Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Line Items]

Income Taxes

Income Taxes

The significant components of the income tax provision (benefit) were (in millions):

	Year Ended December 31,
	2013			2012			2011
Current	$	(22	)	$	—		$	(25	)
Deferred	(324		)	(569		)	25
Income tax benefit	$	(346	)	$	(569	)	$	—

The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):

	Year Ended December 31,
	2013			2012			2011
Statutory income tax provision benefit	$	(763	)	$	(857	)	$	(691	)
State income tax expense (benefit), net of federal tax effect	(8		)	(32		)	(37		)
Book expenses not deductible for tax purposes	27			19			9
Bankruptcy administration expenses	83			26			—
Interest cutback to net operating loss (NOL)	141			—			—
Alternative minimum tax credit refund	(22		)	—			—
Change in valuation allowance	717			839			705
Tax benefit resulting from OCI allocation	(538		)	(569		)	—
Other, net	17			5			14
Income tax benefit	$	(346	)	$	(569	)	$	—

The merger of US Airways into American Airlines Group Inc. closed on December 9, 2013. For the period beginning on December 9, 2013 and ending on December 31, 2013, US Airways Group, Inc. and its subsidiaries are now included in the AAG consolidated federal and state income tax returns.    

The Company recorded a net income tax benefit of $346 million which is composed of a $538 million non-cash income tax benefit, a $214 million tax charge for additional valuation allowance, and $22 million income tax credit. The Company recorded a $538 million non-cash income tax benefit from continuing operations during the fourth quarter of 2013. Under current accounting rules, the Company is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded a tax benefit on the loss from continuing operations for the year, which is exactly offset by income tax expense on other comprehensive income. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income, which is a component of stockholders' equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations for this item, the Company's year-end net deferred tax position is not impacted by this tax allocation. The Company recorded similar amounts when reporting other comprehensive income in 2009 and 2012. The resulting residual income tax expense will remain in Accumulated other comprehensive income (loss) (AOCI) until all amounts in AOCI that relate to the plan or program that gave rise to the residual income taxes are recognized in the Consolidated Statement of Operations. The Company will reclassify to earnings all residual tax amounts relating to our Pension and Retiree Medical Liability (specifically relating to Pension and OPEB activity) and Derivative Financial Instruments (specifically relating to Fuel Hedging Contracts activity) in the period in which there are no longer any amounts in AOCI associated with those plans or programs. The Company anticipates recognizing a non-cash income tax expense of $313 million in continuing operations during 2015 upon the settlement of the currently outstanding Fuel Hedging Contract arrangements.

The Company provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion, or all of the deferred tax assets, will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. The assessment of realization of deferred tax assets considers those tax planning strategies that management believes to be prudent and feasible strategies the Company would implement, if necessary, to prevent a tax attribute from expiring. During the fourth quarter of 2013, the Company recorded a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized. US Airways, Group Inc is required under ASC 805, as a result of its merger, to use purchase accounting to establish the fair values of its assets and liabilities. The resulting tax accounting establishes a federal deferred tax liability for its indefinite-lived assets in the amount of $306 million which has been accounted for through goodwill.

A portion of the change in the valuation allowance reflects the recording by the Company in 2013, 2012 and 2011 of an income tax expense (credit) of approximately $(22) million, $0 million and $(25) million, respectively, resulting from the Company’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the American Taxpayer Relief Act of 2012), allowing corporations to accelerate utilization of certain research and alternative minimum tax (AMT) credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

In addition to the changes in the valuation allowance from operations described in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 14 to AAG's Consolidated Financial Statements. The total increase in the valuation allowance was $602 million, $263 million, and $1.2 billion in 2013, 2012 and 2011, respectively.

The components of AAG's deferred tax assets and liabilities were (in millions):

	December 31,
	2013			2012
Deferred tax assets:
Postretirement benefits other than pensions	$	643		$	440
Rent expense	355			127
Alternative minimum tax credit carryforwards	370			367
Operating loss carryforwards	3,655			2,256
Pensions	1,765			2,455
Frequent flyer obligation	1,075			657
Gains from lease transactions	56			6
Reorganization items	682			864
Other	871			754
Total deferred tax assets	9,472			7,926
Valuation allowance	(5,013		)	(4,411		)
Net deferred tax assets	4,459			3,515
Deferred tax liabilities:
Accelerated depreciation and amortization	(4,460		)	(3,318		)
Other	(519		)	(197		)
Total deferred tax liabilities	(4,979		)	(3,515		)
Net deferred tax asset (liability)	$	(520	)	$	—

At December 31, 2013, the Company had available for federal income tax purposes an AMT credit carryforward of approximately $370 million, which is available for an indefinite period, and federal net operating losses of approximately $10.6 billion for regular tax purposes, which will expire, if unused, beginning in 2022. These net operating losses include an unrealized benefit of approximately $762 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. The Company had available for state income tax purposes net operating losses of $4.7 billion, which expire, if unused, in years 2014 through 2033. The amount that will expire in 2014 is $106 million if not used.

We experienced a statutory "ownership change" on December 9, 2013 as defined for purposes of Section 382 of the Internal Revenue Code in connection with our emergence from bankruptcy and US Airways Group experienced an ownership change in connection with the Merger. When a company undergoes such an ownership change, Section 382 limits the company’s future ability to utilize any NOL 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. We anticipate taking advantage of these certain special rules which will permit approximately $9.0 billion of our federal NOL carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. At December 31, 2013, the Company inherited the US Airways Group approximate $1.6 billion of NOLs ($1.4 billion of which is subject to Section 382 limitation due to the ownership change) to reduce the Company’s future taxable income. The majority of American Airlines Group Inc.’s NOLs are expected to be available to reduce federal taxable income in the calendar year 2014. The Company’s ability to utilize any new NOL arising after the ownership change is not affected.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s 2004 through 2012 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and the Company is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. The Company believes that the effect of any additional assessment(s) will be immaterial to its Consolidated Financial Statements.

Cash payments for income taxes were $12 million, $6 million and $1 million for 2013, 2012 and 2011, respectively.

Under special tax rules (the Section 382 Limitation), cumulative stock ownership changes among material shareholders exceeding 50% during a rolling 3-year period can potentially limit a company’s future use of net operating losses and tax credits. See Part I - Item 1A. Risk Factors - "Our ability to utilize our net operating losses (NOL) carryforwards may be limited."

The Company has an unrecognized tax benefit of approximately $6 million, which did not change during the twelve months ended December 31, 2013. Changes in the unrecognized tax benefit have no impact on the effective tax rate due to the existence of the valuation allowance. Accrued interest on tax positions is recorded as a component of interest expense but was not significant at December 31, 2013.

The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):

	2013		2012
Unrecognized Tax Benefit at January 1	$	6	$	6
No Activity	—		—
Unrecognized Tax Benefit at December 31	$	6	$	6

The Company estimates that the unrecognized tax benefit will not significantly change within the next twelve months.

AA [Member]

Income Tax Disclosure [Line Items]

Income Taxes

Income Taxes

The significant components of the income tax provision (benefit) were (in millions):

	Year Ended December 31,
	2013			2012			2011
Current	$	(30	)	$	—		$	(25	)
Deferred	(324		)	(569		)	25
Income tax benefit	$	(354	)	$	(569	)	$	—

The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):

	Year Ended December 31,
	2013			2012			2011
Statutory income tax provision benefit	$	(658	)	$	(873	)	$	(686	)
State income tax benefit, net of federal tax effect	(14		)	(35		)	(32		)
Book expenses not deductible for tax purposes	20			20			7
Bankruptcy administration expenses	82			26			—
Interest cutback to net operating loss (NOL)	53			—			—
Alternative minimum tax credit refund	(30		)	—			—
Change in valuation allowance	714			858			697
Tax benefit resulting from OCI allocation	(538		)	(569		)	—
Other, net	17			4			14
Income tax benefit	$	(354	)	$	(569	)	$	—

American recorded a net income tax benefit of $354 million which is composed of a $538 million non-cash income tax benefit, a $214 million tax charge for additional valuation allowance, and a $30 million income tax credit. American recorded a $538 million non-cash income tax benefit from continuing operations during the fourth quarter of 2013. Under current accounting rules, American is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, American recorded a tax benefit on the loss from continuing operations for the year, which will be exactly offset by income tax expense on other comprehensive income. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on other comprehensive income is recorded directly to accumulated other comprehensive income, which is a component of stockholder's equity. Because the income tax expense on other comprehensive income is equal to the income tax benefit from continuing operations for this item, American's year-end net deferred tax position is not impacted by this tax allocation. American recorded similar amounts when reporting other comprehensive income in 2009 and 2012. The resulting residual income tax expense will remain in Accumulated other comprehensive income (AOCI) until all amounts in AOCI that relate to the plan or program that gave rise to the residual income taxes are recognized in the Consolidated Statement of Operations. American will reclassify to earnings all residual tax amounts relating to our Pension and Retiree Medical Liability (specifically relating to Pension and OPEB activity) and Derivative Financial Instruments (specifically relating to Fuel Hedging Contracts activity) in the period in which there are no longer any amounts in AOCI associated with those plans or programs. American anticipates recognizing a non-cash income tax expense of $313 million in continuing operations during 2015 upon the settlement of the currently outstanding Fuel Hedging Contract arrangements.

American provides a valuation allowance for deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion, or all of the deferred tax assets, will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (primarily reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. The assessment of realization of deferred tax assets considers those tax planning strategies that management believes to be prudent and feasible strategies American would implement, if necessary, to prevent a tax attribute from expiring. During the fourth quarter of 2013, American recorded a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized.

A portion of change in the valuation allowance reflects the recording by American in 2013, 2012 and 2011 of an income tax expense (credit) of approximately $(30) million, $0 million and $(25) million, respectively, resulting from American’s elections under applicable sections of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Housing and Economic Recovery Act of 2008 (as extended by the American Taxpayer Relief Act of 2012), allowing corporations to accelerate utilization of certain research and alternative minimum tax (AMT) credit carryforwards in lieu of applicable bonus depreciation on certain qualifying capital investments.

In addition to the changes in the valuation allowance from operations described in the table above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 13 to American's Consolidated Financial Statements. The total increase in the valuation allowance was $155 million, $282 million, and $1.1 billion in 2013, 2012 and 2011, respectively.

The components of American's deferred tax assets and liabilities were (in millions):

	December 31,
	2013			2012
Deferred tax assets:
Postretirement benefits other than pensions	$	342		$	442
Rent expense	55			60
Alternative minimum tax credit carryforwards	467			493
Operating loss carryforwards	3,302			2,296
Pensions	1,747			2,455
Frequent flyer obligation	620			657
Gains from lease transactions	24			5
Reorganization items	675			863
Other	975			963
Total deferred tax assets	8,207			8,234
Valuation allowance	(5,239		)	(5,084		)
Net deferred tax assets	2,968			3,150
Deferred tax liabilities:
Accelerated depreciation and amortization	(2,932		)	(2,960		)
Other	(250		)	(190		)
Total deferred tax liabilities	(3,182		)	(3,150		)
Net deferred tax asset (liability)	$	(214	)	$	—

At December 31, 2013, American had available for federal income tax purposes an AMT credit carryforward of approximately $467 million, which is available for an indefinite period, and federal net operating losses of approximately $9.5 billion for regular tax purposes, which will expire, if unused, beginning in 2022. These net operating losses include an unrealized benefit of approximately $647 million related to the implementation of share-based compensation accounting guidance that will be recorded in equity when realized. American had available for state income tax purposes net operating losses of $3.8 billion, which expire, if unused, in years 2014 through 2033. The amount that will expire in 2014 is $96 million if not used.

American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. American’s 2004 through 2012 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. American believes that the effect of any additional assessment(s) will be immaterial to its consolidated financial statements.

Cash payments (refunds) for income taxes were $7 million, $5 million and $(0.5) million for 2013, 2012 and 2011, respectively.

Under special tax rules (the Section 382 Limitation), cumulative stock ownership changes among material shareholders exceeding 50% during a rolling 3-year period can potentially limit a company’s future use of net operating losses and tax credits. See Part I, Item 1A. Risk Factors - "Chapter 11 Reorganization Risks regarding the potential impact of these rules on American’s utilization of its net operating losses."

American has an unrecognized tax benefit of approximately $5 million, which did not change during the twelve months ended December 31, 2013. Changes in the unrecognized tax benefit have no impact on the effective tax rate due to the existence of the valuation allowance. Accrued interest on tax positions is recorded as a component of interest expense but was not significant at December 31, 2013.

The reconciliation of the beginning and ending amounts of unrecognized tax benefit are (in millions):

	2013		2012
Unrecognized Tax Benefit at January 1	$	5	$	5
No Activity	—		—
Unrecognized Tax Benefit at December 31	$	5	$	5

American estimates that the unrecognized tax benefit will not significantly change within the next twelve months.