Income Taxes

12 Months Ended

Dec. 31, 2019

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



	Year Ended December 31,
	2019		2018		2017
Current income tax provision:
State and Local	$	2	$	3	$	10
Foreign	8		29		14
Current income tax provision	10		32		24
Deferred income tax provision:
Federal	498		390		2,026
State and Local	62		50		63
Deferred income tax provision	560		440		2,089
Total income tax provision	$	570	$	472	$	2,113

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



	Year Ended December 31,
	2019		2018			2017
Statutory income tax provision	$	474	$	396		$	1,188
State income tax provision, net of federal tax effect	47		44			59
Book expenses not deductible for tax purposes	31		12			33
Foreign income taxes, net of federal tax effect	8		23			7
Change in valuation allowance	4		(6		)	(3		)
2017 Tax Act	—		—			823
Other, net	6		3			6
Income tax provision	$	570	$	472		$	2,113

We provide a valuation allowance for our deferred tax assets, which include our net operating losses (NOLs), when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand.

The components of our deferred tax assets and liabilities were (in millions):



	December 31,
	2019			2018
Deferred tax assets:
Operating loss carryforwards	$	2,103		$	2,343
Leases	2,077			2,189
Loyalty program liability	1,755			1,770
Pensions	1,229			1,430
Postretirement benefits other than pensions	145			145
Rent expense	126			136
Alternative minimum tax (AMT) credit carryforwards	90			175
Reorganization items	30			33
Other	613			631
Total deferred tax assets	8,168			8,852
Valuation allowance	(34		)	(30		)
Net deferred tax assets	8,134			8,822
Deferred tax liabilities:
Accelerated depreciation and amortization	(5,196		)	(5,280		)
Leases	(1,979		)	(2,081		)
Other	(343		)	(326		)
Total deferred tax liabilities	(7,518		)	(7,687		)
Net deferred tax asset	$	616		$	1,135

At December 31, 2019, we had approximately $9.1 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which we expect to be available for use in 2020. The federal NOL Carryforwards will expire beginning in 2023 if unused. We also had approximately $3.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2019, which will expire in years 2020 through 2039 if unused. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of our remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. We elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.0 billion (with $7.3 billion of unlimited NOL still remaining at December 31, 2019) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit a company’s future use of NOLs and tax credits.

At December 31, 2019, we had an AMT credit carryforward of approximately $170 million available for federal income tax purposes, which is presently expected to be fully refundable over the next several years as a result of the repeal of corporate AMT as part of the 2017 Tax Act.

In 2019, we recorded an income tax provision of $570 million, with an effective rate of approximately 25%, which was substantially non-cash due to utilization of our NOLs as described above. Substantially all of our income before income taxes is attributable to the United States.

We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate. Our 2016 through 2018 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and we are under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. We believe that the effect of any assessments will not be material to our consolidated financial statements.

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

The 2017 Tax Act was enacted on December 22, 2017 and is the most comprehensive tax change in more than 30 years. We completed our evaluation of the 2017 Tax Act and we reflected the impact of its effects, including the impact of a lower corporate income tax rate (21% vs. 35%) on our deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. For the year ended December 31 2017, we recognized a special income tax provision of $823 million to reflect these impacts of the 2017 Tax Act.

American Airlines, Inc. [Member]

Income Taxes [Line Items]

Income Taxes

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



	Year Ended December 31,
	2019		2018		2017
Current income tax provision:
State and Local	$	2	$	3	$	14
Foreign	8		28		10
Current income tax provision	10		31		24
Deferred income tax provision:
Federal	567		453		2,176
State and Local	56		50		70
Deferred income tax provision	623		503		2,246
Total income tax provision	$	633	$	534	$	2,270

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



	Year Ended December 31,
	2019		2018			2017
Statutory income tax provision	$	547	$	460		$	1,244
State income tax provision, net of federal tax effect	41		46			53
Book expenses not deductible for tax purposes	29		10			30
Foreign income taxes, net of federal tax effect	8		22			6
Change in valuation allowance	5		(6		)	4
2017 Tax Act	—		—			924
Other, net	3		2			9
Income tax provision	$	633	$	534		$	2,270

American provides a valuation allowance for its deferred tax assets, which include the net operating losses (NOLs), when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond its control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand.

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



	December 31,
	2019			2018
Deferred tax assets:
Operating loss carryforwards	$	2,115		$	2,420
Leases	2,067			2,176
Loyalty program liability	1,755			1,770
Pensions	1,219			1,421
Postretirement benefits other than pensions	145			145
Rent expense	126			136
Alternative minimum tax (AMT) credit carryforwards	118			231
Reorganization items	30			33
Other	569			588
Total deferred tax assets	8,144			8,920
Valuation allowance	(24		)	(19		)
Net deferred tax assets	8,120			8,901
Deferred tax liabilities:
Accelerated depreciation and amortization	(5,153		)	(5,243		)
Leases	(1,968		)	(2,068		)
Other	(340		)	(321		)
Total deferred tax liabilities	(7,461		)	(7,632		)
Net deferred tax asset	$	659		$	1,269

At December 31, 2019, American had approximately $9.2 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which American expects to be available for use in 2020. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal NOL Carryforwards available in those returns is $9.1 billion, substantially all of which is expected to be available for use in 2020. The federal NOL Carryforwards will expire beginning in 2023 if unused. American also had approximately $2.9 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2019, which will expire in years 2020 through 2039 if unused. American’s ability to deduct its NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of American’s remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, American’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. American elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.5 billion (with $7.2 billion of unlimited NOL still remaining at December 31, 2019) of its federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit a company’s future use of NOLs and tax credits.

At December 31, 2019, American had an AMT credit carryforward of approximately $226 million available for federal income tax purposes, which is presently expected to be fully refundable over the next several years as a result of the repeal of corporate AMT as part of the 2017 Tax Act.

In 2019, American recorded an income tax provision of $633 million, with an effective rate of approximately 24%, which was substantially non-cash as American utilized its NOLs as described above. Substantially all of American’s income before income taxes is attributable to the United States.

American is part of the AAG consolidated income tax return. American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. American’s 2016 through 2018 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 assessments will not be material to its consolidated financial statements.

The amount of, and changes to, American’s uncertain tax positions were not material in any of the years presented. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

The 2017 Tax Act was enacted on December 22, 2017 and is the most comprehensive tax change in more than 30 years. American completed its evaluation of the 2017 Tax Act and American reflected the impact of its effects, including the impact of a lower corporate income tax rate (21% vs. 35%) on its deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. For the year ended December 31 2017, American recognized a special income tax provision of $924 million to reflect these impacts of the 2017 Tax Act.