Income Taxes

12 Months Ended

Dec. 31, 2018

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



	Year Ended December 31,
	2018		2017		2016
Current income tax provision:
State and Local	$	3	$	10	$	3
Foreign	29		14		9
Current income tax provision	32		24		12
Deferred income tax provision:
Federal	390		2,026		1,456
State and Local	50		63		100
Deferred income tax provision	440		2,089		1,556
Total income tax provision	$	472	$	2,113	$	1,568

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



	Year Ended December 31,
	2018			2017			2016
Statutory income tax provision	$	396		$	1,188		$	1,453
State income tax provision, net of federal tax effect	44			59			56
Foreign income taxes, net of federal tax effect	23			7			6
Book expenses not deductible for tax purposes	12			33			35
Bankruptcy administration expenses	—			1			1
2017 Tax Act	—			823			—
Change in valuation allowance	(6		)	(3		)	7
Other, net	3			5			10
Income tax provision	$	472		$	2,113		$	1,568

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.

The total decrease to the valuation allowance was $6 million in 2018. In 2017, the total increase to the valuation allowance was $7 million, $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.

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



	December 31,
	2018			2017
Deferred tax assets:
Operating loss carryforwards	$	2,343		$	2,281
Leases	2,189			107
Pensions	1,430			1,559
Loyalty program liability	1,770			1,809
Alternative minimum tax (AMT) credit carryforwards	175			344
Postretirement benefits other than pensions	145			170
Rent expense	136			160
Reorganization items	33			35
Other	631			678
Total deferred tax assets	8,852			7,143
Valuation allowance	(30		)	(36		)
Net deferred tax assets	8,822			7,107
Deferred tax liabilities:
Accelerated depreciation and amortization	(5,280		)	(5,045		)
Leases	(2,081		)	—
Other	(326		)	(279		)
Total deferred tax liabilities	(7,687		)	(5,324		)
Net deferred tax asset	$	1,135		$	1,783

At December 31, 2018, we had approximately $10.2 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 2019. The federal NOL Carryforwards will expire beginning in 2022 if unused. We also had approximately $3.2 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 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, 2018) 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, 2018, we had an AMT credit carryforward of approximately $339 million available for federal income tax purposes, which is now expected to be fully refundable over the next several years as a result of the repeal of corporate AMT.

In 2018, we recorded an income tax provision of $472 million, with an effective rate of approximately 25%, which was substantially non-cash. The 2018 income tax provision included an $18 million special income tax charge related to an international income tax matter. 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 2015 through 2017 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. We have completed our evaluation of the 2017 Tax Act and we have reflected the impact 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 provision of $823 million to reflect these impacts of the 2017 Tax Act.

American Airlines, Inc. [Member]

Income Taxes [Line Items]

Income Taxes

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



	Year Ended December 31,
	2018		2017		2016
Current income tax provision:
State and Local	$	3	$	14	$	1
Foreign	28		10		9
Current income tax provision	31		24		10
Deferred income tax provision:
Federal	453		2,176		1,507
State and Local	50		70		90
Deferred income tax provision	503		2,246		1,597
Total income tax provision	$	534	$	2,270	$	1,607

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



	Year Ended December 31,
	2018			2017		2016
Statutory income tax provision	$	460		$	1,244	$	1,504
State income tax provision, net of federal tax effect	46			53		61
Foreign income taxes, net of federal tax effect	22			6		6
Book expenses not deductible for tax purposes	10			30		32
Bankruptcy administration expenses	—			1		1
2017 Tax Act	—			924		—
Change in valuation allowance	(6		)	4		(1		)
Other, net	2			8		4
Income tax provision	$	534		$	2,270	$	1,607

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.

The total decrease to the valuation allowance was $6 million in 2018. In 2017, the total increase to the valuation allowance was $12 million, $8 million of which is included in the 2017 Tax Act amount in the table above. In 2016, the total decrease to the valuation allowance was $1 million.

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



	December 31,
	2018			2017
Deferred tax assets:
Operating loss carryforwards	$	2,420		$	2,409
Leases	2,176			107
Pensions	1,421			1,549
Loyalty program liability	1,770			1,809
Alternative minimum tax (AMT) credit carryforwards	231			457
Postretirement benefits other than pensions	145			170
Rent expense	136			160
Reorganization items	33			35
Other	588			638
Total deferred tax assets	8,920			7,334
Valuation allowance	(19		)	(25		)
Net deferred tax assets	8,901			7,309
Deferred tax liabilities:
Accelerated depreciation and amortization	(5,243		)	(4,999		)
Leases	(2,068		)	—
Other	(321		)	(274		)
Total deferred tax liabilities	(7,632		)	(5,273		)
Net deferred tax asset	$	1,269		$	2,036

At December 31, 2018, 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 2019. 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 $10.2 billion, substantially all of which is expected to be available for use in 2019. The federal NOL Carryforwards will expire beginning in 2022 if unused. American also had approximately $3.1 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 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, 2018) 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, 2018, American had an AMT credit carryforward of approximately $452 million available for federal income tax purposes, which is now expected to be fully refundable over the next several years as a result of the repeal of corporate AMT.

In 2018, American recorded an income tax provision of $534 million, with an effective rate of approximately 24%, which was substantially non-cash. American’s income tax provision included an $18 million special income tax charge related to an international income tax matter. 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 2015 through 2017 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. American has completed its evaluation of the 2017 Tax Act and American has reflected the impact 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 provision of $924 million to reflect these impacts of the 2017 Tax Act.