Income Taxes

12 Months Ended

Dec. 31, 2017

The significant components of the income tax provision (benefit) were (in millions):



	Year Ended December 31,
	2017		2016		2015
Current income tax provision:
Federal	$	—	$	—	$	—
State and Local	24		12		20
Current income tax provision	24		12		20
Deferred income tax provision (benefit):
Federal	1,085		1,508		(2,884		)
State and Local	56		103		(130		)
Deferred income tax provision (benefit)	1,141		1,611		(3,014		)
Total income tax provision (benefit)	$	1,165	$	1,623	$	(2,994	)

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):



	Year Ended December 31,
	2017			2016		2015
Statutory income tax provision	$	1,079		$	1,505	$	1,616
State income tax provision, net of federal tax effect	61			63		72
Book expenses not deductible for tax purposes	33			34		57
Bankruptcy administration expenses	1			1		3
2017 Tax Act	(7		)	—		—
Change in valuation allowance	(3		)	7		(4,742		)
Other, net	1			13		—
Income tax provision (benefit)	$	1,165		$	1,623	$	(2,994	)

We provide a valuation allowance for our deferred tax assets, which include our net operating losses (NOLs), when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the level and volatility of fuel prices and travel demand.

In connection with the preparation of our financial statements at the end of 2015, we determined that after considering all positive and negative evidence, including the completion of certain critical Merger integration milestones as well as our financial performance, it was more likely than not that substantially all of our deferred income tax assets, which include our NOLs, would be realized. Accordingly, during the year ended December 31, 2015, we reversed $3.0 billion of the valuation allowance, which resulted in a special non-cash tax benefit recorded in the consolidated statement of operations.

In addition to the changes in the valuation allowance from operations described above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 10. The total increase to the valuation allowance was $7 million in 2017, $10 million of which is included in the 2017 Tax Act amount in the table above. In 2016, the total increase to the valuation allowance was $7 million and in 2015, the total decrease to the valuation allowance was $4.8 billion.

The components of our deferred tax assets and liabilities were (in millions):



	December 31,
	2017			2016
Deferred tax assets:
Operating loss carryforwards	$	2,281		$	3,853
Pensions	1,559			2,610
Loyalty program liability	420			485
Alternative minimum tax (AMT) credit carryforwards	344			344
Postretirement benefits other than pensions	170			291
Rent expense	160			256
Gains from lease transactions	107			213
Reorganization items	35			53
Other	678			972
Total deferred tax assets	5,754			9,077
Valuation allowance	(36		)	(29		)
Net deferred tax assets	5,718			9,048

Deferred tax liabilities:
Accelerated depreciation and amortization	(5,045		)	(7,216		)
Other	(279		)	(345		)
Total deferred tax liabilities	(5,324		)	(7,561		)
Net deferred tax asset	$	394		$	1,487

At December 31, 2017, we had approximately $10.0 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which we expect to be available for use in 2018. The federal NOL Carryforwards will expire beginning in 2022 if unused. We also had approximately $3.4 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2017, which will expire in years 2018 through 2037 if unused. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of our remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. We elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.0 billion (with $8.4 billion of unlimited NOL still remaining at December 31, 2017) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit a company’s future use of NOLs and tax credits. See Part I, Item 1A. Risk Factors – “Our ability to utilize our NOL Carryforwards may be limited” for unaudited additional discussion of this risk.

At December 31, 2017, we had an AMT credit carryforward of approximately $339 million available for federal income tax purposes, which is now expected to be refunded in 2019 and 2020 as a result of the repeal of corporate AMT.

In 2017, we recorded an income tax provision of $1.2 billion, with an effective rate of approximately 38%, which was substantially non-cash as we utilized our NOLs described above. Substantially all of our income before income taxes is attributable to the United States.

We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate. Our 2014 through 2016 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and we are under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. We believe that the effect of any assessments will not be material to our consolidated financial statements.

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We accrue interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act is the most comprehensive tax change in more than 30 years. As of December 31, 2017, we have not completed our evaluation of the 2017 Tax Act; however, to the extent possible, we have made a reasonable estimate of its effects, including the impact of lower corporate income tax rates (21% vs. 35%) on our deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. For the year ended December 31, 2017, we recognized a special income tax benefit of $7 million to reflect these impacts of the 2017 Tax Act.

The 2017 Tax Act is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementation regulations by the Treasury and Internal Revenue Service. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Accordingly, we have not yet been able to make a reasonable estimate of the impact of certain items and continue to account for those items based on the tax laws in effect prior to the 2017 Tax Act.

As further interpretations, clarifications and amendments to the 2017 Tax Act are made, our future financial statements could be materially impacted.

American Airlines, Inc. [Member]

Income Taxes [Line Items]

Income Taxes

The significant components of the income tax provision (benefit) were (in millions):



	Year Ended December 31,
	2017		2016		2015
Current income tax provision:
Federal	$	—	$	—	$	—
State and Local	24		10		15
Current income tax provision	24		10		15
Deferred income tax provision (benefit):
Federal	1,235		1,559		(3,407		)
State and Local	63		93		(60		)
Deferred income tax provision (benefit)	1,298		1,652		(3,467		)
Total income tax provision (benefit)	$	1,322	$	1,662	$	(3,452	)

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate as follows (in millions):



	Year Ended December 31,
	2017		2016			2015
Statutory income tax provision	$	1,135	$	1,555		$	1,635
State income tax provision, net of federal tax effect	54		67			71
Book expenses not deductible for tax purposes	30		32			55
Bankruptcy administration expenses	1		1			3
2017 Tax Act	93		—			—
Change in valuation allowance	4		(1		)	(5,216		)
Other, net	5		8			—
Income tax provision (benefit)	$	1,322	$	1,662		$	(3,452	)

American provides a valuation allowance for its deferred tax assets, which include the net operating losses (NOLs), when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond its control, such as the health of the economy, the level and volatility of fuel prices and travel demand.

In connection with the preparation of American’s financial statements at the end of 2015, American determined that after considering all positive and negative evidence, including the completion of certain critical Merger integration milestones as well as its financial performance, it was more likely than not that substantially all of its deferred income tax assets, which include its NOLs, would be realized. Accordingly, during the year ended December 31, 2015, American reversed $3.5 billion of the valuation allowance, which resulted in a special non-cash tax benefit recorded in the consolidated statement of operations.

In addition to the changes in the valuation allowance from operations described above, the valuation allowance was also impacted by the changes in the components of accumulated other comprehensive income (loss), described in Note 8. The total increase to the valuation allowance was $12 million in 2017, $8 million of which is included in the 2017 Tax Act amount in the table above. In 2016 and 2015, the decrease in the valuation allowance was $1 million and $5.2 billion, respectively.

The components of American’s deferred tax assets and liabilities were (in millions):



	December 31,
	2017			2016
Deferred tax assets:
Operating loss carryforwards	$	2,409		$	4,087
Pensions	1,549			2,595
Loyalty program liability	420			485
Alternative minimum tax (AMT) credit carryforwards	457			456
Postretirement benefits other than pensions	170			291
Rent expense	160			256
Gains from lease transactions	107			213
Reorganization items	35			53
Other	638			911
Total deferred tax assets	5,945			9,347
Valuation allowance	(25		)	(13		)
Net deferred tax assets	5,920			9,334

Deferred tax liabilities:
Accelerated depreciation and amortization	(4,999		)	(7,101		)
Other	(274		)	(335		)
Total deferred tax liabilities	(5,273		)	(7,436		)
Net deferred tax asset	$	647		$	1,898

At December 31, 2017, American had approximately $10.6 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which American expects to be available for use in 2018. American is a member of AAG’s consolidated federal and certain state income tax returns. The amount of federal NOL Carryforwards available in those returns is $10.0 billion, substantially all of which is expected to be available for use in 2018. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately $3.2 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2017, which will expire in years 2018 through 2037 if unused. American’s ability to deduct its NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. Substantially all of American’s remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, American’s ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. American elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.5 billion (with $8.6 billion of unlimited NOL still remaining at December 31, 2017) of its federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. Similar limitations may apply for state income tax purposes. American’s ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three-year period can potentially limit a company’s future use of NOLs and tax credits. See Part I, Item 1A. Risk Factors – “Our ability to utilize our NOL Carryforwards may be limited” for unaudited additional discussion of this risk.

At December 31, 2017, American had an AMT credit carryforward of approximately $452 million available for federal income tax purposes, which is now expected to be refunded in 2019 and 2020 as a result of the repeal of corporate AMT.

In 2017, American recorded an income tax provision of $1.3 billion, with an effective rate of approximately 41%, which was substantially non-cash as American utilized the NOLs described above. Substantially all of American’s income before income taxes is attributable to the United States.

American is part of the AAG consolidated income tax return. American files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. American’s 2014 through 2016 tax years are still subject to examination by the Internal Revenue Service. Various state and foreign jurisdiction tax years remain open to examination and American is under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions. American believes that the effect of any assessments will not be material to its consolidated financial statements.

The amount of, and changes to, American’s uncertain tax positions were not material in any of the years presented. American accrues interest and penalties related to unrecognized tax benefits in interest expense and operating expense, respectively.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act is the most comprehensive tax change in more than 30 years. As of December 31, 2017, American has not completed its evaluation of the 2017 Tax Act; however, to the extent possible, American has made a reasonable estimate of its effects, including the impact of lower corporate income tax rates (21% vs. 35%) on its deferred tax assets and liabilities and the one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. For the year ended December 31, 2017, American recognized a special income tax expense of $93 million to reflect these impacts of the 2017 Tax Act.

The 2017 Tax Act is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementation regulations by the Treasury and Internal Revenue Service. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Accordingly, American has not yet been able to make a reasonable estimate of the impact of certain items and continues to account for those items based on the tax laws in effect prior to the 2017 Tax Act.

As further interpretations, clarifications and amendments to the 2017 Tax Act are made, American’s future financial statements could be materially impacted.