Basis of Presentation and Recent Accounting Pronouncement	9 Months Ended
Sep. 30, 2020
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Basis of Presentation and Recent Accounting Pronouncement	Basis of Presentation and Recent Accounting Pronouncements (a) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (we, us, our and similar terms, or AAG) should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying unaudited condensed consolidated financial statements include the accounts of AAG and its wholly-owned subsidiaries. AAG’s principal subsidiary is American Airlines, Inc. (American). 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 accounting principles generally accepted in the United States (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 loyalty program, as well as pension and retiree medical and other postretirement benefits. (b) Impact of Coronavirus (COVID-19) COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. As a result, we have experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in our revenues. While our business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in our total operating revenues decreasing approximately 20% in the first quarter of 2020, 86% in the second quarter of 2020 and 73% in the third quarter of 2020 as compared to the first, second and third quarters of 2019, respectively. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we expect our results of operations for the remainder of 2020 to be severely impacted. We have taken aggressive actions to mitigate the effect of COVID-19 on our business including deep capacity reductions, structural changes to our fleet, cost reductions, and steps to preserve cash and improve our overall liquidity position. We remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time, consistent with the terms of the financial assistance we have received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Capacity Reductions We have significantly reduced our capacity (as measured by available seat miles), with the third quarter of 2020 flying decreased by 59% year-over-year and fourth quarter of 2020 flying expected to decrease by more than 50% year-over-year, with long-haul international capacity down approximately 75% year-over-year. The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which we fly and travel restrictions have generally remained in place. Due to this uncertainty, we will continue to adjust our future capacity to match developing trends in bookings for future travel and make further adjustments to our capacity as needed. Fleet To better align our network with lower passenger demand, we accelerated the retirement of Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft. These retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 13 for further information on the accounting for our fleet retirements. Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft. In addition, we have placed a number of Boeing 737-800 and certain regional aircraft into temporary storage. Cost Reductions We are moving quickly to better align our costs with our reduced schedule. In aggregate, we estimate that we have reduced our 2020 operating and capital expenditures by approximately $17.0 billion. These savings have been achieved primarily through capacity reductions. In addition, we have implemented a series of actions, including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and non-aircraft capital expenditures through less fleet modification work, the elimination of ground service equipment purchases and pausing all non-critical facility investments and information technology projects. We have also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation, implemented voluntary leave and early retirement programs, decreased our management and support staff team, including officers, by approximately 5,100 positions, or 30%, and, as necessary, undertaken furloughs, to reduce our labor costs consistent with our obligations under the CARES Act. In total, more than 20,000 team members have opted for an early retirement or long-term paid leave and approximately 19,000 team members were furloughed starting October 1, 2020. Additionally, we have made reductions in marketing, contractor, event and training expenses as well as consolidated space at airport facilities. Liquidity At September 30, 2020, we had $13.6 billion in total available liquidity, consisting of $8.3 billion in unrestricted cash and short-term investments, $4.9 billion in an undrawn term loan facility under the CARES Act and $400 million in an undrawn short-term revolving facility. During the first nine months of 2020, we completed the following financing transactions (see Note 6 for further information): •refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027; •raised $1.0 billion from a senior secured delayed draw term loan credit facility; •issued $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025 and repaid $500 million of 4.625% unsecured senior notes that matured in March 2020; •borrowed $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility; •issued $1.0 billion in aggregate principal amount of 6.50% convertible senior notes due 2025; •issued 85.2 million shares of AAG common stock at a price of $13.50 per share pursuant to a public offering of common stock for net proceeds of $1.1 billion; •issued $2.5 billion in aggregate principal amount of 11.75% senior secured notes due 2025 and repaid the $1.0 billion senior secured delayed draw term loan credit facility that we borrowed in March 2020; •issued approximately $360 million in special facility revenue bonds, of which $47 million was used to fund the redemption of certain outstanding bonds; •entered into a $5.5 billion secured term loan facility with the U.S. Department of Treasury (Treasury), of which we borrowed $550 million (see below for additional information on the Treasury Loan Agreement); •issued $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026 secured by various collateral; •raised $392 million from aircraft sale-leaseback transactions; and •raised $323 million from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financings, of which $17 million was used to repay existing indebtedness. In addition to the foregoing financings, we were initially approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act, all of which was received by the end of July 2020. On September 30, 2020, we received an additional installment of $168 million for a total aggregate of $6.0 billion of such financial assistance and, as a result, the promissory note (the PSP Promissory Note) previously issued to Treasury for $1.7 billion was revised upwards to $1.8 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 13.7 million shares of AAG common stock were revised upwards to 14.1 million shares (the PSP Warrant Shares) of AAG common stock. See below for further discussion on the Payroll Support Program. Also, we are permitted to, and will, defer payment of the employer portion of Social Security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022). This deferral is expected to provide approximately $300 million in additional liquidity during 2020. Additionally, we have suspended our capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable. We continue to evaluate future financing opportunities and work with third-party appraisers on valuations of our remaining unencumbered assets. Certain of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value and debt service coverage ratio covenants. Given the above actions and our assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings and funds from government assistance obtained pursuant to the CARES Act) and projected cash flows from operations. Payroll Support Program On April 20, 2020 (the PSP Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), each our wholly-owned subsidiary, entered into a Payroll Support Program Agreement (the PSP Agreement) with Treasury, with respect to the Payroll Support Program provided pursuant to the CARES Act. In connection with our entry into the PSP Agreement, on the PSP Closing Date, we also entered into a warrant agreement (the PSP Warrant Agreement) with Treasury, and we issued the PSP Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors). Payroll Support Program Agreement In connection with the Payroll Support Program, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the continuation of payment of employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP Agreement also imposes substantial reporting obligations on us. As of September 30, 2020, we also received a secured loan from Treasury under the loan program that is due June 2025 and, as a result, the stock repurchase, dividend and executive compensation restrictions will remain in place through the date that is one year after such secured loan is fully repaid. See below for additional information on the Treasury Loan Agreement. Pursuant to the PSP Agreement, Treasury provided us financial assistance which was paid in installments (each, an Installment) and totaled an aggregate of approximately $5.8 billion initially and was subsequently increased to $6.0 billion, and all of which has been received as of September 30, 2020. As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, we issued a total aggregate principal amount of approximately $1.8 billion under the PSP Promissory Note and issued warrants (each a PSP Warrant and, collectively, the PSP Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares. See Note 6 for further information on the PSP Promissory Note and below for more information on the PSP Warrant Agreement and the PSP Warrants. For accounting purposes, the $6.0 billion of aggregate financial assistance we received pursuant to the PSP Agreement is allocated to the PSP Promissory Note, the PSP Warrants and other Payroll Support Program financial assistance (the PSP Financial Assistance). The aggregate principal amount of approximately $1.8 billion of PSP Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP Warrants of $63 million, estimated using a Black-Scholes option pricing model, was recorded in stockholders' equity in the condensed consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP Financial Assistance was recognized as a credit to special items, net in the condensed consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of employee wages, salaries and benefits was required. For the three and nine months ended September 30, 2020, approximately $2.1 billion and $4.2 billion, respectively, was recognized as a credit to special items, net in the condensed consolidated statement of operations. PSP Warrant Agreement and PSP Warrants As partial compensation to the U.S. Government for the provision of financial assistance under the PSP Agreement, and pursuant to the PSP Warrant Agreement, we agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares of AAG common stock. The exercise price of the PSP Warrant Shares is $12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) (the Exercise Price) subject to certain anti-dilution provisions provided for in the PSP Warrant. Pursuant to the PSP Warrant Agreement, on the PSP Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, we issued to Treasury a PSP Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein. The PSP Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP Warrant expires on the fifth anniversary of the date of issuance of such PSP Warrant. The PSP Warrants will be exercisable either through net share settlement or cash, at our option. The PSP Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP Warrants or will be received upon exercise thereof. Treasury Loan Agreement On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury which provides for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement that permits American to borrow up to $7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of September 30, 2020, American borrowed $550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 6 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants. Treasury Loan Warrant Agreement and Warrants In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $12.51 per share (the Exercise Price) subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the condensed consolidated balance sheet. Pursuant to the Treasury Loan Warrant Agreement, on the Treasury Loan Closing Date, AAG issued to Treasury a Treasury Loan Warrant to purchase up to an aggregate of approximately 4.4 million Treasury Loan Warrant Shares based on the terms described herein. On the date of each additional borrowing under the Treasury Loan Agreement, AAG will issue to Treasury an additional Treasury Loan Warrant for a number of Treasury Loan Warrant Shares equal to 10% of such borrowing, divided by the Exercise Price. The Treasury Loan Warrants do not have any voting rights and are freely transferrable, with registration rights. Each Treasury Loan Warrant expires on the fifth anniversary of the date of issuance of such Treasury Loan Warrant. The Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof. (c) Recent Accounting Pronouncements Accounting Standards Update (ASU) 2016-13: Measurement of Credit Losses on Financial Instruments This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. We adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on our condensed consolidated financial statements. ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity This ASU simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, this ASU amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt this ASU using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. This ASU is applicable to our 6.50% convertible senior notes due 2025, and we are assessing the impact the adoption of this ASU will have on our condensed consolidated financial statements.
American Airlines, Inc.
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Basis of Presentation and Recent Accounting Pronouncement	Basis of Presentation and Recent Accounting Pronouncements (a) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of American Airlines, Inc. (American) should be read in conjunction with the consolidated financial statements contained in American’s Annual Report on Form 10-K for the year ended December 31, 2019. American is the principal wholly-owned subsidiary of American Airlines Group Inc. (AAG). 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 accounting principles generally accepted in the United States (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 loyalty program, as well as pension and retiree medical and other postretirement benefits. (b) Impact of Coronavirus (COVID-19) COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. As a result, American has experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in its revenues. While American's business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in its total operating revenues decreasing approximately 20% in the first quarter of 2020, 86% in the second quarter of 2020 and 73% in the third quarter of 2020 as compared to the first, second and third quarters of 2019, respectively. While the length and severity of the reduction in demand due to COVID-19 is uncertain, American expects its results of operations for the remainder of 2020 to be severely impacted. American has taken aggressive actions to mitigate the effect of COVID-19 on its business including deep capacity reductions, structural changes to its fleet, cost reductions, and steps to preserve cash and improve its overall liquidity position. American remains extremely focused on taking all self-help measures available to manage its business during this unprecedented time, consistent with the terms of the financial assistance it has received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Capacity Reductions American has significantly reduced its capacity (as measured by available seat miles), with the third quarter of 2020 flying decreased by 59% year-over-year and fourth quarter of 2020 flying expected to decrease by more than 50% year-over-year, with long-haul international capacity down approximately 75% year-over-year. The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which American flies and travel restrictions have generally remained in place. Due to this uncertainty, American will continue to adjust its future capacity to match developing trends in bookings for future travel and make further adjustments to its capacity as needed. Fleet To better align American’s network with lower passenger demand, American accelerated the retirement of Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft. These retirements remove complexity from its operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 12 for further information on the accounting for American's fleet retirements. Due to the inherent uncertainties of the current operating environment, American will continue to evaluate its current fleet and may decide to permanently retire additional aircraft. In addition, American has placed a number of Boeing 737-800 and certain regional aircraft into temporary storage. Cost Reductions American is moving quickly to better align its costs with its reduced schedule. In aggregate, American estimates that it has reduced its 2020 operating and capital expenditures by approximately $17.0 billion. These savings have been achieved primarily through capacity reductions. In addition, American has implemented a series of actions, including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and non-aircraft capital expenditures through less fleet modification work, the elimination of ground service equipment purchases and pausing all non-critical facility investments and information technology projects. American has also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation, implemented voluntary leave and early retirement programs, decreased its management and support staff team, including officers, by approximately 5,100 positions, or 30%, and, as necessary, undertaken furloughs, to reduce its labor costs consistent with its obligations under the CARES Act. In total, more than 20,000 team members have opted for an early retirement or long-term paid leave and approximately 19,000 team members were furloughed starting October 1, 2020. Additionally, American has made reductions in marketing, contractor, event and training expenses as well as consolidated space at airport facilities. Liquidity At September 30, 2020, American had $13.6 billion in total available liquidity, consisting of $8.3 billion in unrestricted cash and short-term investments, $4.9 billion in an undrawn term loan facility under the CARES Act and $400 million in an undrawn short-term revolving facility. During the first nine months of 2020, American completed the following financing transactions (see Note 4 for further information): •refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027; •raised $1.0 billion from a senior secured delayed draw term loan credit facility; •borrowed $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility; •issued $2.5 billion in aggregate principal amount of 11.75% senior secured notes due 2025 and repaid the $1.0 billion senior secured delayed draw term loan credit facility that American borrowed in March 2020; •issued approximately $360 million in special facility revenue bonds, of which $47 million was used to fund the redemption of certain outstanding bonds; •entered into a $5.5 billion secured term loan facility with the U.S. Department of Treasury (Treasury), of which American borrowed $550 million (see below for additional information on the Treasury Loan Agreement); •issued $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026 secured by various collateral; •raised $392 million from aircraft sale-leaseback transactions; and •raised $323 million from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financings, of which $17 million was used to repay existing indebtedness. In addition to the foregoing financings, AAG and the Subsidiaries (as defined below) were initially approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act, all of which was received by the end of July 2020. On September 30, 2020, AAG and the Subsidiaries received an additional installment of $168 million for a total aggregate of $6.0 billion of such financial assistance and, as a result, the promissory note (the PSP Promissory Note) previously issued to Treasury for $1.7 billion was revised upwards to $1.8 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 13.7 million shares of AAG common stock were revised upwards to 14.1 million shares (the PSP Warrant Shares) of AAG common stock. See below for further discussion on the Payroll Support Program. Also, American is permitted to, and will, defer payment of the employer portion of Social Security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022). This deferral is expected to provide approximately $300 million in additional liquidity during 2020. Additionally, AAG has suspended its capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable. American continues to evaluate future financing opportunities and work with third-party appraisers on valuations of its remaining unencumbered assets. Certain of American’s debt financing agreements contain covenants requiring it to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value and debt service coverage ratio covenants. Given the above actions and American’s assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, American expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity (including via proceeds from financings and funds from government assistance obtained pursuant to the CARES Act) and projected cash flows from operations. Payroll Support Program On April 20, 2020 (the PSP Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), each a wholly-owned subsidiary of AAG, entered into a Payroll Support Program Agreement (the PSP Agreement) with Treasury, with respect to the Payroll Support Program provided pursuant to the CARES Act. In connection with the Subsidiaries' entry into the PSP Agreement, on the PSP Closing Date, AAG also entered into a warrant agreement (the PSP Warrant Agreement) with Treasury, and AAG issued the PSP Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors). Payroll Support Program Agreement In connection with the Payroll Support Program, AAG and the Subsidiaries are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the continuation of payment of employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP Agreement also imposes substantial reporting obligations on AAG and the Subsidiaries. As of September 30, 2020, AAG and the Subsidiaries received a secured loan from Treasury under the loan program that is due June 2025 and, as a result, the stock repurchase, dividend and executive compensation restrictions will remain in place through the date that is one year after such secured loan is fully repaid. See below for additional information on the Treasury Loan Agreement. Pursuant to the PSP Agreement, Treasury provided to AAG and the Subsidiaries financial assistance which was paid in installments (each, an Installment) and totaled an aggregate of approximately $5.8 billion initially and was subsequently increased to $6.0 billion, and all of which has been received as of September 30, 2020. As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, AAG issued a total aggregate principal amount of approximately $1.8 billion under the PSP Promissory Note and issued warrants (each a PSP Warrant and, collectively, the PSP Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares. See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on the PSP Promissory Note and below for more information on the PSP Warrant Agreement and the PSP Warrants. For accounting purposes, the $6.0 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP Agreement is allocated to the PSP Promissory Note, the PSP Warrants and other Payroll Support Program financial assistance (the PSP Financial Assistance). The aggregate principal amount of approximately $1.8 billion of PSP Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP Warrants of $63 million, estimated using a Black-Scholes option pricing model, was recorded in stockholders' equity in AAG's condensed consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP Financial Assistance was recognized as a credit to special items, net in the condensed consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of employee wages, salaries and benefits was required. For the three and nine months ended September 30, 2020, approximately $2.1 billion and $4.2 billion, respectively, was recognized as a credit to special items, net in the condensed consolidated statement of operations. PSP Warrant Agreement and PSP Warrants As partial compensation to the U.S. Government for the provision of financial assistance under the PSP Agreement, and pursuant to the PSP Warrant Agreement, AAG has agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares of AAG common stock. The exercise price of the PSP Warrant Shares is $12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) (the Exercise Price) subject to certain anti-dilution provisions provided for in the PSP Warrant. Pursuant to the PSP Warrant Agreement, on the PSP Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, AAG issued to Treasury a PSP Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein. The PSP Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP Warrant expires on the fifth anniversary of the date of issuance of such PSP Warrant. The PSP Warrants will be exercisable either through net share settlement or cash, at AAG's option. The PSP Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP Warrants or will be received upon exercise thereof. Treasury Loan Agreement On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury which provides for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement that permits American to borrow up to $7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of September 30, 2020, American borrowed $550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 4 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants. Treasury Loan Warrant Agreement and Warrants In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $12.51 per share (the Exercise Price) subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity in AAG's condensed consolidated balance sheet with an offsetting debt discount to the Treasury Term Loan Facility in American's condensed consolidated balance sheet. Pursuant to the Treasury Loan Warrant Agreement, on the Treasury Loan Closing Date, AAG issued to Treasury a Treasury Loan Warrant to purchase up to an aggregate of approximately 4.4 million Treasury Loan Warrant Shares based on the terms described herein. On the date of each additional borrowing under the Treasury Loan Agreement, AAG will issue to Treasury an additional Treasury Loan Warrant for a number of Treasury Loan Warrant Shares equal to 10% of such borrowing, divided by the Exercise Price. The Treasury Loan Warrants do not have any voting rights and are freely transferrable, with registration rights. Each Treasury Loan Warrant expires on the fifth anniversary of the date of issuance of such Treasury Loan Warrant. The Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof. (c) Recent Accounting Pronouncements Accounting Standards Update (ASU) 2016-13: Measurement of Credit Losses on Financial Instruments This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. American adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on American's condensed consolidated financial statements. ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity This ASU simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, this ASU amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt this ASU using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. This ASU is applicable to AAG's 6.50% convertible senior notes due 2025, and AAG is assessing the impact the adoption of this ASU will have on its condensed consolidated financial statements.

Basis of Presentation and Recent Accounting Pronouncement

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Airlines Group Inc. (we, us, our and similar terms, or AAG) should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying unaudited condensed consolidated financial statements include the accounts of AAG and its wholly-owned subsidiaries. AAG’s principal subsidiary is American Airlines, Inc. (American). 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 accounting principles generally accepted in the United States (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 loyalty program, as well as pension and retiree medical and other postretirement benefits.

(b) Impact of Coronavirus (COVID-19)

COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. As a result, we have experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in our revenues. While our business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in our total operating revenues decreasing approximately 20% in the first quarter of 2020, 86% in the second quarter of 2020 and 73% in the third quarter of 2020 as compared to the first, second and third quarters of 2019, respectively. While the length and severity of the reduction in demand due to COVID-19 is uncertain, we expect our results of operations for the remainder of 2020 to be severely impacted.

We have taken aggressive actions to mitigate the effect of COVID-19 on our business including deep capacity reductions, structural changes to our fleet, cost reductions, and steps to preserve cash and improve our overall liquidity position. We remain extremely focused on taking all self-help measures available to manage our business during this unprecedented time, consistent with the terms of the financial assistance we have received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

We have significantly reduced our capacity (as measured by available seat miles), with the third quarter of 2020 flying decreased by 59% year-over-year and fourth quarter of 2020 flying expected to decrease by more than 50% year-over-year, with long-haul international capacity down approximately 75% year-over-year. The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which we fly and travel restrictions have generally remained in place. Due to this uncertainty, we will continue to adjust our future capacity to match developing trends in bookings for future travel and make further adjustments to our capacity as needed.

To better align our network with lower passenger demand, we accelerated the retirement of Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft. These retirements remove complexity from our operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 13 for further information on the accounting for our fleet retirements. Due to the inherent uncertainties of the current operating environment, we will continue to evaluate our current fleet and may decide to permanently retire additional aircraft. In addition, we have placed a number of Boeing 737-800 and certain regional aircraft into temporary storage.

We are moving quickly to better align our costs with our reduced schedule. In aggregate, we estimate that we have reduced our 2020 operating and capital expenditures by approximately $17.0 billion. These savings have been achieved primarily through capacity reductions. In addition, we have implemented a series of actions, including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and non-aircraft capital expenditures through less fleet modification work, the elimination of ground service equipment purchases and pausing all non-critical facility investments and information technology projects. We have also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation, implemented voluntary leave and early retirement programs, decreased our management and support staff team, including officers, by approximately 5,100 positions, or 30%, and, as necessary, undertaken furloughs, to reduce our labor costs consistent with our obligations under the CARES Act. In total, more than 20,000 team members have opted for an early retirement or long-term paid leave and approximately 19,000 team members were furloughed starting October 1, 2020. Additionally, we have made reductions in marketing, contractor, event and training expenses as well as consolidated space at airport facilities.

At September 30, 2020, we had $13.6 billion in total available liquidity, consisting of $8.3 billion in unrestricted cash and short-term investments, $4.9 billion in an undrawn term loan facility under the CARES Act and $400 million in an undrawn short-term revolving facility.

During the first nine months of 2020, we completed the following financing transactions (see Note 6 for further information):

•refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027;

•raised $1.0 billion from a senior secured delayed draw term loan credit facility;

•issued $500 million in aggregate principal amount of 3.75% unsecured senior notes due 2025 and repaid $500 million of 4.625% unsecured senior notes that matured in March 2020;

•borrowed $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility;

•issued $1.0 billion in aggregate principal amount of 6.50% convertible senior notes due 2025;

•issued 85.2 million shares of AAG common stock at a price of $13.50 per share pursuant to a public offering of common stock for net proceeds of $1.1 billion;

•issued $2.5 billion in aggregate principal amount of 11.75% senior secured notes due 2025 and repaid the $1.0 billion senior secured delayed draw term loan credit facility that we borrowed in March 2020;

•issued approximately $360 million in special facility revenue bonds, of which $47 million was used to fund the redemption of certain outstanding bonds;

•entered into a $5.5 billion secured term loan facility with the U.S. Department of Treasury (Treasury), of which we borrowed $550 million (see below for additional information on the Treasury Loan Agreement);

•issued $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026 secured by various collateral;

•raised $392 million from aircraft sale-leaseback transactions; and

•raised $323 million from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financings, of which $17 million was used to repay existing indebtedness.

In addition to the foregoing financings, we were initially approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act, all of which was received by the end of July 2020. On September 30, 2020, we received an additional installment of $168 million for a total aggregate of $6.0 billion of such financial assistance and, as a result, the promissory note (the PSP Promissory Note) previously issued to Treasury for $1.7 billion was revised upwards to $1.8 billion in aggregate principal

amount and warrants to purchase up to an aggregate of approximately 13.7 million shares of AAG common stock were revised upwards to 14.1 million shares (the PSP Warrant Shares) of AAG common stock. See below for further discussion on the Payroll Support Program.

Also, we are permitted to, and will, defer payment of the employer portion of Social Security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022). This deferral is expected to provide approximately $300 million in additional liquidity during 2020. Additionally, we have suspended our capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable.

We continue to evaluate future financing opportunities and work with third-party appraisers on valuations of our remaining unencumbered assets.

Certain of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value and debt service coverage ratio covenants.

Given the above actions and our assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings and funds from government assistance obtained pursuant to the CARES Act) and projected cash flows from operations.

Payroll Support Program

On April 20, 2020 (the PSP Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), each our wholly-owned subsidiary, entered into a Payroll Support Program Agreement (the PSP Agreement) with Treasury, with respect to the Payroll Support Program provided pursuant to the CARES Act. In connection with our entry into the PSP Agreement, on the PSP Closing Date, we also entered into a warrant agreement (the PSP Warrant Agreement) with Treasury, and we issued the PSP Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors).

Payroll Support Program Agreement

In connection with the Payroll Support Program, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the continuation of payment of employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP Agreement also imposes substantial reporting obligations on us. As of September 30, 2020, we also received a secured loan from Treasury under the loan program that is due June 2025 and, as a result, the stock repurchase, dividend and executive compensation restrictions will remain in place through the date that is one year after such secured loan is fully repaid. See below for additional information on the Treasury Loan Agreement.

Pursuant to the PSP Agreement, Treasury provided us financial assistance which was paid in installments (each, an Installment) and totaled an aggregate of approximately $5.8 billion initially and was subsequently increased to $6.0 billion, and all of which has been received as of September 30, 2020. As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, we issued a total aggregate principal amount of approximately $1.8 billion under the PSP Promissory Note and issued warrants (each a PSP Warrant and, collectively, the PSP Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares. See Note 6 for further information on the PSP Promissory Note and below for more information on the PSP Warrant Agreement and the PSP Warrants.

For accounting purposes, the $6.0 billion of aggregate financial assistance we received pursuant to the PSP Agreement is allocated to the PSP Promissory Note, the PSP Warrants and other Payroll Support Program financial assistance (the PSP Financial Assistance). The aggregate principal amount of approximately $1.8 billion of PSP Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP Warrants of $63 million, estimated using a

Black-Scholes option pricing model, was recorded in stockholders' equity in the condensed consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP Financial Assistance was recognized as a credit to special items, net in the condensed consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of employee wages, salaries and benefits was required. For the three and nine months ended September 30, 2020, approximately $2.1 billion and $4.2 billion, respectively, was recognized as a credit to special items, net in the condensed consolidated statement of operations.

PSP Warrant Agreement and PSP Warrants

As partial compensation to the U.S. Government for the provision of financial assistance under the PSP Agreement, and pursuant to the PSP Warrant Agreement, we agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares of AAG common stock. The exercise price of the PSP Warrant Shares is $12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) (the Exercise Price) subject to certain anti-dilution provisions provided for in the PSP Warrant.

Pursuant to the PSP Warrant Agreement, on the PSP Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, we issued to Treasury a PSP Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein.

The PSP Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP Warrant expires on the fifth anniversary of the date of issuance of such PSP Warrant. The PSP Warrants will be exercisable either through net share settlement or cash, at our option. The PSP Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP Warrants or will be received upon exercise thereof.

Treasury Loan Agreement

On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury which provides for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement that permits American to borrow up to $7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of September 30, 2020, American borrowed $550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 6 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants.

Treasury Loan Warrant Agreement and Warrants

In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $12.51 per share (the Exercise Price) subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity with an offsetting debt discount to the Treasury Term Loan Facility in the condensed consolidated balance sheet.

Pursuant to the Treasury Loan Warrant Agreement, on the Treasury Loan Closing Date, AAG issued to Treasury a Treasury Loan Warrant to purchase up to an aggregate of approximately 4.4 million Treasury Loan Warrant Shares based on the terms described herein. On the date of each additional borrowing under the Treasury Loan Agreement, AAG will issue to Treasury an additional Treasury Loan Warrant for a number of Treasury Loan Warrant Shares equal to 10% of such borrowing, divided by the Exercise Price.

Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof.

Accounting Standards Update (ASU) 2016-13: Measurement of Credit Losses on Financial Instruments

This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. We adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on our condensed consolidated financial statements.

ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity

This ASU simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, this ASU amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt this ASU using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. This ASU is applicable to our 6.50% convertible senior notes due 2025, and we are assessing the impact the adoption of this ASU will have on our condensed consolidated financial statements.

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Airlines, Inc. (American) should be read in conjunction with the consolidated financial statements contained in American’s Annual Report on Form 10-K for the year ended December 31, 2019. American is the principal wholly-owned subsidiary of American Airlines Group Inc. (AAG). All significant intercompany transactions have been eliminated.

(b) Impact of Coronavirus (COVID-19)

COVID-19 has been declared a global health pandemic by the World Health Organization. COVID-19 has surfaced in nearly all regions of the world, which has driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. As a result, American has experienced an unprecedented decline in the demand for air travel, which has resulted in a material deterioration in its revenues. While American's business performed largely as expected in January and February of 2020, a severe reduction in air travel starting in March 2020 resulted in its total operating revenues decreasing approximately 20% in the first quarter of 2020, 86% in the second quarter of 2020 and 73% in the third quarter of 2020 as compared to the first, second and third quarters of 2019, respectively. While the length and severity of the reduction in demand due to COVID-19 is uncertain, American expects its results of operations for the remainder of 2020 to be severely impacted.

American has taken aggressive actions to mitigate the effect of COVID-19 on its business including deep capacity reductions, structural changes to its fleet, cost reductions, and steps to preserve cash and improve its overall liquidity position. American remains extremely focused on taking all self-help measures available to manage its business during this unprecedented time, consistent with the terms of the financial assistance it has received from the U.S. Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

American has significantly reduced its capacity (as measured by available seat miles), with the third quarter of 2020 flying decreased by 59% year-over-year and fourth quarter of 2020 flying expected to decrease by more than 50% year-over-year, with long-haul international capacity down approximately 75% year-over-year. The demand environment continues to be uncertain as COVID-19 cases have continued to fluctuate in jurisdictions to which American flies and travel restrictions have generally remained in place. Due to this uncertainty, American will continue to adjust its future capacity to match developing trends in bookings for future travel and make further adjustments to its capacity as needed.

To better align American’s network with lower passenger demand, American accelerated the retirement of Airbus A330-200, Boeing 757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain regional aircraft, including certain Embraer 140 and Bombardier CRJ200 aircraft. These retirements remove complexity from its operation and bring forward cost savings and efficiencies associated with operating fewer aircraft types. See Note 12 for further information on the accounting for American's fleet retirements. Due to the inherent uncertainties of the current operating environment, American will continue to evaluate its current fleet and may decide to permanently retire additional aircraft. In addition, American has placed a number of Boeing 737-800 and certain regional aircraft into temporary storage.

American is moving quickly to better align its costs with its reduced schedule. In aggregate, American estimates that it has reduced its 2020 operating and capital expenditures by approximately $17.0 billion. These savings have been achieved primarily through capacity reductions. In addition, American has implemented a series of actions, including the accelerated fleet retirements discussed above as well as reductions in maintenance expense and non-aircraft capital expenditures through less fleet modification work, the elimination of ground service equipment purchases and pausing all non-critical facility investments and information technology projects. American has also suspended all non-essential hiring, paused non-contractual pay rate increases, reduced executive and board of director compensation, implemented voluntary leave and early retirement programs, decreased its management and support staff team, including officers, by approximately 5,100 positions, or 30%, and, as necessary, undertaken furloughs, to reduce its labor costs consistent with its obligations under the CARES Act. In total, more than 20,000 team members have opted for an early retirement or long-term paid leave and approximately 19,000 team members were furloughed starting October 1, 2020. Additionally, American has made reductions in marketing, contractor, event and training expenses as well as consolidated space at airport facilities.

At September 30, 2020, American had $13.6 billion in total available liquidity, consisting of $8.3 billion in unrestricted cash and short-term investments, $4.9 billion in an undrawn term loan facility under the CARES Act and $400 million in an undrawn short-term revolving facility.

During the first nine months of 2020, American completed the following financing transactions (see Note 4 for further information):

•refinanced the $1.2 billion 2014 Term Loan Facility at a lower interest rate and extended the maturity from 2021 to 2027;

•raised $1.0 billion from a senior secured delayed draw term loan credit facility;

•borrowed $750 million under the 2013 Revolving Facility, $1.6 billion under the 2014 Revolving Facility and $450 million under the April 2016 Revolving Facility;

•issued approximately $360 million in special facility revenue bonds, of which $47 million was used to fund the redemption of certain outstanding bonds;

•entered into a $5.5 billion secured term loan facility with the U.S. Department of Treasury (Treasury), of which American borrowed $550 million (see below for additional information on the Treasury Loan Agreement);

•issued $1.2 billion in aggregate principal amount of two series of 10.75% senior secured notes due 2026 secured by various collateral;

•raised $392 million from aircraft sale-leaseback transactions; and

•raised $323 million from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financings, of which $17 million was used to repay existing indebtedness.

In addition to the foregoing financings, AAG and the Subsidiaries (as defined below) were initially approved to receive an aggregate of $5.8 billion in financial assistance to be paid in installments through the payroll support program (Payroll Support Program) under the CARES Act, all of which was received by the end of July 2020. On September 30, 2020, AAG and the Subsidiaries received an additional installment of $168 million for a total aggregate of $6.0 billion of such financial assistance and, as a result, the promissory note (the PSP Promissory Note) previously issued to Treasury for $1.7 billion was revised upwards to $1.8 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 13.7 million shares of AAG common stock were revised upwards to 14.1 million shares (the PSP Warrant Shares) of AAG common stock. See below for further discussion on the Payroll Support Program.

Also, American is permitted to, and will, defer payment of the employer portion of Social Security taxes through the end of 2020 (with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022). This

deferral is expected to provide approximately $300 million in additional liquidity during 2020. Additionally, AAG has suspended its capital return program, including share repurchases and the payment of future dividends for at least the period that the restrictions imposed by the CARES Act are applicable.

American continues to evaluate future financing opportunities and work with third-party appraisers on valuations of its remaining unencumbered assets.

Certain of American’s debt financing agreements contain covenants requiring it to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value and debt service coverage ratio covenants.

Given the above actions and American’s assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, American expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity (including via proceeds from financings and funds from government assistance obtained pursuant to the CARES Act) and projected cash flows from operations.

Payroll Support Program

On April 20, 2020 (the PSP Closing Date), American, Envoy Air Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA and together with American, Envoy and Piedmont, the Subsidiaries), each a wholly-owned subsidiary of AAG, entered into a Payroll Support Program Agreement (the PSP Agreement) with Treasury, with respect to the Payroll Support Program provided pursuant to the CARES Act. In connection with the Subsidiaries' entry into the PSP Agreement, on the PSP Closing Date, AAG also entered into a warrant agreement (the PSP Warrant Agreement) with Treasury, and AAG issued the PSP Promissory Note to Treasury, with the Subsidiaries as guarantors (the Guarantors).

Payroll Support Program Agreement

In connection with the Payroll Support Program, AAG and the Subsidiaries are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the continuation of payment of employee wages, salaries and benefits, the requirement against involuntary furloughs and reductions in employee pay rates and benefits, which expired on September 30, 2020, the requirement that certain levels of commercial air service be maintained and the provisions that prohibit the repurchase of AAG common stock, and the payment of common stock dividends through September 30, 2021, as well as those that restrict the payment of certain executive compensation until March 24, 2022. The PSP Agreement also imposes substantial reporting obligations on AAG and the Subsidiaries. As of September 30, 2020, AAG and the Subsidiaries received a secured loan from Treasury under the loan program that is due June 2025 and, as a result, the stock repurchase, dividend and executive compensation restrictions will remain in place through the date that is one year after such secured loan is fully repaid. See below for additional information on the Treasury Loan Agreement.

Pursuant to the PSP Agreement, Treasury provided to AAG and the Subsidiaries financial assistance which was paid in installments (each, an Installment) and totaled an aggregate of approximately $5.8 billion initially and was subsequently increased to $6.0 billion, and all of which has been received as of September 30, 2020. As partial compensation to the U.S. Government for the provision of financial assistance under the Payroll Support Program, AAG issued a total aggregate principal amount of approximately $1.8 billion under the PSP Promissory Note and issued warrants (each a PSP Warrant and, collectively, the PSP Warrants) to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares. See Note 6 to AAG’s Condensed Consolidated Financial Statements in Part I, Item 1A for further information on the PSP Promissory Note and below for more information on the PSP Warrant Agreement and the PSP Warrants.

For accounting purposes, the $6.0 billion of aggregate financial assistance AAG and the Subsidiaries received pursuant to the PSP Agreement is allocated to the PSP Promissory Note, the PSP Warrants and other Payroll Support Program financial assistance (the PSP Financial Assistance). The aggregate principal amount of approximately $1.8 billion of PSP Promissory Note was recorded as unsecured long-term debt, and the total fair value of the PSP Warrants of $63 million, estimated using a Black-Scholes option pricing model, was recorded in stockholders' equity in AAG's condensed consolidated balance sheet. The remaining amount of approximately $4.2 billion of PSP Financial Assistance was recognized as a credit to special items, net in the condensed consolidated statement of operations in the second and third quarters of 2020, the period over which the continuation of payment of employee wages, salaries and benefits was

required. For the three and nine months ended September 30, 2020, approximately $2.1 billion and $4.2 billion, respectively, was recognized as a credit to special items, net in the condensed consolidated statement of operations.

PSP Warrant Agreement and PSP Warrants

As partial compensation to the U.S. Government for the provision of financial assistance under the PSP Agreement, and pursuant to the PSP Warrant Agreement, AAG has agreed to issue warrants to Treasury to purchase up to an aggregate of approximately 14.1 million PSP Warrant Shares of AAG common stock. The exercise price of the PSP Warrant Shares is $12.51 per share (which was the closing price of AAG common stock on The Nasdaq Global Select Market on April 9, 2020) (the Exercise Price) subject to certain anti-dilution provisions provided for in the PSP Warrant.

Pursuant to the PSP Warrant Agreement, on the PSP Closing Date, May 29, 2020, June 30, 2020, July 30, 2020 and September 30, 2020, AAG issued to Treasury a PSP Warrant to purchase up to an aggregate of approximately 6.7 million shares, 2.8 million shares, 2.8 million shares, 1.4 million shares and 0.4 million shares, respectively, of AAG common stock based on the terms described herein.

The PSP Warrants do not have any voting rights and are freely transferrable, with registration rights. Each PSP Warrant expires on the fifth anniversary of the date of issuance of such PSP Warrant. The PSP Warrants will be exercisable either through net share settlement or cash, at AAG's option. The PSP Warrants were issued solely as compensation to the U.S. Government related to entry into the PSP Agreement. No separate proceeds (apart from the financial assistance described above) were received upon issuance of the PSP Warrants or will be received upon exercise thereof.

Treasury Loan Agreement

On September 25, 2020 (the Treasury Loan Closing Date), AAG and American entered into a Loan and Guarantee Agreement (the Treasury Loan Agreement) with Treasury which provides for a secured term loan facility (the Treasury Term Loan Facility) that permitted American to borrow up to $5.5 billion. Subsequently, on October 21, 2020, AAG and American entered into an amendment to the Treasury Loan Agreement that permits American to borrow up to $7.5 billion. The Treasury Loan Agreement will involve the issuance of additional warrants to purchase up to an aggregate of approximately 60.0 million shares of AAG common stock, assuming the Treasury Term Loan Facility is fully drawn. As of September 30, 2020, American borrowed $550 million under the Treasury Term Loan Facility, which is scheduled to mature on June 30, 2025, and issued warrants to Treasury to purchase up to an aggregate of approximately 4.4 million shares of AAG common stock. See Note 4 for further information on the Treasury Loan Agreement and below for more information on the Treasury Loan Warrant Agreement and Treasury Loan Warrants.

Treasury Loan Warrant Agreement and Warrants

In connection with the Treasury Loan Agreement, AAG also entered into a warrant agreement (the Treasury Loan Warrant Agreement) with Treasury. Pursuant to the Treasury Loan Warrant Agreement, AAG agreed to issue warrants (each a Treasury Loan Warrant and, collectively, the Treasury Loan Warrants) to Treasury to purchase up to an aggregate of approximately 60.0 million shares (the Treasury Loan Warrant Shares) of AAG's common stock based on the $7.5 billion commitment amount under the Treasury Term Loan Facility. The exercise price of the Treasury Loan Warrant Shares is $12.51 per share (the Exercise Price) subject to certain anti-dilution provisions provided for in the Treasury Loan Warrant Agreement. For accounting purposes, the fair value for the Treasury Loan Warrant Shares is estimated using a Black-Scholes option pricing model and recorded in stockholders' equity in AAG's condensed consolidated balance sheet with an offsetting debt discount to the Treasury Term Loan Facility in American's condensed consolidated balance sheet.

The Treasury Loan Warrants do not have any voting rights and are freely transferrable, with registration rights. Each Treasury Loan Warrant expires on the fifth anniversary of the date of issuance of such Treasury Loan Warrant. The Treasury Loan Warrants will be exercisable either through net share settlement or cash, at AAG's option. The Treasury Loan Warrants were issued solely as compensation to the U.S. Government related to entry into the Treasury Loan Agreement. No separate proceeds were received upon issuance of the Treasury Loan Warrants or will be received upon exercise thereof.

Accounting Standards Update (ASU) 2016-13: Measurement of Credit Losses on Financial Instruments

This ASU requires the use of an expected loss model for certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, an estimate of lifetime expected credit losses is required. For available-for-sale debt securities, an allowance for credit losses will be required rather than a reduction to the carrying value of the asset. American adopted this accounting standard prospectively as of January 1, 2020, and it did not have a material impact on American's condensed consolidated financial statements.

ASU 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity

This ASU simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, this ASU amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available. Entities may adopt this ASU using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. This ASU is applicable to AAG's 6.50% convertible senior notes due 2025, and AAG is assessing the impact the adoption of this ASU will have on its condensed consolidated financial statements.