XML 67 R21.htm IDEA: XBRL DOCUMENT v3.19.3.a.u2
Special Charges and Unrealized (Gains) Losses on Investments
 12 Months Ended
Dec. 31, 2019
Restructuring and Related Activities [Abstract]  
SPECIAL CHARGES AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS SPECIAL CHARGES AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS
Special charges and unrealized gains and losses on investments in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):
Operating:
 
2019
 
2018
 
2017
Impairment of assets
 
$
171

 
$
377

 
$
25

Severance and benefit costs
 
16

 
41

 
116

Termination of an engine maintenance service agreement
 
—

 
64

 
—

(Gains) losses on sale of assets and other special charges
 
59

 
5

 
35

Total operating special charges
 
246

 
487

 
176

Nonoperating unrealized (gains) losses on investments
 
(153
)
 
5

 
—

Total special charges and unrealized (gains) losses on investments
 
93

 
492

 
176

Income tax benefit
 
(21
)
 
(110
)
 
(63
)
Income tax adjustments (Note 6)
 
—

 
(5
)
 
(189
)
Total special charges and unrealized (gains) losses on investments, net of income taxes and income tax adjustments
 
$
72

 
$
377

 
$
(76
)
2019
The Company conducted its annual impairment review of intangible assets in the fourth quarter of 2019, which consisted of a comparison of the book value of specific assets to the fair value of those assets. Due to a decrease in demand for the Hong Kong market and the resulting decrease in unit revenue, the Company determined that the value of its Hong Kong routes had been fully impaired. Accordingly, in the fourth quarter of 2019, the Company recorded a special non-cash impairment charge of $90 million associated with its Hong Kong routes. Notwithstanding the impairment, the collateral pledged under the Company's term loan continues to be sufficient to satisfy the loan covenants. The Company determined the fair value of the Hong Kong routes using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for several future years and a terminal growth rate. The assumptions used for future projections are determined based upon the Company's asset-specific forecasts along with the Company's strategic plan. These assumptions are inherently uncertain as they relate to future events and circumstances. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material negative impact on future results.
During 2019, the Company recorded a $43 million impairment primarily for surplus Boeing 767 aircraft engines removed from operations, an $18 million charge primarily for the write-off of unexercised aircraft purchase options, and $20 million in other aircraft impairments.
During 2019, the Company recorded $14 million of management severance and $2 million of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and received a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019.
During 2019, the Company recorded charges of $25 million related to contract terminations, $18 million for the settlement of certain legal matters, $14 million for costs related to the transition of fleet types within a regional carrier contract and $2 million of other charges.
During 2019, the Company recorded gains of $140 million for the change in market value of certain of its equity investments, primarily Azul, and $13 million for the change in fair value of the AVH Derivative Assets.
2018
During 2018, the Company recorded a special non-cash impairment charge of $206 million associated with its Hong Kong routes as a result of its annual intangible assets impairment review. The Company determined the fair value of the Hong Kong routes using a variation of the income approach as described above for the 2019 Hong Kong impairment.
In May 2018, the Brazil–United States open skies agreement was ratified, which provides air carriers with unrestricted access between the United States and Brazil. The Company determined that the approval of the open skies agreement impaired the entire value of its Brazil route authorities because the agreement removes all limitations or reciprocity requirements for flights
between the United States and Brazil. Accordingly, the Company recorded a $105 million special charge to write off the entire value of the intangible asset associated with its Brazil routes. Also during 2018, the Company recorded $66 million of fair value adjustments related to aircraft purchased off lease, write-offs of unexercised aircraft purchase options and other impairments related to certain fleet types and international slots no longer in use.
During 2018, the Company recorded $22 million of severance and benefit costs related to the voluntary early-out program for its technicians and related employees represented by the IBT as described above. Also during 2018, the Company recorded other management severance of $19 million.
During 2018, the Company recorded a one-time termination charge of $64 million related to one of its engine maintenance service agreements.
During 2018, the Company recorded gains of $28 million for the change in market value of certain of its equity investments, primarily Azul. Also, the Company recorded losses of $33 million for the change in fair value of the AVH Derivative Assets.
2017
During 2017, the Company recorded a $10 million impairment charge related to obsolete spare parts inventory and a $15 million intangible asset impairment charge related to a maintenance service agreement.
During 2017, the Company recorded $83 million of severance and benefit costs related to the voluntary early-out program for its technicians and related employees represented by the IBT as described above. Also during 2017, the Company recorded $33 million of other management severance.
During 2017, the Company recorded charges of $12 million for weather-related damages, $11 million for losses on the sale of assets, and $12 million of other charges.