Fair Value Measurements

12 Months Ended

Dec. 31, 2016

8. Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:

•

Level 1 – Observable inputs such as quoted prices in active markets;

•

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

When available, we use quoted market prices to determine the fair value of our financial assets. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates.

We utilize the market approach to measure fair value for our financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. Our short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2016.

Assets measured at fair value on a recurring basis are summarized below (in millions):


	Fair Value Measurements as of December 31, 2016
	Total		Level 1		Level 2		Level 3
Short-term investments ⁽¹⁾, ⁽²⁾:
Money market funds	$	589	$	589	$	—	$	—
Corporate obligations		2,550		—		2,550		—
Bank notes/certificates of deposit/time deposits		2,898		—		2,898		—

		6,037		589		5,448		—
Restricted cash and short-term investments ⁽¹⁾		638		638		—		—

Total	$	6,675	$	1,227	$	5,448	$	—

⁽¹⁾	Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive income (loss) at each measurement date.

⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. Our short-term investments mature in one year or less except for $385 million of bank notes/certificates of deposit/time deposits and $230 million of corporate obligations.


	Fair Value Measurements as of December 31, 2015
	Total		Level 1		Level 2		Level 3
Short-term investments ⁽¹⁾, ⁽²⁾:
Money market funds	$	1,010	$	1,010	$	—	$	—
Government agency investments		1		—		1		—
Corporate obligations		2,191		—		2,191		—
Bank notes/certificates of deposit/time deposits		2,662		—		2,662		—

		5,864		1,010		4,854		—
Restricted cash and short-term investments ⁽¹⁾		695		695		—		—

Total	$	6,559	$	1,705	$	4,854	$	—

⁽¹⁾	Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive income (loss) at each measurement date.

⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. Our short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of deposit/time deposits and $734 million of corporate obligations.

There were no Level 1 to Level 2 transfers during the years ended December 31, 2016 or 2015.

Fair Value of Debt

The fair value of our long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on our current estimated incremental borrowing rates for similar types of borrowing arrangements. If our long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

The carrying value and estimated fair value of our long-term debt, including current maturities, were as follows (in millions):


	December 31, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	24,344	$	24,983	$	20,561	$	21,111

American Airlines, Inc. [Member]

Fair Value Measurements

6. Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis

•

Level 1 – Observable inputs such as quoted prices in active markets;

•

Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

When available, American uses quoted market prices to determine the fair value of its financial assets. If quoted market prices are not available, American measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates.

American utilizes the market approach to measure fair value for its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. American’s short-term investments classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities. No changes in valuation techniques or inputs occurred during the year ended December 31, 2016.

Assets measured at fair value on a recurring basis are summarized below (in millions):


	Fair Value Measurements as of December 31, 2016
	Total		Level 1		Level 2		Level 3
Short-term investments ⁽¹⁾, ⁽²⁾:
Money market funds	$	587	$	587	$	—	$	—
Corporate obligations		2,550		—		2,550		—
Bank notes/certificates of deposit/time deposits		2,897		—		2,897		—

		6,034		587		5,447		—
Restricted cash and short-term investments ⁽¹⁾		638		638		—		—

Total	$	6,672	$	1,225	$	5,447	$	—

⁽¹⁾	Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive income (loss) at each measurement date.

⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. American’s short-term investments mature in one year or less except for $385 million of bank notes/certificates of deposit/time deposits and $230 million of corporate obligations.


	Fair Value Measurements as of December 31, 2015
	Total		Level 1		Level 2		Level 3
Short-term investments ⁽¹⁾, ⁽²⁾:
Money market funds	$	1,008	$	1,008	$	—	$	—
Government agency investments		1		—		1		—
Corporate obligations		2,191		—		2,191		—
Bank notes/certificates of deposit/time deposits		2,662		—		2,662		—

		5,862		1,008		4,854		—
Restricted cash and short-term investments ⁽¹⁾		695		695		—		—

Total	$	6,557	$	1,703	$	4,854	$	—

⁽¹⁾	Unrealized gains or losses on short-term investments and restricted cash and short-term investments are recorded in accumulated other comprehensive income (loss) at each measurement date.

⁽²⁾	All short-term investments are classified as available-for-sale and stated at fair value. American’s short-term investments mature in one year or less except for $1.2 billion of bank notes/certificates of deposit/time deposits and $734 million of corporate obligations.

There were no Level 1 to Level 2 transfers during the years ended December 31, 2016 or 2015.

Fair Value of Debt

The fair value of American’s long-term debt was estimated using quoted market prices or discounted cash flow analyses, based on American’s current estimated incremental borrowing rates for similar types of borrowing arrangements. If American’s long-term debt was measured at fair value, it would have been classified as Level 2 in the fair value hierarchy.

The carrying value and estimated fair value of American’s long-term debt, including current maturities, were as follows (in millions):


	December 31, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	22,577	$	23,181	$	18,826	$	19,378

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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