AAG(US:AAL)2024-04-25 11:03PART I: FINANCIAL INFORMATION Item 1A. Condensed Consolidated Financial Statements of American Airlines Group Inc. This section presents the unaudited condensed consolidated financial statements for American Airlines Group Inc. (AAG) for the quarter ended March 31, 2024, including key financial statements and notes Condensed Consolidated Statements of Operations For Q1 2024, AAG reported a net loss of $312 million due to increased operating expenses, despite a slight rise in total operating revenues AAG Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :--- | :--- | :--- | | Total operating revenues | $12,570 | $12,189 | | Passenger | $11,458 | $11,103 | | Total operating expenses | $12,563 | $11,751 | | Salaries, wages and benefits | $3,867 | $3,281 | | Aircraft fuel and related taxes | $2,980 | $3,167 | | Operating income | $7 | $438 | | Net income (loss) | ($312) | $10 | | Diluted EPS | ($0.48) | $0.02 | Condensed Consolidated Balance Sheets As of March 31, 2024, AAG's total assets increased to $64.38 billion, while total liabilities reached $69.88 billion, widening the stockholders' deficit to $5.50 billion AAG Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--- | :--- | :--- | | Total Assets | $64,384 | $63,058 | | Total current assets | $14,542 | $13,572 | | Total property and equipment, net | $31,157 | $30,764 | | Total Liabilities | $69,884 | $68,260 | | Total current liabilities | $24,993 | $22,062 | | Long-term debt and finance leases, net | $28,228 | $29,270 | | Total stockholders' deficit | ($5,500) | ($5,202) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $2.18 billion in Q1 2024, with significant cash used in investing and financing activities AAG Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,180 | $3,333 | | Net cash used in investing activities | ($1,516) | ($2,796) | | Capital expenditures and aircraft purchase deposits | ($824) | ($505) | | Net cash used in financing activities | ($642) | ($539) | | Payments on long-term debt and finance leases | ($873) | ($2,326) | Notes to the Condensed Consolidated Financial Statements The notes detail special charges, revenue breakdown, total long-term debt, and the status of legal proceedings related to the Northeast Alliance - Special items in Q1 2024 included a $57 million charge for labor contract expenses related to a new agreement with mainline passenger service team members36 Operating Revenue Breakdown (in millions) | Revenue Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Passenger | $11,458 | $11,103 | | Cargo | $187 | $223 | | Other | $925 | $863 | | Total | $12,570 | $12,189 | - As of March 31, 2024, AAG had total long-term debt of $32.18 billion and available liquidity under revolving credit and other facilities of $3.21 billion44 - The company is appealing a court decision that enjoined the Northeast Alliance (NEA) with JetBlue. JetBlue terminated the NEA in July 2023. The company is also defending against related private party class action lawsuits656667 Item 1B. Condensed Consolidated Financial Statements of American Airlines, Inc. This section provides the financial statements for American Airlines, Inc., showing a net loss of $216 million in Q1 2024 and total assets of $70.53 billion American Airlines, Inc. Financial Highlights (Unaudited) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Total operating revenues | $12,569 | $12,188 | | Operating income | $13 | $439 | | Net income (loss) | ($216) | $85 | American Airlines, Inc. Balance Sheet Highlights (Unaudited) | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--- | :--- | :--- | | Total Assets | $70,533 | $69,074 | | Total Liabilities | $64,147 | $62,497 | | Total stockholder's equity | $6,386 | $6,577 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 2024 pre-tax loss of $413 million, driven by increased labor and maintenance costs, and outlines future capital commitments and liquidity Results of Operations Operating revenues increased 3.1% to $12.6 billion, offset by a 6.9% rise in operating expenses, primarily due to higher salaries and maintenance costs - The period-over-period decrease in pre-tax income was principally driven by an increase in salaries, wages and benefits from the new pilot collective bargaining agreement ratified in August 2023, as well as higher maintenance expenses and landing fees117118 Change in Operating Revenues (Q1 2024 vs Q1 2023) | Revenue Category | Change (in millions) | Percent Change | | :--- | :--- | :--- | | Passenger | $355 | 3.2% | | Cargo | ($36) | (16.0)% | | Other | $62 | 7.2% | | Total | $381 | 3.1% | Change in Operating Expenses (Q1 2024 vs Q1 2023) | Expense Category | Change (in millions) | Percent Change | | :--- | :--- | :--- | | Aircraft fuel and related taxes | ($187) | (5.9)% | | Salaries, wages and benefits | $586 | 17.8% | | Maintenance, materials and repairs | $172 | 24.2% | | Other rent and landing fees | $111 | 15.8% | | Total | $812 | 6.9% | Liquidity and Capital Resources AAG maintained $11.5 billion in total liquidity as of March 31, 2024, despite a decrease in net cash from operating activities due to pension and profit-sharing payouts - Total available liquidity for AAG was $11.5 billion as of March 31, 2024169 - Net cash from operating activities decreased by $1.2 billion year-over-year, driven by a net loss, required pension contributions ($280M), and the payout of the 2023 profit sharing program ($261M)172 - In Q1 2024, the company had capital expenditures of $824 million, mainly for the purchase of six Embraer 175 and two Airbus A321neo aircraft173 Commitments The company has significant future commitments, including definitive purchase agreements for 439 new aircraft and $103.4 billion in total contractual obligations Firm Aircraft Purchase Commitments as of March 31, 2024 | Manufacturer | Aircraft Family | Total Orders | | :--- | :--- | :--- | | Airbus | A320neo Family | 149 | | Boeing | 737 MAX Family | 159 | | Boeing | 787 Family | 30 | | Embraer | 175 | 101 | | Total | | 439 | - In March 2024, the company entered into new definitive agreements to purchase 85 Airbus A321neo, 85 Boeing 737-10 MAX, and 90 Embraer 175 aircraft, with options for additional aircraft184191 - Total contractual obligations for AAG are estimated at $103.4 billion, including $28.5 billion for aircraft and engine purchase commitments193 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are from aircraft fuel prices, foreign currency exchange rates, and interest rates, with potential significant impacts on expenses - The company is fully exposed to fluctuations in fuel prices as it did not have any fuel hedging contracts outstanding as of March 31, 2024199 - Based on 2024 forecasted fuel consumption, a one-cent per gallon increase in aircraft fuel price would increase annual fuel expense by approximately $45 million199 - A 100 basis point increase in annual interest rates would increase annual interest expense on variable-rate debt by approximately $100 million and increase annual interest income on short-term investments by approximately $80 million202 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2024, management concluded that AAG's and American's disclosure controls and procedures were effective at a reasonable assurance level203 - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting204 PART II: OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 12 for information on legal proceedings, primarily focusing on antitrust actions related to the now-terminated Northeast Alliance with JetBlue - For information on legal proceedings, the report refers to Note 12 in Part I, Items 1A and 1B208 Item 1A. Risk Factors The company faces numerous risks, including economic downturns, high debt levels, intense competition, labor disputes, fuel price volatility, and reliance on limited aircraft suppliers - The company's high level of debt and other obligations may limit its ability to fund corporate requirements, obtain additional financing, and respond to competitive or economic changes212 - The airline industry is intensely competitive, with significant pressure from low-cost and ultra-low-cost carriers, which could adversely affect revenues and performance225226 - The business is highly dependent on the price and availability of aircraft fuel and is fully exposed to price fluctuations due to a policy of not hedging fuel consumption262266 - A shortage of qualified pilots, driven by retirements and increased training requirements, has impacted and could continue to materially adversely affect the business, particularly at regional affiliates303305 - The company relies on a limited number of suppliers like Airbus and Boeing for aircraft, making it vulnerable to production delays, design defects, and supply chain issues, which have recently been commonplace307309 - The company faces significant risks from cyberattacks and evolving data privacy laws, which could lead to operational disruptions, data loss, litigation, and reputational harm314319 Item 5. Other Information During the first quarter of 2024, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or any non-Rule 10b5-1 trading arrangement - During the quarter ended March 31, 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement348 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to aircraft purchase agreements with Airbus and Boeing, severance agreements, and CEO/CFO certifications as required by the Sarbanes-Oxley Act - The exhibits section lists various agreements and certifications filed with the report, including amendments to purchase agreements with Airbus and Boeing, and severance agreements for executives352 Signatures The report is duly signed on April 25, 2024, by Devon E. May, Executive Vice President and Chief Financial Officer, on behalf of both American Airlines Group Inc. and American Airlines, Inc - The report was signed on April 25, 2024, by the Executive Vice President and Chief Financial Officer for both American Airlines Group Inc. and American Airlines, Inc356358