NOTE 10 - SPECIAL CHARGES

For the three and nine months ended September 30, special charges consisted of the following (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
Operating:	2017		2016		2017		2016
Severance and benefit costs	$	23	$	13	$	101	$	27
Impairment of assets		15		—		15		412
Labor agreement costs		—		14		—		124
Cleveland airport lease restructuring		—		—		—		74
(Gains) losses on sale of assets and other special charges		12		18		29		32

Special charges		50		45		145		669
Nonoperating:
Other (gain) loss		—		—		—		(1)

Special charges before income taxes		50		45		145		668
Income tax benefit related to special charges		(18)		(16)		(52)		(241)

Total special charges, net of tax	$	32	$	29	$	93	$	427

During the three and nine months ended September 30, 2017, the Company recorded $16 million ($10 million net of taxes) and $73 million ($47 million net of taxes), respectively, of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the International Brotherhood of Teamsters (the “IBT”). In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019. Also during the three and nine months ended September 30, 2017, the Company recorded $7 million ($5 million net of taxes) and $28 million ($18 million net of taxes), respectively, of severance primarily related to its management reorganization initiative.

During the three and nine months ended September 30, 2016, the Company recorded $13 million ($8 million net of taxes) and $27 million ($17 million net of taxes), respectively, of severance and benefit costs primarily related to a voluntary early-out program for its flight attendants.

During the three months ended September 30, 2017, the Company recorded a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement.

In April 2016, the Federal Aviation Administration (“FAA”) announced that, effective October 30, 2016, it would designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In the second quarter of 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs take-off and landing rights. Accordingly, the Company recorded a $412 million special charge ($264 million net of taxes) to write off the intangible asset.

During the nine months ended September 30, 2016, the fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021. The Company also reached a tentative agreement with the IBT during the same time period. During the three and nine months ended September 30, 2016, the Company recorded $61 million ($39 million net of taxes) and $171 million ($109 million net of taxes), respectively, of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. Also, as part of its contract with the Association of Flight Attendants, the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a one-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.

During the nine months ended September 30, 2016, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport. The Company recorded an accrual for remaining payments under the lease for facilities that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a special charge of $74 million ($47 million net of taxes) related to the amended lease.

Accrual

The accrual balance for severance and benefits was $31 million as of September 30, 2017, compared to $34 million as of September 30, 2016. The severance-related accrual as of September 30, 2017 is expected to be mostly paid through early 2019. The accrual balance for future lease payments on permanently grounded aircraft was $28 million as of September 30, 2017, compared to $41 million as of September 30, 2016. The grounded aircraft related accrual as of September 30, 2017 is expected to be mostly paid through 2025. The following is a reconciliation of severance and permanently grounded aircraft accrual activity for the nine months ended September 30:


	Severance and Benefits		Permanently Grounded Aircraft
Balance at December 31, 2016	$	14	$	41
Accrual		101		—
Payments		(84)		(13)

Balance at September 30, 2017	$	31	$	28


	Severance and Benefits		Permanently Grounded Aircraft
Balance at December 31, 2015	$	27	$	78
Accrual		27		(17)
Payments		(20)		(20)

Balance at September 30, 2016	$	34	$	41