | 10 | 20 | 23 | — | 7 | ||||||||||||||
Obsolescence allowance—spare parts: | |||||||||||||||||||
2019 | $ | 412 | $ | 76 | $ | 63 | $ | — | $ | 425 | |||||||||
2018 | 354 | 73 | 15 | — | 412 | ||||||||||||||
2017 | 295 | 75 | 17 | 1 | 354 | ||||||||||||||
Valuation allowance for deferred tax assets: | |||||||||||||||||||
2019 | $ | 59 | $ | — | $ | 1 | $ | — | $ | 58 | |||||||||
2018 | 63 | 2 | 6 | — | 59 | ||||||||||||||
2017 | 68 | 11 | 27 | 11 | 63 |