Edgar Filing: AMERICAN AIRLINES INC

AAG+AA 10Q- 2014.6.30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



		FORM 10-Q



ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2014



¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



	For the Transition Period From		to

Commission file number 1-8400




	American Airlines Group Inc.
	(Exact name of registrant as specified in its charter)



Delaware		75-1825172
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4333 Amon Carter Blvd., Fort Worth, Texas 76155		(817) 963-1234
(Address of principal executive offices, including zip code)		(Registrant's telephone number, including area code)

Commission file number 1-2691




	American Airlines, Inc.
	(Exact name of registrant as specified in its charter)



Delaware		13-1502798
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4333 Amon Carter Blvd., Fort Worth, Texas 76155		(817) 963-1234
(Address of principal executive offices, including zip code)		(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

American Airlines Group Inc. ý Yes ¨ No

American Airlines, Inc. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

American Airlines Group Inc. ý Yes ¨ No

American Airlines, Inc. ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

American Airlines Group Inc. ý Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller Reporting Company

American Airlines, Inc. ¨ Large Accelerated Filer ¨ Accelerated Filer ý Non-accelerated Filer ¨ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

American Airlines Group Inc. ¨ Yes ý No

American Airlines, Inc. ¨ Yes ý No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

American Airlines Group Inc. ý Yes ¨ No

American Airlines, Inc. ý Yes ¨ No

As of July 18, 2014, there were 720,102,826 shares of American Airlines Group Inc. common stock outstanding.

As of July 18, 2014, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.

American Airlines Group Inc.

American Airlines, Inc.

Form 10-Q

Quarterly Period Ended June 30, 2014

Table of Contents



		Page
PART I: FINANCIAL INFORMATION
Item 1A.	Condensed Consolidated Financial Statements of American Airlines Group Inc.	6
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Balance Sheets	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to the Condensed Consolidated Financial Statements	10
Item 1B.	Condensed Consolidated Financial Statements of American Airlines, Inc.	35
	Condensed Consolidated Statements of Operations	35
	Condensed Consolidated Statements of Comprehensive Income (Loss)	36
	Condensed Consolidated Balance Sheets	37
	Condensed Consolidated Statements of Cash Flows	38
	Notes to the Condensed Consolidated Financial Statements	39
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	86
Item 4.	Controls and Procedures	88
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	89
Item 1A.	Risk Factors	90
Item 6.	Exhibits	107
SIGNATURES		108

This combined Quarterly Report on Form 10-Q is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this Quarterly Report on Form 10-Q to "we," "us," "our" and the "Company" refer to AAG and its consolidated subsidiaries. As more fully described below, on December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, Inc. (US Airways Group), which survived as a wholly-owned subsidiary of AAG (the Merger). Accordingly, unless otherwise indicated, information in this Quarterly Report on Form 10-Q regarding the Company's condensed consolidated results of operations includes the results of American, US Airways Group and US Airways, Inc. (US Airways) for the quarter ended June 30, 2014. "AMR" refers to the Company during the period of time prior to its emergence from Chapter 11 and its acquisition of US Airways Group. References in this Quarterly Report on Form 10-Q to "mainline" refer to the operations of American and US Airways, as applicable, and exclude regional operations.

Note Concerning Forward-Looking Statements

Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "would," "continue," "seek," "target," "guidance," "outlook," "if current trends continue," "optimistic," "forecast" and other similar words. Such statements include, but are not limited to, statements about the benefits of the Merger, including future financial and operating results, our plans, objectives, expectations and intentions, and other statements that are not historical facts, such as, without limitation, statements that 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. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described below under Part II, Item 1A - Risk Factors and the following: significant operating losses in the future; downturns in economic conditions that adversely affect our business; the impact of continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of low cost carriers, airline alliances and industry consolidation; the challenges and costs of integrating operations and realizing anticipated synergies and other benefits of the Merger; our substantial indebtedness and other obligations and the effect they could have on our business and liquidity; an inability to obtain sufficient financing or other capital to operate successfully and in accordance with our current business plan; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the effect our high level of fixed obligations may have on our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments and adverse economic and industry conditions; our significant pension and other post-employment benefit funding obligations; the impact of any failure to comply with the covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may materially reduce our liquidity; the limitations of our historical consolidated financial information, which is not directly comparable to our financial information for prior or future periods; the impact of union disputes, employee strikes and other labor-related disruptions; any inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of our hub airports; any inability to obtain and maintain adequate facilities, infrastructure and slots to operate our flight schedule and expand or change our route network; our reliance on third-party regional operators or third-party service providers that have the ability to affect our revenue and the public’s perception about our services; any inability to effectively manage the costs, rights and functionality of third-party distribution channels on which we rely; extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages; the impact of the heavy taxation to which the airline industry is subject; changes to our business model that may not successfully increase revenues and may cause operational difficulties or decreased demand; the loss of key personnel or inability to attract and retain additional qualified personnel; the impact of conflicts overseas, terrorist attacks and ongoing security concerns; the global scope of our business and any associated economic and political instability or adverse effects of events, circumstances or government actions beyond our control, including the impact of foreign currency exchange rate fluctuations and limitations on the repatriation of cash held in foreign countries; the impact of environmental regulation; our reliance on technology and automated systems and the impact of any failure of these technologies or systems; challenges in integrating our computer, communications and other technology systems; costs of ongoing data security compliance requirements and the impact of any significant data security breach; losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators; delays in scheduled aircraft deliveries, or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected; our dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions beyond our control, including global events that affect travel behavior such as an outbreak of a contagious disease, and volatility and fluctuations in our results of operations due to seasonality; the effect of a higher than normal number of pilot retirements and a potential shortage of pilots; the impact of

possible future increases in insurance costs or reductions in available insurance coverage; the effect of several lawsuits that were filed in connection with the Merger and remain pending; an inability to use net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards); any impairment in the amount of goodwill we recorded as a result of the application of the acquisition method of accounting and an inability to realize the full value of AAG’s and American’s respective intangible or long-lived assets and any material impairment charges that would be recorded as a result; price volatility of our common stock; delay or prevention of stockholders’ ability to change the composition of our board of directors and the effect this may have on takeover attempts that some of our stockholders might consider beneficial; the effect of provisions of our Restated Certificate of Incorporation (the Certificate of Incorporation) and Amended and Restated Bylaws (the Bylaws) that limit ownership and voting of our equity interests, including our common stock and convertible notes; the effect of limitations in our Certificate of Incorporation on acquisitions and dispositions of our common stock designed to protect our NOL Carryforwards and certain other tax attributes, which may limit the liquidity of our common stock; other economic, business, competitive, and/or regulatory factors affecting our business, including those set forth in this Quarterly Report on Form 10-Q (especially in Part II, Item 1A - Risk Factors and Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations) and in our other filings with the Securities and Exchange Commission (the SEC), and other risks and uncertainties listed from time to time in our filings with the SEC.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part II, Item 1A - Risk Factors and elsewhere in this report. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such statements other than as required by law. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q or as of the dates indicated in the statements.

PART I: FINANCIAL INFORMATION

This combined Quarterly Report on Form 10-Q is filed by both AAG and American and includes the condensed consolidated financial statements of each company in Item 1A and Item 1B, respectively.



ITEM 1A.	AMERICAN AIRLINES GROUP INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except shares and per share amounts)(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Operating revenues
Mainline passenger	$	8,213		$	4,888		$	15,471		$	9,502
Regional passenger	1,707			752			3,114			1,431
Cargo	221			169			428			325
Other	1,214			640			2,338			1,289
Total operating revenues	11,355			6,449			21,351			12,547
Operating expenses
Aircraft fuel and related taxes	2,830			1,880			5,541			3,814
Salaries, wages and benefits	2,163			1,284			4,282			2,551
Regional expenses	1,657			769			3,251			1,549
Maintenance, materials and repairs	514			317			999			643
Other rent and landing fees	441			284			866			572
Aircraft rent	312			181			631			346
Selling expenses	402			273			804			563
Depreciation and amortization	319			207			626			411
Special items, net	251			12			114			83
Other	1,067			730			2,108			1,432
Total operating expenses	9,956			5,937			19,222			11,964
Operating income	1,399			512			2,129			583
Nonoperating income (expense)
Interest income	8			5			15			9
Interest expense, net of capitalized interest	(214		)	(161		)	(457		)	(415		)
Other, net	11			(12		)	9			(37		)
Total nonoperating expense, net	(195		)	(168		)	(433		)	(443		)
Income before reorganization items, net	1,204			344			1,696			140
Reorganization items, net	—			(124		)	—			(284		)
Income (loss) before income taxes	1,204			220			1,696			(144		)
Income tax provision (benefit)	340			—			353			(22		)
Net income (loss)	$	864		$	220		$	1,343		$	(122	)

Earnings (loss) per share:
Basic	$	1.20		$	0.88		$	1.86		$	(0.49	)
Diluted	$	1.17		$	0.79		$	1.82		$	(0.49	)
Weighted average shares outstanding (in thousands):
Basic	720,600			249,588			722,286			249,540
Diluted	734,767			288,511			738,051			249,540

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net income (loss)	$	864		$	220		$	1,343		$	(122	)
Other comprehensive loss before tax:
Defined benefit pension plans and retiree medical	(59		)	(33		)	(104		)	(66		)
Derivative financial instruments:
Change in fair value	13			(41		)	(54		)	(56		)
Reclassification into earnings	5			13			12			12
Net unrealized gain on investments:
Net change in value	—			1			2			—
Other comprehensive loss before tax	(41		)	(60		)	(144		)	(110		)
Reversal of non-cash tax provision	330			—			330			—
Comprehensive income (loss)	$	1,153		$	160		$	1,529		$	(232	)

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except shares and per share amounts)(Unaudited)



	June 30, 2014			December 31, 2013
ASSETS
Current assets
Cash	$	1,210		$	1,140
Short-term investments	8,249			8,111
Restricted cash and short-term investments	882			1,035
Accounts receivable, net	1,981			1,560
Aircraft fuel, spare parts and supplies, net	1,093			1,012
Prepaid expenses and other	1,551			1,465
Total current assets	14,966			14,323
Operating property and equipment
Flight equipment	26,113			23,730
Ground property and equipment	5,712			5,585
Equipment purchase deposits	1,043			1,077
Total property and equipment, at cost	32,868			30,392
Less accumulated depreciation and amortization	(11,632		)	(11,133		)
Total property and equipment, net	21,236			19,259
Other assets
Goodwill	4,089			4,086
Intangibles, net of accumulated amortization of $419 and $373, respectively	2,330			2,311
Other assets	2,190			2,299
Total other assets	8,609			8,696
Total assets	$	44,811		$	42,278
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term debt and capital leases	$	1,523		$	1,446
Accounts payable	1,653			1,368
Accrued salaries and wages	961			1,143
Air traffic liability	5,683			4,380
Frequent flyer liability	2,879			3,005
Other accrued liabilities	2,389			2,464
Total current liabilities	15,088			13,806
Noncurrent liabilities
Long-term debt and capital leases, net of current maturities	15,205			15,353
Pension and postretirement benefits	5,704			5,828
Deferred gains and credits, net	905			935
Mandatorily convertible preferred stock and other bankruptcy settlement obligations	415			5,928
Other liabilities	3,408			3,159
Total noncurrent liabilities	25,637			31,203
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $0.01 par value; 1,750,000,000 shares authorized, 720,501,649 shares outstanding as of June 30, 2014; 526,805,522 shares outstanding as of December 31, 2013.	7			5
Additional paid-in capital	15,879			10,592
Treasury stock	(1		)	—
Accumulated other comprehensive loss	(1,846		)	(2,032		)
Accumulated deficit	(9,953		)	(11,296		)
Total stockholders' equity (deficit)	4,086			(2,731		)
Total liabilities and stockholders' equity (deficit)	$	44,811		$	42,278

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)(Unaudited)



	Six Months Ended June 30,
	2014			2013
Net cash provided by operating activities	$	2,637		$	1,870
Cash flows from investing activities:
Capital expenditures and aircraft purchase deposits	(2,678		)	(1,804		)
Increase in short-term investments	(138		)	(2,194		)
Decrease (increase) in restricted cash and short-term investments	153			(13		)
Net proceeds from slot transaction	307			—
Proceeds from sale of property and equipment	9			26
Net cash used in investing activities	(2,347		)	(3,985		)
Cash flows from financing activities:
Payments on long-term debt and capital leases	(1,145		)	(551		)
Proceeds from issuance of long-term debt	534			1,684
Exercise of stock options	9			—
Deferred financing costs	(7		)	(30		)
Sale-leaseback transactions	411			1,132
Treasury stock repurchases	(28		)	—
Other financing activities	6			4
Net cash provided by (used in) financing activities	(220		)	2,239
Net increase in cash	70			124
Cash at beginning of period	1,140			480
Cash at end of period	$	1,210		$	604

Non-cash investing and financing activities:
Settlement of bankruptcy obligations	$	5,362		$	—
Capital lease obligations	361			—
Supplemental information:
Interest paid, net of amounts capitalized	367			190
Income tax paid	5			6

See accompanying notes to condensed consolidated financial statements.

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AMERICAN AIRLINES GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

Basis of Presentation

On December 9, 2013 (the Effective Date), AMR Merger Sub, Inc. (Merger Sub) merged with and into US Airways Group, Inc. (US Airways Group) (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of American Airlines Group Inc., a Delaware corporation (formerly known as AMR Corporation and referred to herein as AAG and, together with its consolidated subsidiaries, the Company), following the Merger. "AMR" refers to the Company during the period of time prior to its emergence from Chapter 11 and the Effective Date of the Merger.

The accompanying unaudited condensed consolidated financial statements of AAG should be read in conjunction with the consolidated financial statements contained in AAG's Annual Report on Form 10-K for the year ended December 31, 2013. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Principal subsidiaries include American and, effective December 9, 2013, US Airways Group. Because the Merger did not occur until December 2013, the unaudited condensed consolidated financial statements presented do not include the accounts of US Airways Group for the three and six months ended June 30, 2013. Certain prior period amounts have been reclassified to conform to the current year financial statement presentation as described below. All significant intercompany transactions have been eliminated.

Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The most significant areas of judgment relate to passenger revenue recognition, impairment of goodwill, impairment of long-lived and intangible assets, the frequent traveler programs, pensions and retiree medical and other benefits and the deferred tax asset valuation allowance.

Chapter 11 Matters

In accordance with GAAP, the Debtors (as defined in Note 2 below) applied ASC 852 "Reorganizations" (ASC 852) in preparing the condensed consolidated financial statements for periods subsequent to the Chapter 11 Cases (as defined in Note 2 below). ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases for the 2013 period are presented in Reorganization items, net on the accompanying condensed consolidated statement of operations.

Reclassifications

Certain prior period amounts have been reclassified between various financial statement line items to conform to the current year financial statement presentation. These reclassifications do not impact the historic net loss and are comprised principally of the following items:


•	Reclassifications between various operating income line items to conform the presentation of Cargo and Other revenues.


•	Reclassifications between various operating expense line items to conform the presentation of Regional expenses.


•	Reclassifications between Other nonoperating income (expense), net and Operating expenses to conform the presentation of foreign currency gains and losses.

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The following table summarizes the historical and revised financial statement amounts for AAG (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2013						2013
	As Reclassified			Historical			As Reclassified			Historical
Operating revenues:
Mainline passenger	$	4,888		$	4,888		$	9,502		$	9,502
Regional passenger	752			752			1,431			1,431
Cargo	169			167			325			322
Other	640			642			1,289			1,292
Total operating revenues	6,449			6,449			12,547			12,547
Operating expenses:
Aircraft fuel and related taxes	1,880			2,139			3,814			4,339
Salaries, wages and benefits	1,284			1,450			2,551			2,934
Regional expenses	769			—			1,549			—
Maintenance, materials and repairs	317			375			643			758
Other rent and landing fees	284			343			572			690
Aircraft rent	181			179			346			343
Selling expenses	273			257			563			533
Depreciation and amortization	207			248			411			494
Special items, net	12			13			83			41
Other	730			956			1,432			1,875
Total operating expenses	5,937			5,960			11,964			12,007
Operating income	512			489			583			540
Nonoperating income (expense):
Interest income	5			5			9			9
Interest expense, net of capitalized interest	(161		)	(156		)	(415		)	(406		)
Other, net	(12		)	6			(37		)	(3		)
Total nonoperating expense, net	$	(168	)	$	(145	)	$	(443	)	$	(400	)

Additionally, on the condensed consolidated statement of cash flows, the Company reclassified $30 million in deferred financing charges from operating to financing cash flow activities for the six months ended June 30, 2013 in order to conform to the current year financial statement presentation.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 is effective for public entities for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company's consolidated financial statements.

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2. Emergence From Chapter 11 and Merger with US Airways Group

Overview

On November 29, 2011 (the Petition Date), AMR, its principal subsidiary, American, and certain of the Company's other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order (the Confirmation Order) approving and confirming the Debtors' fourth amended joint plan of reorganization (as amended, the Plan).

On the Effective Date, the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by that certain Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among the Company, Merger Sub and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of the Company following the Merger. Pursuant to the Merger Agreement, each share of common stock, par value $0.01 per share, of US Airways Group was converted into the right to receive one share of American Airlines Group Inc. common stock, par value $0.01 per share (AAG Common Stock).

From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction.

Plan of Reorganization

The Plan implements the Merger and incorporates a compromise and settlement of certain intercreditor and intercompany claim issues.

Pursuant to the Plan, all shares of AMR common stock outstanding prior to the Effective Date were canceled. AAG's Certificate of Incorporation, which was approved in connection with the Plan, authorizes the issuance of 1.75 billion new shares of AAG Common Stock and 200 million shares of AAG Series A Preferred Stock, par value $0.01 per share (AAG Series A Preferred Stock). Of the authorized AAG Series A Preferred Stock, approximately 168 million were designated "Series A Convertible Preferred Stock," with a stated value $25.00 per share, and issued in accordance with the Plan. AAG Common Stock is listed on the NASDAQ Global Select Market under the symbol "AAL" and began trading on December 9, 2013. AAG Series A Preferred Stock was listed on the NASDAQ Global Select Market under the symbol "AALCP" from December 9, 2013 until its final mandatory conversion on April 8, 2014. In addition, the 2013 Incentive Award Plan (the 2013 IAP) authorizes the grant of awards for the issuance of 40 million shares of AAG Common Stock plus any shares underlying awards granted under the 2013 IAP, or any pre-existing US Airways Group plan, that are forfeited, terminate or are cash settled (in whole or in part) without a payment being made in the form of shares. Any shares that are available for issuance under the US Airways Group 2011 Incentive Award Plan (the 2011 IAP) as of the effective date of the Merger may be used for awards under the 2013 IAP; provided, that awards using such available shares shall not be made after the date awards or grants could have been made under 2011 IAP and shall only be made to individuals who were not providing services to American Airlines Group prior to the Merger.

The Plan contains the following provisions relating to the treatment of pre-petition claims against the Debtors and other holders of allowed interests in the Debtors:


•	all secured claims against the Debtors have been reinstated;


•	allowed administrative claims, priority claims and convenience claims have been or will be paid in full in cash;


•	other holders of allowed pre-petition unsecured claims, holders of allowed interests and certain employees of AMR received or will receive 72% of AAG Common Stock (on a fully converted basis) authorized to be issued pursuant to the Plan and in connection with the Merger under the following provisions:


◦	all creditors holding general unsecured claims against American that are guaranteed by AAG and general unsecured claims against AAG that are guaranteed by American (Double-Dip Unsecured Claims) were treated the same under the Plan. Holders of Double-Dip Unsecured Claims received, at the Effective Date, their recovery in shares

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of AAG Series A Preferred Stock with a stated amount equal to the allowed amount of their claims, including post-petition interest at the non-default rate;

◦

all creditors holding Single-Dip Unsecured Claims were treated the same regardless of whether the claim was asserted against the AAG Debtors, the American Debtors, or other Debtors. As used herein, "Single-Dip Unsecured Claims" means the general unsecured claims against the Debtors that were not guaranteed by any other Debtor, other than the claims of the Debtors' labor unions representing mainline workers. Holders of Single-Dip Unsecured Claims received a portion of their recovery in shares of AAG Series A Preferred Stock at the Effective Date and their remaining recovery in shares of AAG Common Stock during the 120-day period after the Effective Date;

◦

holders of certain labor-related deemed claims and certain non-management, non-union employees as specified in the Plan received, at the Effective Date, the right to receive an allocation of shares of AAG Common Stock representing 23.6% of the total number of shares of AAG Common Stock ultimately distributed to holders of pre-petition general unsecured creditors against the Debtors. On the Effective Date, pursuant to the Plan, an initial allocation of approximately 39 million shares of AAG Common Stock was made related to these labor and employee groups, of which approximately 27 million shares were distributed on the Effective Date and approximately 13 million shares of which were withheld in connection with the Company making a cash payment of approximately $300 million for certain required withholding taxes;

◦

holders of allowed interests in AMR (primarily holders of AMR common stock existing immediately prior to the Effective Date) received, at the Effective Date, a distribution of approximately 26 million shares of AAG Common Stock representing 3.5% of the total number of shares of AAG Common Stock contemplated for issuance pursuant to the Plan and received an additional 267 million shares of AAG Common Stock during the 120-day period after the Effective Date; and

◦

holders of disputed claims at the Effective Date, to the extent such disputed claims become allowed Single-Dip Unsecured Claims after the Effective Date, are eligible to receive shares of AAG Common Stock held in reserve (the Disputed Claims Reserve), beginning 180 days after the Effective Date. Disputed claimholders that subsequently become holders of Single-Dip Unsecured Claims will receive, subject to the availability of sufficient shares in the Disputed Claims Reserve, the number of shares of AAG Common Stock that the disputed claimholder would have received had such claimholder been a holder of Single-Dip Unsecured Claims as of the Effective Date.

The Plan contemplated the distribution of up to 756 million shares of AAG Common Stock, however this amount has been reduced by approximately 20 million shares because certain tax withholdings for employees were paid in cash as permitted under the Plan. In accordance with the Plan, the Company issued the remaining shares of AAG Common Stock over the 120-day distribution period, except for shares held in the Disputed Claims Reserve. In addition, pursuant to the Plan, approximately 197 million shares of AAG Common Stock were distributed to holders of outstanding shares of US Airways Group common stock.

Pursuant to rulings of the Bankruptcy Court, the Plan has established the Disputed Claims Reserve to hold shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. As of June 30, 2014 approximately 30.4 million shares of AAG Common Stock were reserved for distribution to holders of disputed Single-Dip general Unsecured Claims (Single-Dip Equity Obligations) whose claims ultimately become allowed as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. On July 1, 2014, approximately 2.9 million of the approximately 30.4 million shares held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to the Company but rather will be distributed to former AMR shareholders as of the Effective Date. The Company is not required to distribute additional shares above the limits contemplated by the Plan described above.

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In addition, from the Effective Date through June 30, 2014, the Company made the following cash disbursements under the Plan:


•	$385 million in cash to the pension plans in connection with missed contributions to the pension plans during the Chapter 11 Cases and interest and penalty interest thereon;


•	$108 million in cash to holders in partial or full satisfaction of their claims, including to holders of administrative claims, and state and local priority tax claims;


•	$196 million in cure payments to holders of secured debt; and


•	Approximately $542 million for payroll taxes associated with equity distributions to employees.

Several parties have filed appeals seeking reconsideration of the Confirmation Order. Refer to Note 14 for more information.

As noted above, the reconciliation process with respect to the remaining claims will take considerable time post-emergence. The Company's estimate of the amounts of disputed claims that will ultimately become allowed Single-Dip Unsecured Claims are included in Mandatorily convertible preferred stock and other bankruptcy settlement obligations on the Company's condensed consolidated balance sheet as of June 30, 2014. As these claims are resolved, or where better information becomes available and is evaluated, the Company will make adjustments to the liabilities recorded on its condensed consolidated financial statements as appropriate. Any such adjustments could be material to the Company's financial position or results of operations in any given period.

Availability and Utilization of Net Operating Losses

Upon emergence from bankruptcy, the Debtors experienced an "ownership change" as defined in Section 382 of the Internal Revenue Code which could potentially limit the ability to utilize certain tax attributes including the Debtors’ substantial net operating losses (NOLs). The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. While the Debtors anticipate taking advantage of certain special rules for federal income tax purposes that would permit approximately $9.0 billion of the federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382, there can be no assurance that these special rules will apply.

Moreover, an ownership change subsequent to the Debtors’ emergence from bankruptcy may further limit or effectively eliminate the ability to utilize the Debtors’ NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on the Debtors’ ability to utilize the NOL Carryforwards, AAG's Certificate of Incorporation contains transfer restrictions applicable to certain substantial shareholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, there can be no assurance that an ownership change will not occur even with these transfer restrictions. A copy of AAG's Certificate of Incorporation was attached as Exhibit 3.1 to a Current Report on Form 8-K filed by the Company with the SEC on December 9, 2013.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on the condensed consolidated statements of operations for the three and six months ended June 30, 2013 (in millions):



	Three Months Ended June 30, 2013		Six Months Ended June 30, 2013
Aircraft and facility financing renegotiations and rejections ⁽¹⁾	$	83	$	219
Professional fees	40		79
Other	1		(14		)
Total reorganization items, net	$	124	$	284

⁽¹⁾

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim.

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3. Mandatorily Convertible Preferred Stock and Other Bankruptcy Settlement Obligations

The components of Mandatorily convertible preferred stock and other bankruptcy settlement obligations on the condensed consolidated balance sheets are as follows (in millions):



	June 30, 2014		December 31, 2013
AAG Series A Preferred Stock	$	—	$	3,833
Single-Dip Equity Obligations	317		1,246
Labor-related deemed claim	98		849
Total	$	415	$	5,928

The AAG Series A Preferred Stock, while outstanding, voted and participated in accordance with the terms of the underlying Certificate of Designation. One quarter of the shares of AAG Series A Preferred Stock initially issued was mandatorily convertible on each of the 30th, 60th, 90th and 120th days after the Effective Date, subject to additional voluntary conversions. The initial stated value of each share of AAG Series A Preferred Stock was $25.00 and accrued dividends at 6.25% per annum, calculated daily, while outstanding. Additionally, AAG Series A Preferred Stock converted to AAG Common Stock based upon the volume weighted average price of the shares of AAG Common Stock on the five trading days immediately preceding the conversion date, at a 3.5% fixed discount, subject to a conversion price floor of $10.875 per share and a conversion price cap of $33.8080 per share, below or above which the conversion rate remains fixed. As of April 8, 2014, all shares of AAG Series A Preferred Stock had been converted into AAG Common Stock.

The Single-Dip Equity Obligations, while outstanding, do not vote or participate in accordance with the terms of the Plan. These equity obligations, representing the amount of total Single-Dip Unsecured Claims not satisfied through the issuance of AAG Series A Preferred Stock at the Effective Date, represented an unconditional obligation to transfer a variable number of shares of AAG Common Stock based predominantly on a fixed monetary amount known at inception, and, as such, were not treated as equity, but rather as liabilities, until the 120th day after emergence, which was April 8, 2014. As of April 8, 2014, the Company has issued shares of AAG Common Stock to satisfy the obligation amount at emergence, plus accrued dividends of 12% per annum, calculated daily, through such date, based on the volume weighted average price of the shares of AAG Common Stock, at a 3.5% discount, as specified in the Plan. The remaining Single-Dip Equity Obligations at June 30, 2014 is the Company’s estimate of its obligation for disputed claims of $317 million and is calculated based on the fair value of the shares expected to be issued, measured as if the obligations were settled using the closing price of AAG Common Stock at June 30, 2014. Additional allowed claims will receive 30.7553 shares, subject to reduction for expenses of the Disputed Claims Reserve, including tax liabilities, for each $1,000 of allowed claims. For accounting purposes, the value of the shares expected to be issued are marked-to market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

In exchange for employees' contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. The fair value based on the expected number of shares to be distributed to satisfy this deemed claim, as adjusted, was approximately $1.5 billion. From the Effective Date through June 30, 2014, the Company has made distributions of $961 million in AAG Common Stock and paid approximately $542 million in cash to cover payroll taxes related to the equity distributions. As of June 30, 2014, the liability to certain AMR labor groups and employees of $98 million represents the estimated fair value of the remaining shares expected to be issued in satisfaction of such obligation, measured as if the obligation were settled using the closing price of AAG Common Stock at June 30, 2014. For accounting purposes, the value of the remaining shares expected to be issued to satisfy the labor claim are marked-to market each period until issued. Accordingly, changes in the value of AAG Common Stock could result in future increases and decreases in this obligation.

On July 1, 2014, approximately 2.9 million of the approximately 30.4 million shares of AAG Common Stock held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. The next planned distribution date is October 1, 2014 for any disputed Single-Dip Unsecured Claims that become allowed after July 1, 2014.

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4. Slot Divestiture

As a stipulation for the Merger to be approved by the Department of Justice (DOJ), the Company was required to divest certain slots at Ronald Reagan Washington National Airport (DCA). As of December 31, 2013, the DCA slots to be divested were recorded as assets held for sale and included in Prepaid expenses and other on the consolidated balance sheet. In the first quarter of 2014, the Company divested the required DCA slots and received $307 million in cash as well as 24 slots at John F. Kennedy Airport. The Company recognized a gain of $309 million related to the divestiture, which has been included in Special items, net in the condensed consolidated statement of operations.

5. Special Items

Special items, net on the condensed consolidated statements of operations are as follows (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Mainline operating special items, net ^(a)	$	251	$	12	$	114	$	83

^(a)

The 2014 second quarter mainline operating special items totaled a net charge of $251 million, which principally included $163 million of merger integration expenses related to information technology, professional fees, severance, re-branding of aircraft and airport facilities, relocation and training as well as a net $38 million charge for bankruptcy related items primarily reflecting fair value adjustments for bankruptcy settlement obligations and $37 million in charges relating to the buyout of leases associated with certain aircraft. The 2014 six month period mainline operating special items totaled a net charge of $114 million, which principally included $365 million of merger integration expenses, $40 million in charges primarily relating to the buyout of leases associated with certain aircraft and a net $5 million charge for bankruptcy related items as described above. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

The 2013 second quarter mainline operating special items primarily consisted of merger related expenses. The 2013 six month period included $40 million in merger related expenses and a $43 million charge for workers' compensation claims.

The following additional amounts are also included in the condensed consolidated statements of operations as follows (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Regional operating special items, net	$	2	$	1	$	6	$	3
Nonoperating special items, net ^(b)	2		—		50		116
Reorganization items, net ^(c)	—		124		—		284
Income tax special items, net ^(d)	337		—		345		—


^(b)	The 2014 second quarter and six month period nonoperating special items were primarily due to non-cash interest accretion of $2 million and $33 million, respectively, on the bankruptcy settlement obligations.

The 2013 six month period nonoperating special items consisted of interest charges to recognize post-petition interest expense on unsecured obligations pursuant to the Plan.


^(c)	In the 2013 second quarter and six month period, the Company recognized reorganization expenses as a result of the filing of the Chapter 11 Cases. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

^(d)

During the second quarter, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reverses the non-cash tax provision which was recorded in Other Comprehensive Income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the Company recorded $7 million in non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above as well as $15 million in non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

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6. Earnings (Loss) Per Share

Pursuant to the Plan and the Merger Agreement, holders of AMR common stock formerly traded under the symbol “AAMRQ” received shares of AAG Common Stock principally over the 120-day distribution period following the Effective Date. In accordance with GAAP, the 2013 second quarter and six month period weighted average shares and earnings (loss) per share calculations have been adjusted to retrospectively reflect these distributions which were each made at the rate of approximately 0.7441 shares of AAG Common Stock per share of AAMRQ. Former holders of AAMRQ shares as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share (EPS) calculations prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AAMRQ shares.

As of June 30, 2014, all shares pursuant to the Plan have been issued and are outstanding for purposes of the Company's basic and diluted EPS calculation in connection with the conversion of AAG Series A Preferred Stock and satisfaction of other bankruptcy settlement obligations related to allowed unsecured claims, including disputed claims, labor-related deemed claims and former holders of AAMRQ shares.

The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except share and per share amounts in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014		2013
Basic EPS:
Net income (loss)	$	864		$	220	$	1,343	$	(122	)
Weighted-average common shares outstanding (in thousands)	720,600			249,588		722,286		249,540
Basic EPS	$	1.20		$	0.88	$	1.86	$	(0.49	)

Diluted EPS:
Net income (loss)	$	864		$	220	$	1,343	$	(122	)
Interest expense on convertible senior notes	—			7		—		—
Change in fair value of conversion feature on 7.25% convertible senior notes ^(a)	(2		)	—		3		—
Net income (loss) for purposes of computing diluted EPS	$	862		$	227	$	1,346	$	(122	)
Share computation for diluted EPS (in thousands):
Weighted-average shares outstanding	720,600			249,588		722,286		249,540
Dilutive effect of stock awards	14,167			4,342		13,850		—
Assumed conversion of convertible senior notes	—			34,581		1,915		—
Weighted average common shares outstanding - as adjusted	734,767			288,511		738,051		249,540
Diluted EPS	$	1.17		$	0.79	$	1.82	$	(0.49	)

The following were excluded from the computation of diluted EPS (in thousands):
Stock options, SARs and RSUs because inclusion would be antidilutive	582			—		307		38
Convertible notes because inclusion would be antidilutive	—			6		—		11

(a)

In March 2014, the Company notified the holders of US Airways Group's 7.25% convertible senior notes that it had elected to settle all future conversions solely in cash instead of shares of AAG Common Stock in accordance with the related indenture. Thus, the diluted shares include the weighted average impact of the 7.25% convertible senior notes only for the period from January 1, 2014 to March 12, 2014. In addition, under GAAP, the Company must adjust the numerator for purposes of calculating diluted earnings per share by the change in fair value of the conversion feature from March 12, 2014 to May 15, 2014, which increased (decreased) GAAP net income for purposes of computing diluted earnings per share by $(2) million and $3 million, respectively, for the three and six months ended June 30, 2014.

7. Debt

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



	June 30, 2014		December 31, 2013
Secured
American
Secured indebtedness, fixed and variable interest rates ranging from 1.43% to 8.10%, maturing from 2014 to 2026	$	1,862	$	2,140
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 4.00% to 7.00%, maturing from 2017 to 2025	3,415		3,516
Special facility revenue bonds, fixed interest rates ranging from 7.125% to 8.50%, maturing from 2016 to 2031	1,313		1,313
Senior secured credit facility, variable interest rate of 3.75%, installments through 2019	1,881		1,891
7.50% senior secured notes, interest only payments until due in 2016	900		1,000
AAdvantage Miles advance purchase, effective rate of 8.30%, installments through 2017	524		611
Other secured obligations, fixed interest rates ranging from 4.19% to 12.24%, maturing from 2014 to 2035	715		380
Total American secured debt	10,610		10,851
US Airways Group
2013 Citicorp Credit Facility tranche B-1, variable interest rate of 3.50%, installments through 2019	990		1,000
2013 Citicorp Credit Facility tranche B-2, variable interest rate of 3.00%, installments through 2016	594		600
Aircraft enhanced equipment trust certificates (EETCs), fixed interest rates ranging from 3.95% to 11.00%, maturing from 2014 to 2025	2,863		2,515
Equipment loans and other notes payable, fixed and variable interest rates ranging from 1.55% to 8.48%, maturing from 2015 to 2029	1,193		1,330
Other secured obligations, fixed interest rates ranging from 5.20% to 8.00%, maturing from 2014 to 2015	45		47
Total US Airways Group secured debt	5,685		5,492
Total AAG secured debt	16,295		16,343
Unsecured
US Airways Group
6.125% senior notes, interest only payments until due in 2018	500		500
7.25% convertible senior notes	—		22
Industrial development bonds, fixed interest rate of 6.30%	—		29
Total US Airways Group unsecured debt	500		551
Total AAG unsecured debt	500		551
Total long-term debt and capital lease obligations	16,795		16,894
Less: total unamortized debt discount	67		95
Less: current maturities	1,523		1,446
Long-term debt and capital lease obligations, net of current maturities	$	15,205	$	15,353

Other Secured Indebtedness (American and US Airways)

In the first six months of 2014, US Airways issued $481 million of equipment notes in two series under its 2013-1 EETCs completed in April 2013: Series A equipment notes in the amount of $364 million bearing interest at 3.95% per annum and Series B equipment notes in the amount of $117 million bearing interest at 5.375% per annum. The equipment notes are secured by liens on aircraft.

In May 2014, the Company prepaid $113 million principal amount of outstanding debt secured by certain aircraft.

In June 2014, American entered into a loan agreement to borrow $53 million in connection with financing certain aircraft deliveries. The notes mature in 2026 and bear interest at a rate of LIBOR plus an applicable margin.

Senior Secured Notes (American)

In March 2014, American prepaid $100 million of its 7.50% senior secured notes at a redemption price of 103% of principal amount plus accrued and unpaid interest.

Obligations Associated with Special Facility Revenue Bonds (American and US Airways)

In June 2014, the Company prepaid $51 million of obligations, of which $29 million was reflected as debt on its balance sheet, associated with special facility revenue bonds issued by municipalities to build or improve certain airport and maintenance facilities. Also in June, the Company gave notice that it intends to prepay an additional $261 million of special facility bond related obligations in the third quarter of 2014, of which $106 million is reflected as debt on its balance sheet. The off-balance sheet portion of these obligations are accounted for as operating leases.

7.25% Convertible Notes (US Airways Group)

In March 2014, the Company notified the holders of US Airways Group's 7.25% convertible notes that it had elected to settle solely in cash instead of shares of AAG Common Stock all conversions during the period beginning on March 15, 2014 and ending on, and including, the second scheduled trading day immediately preceding the maturity date of May 15, 2014. In May 2014, the Company settled all outstanding 7.25% convertible notes in cash for approximately $175 million.

Guarantees

In March 2014, AAG, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates the result of which was to add AAG as a guarantor of such equipment notes on a joint and several basis with US Airways Group. Refer to Note 15 for further information.

8. Income Taxes

As a result of the Merger, US Airways Group and its subsidiaries are included in the AAG consolidated federal and state income tax returns for the three and six months ended June 30, 2014. The Merger resulted in a statutory "ownership change" on December 9, 2013, as defined in Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), which limits the Company's future ability to utilize NOLs generated before the ownership change and certain subsequently recognized "built-in" losses and deductions, if any, existing as of the date of the ownership change. The general limitation rules for a debtor in a bankruptcy case are liberalized where an ownership change occurs upon emergence from bankruptcy. The Company's ability to utilize any new NOLs arising after the ownership change is not affected.

At December 31, 2013, the Company had approximately $10.6 billion of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2014, subject to the Section 382 limitation described above. The federal NOLs will expire beginning in 2022 if unused. These NOLs include an unrealized tax benefit of $762 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. The Company also had approximately $4.7 billion of gross NOLs to reduce future state taxable income at December 31, 2013, which will expire in years 2014 through 2033 if unused. At December 31, 2013, the Company had an Alternative Minimum Tax (AMT) credit carryforward of approximately $370 million available for federal income tax purposes, which is available for an indefinite period. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2013, the federal and state valuation allowances were $4.6 billion and $415 million, respectively. In accordance with GAAP, utilization of the NOLs after December 9, 2013 will result in a corresponding decrease in the valuation allowance and offset the Company's tax provision dollar for dollar.

During the second quarter of 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reverses the non-cash tax provision which was recorded in OCI, a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. In addition, the Company recorded a special $7 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets in the 2014 second quarter. The 2014 six month period included the $330 million non-cash tax provision related

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to the settlement of fuel hedges discussed above as well as a special $15 million non-cash deferred income tax provision related to certain indefinite-lived intangible assets.

For the three and six months ended June 30, 2014, the Company recorded $3 million and $8 million, respectively, of state and international income tax expense related to certain states and countries where NOLs were limited or unavailable to be used.

The Company did not record an income tax provision in the 2013 second quarter. For the six months ended June 30, 2013, the Company reported a loss before income taxes and recorded an income tax benefit of approximately $22 million as a result of the American Taxpayer Relief Act of 2012.

9. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company's short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the six months ended June 30, 2014.

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



	Fair Value Measurements as of June 30, 2014
	Total		Level 1		Level 2		Level 3
Short-term investments ^{(1), (2)}
Money market funds	$	195	$	195	$	—	$	—
Government agency investments	921		—		921		—
Repurchase agreements	248		—		248		—
Corporate obligations	5,410		—		5,410		—
Bank notes / Certificates of deposit / Time deposits	1,475		—		1,475		—
	8,249		195		8,054		—
Restricted cash and short-term investments ⁽¹⁾	882		851		31		—
Total	$	9,131	$	1,046	$	8,085	$	—


⁽¹⁾	Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in Accumulated other comprehensive income (loss) at each measurement date.


⁽²⁾	The Company's short-term investments mature in one year or less except for $2.0 billion of corporate obligations, $525 million of Bank notes/Certificates of deposit/Time deposits and $469 million of U.S. government agency investments.

There were no Level 1 to Level 2 transfers during the six months ended June 30, 2014. The Company's policy regarding the recording of transfers between levels is to reflect any such transfers at the end of the reporting period.

All of the Company's short-term investments are classified as available-for-sale and stated at fair value. Unrealized gains and losses are reflected as a component of Accumulated other comprehensive income (loss).

Venezuela Cash and Short-term Investments

As of June 30, 2014, approximately $791 million of the Company’s unrestricted cash balance was held in Venezuelan bolivars, valued at the weighted average applicable exchange rate of 6.53 bolivars to the dollar. This includes approximately $94 million valued at 4.3 bolivars, approximately $611 million valued at 6.3 bolivars, and approximately $86 million valued at 10.6 bolivars, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. In the first quarter of 2014, the Venezuelan government announced that a newly-implemented system (SICAD I) will determine the exchange rate (which fluctuates as determined by weekly auctions and at June 30, 2014 was 10.6 bolivars to the dollar) for repatriation of cash proceeds from ticket sales after January 1, 2014, and introduced new procedures for approval of repatriation of local currency. The Company is continuing to work with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency. However, pending further repatriation of funds, and due to the significant decrease in demand for air travel resulting from the effective devaluation of the bolivar, the Company recently

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significantly reduced capacity in this market. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for potential impairment. See Part II, Item 1A - Risk Factors "We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control" for additional discussion of these and other currency risks.

Fair Value of Debt

The fair values of the Company’s long-term debt were estimated using quoted market prices or discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If the Company’s long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

In connection with the Merger, US Airways Group's long-term debt was recorded at fair value as of December 9, 2013 using the acquisition method of accounting in accordance with ASC 805, "Business Combinations" and was determined by discounting the future contractual principal and interest payments using a market interest rate.

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



	June 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	16,728	$	17,564	$	16,799	$	17,035

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10. Retirement Benefits

The following tables provide the components of net periodic benefit cost (in millions):



	Pension Benefits						Retiree Medical and Other Benefits
Three Months Ended June 30,
	2014			2013			2014			2013
Components of net periodic benefit cost:
Service cost	$	2		$	1		$	1		$	—
Interest cost	185			163			16			13
Expected return on assets	(197		)	(180		)	(5		)	(4		)
Settlements	1			—			—			—
Amortization of:
Prior service cost (benefit)	7			7			(59		)	(61		)
Unrecognized net loss (gain)	12			23			(2		)	(2		)
Net periodic benefit cost	$	10		$	14		$	(49	)	$	(54	)



	Pension Benefits						Retiree Medical and Other Benefits
Six Months Ended June 30,
	2014			2013			2014			2013
Components of net periodic benefit cost:
Service cost	$	2		$	2		$	1		$	—
Interest cost	371			326			31			26
Expected return on assets	(393		)	(360		)	(10		)	(8		)
Settlements	3			—			—			—
Amortization of:
Prior service cost (benefit)	14			14			(120		)	(122		)
Unrecognized net loss (gain)	23			46			(4		)	(4		)
Net periodic benefit cost	$	20		$	28		$	(102	)	$	(108	)

Effective November 1, 2012, the Company's defined benefit pension plans were frozen.

The Company is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of ERISA, the Pension Funding Equity Act of 2004, the Pension Protection Act of 2006, the Pension Relief Act of 2010, and the Moving Ahead for Progress in the 21^st Century Act of 2012. During the first six months of 2014, the Company contributed $71 million to its defined benefit pension plans. On July 15, 2014, the Company contributed an additional $37 million to its defined benefit pension plans.

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11. Financial Instruments

Fuel Hedging Contracts

The Company has not entered into any fuel hedges since December 9, 2013. As of June 30, 2014, the Company does not have any fuel hedging contracts outstanding. During the second quarter of 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. The cash proceeds on these sales totaled $71 million which exceeded the current value of the portfolio. Approximately $25 million of the resulting gain was credited to OCI and will be recognized as a credit to fuel expense in the period the hedged fuel is scheduled to be consumed (the third quarter of 2014 through the second quarter of 2015). For the three months ended June 30, 2014 and 2013, the Company recognized a net gain of approximately $2 million and a net loss of approximately $31 million, respectively, and for the six months ended June 30, 2014 and 2013, the Company recognized a net gain of less than one million and a net loss of approximately $23 million, respectively, as a component of aircraft fuel expense on the accompanying condensed consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges.

The impact of aircraft fuel derivative instruments on the Company’s condensed consolidated statements of operations is depicted below (in millions):



	Location in condensed consolidated statements of operations	Three Months Ended June 30,						Six Months Ended June 30,
	Location in condensed consolidated statements of operations	2014			2013			2014			2013
Amount of gain (loss) reclassified from accumulated OCI into income ⁽¹⁾	Aircraft fuel and related taxes	$	(5	)	$	(13	)	$	(12	)	$	(12	)
Amount of gain (loss) recognized in income on derivative ⁽²⁾	Aircraft fuel and related taxes	7			(18		)	12			(11		)
Amount of gain (loss) recognized in condensed consolidated statements of operations ⁽³⁾	Aircraft fuel and related taxes	$	2		$	(31	)	$	—		$	(23	)

⁽¹⁾ Includes the effective portion of hedge gain (loss)

⁽²⁾ Includes the ineffective portion of hedge gain (loss)

⁽³⁾ Includes the effective and ineffective portion of hedge gain (loss)

The impact of aircraft fuel derivative instruments on the Company’s condensed consolidated statements of comprehensive income (loss) is depicted below (in millions):



	Location	Three Months Ended June 30,					Six Months Ended June 30,
	Location	2014		2013			2014			2013
Amount of (gain) loss reclassified from accumulated OCI into income ⁽¹⁾	Reclassification into earnings	$	5	$	13		$	12		$	12
Amount of gain (loss) recognized in OCI on derivative ⁽¹⁾	Change in fair value	23		(56		)	(34		)	(70		)
Amount of gain (loss) recognized in condensed consolidated statements of comprehensive income		$	28	$	(43	)	$	(22	)	$	(58	)

⁽¹⁾ Includes the effective portion of hedge gain (loss)

While certain of the Company's fuel derivatives were subject to enforceable master netting agreements with its counterparties, the Company did not offset its fuel derivative assets and liabilities in its condensed consolidated balance sheets. The Company had a gross asset of $109 million as of December 31, 2013 for its aircraft fuel derivative instruments, which was reflected in Prepaid expenses and other on the accompanying condensed consolidated balance sheet. The Company had no cash collateral posted or received as of December 31, 2013.

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12. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows (in millions):



	Pension and retiree medical liability			Net unrealized change on investments			Derivative financial instruments			Income tax benefit (expense)			Total
Balance at December 31, 2013	$	(887	)	$	(2	)	$	67		$	(1,210	)	$	(2,032	)
Other comprehensive loss before reclassifications	(17		)	—			(54		)	—			(71		)
Amounts reclassified from accumulated other comprehensive income (loss)	(87		)	2			12			330			257
Net current period other comprehensive income (loss)	(104		)	2			(42		)	330			186
Balance at June 30, 2014	$	(991	)	$	—		$	25		$	(880	)	$	(1,846	)

Reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013 are as follows (in millions):



Details about accumulated other comprehensive income (loss) components	Amount reclassified from accumulated other comprehensive income (loss)												Affected line item in the statement where net income (loss) is presented
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Amortization of pension and retiree medical liability:
Prior service cost	$	(52	)	$	(54	)	$	(106	)	$	(108	)	Salaries, wages and benefits
Actuarial loss	10			21			19			42			Salaries, wages and benefits
Derivative financial instruments:
Cash flow hedges	5			13			12			12			Aircraft fuel and related taxes
Net unrealized change on investments:
Net change in value	—			1			2			—			Other, net
Income tax benefit (expense):
Reversal of non-cash tax provision	330			—			330			—			Income tax provision (benefit)
Total reclassifications for the period	$	293		$	(19	)	$	257		$	(54	)

During the second quarter of 2014, the Company sold its portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, the Company recorded a special non-cash tax provision of $330 million in the statement of operations for the second quarter of 2014 that reverses the non-cash tax provision which was recorded in OCI, a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of the Company’s fuel hedging contracts. In accordance with GAAP, the Company retained the $330 million tax provision in OCI until the last contract was settled or terminated. The 2014 six month period included the $330 million non-cash tax provision related to the settlement of fuel hedges discussed above.

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13. Regional Expenses

Expenses associated with the Company's wholly-owned regional airlines and third-party regional carriers operating under the brand names American Eagle and US Airways Express are classified as Regional expenses on the condensed consolidated statements of operations. Regional expenses consist of the following (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Aircraft fuel and related taxes	$	535	$	260	$	1,035	$	525
Salaries, wages and benefits	271		167		536		339
Capacity purchases from third-party regional carriers	371		45		722		79
Maintenance, materials and repairs	82		69		169		141
Other rent and landing fees	105		59		202		118
Aircraft rent	9		—		18		—
Selling expenses	87		35		159		71
Depreciation and amortization	50		41		103		83
Special items, net	2		1		6		3
Other	145		92		301		190
Total regional expenses	$	1,657	$	769	$	3,251	$	1,549

14. Legal Proceedings

Chapter 11 Cases. As previously disclosed, on the Petition Date, November 29, 2011, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by the Merger Agreement pursuant to which Merger Sub merged with and into US Airways Group, with US Airways Group surviving as a wholly-owned subsidiary of AAG. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. As of June 30, 2014, approximately 30.4 million shares of AAG Common Stock were held in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, AAG is not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully pay any additional allowed unsecured claims. On July 1, 2014, approximately 2.9 million of the approximately 30.4 million shares held in the Disputed Claims Reserve were distributed to holders of allowed Single-Dip Unsecured Claims, to holders of certain labor-related deemed claims, and to holders of certain non-management, non-union employee deemed claims as specified in the Plan, and shares were withheld or sold on account of related tax obligations. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to AAG but rather will be distributed to former AMR shareholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR shareholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

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There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employee benefits are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American's motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees' benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. The Company's financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding.

Merger Class Action. On March 1, 2013, a complaint captioned Plumbers & Steamfitters Local Union No. 248 Pension Fund v. US Airways Group, Inc., et al., No. CV2013-051605, was filed as a putative class action on behalf of the stockholders of US Airways Group in the Superior Court for Maricopa County, Arizona. On July 3, 2013, an amended complaint, captioned Dennis Palkon, et al. v. US Airways Group, Inc., et al., No. CV2013-051605, was filed with the same court. The amended complaint names as defendants US Airways Group and the members of its board of directors, and alleges that the directors failed to maximize the value of US Airways Group in connection with the Merger and that US Airways Group aided and abetted those breaches of fiduciary duty. The relief sought in the amended complaint included an injunction against the Merger, or rescission in the event it has been consummated. The court in the above-referenced action denied the plaintiff’s motion for a temporary restraining order that had sought to enjoin the US Airways Group Annual Meeting of Stockholders. On May 6, 2014, the court granted defendants' motion to dismiss this action. On May 27, 2014, plaintiff filed a motion for reconsideration of the court's decision to dismiss the action, and that motion was denied and judgment entered in favor of the defendants, and the complaint was dismissed with prejudice, on July 14, 2014. As of the date of this report, the Company does not know if the plaintiff will appeal the dismissal.

Private Party Antitrust Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint names as defendants US Airways Group and US Airways, and alleges that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint includes an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. The Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On January 10, 2014, the plaintiffs moved to amend their complaint to add additional factual allegations, a claim for money damages and a request for preliminary injunctive relief requiring the carriers to hold separate their assets. On March 14, 2014, the Court allowed plaintiffs to add certain allegations but denied plaintiffs' requests to add a damages claim or seek preliminary injunctive relief requiring the carriers to hold separate their assets. On June 2, 2014, plaintiffs filed an amended motion for leave to file a second amended and supplemental complaint, which motion is currently being briefed by the parties. There is currently no trial date set. The Company believes this lawsuit is without merit and intends to vigorously defend against the allegations.

US Airways Sabre Matter. On April 21, 2011, US Airways filed an antitrust lawsuit against Sabre Holdings Corporation, Sabre Inc. and Sabre Travel International Limited (collectively, Sabre) in Federal District Court for the Southern District of New York. The lawsuit, as amended to date, alleges, among other things, that Sabre has engaged in anticompetitive practices to preserve its market power by restricting the Company's ability to distribute its products to its customers. The lawsuit also alleges that these actions have permitted Sabre to charge supracompetitive booking fees and to use technologies that are not as robust and as efficient as alternatives in a competitive market. The lawsuit seeks both injunctive relief and money damages. Sabre filed a motion to dismiss the case, which the court denied in part and granted in part in September 2011, allowing two of the four counts in the complaint to proceed. On April 1, 2014, Sabre filed motions for summary judgment that are pending before the court. The Company intends to pursue its claims against Sabre vigorously, but there can be no assurance of the outcome of this litigation.

General. The Company and its subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within the control of the Company. Therefore, although the Company will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on the Company are uncertain.

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15. Financial Information for Subsidiary Guarantors and Non-guarantor Subsidiaries

There are various cross-guarantees among the Company, American, US Airways Group and US Airways with respect to publicly held debt securities. In connection with the Merger, the Company and American entered into a second supplemental indenture under which they jointly and severally guaranteed the payment of obligations associated with US Airways Group's 6.125% senior notes. In addition, on March 31, 2014, the Company, US Airways Group and US Airways entered into amended and restated guarantees of the payment obligations of US Airways under the equipment notes relating to each of its Series 2010-1, 2011-1, 2012-1, 2012-2 and 2013-1 Pass Through Certificates the result of which was to add AAG as a guarantor of such equipment notes on a joint and several basis with US Airways Group.

In connection with the issuance of these guarantees, in accordance with Rule 3-10 of Regulation S-X and Rule 12h-5 under the Securities Exchange Act of 1934, as amended, US Airways Group and US Airways discontinued filing separate periodic and current reports with the SEC. As a result, in accordance with Rule 3-10, the Company is required to present the following condensed consolidating financial information for the periods after Merger close for American Airlines Group Parent, American, US Airways Group Parent, US Airways and all other non-guarantor subsidiaries, together with the consolidating adjustments necessary to present the Company’s results on a consolidated basis.

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AMERICAN AIRLINES GROUP INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In millions)(Unaudited)



	Three Months Ended June 30, 2014
	American Airlines Group (Parent Company Only)			American			US Airways Group (Parent Company Only)			US Airways			Non-Guarantor Subsidiaries		Eliminations and Reclassifications			American Airlines Group Inc. Consolidated
Operating revenues
Mainline passenger	$	—		$	5,352		$	—		$	2,861		$	—	$	—		$	8,213
Regional passenger	—			786			—			921			—		—			1,707
Cargo	—			178			—			43			—		—			221
Other	—			837			—			408			744		(775		)	1,214
Total operating revenues	—			7,153			—			4,233			744		(775		)	11,355
Operating expenses
Aircraft fuel and related taxes	—			1,897			—			933			—		—			2,830
Salaries, wages and benefits	—			1,441			—			720			195		(193		)	2,163
Regional expenses	—			804			—			867			—		(14		)	1,657
Maintenance, materials and repairs	—			346			—			168			80		(80		)	514
Other rent and landing fees	—			289			—			152			7		(7		)	441
Aircraft rent	—			214			—			102			22		(26		)	312
Selling expenses	—			282			—			120			—		—			402
Depreciation and amortization	—			220			—			100			10		(11		)	319
Special items, net	(2		)	179			—			74			—		—			251
Other	2			763			—			319			427		(444		)	1,067
Total operating expenses	—			6,435			—			3,555			741		(775		)	9,956
Operating income	—			718			—			678			3		—			1,399
Nonoperating income (expense)
Interest income	2			6			1			3			—		(4		)	8
Interest expense, net	—			(139		)	(10		)	(69		)	—		4			(214		)
Equity in earnings of subsidiaries	863			—			595			—			—		(1,458		)	—
Other, net	—			16			3			(6		)	1		(3		)	11
Total nonoperating income (expense), net	865			(117		)