AMERICAN AIRLINES GROUP INC. 
Part I, Item 2 of this report should be read in conjunction with Part II, Item 7 of AAG's and American's Annual Report on Form 10-K for the year endedDecember 31, 2020 (the 2020 Form 10-K). The information contained herein is not a comprehensive discussion and analysis of the financial condition and results of operations of AAG and American, but rather updates disclosures made in the 2020 Form 10-K. Financial Overview Impact of Coronavirus (COVID-19) COVID-19 has been declared a global health pandemic by theWorld 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, testing regimes, closing of borders, "stay at home" 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 global vaccination efforts are underway and demand for air travel has begun to return, the continued impact of COVID-19, including any increases in infection rates, new variants and renewed governmental action to slow the spread of COVID-19 such as has occurred throughoutWestern Europe andLatin America during the first six months of 2021, cannot be estimated. We have taken aggressive actions to mitigate the effects of the COVID-19 pandemic 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 theU.S. Government under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (PSP Extension Law) and Section 7301 of the American Rescue Plan Act of 2021 (the ARP). Capacity Reductions Our capacity (as measured by available seat miles) continues to be significantly reduced compared to pre-COVID-19 pandemic levels with flying during the second quarter of 2021 down 24.6% as compared to the second quarter of 2019. Domestic capacity in the second quarter of 2021 was down 12.8% while international capacity was down 46.5% versus the second quarter of 2019. We currently expect our third quarter of 2021 system capacity to be down 15% to 20% as compared to the third quarter of 2019. While demand for domestic and short-haul international markets has largely recovered to 2019 levels, uncertainty continues to exist. We will continue to match our forward capacity with observed booking trends for future travel and make further adjustments to our capacity as needed. Cost Reductions In aggregate, we estimate that we have reduced our 2021 operating expenditures by more than$1.3 billion , which are permanent non-volume cost reductions and other efficiency measures. These reductions include approximately$600 million in labor productivity enhancements,$500 million in management salaries and benefits and$200 million in other permanent cost reductions. Also, an additional 1,600 represented team members opted in to a voluntary early retirement program, which occurred during the first quarter of 2021. Liquidity As ofJune 30, 2021 , we had$21.3 billion in total available liquidity, consisting of$18.0 billion in unrestricted cash and short-term investments,$2.8 billion in an undrawn capacity under revolving credit facilities and a total of$470 million in undrawn short-term revolving and other facilities. During the first six months of 2021, we completed the following financing transactions (see Note 5 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information): •issued$3.5 billion in aggregate principal amount of 5.50% Senior Secured Notes due 2026 and$3.0 billion in aggregate principal amount of 5.75% Senior Secured Notes due 2029 and entered into the$3.5 billion AAdvantage Term Loan Facility of which the full amount of term loans was drawn at closing; 58 -------------------------------------------------------------------------------- Table of Contents •repaid in full$750 million under the 2013 Revolving Facility,$1.6 billion under the 2014 Revolving Facility and$450 million under theApril 2016 Revolving Facility, all of which was borrowed in the second quarter of 2020 in response to the COVID-19 pandemic; •repaid the$550 million of outstanding loans under the$7.5 billion secured term loan facility with theU.S. Department of the Treasury (Treasury ) (the Treasury Loan Agreement) and terminated the Treasury Loan Agreement; •issued 24.2 million shares of AAG common stock at an average price of$19.26 per share pursuant to an at-the-market offering for net proceeds of$460 million (approximately$650 million of at-the-market authorization remains available atJune 30, 2021 ); •issued approximately$150 million in special facility revenue bonds related toJohn F. Kennedy International Airport (JFK), of which$62 million was used to fund the redemption of other bonds related to JFK; and •raised$163 million principally from aircraft sale-leaseback transactions. In addition to the foregoing financings, during the first quarter of 2021, we received an aggregate of approximately$3.1 billion in financial assistance through the payroll support program (PSP2) established under the PSP Extension Law. InApril 2021 , we received an additional installment of$463 million for an aggregate$3.5 billion of such PSP2 financial assistance. In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP2 Promissory Note) toTreasury for$1.0 billion in aggregate principal amount and warrants to purchase up to an aggregate of approximately 6.6 million shares (the PSP2 Warrant Shares) of AAG common stock. During the second quarter of 2021, we received an aggregate of approximately$3.3 billion in financial assistance through the payroll support program (PSP3) established under the ARP. In connection with our receipt of this financial assistance, AAG issued a promissory note (the PSP3 Promissory Note) toTreasury for$946 million in aggregate principal amount and warrants to purchase up to an aggregate of approximately 4.4 million shares (the PSP3 Warrant Shares) of AAG common stock. See Note 1 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further discussion on PSP2 and PSP3. A significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least$2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain loan to value, collateral coverage and/or debt service coverage ratio covenants. Given the above actions and our current assumptions about the future impact of the COVID-19 pandemic on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our existing financing agreements for the next 12 months based on our current level of unrestricted cash and short-term investments, our anticipated access to liquidity (including via proceeds from financings), and projected cash flows from operations. 59 -------------------------------------------------------------------------------- Table of Contents AAG's Second Quarter 2021 Results The selected financial data presented below is derived from AAG's unaudited condensed consolidated financial statements included in Part I, Item 1A of this report and should be read in conjunction with those financial statements and the related notes thereto. Beginning in the first quarter of 2021, aircraft fuel and related taxes as well as certain salaries, wages and benefits, other rent and landing fees, selling and other expenses are no longer allocated to regional expenses on our condensed consolidated statements of operations. The second quarter and six months endedJune 30, 2020 condensed consolidated statements of operations have been recast to conform to the 2021 presentation within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This statement of operations presentation change has no impact on total operating expenses or net loss. Three Months Ended June 30, Percent Increase Increase 2021 2020 (Decrease) (Decrease) (In millions, except percentage changes) Passenger revenue$ 6,545 $ 1,108 $ 5,437 nm (2) Cargo revenue 326 130 196 nm Other operating revenue 607 384 223 57.9 Total operating revenues 7,478 1,622 5,856 nm Aircraft fuel and related taxes 1,611 309 1,302 nm Salaries, wages and benefits 2,862 2,610 252 9.6 Total operating expenses 7,037 4,108 2,929 71.3 Operating income (loss) 441 (2,486) (2,927) nm Pre-tax income (loss) 9 (2,659) (2,668) nm Income tax benefit (10) (592) (582) (98.4) Net income (loss) 19 (2,067) (2,086) nm Pre-tax income (loss) - GAAP $ 9$ (2,659) $ (2,668) nm Adjusted for: pre-tax net special items (1) (1,418) (1,661) (243) (14.6)
Pre-tax loss excluding net special items
(67.4)
(1)See below "Reconciliation of GAAP to Non-GAAP Financial Measures" and Note 2
to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for
details on the components of net special items.
(2)Not meaningful or greater than 100% change. In addition, due to the
volatility caused by the COVID-19 pandemic, many line item fluctuations may be
expressed as not meaningful.
Pre-Tax Income (Loss) and Net Income (Loss)
Pre-tax income and net income were $9 million and $19 million , respectively, in
the second quarter of 2021. This compares to second quarter 2020 pre-tax loss
and net loss of $2.7 billion and $2.1 billion , respectively. Excluding the
effects of pre-tax net special items, pre-tax loss was $1.4 billion and $4.3
billion in the second quarter of 2021 and 2020, respectively. The
quarter-over-quarter improvement in our pre-tax income (loss), on both a GAAP
basis and excluding pre-tax net special items, was primarily due to higher
revenues driven by strong leisure demand domestically and in Latin America ,
offset in part by an increase in our operating expenses due to tripling our
capacity as compared to the second quarter of 2020 as demand returned from the
trough of the COVID-19 pandemic.
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Revenue
In the second quarter of 2021, we reported total operating revenues of $7.5
billion , an increase of $5.9 billion as compared to the second quarter of 2020.
Passenger revenue was $6.5 billion in the second quarter of 2021, an increase of
$5.4 billion as compared to the second quarter of 2020. The increase in
passenger revenue in the second quarter of 2021 was due to increased revenue
passenger miles (RPMs) driven by strong leisure demand domestically and in Latin
America resulting in a 77.0% load factor in the second quarter of 2021.
In the second quarter of 2021, cargo revenue was $326 million , an increase of
$196 million as compared to the second quarter of 2020. The increase in cargo
revenue was primarily due to an increase in cargo ton miles reflecting increases
in freight volumes, principally as a result of adding capacity and cargo-only
flights to our schedule.
Other operating revenue increased $223 million , or 57.9%, as compared to the
second quarter of 2020, driven primarily by higher revenue associated with our
loyalty program.
Our total revenue per available seat mile (TRASM) was 13.71 cents in the second
quarter of 2021, a 44.3% increase as compared to 9.50 cents in the second
quarter of 2020.
Fuel
Aircraft fuel expense was $1.6 billion in the second quarter of 2021, which was
$1.3 billion higher as compared to the second quarter of 2020. This increase was
primarily driven by higher fuel consumption as a result of increased capacity
and a 69.5% increase in the average price per gallon of aircraft fuel including
related taxes to $1.91 in the second quarter of 2021 from $1.13 in the second
quarter of 2020.
As of June 30, 2021 , we did not have any fuel hedging contracts outstanding to
hedge our fuel consumption. Our current policy is not to enter into transactions
to hedge our fuel consumption, although we review that policy from time to time
based on market conditions and other factors. We do not currently view the
market opportunities to hedge fuel prices as attractive because, among other
things, our future fuel needs remain unclear due to uncertainties regarding air
travel demand and any hedging would potentially require significant capital or
collateral to be placed at risk. As such, and assuming we do not enter into any
future transactions to hedge our fuel consumption, we will continue to be fully
exposed to fluctuations in fuel prices.
Other Costs
We remain committed to actively managing our cost structure, which we believe is
necessary in an industry whose economic prospects are heavily dependent upon two
variables we cannot control: general economic conditions and the price of fuel.
In particular, the onset of the COVID-19 pandemic resulted in a very rapid
deterioration in general economic conditions.
Our 2021 second quarter total operating cost per available seat mile (CASM) was
12.90 cents , a decrease of 46.4%, from 24.05 cents in the second quarter of
2020. This decrease in CASM was primarily driven by higher capacity due to
increased passenger demand and cost reduction and efficiency initiatives as
discussed above, offset in part by an increase in fuel price.
Our 2021 second quarter total operating CASM excluding net special items and
fuel was 12.61 cents , a decrease of 60.6%, from 32.04 cents in the second
quarter of 2020. This decrease in CASM excluding net special items and fuel was
primarily driven by higher capacity and cost reduction and efficiency
initiatives as previously discussed.
For a reconciliation of total operating CASM to total operating CASM excluding
net special items and fuel, see below "Reconciliation of GAAP to Non-GAAP
Financial Measures."
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Reconciliation of GAAP to Non-GAAP Financial Measures
We sometimes use financial measures that are derived from the condensed
consolidated financial statements but that are not presented in accordance with
GAAP to understand and evaluate our current operating performance and to allow
for period-to-period comparisons. We believe these non-GAAP financial measures
may also provide useful information to investors and others. These non-GAAP
measures may not be comparable to similarly titled non-GAAP measures of other
companies, and should be considered in addition to, and not as a substitute for
or superior to, any measure of performance, cash flow or liquidity prepared in
accordance with GAAP. We are providing a reconciliation of reported non-GAAP
financial measures to their comparable financial measures on a GAAP basis.
The following table presents the reconciliation of pre-tax income (loss) (GAAP
measure) to pre-tax loss excluding net special items (non-GAAP measure).
Management uses this non-GAAP financial measure to evaluate our current
operating performance and to allow for period-to-period comparisons. As net
special items may vary from period-to-period in nature and amount, the
adjustment to exclude net special items allows management an additional tool to
understand our core operating performance.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In millions)
Reconciliation of Pre-Tax Loss Excluding Net Special
Items:
Pre-tax income (loss) - GAAP $ 9 $ (2,659) $ (1,564) $ (5,549)
Pre-tax net special items (1):
Operating special items, net (1,455) (1,672) (3,377) (447)
Nonoperating special items, net 37 11 13 228
Total pre-tax net special items (1,418) (1,661) (3,364) (219)
Pre-tax loss excluding net special items $ (1,409) $ (4,320) $ (4,928) $ (5,768) (1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.
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Additionally, the table below presents the reconciliation of total operating
expenses (GAAP measure) to total operating costs excluding net special items and
fuel (non-GAAP measure) and CASM to CASM excluding net special items and fuel.
Management uses total operating costs and CASM excluding net special items and
fuel to evaluate our current operating performance and for period-to-period
comparisons. The price of fuel, over which we have no control, impacts the
comparability of period-to-period financial performance. The adjustment to
exclude fuel and net special items allows management an additional tool to
understand and analyze our non-fuel costs and core operating performance.
Amounts may not recalculate due to rounding.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Reconciliation of CASM Excluding Net Special Items and
Fuel:
(In millions)
Total operating expenses - GAAP $ 7,037 $ 4,108 $ 12,360 $ 15,171
Operating net special items (1):
Mainline operating special items, net 1,288 1,494 2,996 362
Regional operating special items, net 167 178 381 85
Aircraft fuel and related taxes (1,611) (309) (2,644) (2,092)
Total operating expenses, excluding net special items and fuel
$ 6,881
Total Available Seat Miles (ASM) 54,555 17,081 92,319 79,180 (In cents) CASM 12.90 24.05 13.39 19.16 Operating net special items per ASM (1): Mainline operating special items, net 2.36 8.75 3.25 0.46 Regional operating special items, net 0.31 1.04 0.41 0.11 Aircraft fuel and related taxes per ASM (2.95) (1.81) (2.86) (2.64) CASM, excluding net special items and fuel 12.61 32.04 14.18 17.08
(1)See Note 2 to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information on net special items.
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AAG's Results of Operations
Operating Statistics
The table below sets forth selected operating data for the three and six months
ended June 30, 2021 and 2020. Amounts may not recalculate due to rounding.
Three Months Ended Six Months Ended
June 30, Increase June 30, Increase
2021 2020 (Decrease) 2021 2020 (Decrease)
Revenue passenger miles (millions) (a) 42,022 7,231 nm % 64,486 52,402 23.1 %
Available seat miles (millions) (b) 54,555 17,081 nm % 92,319 79,180 16.6 %
Passenger load factor (percent) (c) 77.0 42.3 34.7 pts 69.9 66.2 3.7 pts
Yield (cents) (d) 15.57 15.32 1.7 % 15.08 16.77 (10.1) %
Passenger revenue per available seat mile
(cents) (e) 12.00 6.48 85.0 % 10.53 11.10 (5.1) %
Total revenue per available seat mile
(cents) (f) 13.71 9.50 44.3 % 12.44 12.80 (2.8) %
Fuel consumption (gallons in millions) 844 275 nm % 1,452 1,246 16.5 %
Average aircraft fuel price including
related taxes (dollars per gallon) 1.91 1.13 69.5 % 1.82 1.68 8.4 %
Total operating cost per available seat
mile (cents) (g) 12.90 24.05 (46.4) % 13.39 19.16 (30.1) %
Aircraft at end of period (h) 1,413 1,394 1.4 % 1,413 1,394 1.4 %
Full-time equivalent employees at end of
period 117,400 107,400 9.3 % 117,400 107,400 9.3 %
(a)Revenue passenger mile (RPM) - A basic measure of sales volume. One RPM
represents one passenger flown one mile.
(b)Available seat mile (ASM) - A basic measure of production. One ASM represents
one seat flown one mile.
(c)Passenger load factor - The percentage of available seats that are filled
with revenue passengers.
(d)Yield - A measure of airline revenue derived by dividing passenger revenue by
RPMs.
(e)Passenger revenue per available seat mile (PRASM) - Passenger revenue divided
by ASMs.
(f)Total revenue per available seat mile (TRASM) - Total revenues divided by
ASMs.
(g)Total operating cost per available seat mile (CASM) - Total operating
expenses divided by ASMs.
(h)Includes aircraft owned and leased by American as well as aircraft operated
by third-party regional carriers under capacity purchase agreements. Excludes 37
Boeing 737-800 mainline aircraft and three Embraer 145 regional aircraft that
are in temporary storage at June 30, 2021 .
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Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Operating Revenues
Three Months Ended
June 30, Percent
2021 2020 Increase Increase
(In millions, except percentage changes)
Passenger $ 6,545 $ 1,108 $ 5,437 nm
Cargo 326 130 196 nm
Other 607 384 223 57.9
Total operating revenues $ 7,478 $ 1,622 $ 5,856 nm
This table presents our passenger revenue and the quarter-over-quarter change in certain operating statistics:
Increase
vs. Three Months Ended June 30, 2020
Three Months
Ended Load Passenger
June 30, 2021 RPMs ASMs Factor Yield PRASM
(In millions)
Passenger revenue $ 6,545 nm % nm % 34.7 pts 1.7 % 85.0 %
Passenger revenue increased $5.4 billion in the second quarter of 2021 from the
second quarter of 2020 primarily due to increased RPMs driven by strong leisure
demand domestically and in Latin America resulting in a 77.0% load factor in the
second quarter of 2021.
Cargo revenue increased $196 million in the second quarter of 2021 from the
second quarter of 2020 primarily due to an increase in cargo ton miles
reflecting increases in freight volumes, principally as a result of adding
capacity and cargo-only flights to our schedule.
Other operating revenue increased $223 million , or 57.9%, as compared to the
second quarter of 2020, driven primarily by higher revenue associated with our
loyalty program.
Total operating revenues in the second quarter of 2021 increased $5.9 billion
from the second quarter of 2020 driven principally by the increase in passenger
revenue as described above. Our TRASM was 13.71 cents in the second quarter of
2021, a 44.3% increase as compared to 9.50 cents in the second quarter of 2020.
Operating Expenses
Three Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 1,611 $ 309 $ 1,302 nm
Salaries, wages and benefits 2,862 2,610 252 9.6
Regional expenses 635 492 143 29.3
Maintenance, materials and repairs 459 287 172 59.9
Other rent and landing fees 686 413 273 66.2
Aircraft rent 356 334 22 6.4
Selling expenses 277 57 220 nm
Depreciation and amortization 481 499 (18) (3.6)
Mainline operating special items, net (1,288) (1,494) 206 (13.8)
Other 958 601 357 59.6
Total operating expenses $ 7,037 $ 4,108 $ 2,929 71.3
Total operating expenses increased
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Aircraft fuel and related taxes increased $1.3 billion in the second quarter of
2021 from the second quarter of 2020 due to increased capacity as well as a
69.5% increase in the average price per gallon of aircraft fuel including
related taxes to $1.91 in the second quarter of 2021 from $1.13 in the second
quarter of 2020.
Aircraft rent increased $22 million , or 6.4%, in the second quarter of 2021 from
the second quarter of 2020 primarily due to the delivery of 31 new leased
mainline aircraft subsequent to the second quarter of 2020.
Selling expenses increased $220 million in the second quarter of 2021 from the
second quarter of 2020 due to higher commission expense and credit card fees
driven by the overall increase in revenues.
Operating Special Items, Net
Three Months Ended June 30,
2021 2020
(In millions)
PSP Financial Assistance (1) $ (1,288) $ (1,803)
Severance expenses (2) - 332
Labor contract expenses - 10
Other operating special items, net - (33)
Mainline operating special items, net (1,288) (1,494) PSP Financial Assistance (1) (167) (216) Fleet impairment (3) - 24 Severance expenses (2) - 14 Regional operating special items, net (167) (178) Operating special items, net$ (1,455) $ (1,672) (1)The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received fromTreasury pursuant to the PSP2 and PSP3 Agreements. See Note 1(b) to AAG's Condensed Consolidated Financial Statements in Part I, Item 1A for further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received fromTreasury pursuant to the PSP1 Agreement. (2)Severance expenses include salary and medical costs primarily associated with certain team memberswho opted in to voluntary early retirement programs offered as a result of reductions to our operation due to the COVID-19 pandemic. Cash payments related to our voluntary early retirement programs for the three months endedJune 30, 2021 were approximately$120 million . (3)Fleet impairment resulted from our decision to retire certain aircraft earlier than planned driven primarily by the severe decline in air travel due to the COVID-19 pandemic. In the second quarter of 2020, we retired certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a non-cash write-down of regional aircraft and associated spare parts. 66 --------------------------------------------------------------------------------
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Nonoperating Results
Three Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 5 $ 10 $ (5) (50.7)
Interest expense, net (486) (254) (232) 91.0
Other income, net 49 71 (22) (31.1)
Total nonoperating expense, net $ (432) $ (173) $ (259) nm
Interest income decreased in the second quarter of 2021 compared to the second
quarter of 2020 primarily as a result of lower returns on our short-term
investments. Interest expense, net increased in the second quarter of 2021
compared to the second quarter of 2020 primarily due to the issuance of debt
subsequent to the second quarter of 2020, including $10.0 billion associated
with the AAdvantage Financing, to improve our liquidity position in response to
the COVID-19 pandemic.
In the second quarter of 2021, other nonoperating income, net included $85
million of non-service related pension and other postretirement benefit plan
income, offset in part by $37 million of net special charges principally for
mark-to-market net unrealized losses associated with our equity investment in
China Southern Airlines Company Limited (China Southern Airlines).
In the second quarter of 2020, other nonoperating income, net included $98
million of non-service related pension and other postretirement benefit plan
income, offset in part by $11 million of net special charges associated with
debt refinancings and extinguishments and $10 million of net foreign currency
losses, principally associated with losses from Latin American currencies.
Income Taxes
In the second quarter of 2021, we recorded an income tax benefit of $10 million .
Substantially all of our income or loss before income taxes is attributable to
the United States .
See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A for additional information on income taxes.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Operating Revenues
Six Months Ended
June 30, Percent
2021 2020 Increase Increase
(In millions, except percentage changes)
Passenger $ 9,724 $ 8,788 $ 936 10.7
Cargo 641 277 364 nm
Other 1,121 1,072 49 4.5
Total operating revenues $ 11,486 $ 10,137 $ 1,349 13.3
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This table presents our passenger revenue and the period-over-period change in
certain operating statistics:
Increase (Decrease)
vs. Six Months Ended June 30, 2020
Six Months Ended Load Passenger
June 30, 2021 RPMs ASMs Factor Yield PRASM
(In millions)
Passenger revenue $ 9,724 23.1 % 16.6 % 3.7 pts (10.1)% (5.1) %
Passenger revenue increased $936 million , or 10.7%, in the first six months of
2021 from the first six months of 2020 primarily due to a 23.1% increase in
RPMs. This increase in RPMs was principally due to increased flying domestically
and in Latin America driven by leisure demand, offset in part by reduced
Atlantic and Pacific flying as a result of low passenger demand and
government-imposed travel restrictions related to the COVID-19 pandemic. A 10.1%
decrease in passenger yield offset in part the capacity driven increase to
passenger revenue.
Cargo revenue increased $364 million in the first six months of 2021 from the
first six months of 2020 primarily due to a 77.5% increase in cargo ton miles
reflecting higher freight volumes and the addition of cargo-only flights to our
schedule as well as a 30.4% increase in cargo yield as a result of higher rates.
Total operating revenues in the first six months of 2021 increased $1.3 billion ,
or 13.3%, from the first six months of 2020 driven principally by the increase
in passenger and cargo revenue as described above. While our operating revenues
increased, our TRASM decreased 2.8% to 12.44 cents in the first six months of
2021 from 12.80 cents in the 2020 period driven by a 10.1% reduction in
passenger yield.
Operating Expenses
Six Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 2,644 $ 2,092 $ 552 26.4
Salaries, wages and benefits 5,593 5,830 (237) (4.1)
Regional expenses 1,261 1,632 (371) (22.7)
Maintenance, materials and repairs 835 915 (80) (8.8)
Other rent and landing fees 1,256 1,024 232 22.7
Aircraft rent 706 669 37 5.6
Selling expenses 427 442 (15) (3.4)
Depreciation and amortization 959 1,059 (100) (9.4)
Mainline operating special items, net (2,996) (362) (2,634) nm
Other 1,675 1,870 (195) (10.5)
Total operating expenses $ 12,360 $ 15,171 $ (2,811) (18.5)
Total operating expenses decreased $2.8 billion , or 18.5%, in the first six
months of 2021 from the first six months of 2020 primarily due to a $2.9 billion
increase in net operating special credits. See further discussion of operating
special items, net below. Excluding the impact of operating special items, net,
total operating expenses increased $119 million , or 0.8%. Although our capacity
increased 16.6% in the first six months of 2021, our total operating expenses,
excluding net special items, remained relatively flat due to the significant
actions taken in 2020 to reduce costs including labor productivity enhancements,
reductions in management salaries and benefits, and other non-volume cost
reductions.
Aircraft fuel and related taxes increased $552 million , or 26.4%, in the first
six months of 2021 from the first six months of 2020 due to increased capacity
as well as an 8.4% increase in the average price per gallon of aircraft fuel
including related taxes to $1.82 in the first six months of 2021 from $1.68 in
the first six months of 2020.
Other rent and landing fees increased $232 million , or 22.7%, in the first six
months of 2021 from the first six months of 2020 due to an increase in variable
rent and landing fees due to our increased capacity.
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Aircraft rent increased $37 million , or 5.6%, in the first six months of 2021
from the first six months of 2020 primarily due to the delivery of 31 new leased
mainline aircraft subsequent to the first six months of 2020.
Depreciation and amortization decreased $100 million , or 9.4%, in the first six
months of 2021 from the first six months of 2020 primarily due to the early
retirement of aircraft as a result of the COVID-19 pandemic.
Operating Special Items, Net
Six Months Ended June 30,
2021 2020
(In millions)
PSP Financial Assistance (1) $ (3,170) $ (1,803)
Severance expenses (2) 168 537
Mark-to-market adjustments on bankruptcy obligations, net (3) 6 (49)
Fleet impairment (4) - 743
Labor contract expenses (5) - 228
Other operating special items, net - (18)
Mainline operating special items, net (2,996) (362)
PSP Financial Assistance (1) (410) (216)
Fleet impairment (4) 27 117
Severance expenses (2) 2 14
Regional operating special items, net (381) (85)
Operating special items, net $ (3,377) $ (447)
(1)The 2021 PSP Financial Assistance represents recognition of a portion of the
financial assistance received from Treasury pursuant to the PSP2 and PSP3
Agreements. See Note 1(b) to AAG's Condensed Consolidated Financial Statements
in Part I, Item 1A for further information. The 2020 PSP Financial Assistance
represents recognition of a portion of the financial assistance received from
Treasury pursuant to the PSP1 Agreement.
(2)Severance expenses include salary and medical costs primarily associated with
certain team members who opted in to voluntary early retirement programs offered
as a result of reductions to our operation due to the COVID-19 pandemic. Cash
payments related to our voluntary early retirement programs for the six months
ended June 30, 2021 were approximately $290 million .
(3)Bankruptcy obligations that will be settled in shares of our common stock are
marked-to-market based on our stock price.
(4)Fleet impairment resulted from our decision to retire certain aircraft
earlier than planned driven primarily by the severe decline in air travel due to
the COVID-19 pandemic. In the first six months of 2021, we retired our remaining
fleet of Embraer 140 aircraft resulting in a non-cash write down of these
aircraft. In the first six months of 2020, we retired our Boeing 757, Boeing
767, Airbus A330-300 and Embraer 190 fleets as well as certain Embraer 140 and
Bombardier CRJ200 aircraft resulting in a $784 million non-cash write-down of
mainline and regional aircraft and associated spare parts and $76 million in
cash charges primarily for impairment of right-of-use (ROU) assets and lease
return costs.
(5)Labor contract expenses primarily related to one-time charges resulting from
the ratification of a new contract with the Transport Workers Union and
International Association of Machinists & Aerospace Workers for our maintenance
and fleet service team members, including signing bonuses and adjustments to
vacation accruals resulting from pay rate increases.
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Nonoperating Results
Six Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 8 $ 31 $ (23) (73.2)
Interest expense, net (856) (512) (344) 67.3
Other income (expense), net 158 (34) 192 nm
Total nonoperating expense, net
34.2
Interest income decreased in the first six months of 2021 compared to the first
six months of 2020 primarily as a result of lower returns on our short-term
investments. Interest expense, net increased in the first six months of 2021
compared to the first six months of 2020 primarily due to the issuance of debt,
including $10.0 billion associated with the AAdvantage Financing, to improve our
liquidity position in response to the COVID-19 pandemic.
In the first six months of 2021, other nonoperating income, net included $172
million of non-service related pension and other postretirement benefit plan
income and $13 million of net special charges principally for non-cash charges
associated with debt refinancings and extinguishments, offset in part by
mark-to-market net unrealized gains associated with our equity investment in
China Southern Airlines and certain treasury rate lock derivative instruments.
In the first six months of 2020, other nonoperating expense, net included $228
million of net special charges principally for mark-to-market unrealized losses
associated with our equity investment in China Southern Airlines and certain
treasury rate lock derivative instruments and $15 million of net foreign
currency losses, primarily associated with losses from Latin American
currencies, offset in part by $207 million of non-service related pension and
other postretirement benefit plan income.
Income Taxes
In the first six months of 2021, we recorded an income tax benefit of $333
million . Substantially all of our income or loss before income taxes is
attributable to the United States .
See Note 6 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A for additional information on income taxes.
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American's Results of Operations
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Operating Revenues
Three Months Ended
June 30, Percent
2021 2020 Increase Increase
(In millions, except percentage changes)
Passenger $ 6,545 $ 1,108 $ 5,437 nm
Cargo 326 130 196 nm
Other 607 384 223 57.9
Total operating revenues $ 7,478 $ 1,622 $ 5,856 nm
Passenger revenue increased $5.4 billion in the second quarter of 2021 from the
second quarter of 2020 primarily due to increased RPMs driven by strong leisure
demand domestically and in Latin America resulting in an increased load factor
in the second quarter of 2021.
Cargo revenue increased $196 million in the second quarter of 2021 from the
second quarter of 2020 primarily due to an increase in cargo ton miles
reflecting increases in freight volumes, principally as a result of adding
capacity and cargo-only flights to our schedule.
Other operating revenue increased $223 million , or 57.9%, as compared to the
second quarter of 2020, driven primarily by higher revenue associated with our
loyalty program.
Total operating revenues in the second quarter of 2021 increased $5.9 billion
from the second quarter of 2020 driven principally by the increase in passenger
revenue as described above.
Operating Expenses
Three Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 1,611 $ 309 $ 1,302 nm
Salaries, wages and benefits 2,860 2,610 250 9.6
Regional expenses 639 447 192 42.9
Maintenance, materials and repairs 459 287 172 59.9
Other rent and landing fees 686 413 273 66.2
Aircraft rent 356 334 22 6.4
Selling expenses 277 57 220 nm
Depreciation and amortization 481 499 (18) (3.6)
Mainline operating special items, net (1,288) (1,494) 206 (13.8)
Other 958 601 357 59.6
Total operating expenses $ 7,039 $ 4,063 $ 2,976 73.3
Total operating expenses increased $3.0 billion , or 73.3%, in the second quarter
of 2021 from the second quarter of 2020 primarily due to American's increased
capacity.
Aircraft fuel and related taxes increased $1.3 billion in the second quarter of
2021 from the second quarter of 2020 due to increased capacity as well as a
69.5% increase in the average price per gallon of aircraft fuel including
related taxes to $1.91 in the second quarter of 2021 from $1.13 in the second
quarter of 2020.
Aircraft rent increased $22 million , or 6.4%, in the second quarter of 2021 from
the second quarter of 2020 primarily due to the delivery of 31 new leased
mainline aircraft subsequent to the second quarter of 2020.
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Selling expenses increased $220 million in the second quarter of 2021 from the
second quarter of 2020 due to higher commission expense and credit card fees
driven by the overall increase in revenues.
Operating Special Items, Net
Three Months Ended June 30,
2021 2020
(In millions)
PSP Financial Assistance (1) $ (1,288) $ (1,803)
Severance expenses (2) - 332
Labor contract expenses - 10
Other operating special items, net - (33)
Mainline operating special items, net (1,288) (1,494) PSP Financial Assistance (1) (167) (216) Fleet impairment (3) - 13 Regional operating special items, net (167) (203) Operating special items, net$ (1,455) $ (1,697) (1)The 2021 PSP Financial Assistance represents recognition of a portion of the financial assistance received fromTreasury pursuant to the PSP2 and PSP3 Agreements. See Note 1(b) to American's Condensed Consolidated Financial Statements in Part I, Item 1B for further information. The 2020 PSP Financial Assistance represents recognition of a portion of the financial assistance received fromTreasury pursuant to the PSP1 Agreement. (2)Severance expenses include salary and medical costs primarily associated with certain team memberswho opted in to voluntary early retirement programs offered as a result of reductions to American's operation due to the COVID-19 pandemic. Cash payments related to American's voluntary early retirement programs for the three months endedJune 30, 2021 were approximately$120 million . (3)Fleet impairment resulted from American's decision to retire certain aircraft earlier than planned driven primarily by the severe decline in air travel due to the COVID-19 pandemic. In the second quarter of 2020, American retired certain Embraer 140 and Bombardier CRJ200 aircraft resulting in a non-cash write-down of regional aircraft and associated spare parts. Nonoperating Results Three Months Ended Percent June 30, Increase Increase 2021 2020 (Decrease) (Decrease) (In millions, except percentage changes) Interest income $ 9$ 92 $ (83) (90.1) Interest expense, net (447) (255) (192) 75.4 Other income, net 49 72 (23) (31.8) Total nonoperating expense, net$ (389) $ (91) $ (298) nm Interest income decreased in the second quarter of 2021 compared to the second quarter of 2020 primarily as a result of lower returns on American's short-term investments and lower interest-bearing related party receivables from American's parent company, AAG. Interest expense, net increased in the second quarter of 2021 compared to the second quarter of 2020 primarily due to the issuance of debt subsequent to the second quarter of 2020, including$10.0 billion associated with the AAdvantage Financing, to improve American's liquidity position in response to the COVID-19 pandemic. In the second quarter of 2021, other nonoperating income, net included$85 million of non-service related pension and other postretirement benefit plan income, offset in part by$37 million of net special charges principally for mark-to-market net unrealized losses associated with American's equity investment in China Southern Airlines. 72 -------------------------------------------------------------------------------- Table of Contents In the second quarter of 2020, other nonoperating income, net included$98 million of non-service related pension and other postretirement benefit plan income, offset in part by$11 million of net special charges associated with debt refinancings and extinguishments and$10 million of net foreign currency losses, principally associated with losses from Latin American currencies. Income Taxes American is a member of AAG's consolidated federal and certain state income tax returns. In the second quarter of 2021, American recorded an income tax benefit of$1 million . Substantially all of American's income or loss before income taxes is attributable tothe United States . See Note 5 to American's Condensed Consolidated Financial Statements in Part I, Item 1B for additional information on income taxes. Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020 Operating Revenues Six Months Ended June 30, Percent 2021 2020 Increase Increase (In millions, except percentage changes) Passenger$ 9,724 $ 8,788 $ 936 10.7 Cargo 641 277 364 nm Other 1,120 1,071 49 4.6 Total operating revenues$ 11,485 $ 10,136 $ 1,349 13.3 Passenger revenue increased$936 million , or 10.7%, in the first six months of 2021 from the first six months of 2020 primarily due to an increase in RPMs. This increase in RPMs was principally due to increased flying domestically and inLatin America driven by leisure demand, offset in part by reducedAtlantic and Pacific flying as a result of low passenger demand and government-imposed travel restrictions related to the COVID-19 pandemic. A decrease in passenger yield offset in part the capacity driven increase to passenger revenue. Cargo revenue increased$364 million in the first six months of 2021 from the first six months of 2020 primarily due to an increase in cargo ton miles reflecting higher freight volumes and the addition of cargo-only flights to American's schedule as well as an increase in cargo yield as a result of higher rates. Total operating revenues in the first six months of 2021 increased$1.3 billion , or 13.3%, from the first six months of 2020 driven principally by the increase in passenger and cargo revenue as described above. 73 --------------------------------------------------------------------------------
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Operating Expenses
Six Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 2,644 $ 2,092 $ 552 26.4
Salaries, wages and benefits 5,590 5,827 (237) (4.1)
Regional expenses 1,264 1,555 (291) (18.7)
Maintenance, materials and repairs 835 915 (80) (8.8)
Other rent and landing fees 1,256 1,024 232 22.7
Aircraft rent 706 669 37 5.6
Selling expenses 427 442 (15) (3.4)
Depreciation and amortization 959 1,059 (100) (9.4)
Mainline operating special items, net (2,996) (362) (2,634) nm
Other 1,676 1,891 (215) (11.4)
Total operating expenses $ 12,361 $ 15,112 $ (2,751) (18.2)
Total operating expenses decreased $2.8 billion , or 18.2%, in the first six
months of 2021 from the first six months of 2020 primarily due to a $2.9 billion
increase in net operating special credits. See further discussion of operating
special items, net below. Excluding the impact of operating special items, net,
total operating expenses increased $156 million , or 1.0%. Although American's
capacity increased in the first six months of 2021, American's total operating
expenses, excluding net special items, remained relatively flat due to the
significant actions taken in 2020 to reduce costs including labor productivity
enhancements, reductions in management salaries and benefits, and other
non-volume cost reductions.
Aircraft fuel and related taxes increased $552 million , or 26.4%, in the first
six months of 2021 from the first six months of 2020 due to increased capacity
as well as an increase in the average price per gallon of aircraft fuel
including related taxes.
Other rent and landing fees increased $232 million , or 22.7%, in the first six
months of 2021 from the first six months of 2020 due to an increase in variable
rent and landing fees due to our increased capacity.
Aircraft rent increased $37 million , or 5.6%, in the first six months of 2021
from the first six months of 2020 primarily due to the delivery of 31 new leased
mainline aircraft subsequent to the first six months of 2020.
Depreciation and amortization decreased $100 million , or 9.4%, in the first six
months of 2021 from the first six months of 2020 primarily due to the early
retirement of aircraft as a result of the COVID-19 pandemic.
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Operating Special Items, Net
Six Months Ended June 30,
2021 2020
(In millions)
PSP Financial Assistance (1) $ (3,170) $ (1,803)
Severance expenses (2) 168 537
Mark-to-market adjustments on bankruptcy obligations, net (3) 6 (49)
Fleet impairment (4) - 743
Labor contract expenses (5) - 228
Other operating special items, net - (18)
Mainline operating special items, net (2,996) (362)
PSP Financial Assistance (1) (410) (216)
Fleet impairment (4) 27 106
Regional operating special items, net (383) (110)
Operating special items, net $ (3,379) $ (472)
(1)The 2021 PSP Financial Assistance represents recognition of a portion of the
financial assistance received from Treasury pursuant to the PSP2 and PSP3
Agreements. See Note 1(b) to American's Condensed Consolidated Financial
Statements in Part I, Item 1B for further information. The 2020 PSP Financial
Assistance represents recognition of a portion of the financial assistance
received from Treasury pursuant to the PSP1 Agreement.
(2)Severance expenses include salary and medical costs primarily associated with
certain team members who opted in to voluntary early retirement programs offered
as a result of reductions to American's operation due to the COVID-19 pandemic.
Cash payments related to American's voluntary early retirement programs for the
six months ended June 30, 2021 were approximately $290 million .
(3)Bankruptcy obligations that will be settled in shares of AAG common stock are
marked-to-market based on AAG's stock price.
(4)Fleet impairment resulted from American's decision to retire certain aircraft
earlier than planned driven primarily by the severe decline in air travel due to
the COVID-19 pandemic. In the first six months of 2021, American retired its
remaining fleet of Embraer 140 aircraft resulting in a non-cash write down of
these aircraft. In the first six months of 2020, American retired its Boeing
757, Boeing 767, Airbus A330-300 and Embraer 190 fleets as well as certain
Embraer 140 and Bombardier CRJ200 aircraft resulting in a $773 million non-cash
write down of mainline and regional aircraft and associated spare parts and $76
million in cash charges primarily for impairment of ROU assets and lease return
costs.
(5)Labor contract expenses primarily related to one-time charges resulting from
the ratification of a new contract with the Transport Workers Union and
International Association of Machinists & Aerospace Workers for American's
maintenance and fleet service team members, including signing bonuses and
adjustments to vacation accruals resulting from pay rate increases.
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Nonoperating Results
Six Months Ended Percent
June 30, Increase Increase
2021 2020 (Decrease) (Decrease)
(In millions, except percentage changes)
Interest income $ 18 $ 196 $ (178) (90.8)
Interest expense, net (780) (515) (265) 51.4
Other income (expense), net 158 (33) 191 nm
Total nonoperating expense, net
71.6
Interest income decreased in the first six months of 2021 compared to the first
six months of 2020 primarily as a result of lower returns on American's
short-term investments and lower interest-bearing related party receivables from
American's parent company, AAG. Interest expense, net increased in the first six
months of 2021 compared to the first six months of 2020 primarily due to the
issuance of debt, including $10.0 billion associated with the AAdvantage
Financing, to improve American's liquidity position in response to the COVID-19
pandemic.
In the first six months of 2021, other nonoperating income, net included $171
million of non-service related pension and other postretirement benefit plan
income and $13 million of net special charges principally for non-cash charges
associated with debt refinancings and extinguishments, offset in part by
mark-to-market net unrealized gains associated with American's equity investment
in China Southern Airlines and certain treasury rate lock derivative
instruments.
In the first six months of 2020, other nonoperating expense, net included $228
million of net special charges principally for mark-to-market unrealized losses
associated with American's equity investment in China Southern Airlines and
certain treasury rate lock derivative instruments and $15 million of net foreign
currency losses, primarily associated with losses from Latin American
currencies, offset in part by $206 million of non-service related pension and
other postretirement benefit plan income.
Income Taxes
American is a member of AAG's consolidated federal and certain state income tax
returns.
In the first six months of 2021, American recorded an income tax benefit of $315
million . Substantially all of American's income or loss before income taxes is
attributable to the United States .
See Note 5 to American's Condensed Consolidated Financial Statements in Part I,
Item 1B for additional information on income taxes.
Liquidity and Capital Resources
Liquidity
As of June 30, 2021 , AAG had $21.3 billion in total available liquidity and $999
million in restricted cash and short-term investments. Additional detail
regarding our available liquidity is provided in the table below (in millions):
AAG American
June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020
Cash $ 325 $ 245 $ 305 $ 231
Short-term investments 17,625 6,619 17,609 6,617
Undrawn facilities 3,313 7,396 3,313 7,396
Total available liquidity $ 21,263 $ 14,260 $ 21,227 $ 14,244
Given the actions we have taken in response to the COVID-19 pandemic and our
assumptions about its future impact on travel demand, which could be materially
different due to the current 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 projected cash flows from operations.
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Certain Covenants
Certain of our debt financing agreements (including our secured notes, term
loans, revolving credit facilities and spare engine EETCs) contain loan to value
(LTV) or collateral coverage ratio covenants and require us to appraise the
related collateral annually or semiannually. Pursuant to such agreements, if the
LTV or collateral coverage ratio exceeds a specified threshold or if the value
of the appraised collateral fails to meet a specified threshold, as the case may
be, we are required, as applicable, to pledge additional qualifying collateral
(which in some cases may include cash or investment securities), or pay down
such financing, in whole or in part, or the interest rate for the financing
under such agreements will be increased. As of the most recent applicable
measurement dates, we were in compliance with each of the foregoing collateral
coverage tests. Additionally, a significant portion 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 our AAdvantage Financing
contains a debt service coverage ratio, pursuant to which failure to comply with
a certain threshold may result in early repayment of the AAdvantage Financing.
For further information regarding our debt covenants, see Note 5 to AAG's
Condensed Consolidated Financial Statements in Part I, Item 1A and Note 4 to
American's Condensed Consolidated Financial Statements in Part I, Item 1B.
Sources and Uses of Cash
AAG
Operating Activities
Our net cash provided by operating activities was $3.6 billion for the first six
months of 2021 as compared to net cash used in operating activities of $1.1
billion for the first six months of 2020, a $4.7 billion period-over-period
increase. In the first six months of 2021 and 2020, we received cash proceeds of
approximately $4.7 billion and $3.7 billion associated with the PSP Financial
Assistance, respectively. Excluding the PSP Financial Assistance, our operating
cash flows increased $3.7 billion compared to the first six months of 2020
driven by a decrease in our pre-tax loss as well as working capital increases
principally in our air traffic liability as demand for travel returns. In
addition, during the first six months of 2021, we made $241 million in
contributions to our pension plans and approximately $290 million in cash
payments associated with our voluntary early retirement programs. We expect cash
payments under these programs of approximately $280 million in the remainder of
2021, approximately $230 million in 2022 and approximately $530 million in 2023
and beyond.
Investing Activities
Our net cash used in investing activities was $11.0 billion and $7.0 billion for
the first six months of 2021 and 2020, respectively.
Our principal investing activities in the first six months of 2021 included
$11.0 billion in net purchases of short-term investments as well as a $404
million increase in restricted short-term investments primarily related to
collateral for the AAdvantage Financing. These cash outflows were offset in part
by $163 million of proceeds primarily from aircraft sale-leaseback transactions
and $161 million of proceeds from the sale of property and equipment.
Additionally, aircraft purchase deposit returns of $772 million exceeded our
capital expenditures for the first six months of 2021, which expenditures were
principally related to the harmonization of interior configurations across our
mainline fleet and the purchase of two Airbus A321neo aircraft.
Our principal investing activities in the first six months of 2020 included $5.8
billion in net purchases of short-term investments, expenditures of $1.2 billion
for property and equipment, including six Airbus A321neo aircraft, three Embraer
175 aircraft and three Bombardier CRJ900 aircraft as well as a $386 million
increase in restricted short-term investments primarily related to cash proceeds
from special facility revenue bonds. These cash outflows were offset in part by
$376 million of proceeds primarily from aircraft sale-leaseback transactions and
$148 million of proceeds from the sale of property and equipment.
Financing Activities
Our net cash provided by financing activities was $7.5 billion and $8.2 billion
for the first six months of 2021 and 2020, respectively.
Our principal financing activities in the first six months of 2021 included
$12.1 billion in proceeds from the issuance of debt, including approximately
$10.0 billion associated with the AAdvantage Financing, $1.0 billion in
aggregate principal amount under the PSP2 Promissory Note, $946 million in
aggregate principal amount under the PSP3 Promissory Note and the $150 million
issuance of special facility revenue bonds related to JFK. We also had $460
million in net proceeds
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from the issuance of equity pursuant to an at-the-market offering. These cash
inflows were offset in part by $5.0 billion in debt repayments, including
prepayments totaling $2.8 billion for our revolving credit facilities and $550
million of outstanding loans under the Treasury Loan Agreement, and $1.6 billion
in scheduled debt repayments. In addition, we had $166 million of deferred
financing cost cash outflows.
Our principal financing activities in the first six months of 2020 included $9.5
billion in proceeds from the issuance of debt and $1.5 billion in proceeds from
the issuance of equity. These proceeds principally include $2.8 billion borrowed
under the 2014 Revolving Facility, the 2013 Revolving Facility and the April
2016 Revolving Facility, $2.5 billion in aggregate principal amount of 11.75%
senior secured notes, $1.5 billion in aggregate principal amount under the PSP
Promissory Note, $1.0 billion in aggregate principal amount of AAG's 6.50%
convertible senior notes, $1.0 billion under the Delayed Draw Term Loan Credit
Facility, $500 million in aggregate principal amount of 3.75% unsecured senior
notes due 2025 and the $360 million issuance of special facility revenue bonds
related to JFK as well as $1.1 billion of net proceeds from a public offering of
common stock. These cash inflows were offset in part by $2.5 billion in debt
repayments, consisting of approximately $1.5 billion in scheduled debt
repayments, including repayment of $500 million of 4.625% senior notes, and the
prepayment of the $1.0 billion Delayed Draw Term Loan Credit Facility, as well
as $173 million in share repurchases (which occurred in the first quarter of
2020), $84 million of deferred financing costs and $43 million in dividend
payments (which occurred in the first quarter of 2020).
American
Operating Activities
American's net cash provided by operating activities was $6.1 billion and $2.3
billion for the first six months of 2021 and 2020, respectively, a $3.8 billion
period-over-period increase. In the first six months of 2021 and 2020, American
received cash proceeds of approximately $4.2 billion and $3.3 billion associated
with the PSP Financial Assistance, respectively. American also had a
$755 million net decrease in intercompany cash receipts principally from AAG's
financing transactions. Excluding the PSP Financial Assistance and decrease in
AAG's financing transactions, American's operating cash flows increased
$3.7 billion compared to the first six months of 2020 driven by a decrease in
its pre-tax loss as well as working capital increases principally in American's
air traffic liability as demand for travel returns. In addition, during the
first six months of 2021, American made $241 million in contributions to its
pension plans and approximately $290 million in cash payments associated with
American's voluntary early retirement programs. American expects cash payments
under these programs of approximately $280 million in the remainder of 2021,
approximately $230 million in 2022 and approximately $530 million in 2023 and
beyond.
Investing Activities
American's net cash used in investing activities was $11.0 billion and $6.9
billion for the first six months of 2021 and 2020, respectively.
American's principal investing activities in the first six months of 2021
included $11.0 billion in net purchases of short-term investments as well as a
$404 million increase in restricted short-term investments primarily related to
collateral for the AAdvantage Financing. These cash outflows were offset in part
by $163 million of proceeds primarily from aircraft sale-leaseback transactions
and $161 million of proceeds from the sale of property and equipment.
Additionally, aircraft purchase deposit returns of $772 million exceeded
American's capital expenditures for the first six months of 2021, which
expenditures were principally related to the harmonization of interior
configurations across its mainline fleet and the purchase of two Airbus A321neo
aircraft.
American's principal investing activities in the first six months of 2020
included $5.8 billion in net purchases of short-term investments, expenditures
of $1.2 billion for property and equipment, including six Airbus A321neo
aircraft, three Embraer 175 aircraft and three Bombardier CRJ900 aircraft as
well as a $386 million increase in restricted short-term investments primarily
related to cash proceeds from special facility revenue bonds. These cash
outflows were offset in part by $376 million of proceeds primarily from aircraft
sale-leaseback transactions and $148 million of proceeds from the sale of
property and equipment.
Financing Activities
American's net cash provided by financing activities was $4.9 billion and $4.8
billion for the first six months of 2021 and 2020, respectively.
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American's principal financing activities in the first six months of 2021
included $10.1 billion in proceeds from the issuance of debt, including
approximately $10.0 billion associated with the AAdvantage Financing and the
$150 million issuance of special facility revenue bonds related to JFK. These
cash inflows were offset in part by $5.0 billion in debt repayments, including
prepayments totaling $2.8 billion for American's revolving credit facilities and
$550 million of outstanding loans under the Treasury Loan Agreement, and
$1.6 billion in scheduled debt repayments. In addition, American had $165
million of deferred financing cost cash outflows.
American's principal financing activities in the first six months of 2020
included $6.9 billion in proceeds from the issuance of debt, including
$2.8 billion borrowed under the 2014 Revolving Facility, the 2013 Revolving
Facility and the April 2016 Revolving Facility, $2.5 billion in aggregate
principal amount of 11.75% senior secured notes, $1.0 billion under the Delayed
Draw Term Loan Credit Facility and the $360 million issuance of special facility
revenue bonds related to JFK. These cash inflows were offset in part by $2.0
billion in debt repayments, consisting of the prepayment of the $1.0 billion
Delayed Draw Term Loan Credit Facility and approximately $1.0 billion in
scheduled debt repayments, as well as $75 million of deferred financing costs.
Commitments
Significant Indebtedness
As of June 30, 2021 , AAG had $39.9 billion in long-term debt, including current
maturities of $2.7 billion . As of June 30, 2021 , American had $33.9 billion in
long-term debt, including current maturities of $1.9 billion . All material
changes in our significant indebtedness since our 2020 Form 10-K are discussed
in Note 5 to AAG's Condensed Consolidated Financial Statements in Part I,
Item 1A and Note 4 to American's Condensed Consolidated Financial Statements in
Part I, Item 1B.
Aircraft and Engine Purchase Commitments
As of June 30, 2021 , we had definitive purchase agreements for the acquisition
of the following aircraft (1):
Remainder
of 2021 2022 2023 2024 2025 2026 and Thereafter Total
Airbus
A320neo Family 9 26 5 18 22 5 85
Boeing
737 MAX Family 1 - 12 6 20 20 59
787 Family 11 2 11 6 8 5 43
Total 21 28 28 30 50 30 187
(1)Delivery schedule represents our best estimate as of the date of this report.
Actual delivery dates are subject to change based on various potential factors
including production delays by the manufacturer.
We also have agreements for 26 spare engines to be delivered in 2021 and beyond.
We currently have financing commitments in place for all remaining 21 aircraft
scheduled to be delivered in 2021: 11 Boeing 787 Family aircraft, nine Airbus
A320neo Family aircraft and one Boeing 737 MAX Family aircraft. We also have
financing commitments in place for two Boeing 787 Family aircraft in 2022 and
five Boeing 787 Family Aircraft in 2023. Our ability to draw on the financing
commitments we have in place is subject to (1) the satisfaction of various terms
and conditions, including in some cases, on our acquisition of the aircraft by a
certain date and (2) the performance by the counterparty providing such
financing commitments of its obligations thereunder. See Part II, Item 1A. Risk
Factors - "We will need to obtain sufficient financing or other capital to
operate successfully" for additional discussion.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other
contractual arrangement involving an unconsolidated entity under which a company
has (1) made guarantees, (2) a retained or a contingent interest in transferred
assets, (3) an obligation under derivative instruments classified as equity or
(4) any obligation arising out of a material variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit
risk support to us, or that engages in leasing, hedging or research and
development arrangements with us.
There have been no material changes in our off-balance sheet arrangements as
discussed in our 2020 Form 10-K.
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Table of Contents
Contractual Obligations
The following table provides details of our future cash contractual obligations
as of June 30, 2021 (in millions). Except to the extent set forth in the
applicable accompanying footnotes, the table does not include commitments that
are contingent on events or other factors that are uncertain or unknown at this
time.
Payments Due by Period
Remainder 2026 and
of 2021 2022 2023 2024 2025 Thereafter Total
American
Long-term debt:
Principal amount (a), (c) $ 1,181 $ 1,655 $ 5,109 $ 3,470 $ 7,752 $ 14,754 $ 33,921
Interest obligations (b), (c) 842 1,552 1,499 1,343 1,170 1,377 7,783
Finance lease obligations 67 148 126 132 97 110
680
Aircraft and engine purchase commitments (d) 449 1,676 1,625 2,496 3,382 1,764
11,392
Operating lease commitments 981 2,004 1,856 1,483 1,096 4,973
12,393
Regional capacity purchase agreements (e) 575 1,621 1,646 1,620 1,482 3,486
10,430
Minimum pension obligations (f) - - 46 136 111 224
517
Retiree medical and other postretirement benefits 46 90 85 82 77 358
738
Other purchase obligations (g) 1,691 2,350 1,500 754 154 1,066
7,515
Total American Contractual Obligations 5,832 11,096 13,492 11,516 15,321 28,112
85,369
AAG Parent and Other AAG Subsidiaries Long-term debt: Principal amount (a) - 750 - - 1,500 3,746 5,996 Interest obligations (b) 78 140 122 121 133 775 1,369 Operating lease commitments 7 13 12 9 4 16
61
Minimum pension obligations (f) 1 - - - 1 4 6
Total AAG Contractual Obligations
$ 13,626 $ 11,646 $ 16,959 $ 32,653 $ 92,801 (a)Amounts represent contractual amounts due. Excludes$462 million and$34 million of unamortized debt discount, premium and issuance costs as ofJune 30, 2021 for American and AAG Parent, respectively. For additional information, see Note 5 and Note 4 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. (b)For variable-rate debt, future interest obligations are estimated using the current forward rates atJune 30, 2021 . (c)Includes $10.2 billion of future principal payments and$1.7 billion of future interest payments as ofJune 30, 2021 , related to EETCs associated with mortgage financings of certain aircraft and spare engines. (d)See "Aircraft and Engine Purchase Commitments" in Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information about the firm commitment aircraft delivery schedule, in particular the footnotes to the table thereunder as to potential changes to such delivery schedule. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our current best estimate; however, the actual delivery schedule may differ from the table above, potentially materially. Additionally, the amounts in the table exclude 11 and two Boeing 787-8 aircraft to be delivered in 2021 and 2022, respectively, as well as five Boeing 787-9 aircraft to be delivered in 2023, in each case, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above. (e)Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and our actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above. 80 -------------------------------------------------------------------------------- Table of Contents (f)OnMarch 11, 2021 , the ARP was enacted, which included funding relief provisions benefiting single employer qualified retirement benefit pension plans such as those sponsored by American. The amounts in the table represent minimum pension contributions based on actuarially determined estimates and reflect our current understanding of the ARP provisions applicable to our pension plans and could change based on any associated regulations or interpretive guidance from certain government agencies or any other factors. (g)Includes purchase commitments for aircraft fuel, flight equipment maintenance, construction projects and information technology support. Capital Raising Activity and Other Possible Actions In light of the cash needs imposed by the current operating losses due to reduced demand in response to the COVID-19 pandemic as well as our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements, new flight equipment and pension funding obligations, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (in particular the ongoing global outbreak of COVID-19), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. See Part II, Item 1A. Risk Factors - "The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our business, operating results, financial condition and liquidity" for additional discussion. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 5 and Note 4 to AAG's and American's Condensed Consolidated Financial Statements in Part I, Items 1A and 1B, respectively. In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions. Critical Accounting Policies and Estimates For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2020 Form 10-K. 81
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Table of Contents Recent Accounting Pronouncements Accounting Standards Update (ASU) 2020-06: Accounting for Convertible Instruments and Contracts In An Entity's Own Equity (the New Convertible Debt Standard) The New Convertible Debt Standard simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature and for 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, the New Convertible Debt Standard 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 the New Convertible Debt Standard using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning afterDecember 15, 2021 . Early adoption is permitted for interim and annual reporting periods beginning afterDecember 15, 2020 . The New Convertible Debt Standard is applicable to our 6.50% convertible senior notes due 2025 (the Convertible Notes). We early adopted the New Convertible Debt Standard as ofJanuary 1, 2021 using the modified retrospective method to recognize our Convertible Notes as a single liability instrument. As ofJanuary 1, 2021 , we recorded a$415 million ($320 million net of tax) reduction to additional paid-in capital to remove the equity component of the Convertible Notes from our balance sheet and a$19 million cumulative effect adjustment credit, net of tax, to retained deficit related to non-cash debt discount amortization recognized in periods prior to adoption resulting in a corresponding reduction of$389 million to the debt discount associated with the Convertible Notes. ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740) This standard simplifies the accounting and disclosure requirements for income taxes by clarifying the existing guidance to improve consistency in the application of Accounting Standards Codification 740. This standard also removed the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries that are not subject to income tax. We adopted this standard effectiveJanuary 1, 2021 , and it did not have a material impact on our condensed consolidated financial statements.
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