American Airlines Group (AAL) Updates on Post-Merger Metrics

January 15, 2014 8:11 AM EST

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On December 9, 2013, the Plan of Reorganization of AMR Corporation became effective and the related merger transaction was completed. As a result, US Airways Group became a wholly-owned subsidiary of the reorganized AMR Corporation (renamed American Airlines Group Inc., or AAG, with a ticker of 'AAL' (NYSE: AAL)). Notwithstanding these transactions, AAG’s airline operating subsidiaries, principally American Airlines, Inc. (American Airlines or AA) and US Airways, Inc. (US Airways or US) continued to operate as independent airlines. For this investor relations update, AAG is providing guidance for both American Airlines and US Airways as standalone airline operating entities for the fourth quarter 2013. The guidance relates principally to operating items. The financial statements for the fourth quarter and full year ended December 31, 2013 will also reflect material entries related to merger costs, reorganization costs and the application of acquisition accounting. 2014 combined guidance will be provided at a later time. Note: More detail can be seen with the company's 8-K filing. Click here for more color. General Overview • Cash - American Airlines Group Inc. expects to end the fourth quarter with approximately $10.3 billion in total cash and investments on a consolidated basis, of which approximately $1.0 billion is restricted. As previously disclosed in the AMR Corp. third quarter 2013 10Q, the Company has cash that has not been repatriated from Venezuela, which totaled approximately $710 million at year-end. • American Airlines Fuel Guidance - For the fourth quarter 2013, American Airlines expects to pay an average of between $3.06 and $3.11 per gallon of mainline jet fuel (including taxes & hedges). Forecasted volume and fuel prices are provided in the table below. • US Airways Fuel Guidance - For the fourth quarter 2013, US Airways expects to pay an average of between $3.00 and $3.05 per gallon of mainline jet fuel (including taxes, no hedges were in place). Forecasted volume and fuel prices are provided in the table below. • Cargo / Other Revenue - Includes cargo revenue, frequent flier revenue, ticket change fees, excess/overweight baggage fees, first and second bag fees, contract services, simulator rental, airport clubs, and inflight service revenues. • Taxes / NOL - American Airlines - At September 30, 2013, net operating losses (NOLs) available for use by American Airlines were approximately $5.7 billion for federal income tax purposes. AA’s deferred tax asset, which includes this federal NOL as well as state NOLs, is subject to a full valuation allowance. As of September 30, 2013, the valuation allowance associated with AA’s deferred tax assets was approximately $4.3 billion. In accordance with generally accepted accounting principles, utilization of the NOLs results in a corresponding decrease in the valuation allowance and offsets tax provision dollar for dollar. • Taxes / NOL - US Airways - At September 30, 2013, NOLs available for use by US Airways were approximately $1.2 billion for federal income tax purposes. In Q2 of 2013, US utilized its remaining valuation allowance associated with federal income taxes. With no remaining valuation allowance to release US recorded non-cash federal income tax expense for financial reporting purposes in the second and third quarters of 2013. US will also recognize income tax expense in the fourth quarter of 2013 through the date of merger close (December 9, 2013). US expects its effective tax rate for fourth quarter earnings excluding special items through December 9 will approximate 40%. US Airways will be required to apply acquisition accounting in conjunction with the merger. As a result, US expects it will be in a net deferred tax asset position post-merger which will be subject to a full valuation allowance and, therefore, not recognize income tax expense for the 23 days through December 31. Overall, US expects its effective tax rate on earnings excluding special items will approximate 25% for the fourth quarter of 2013. • Taxes / NOL - AAG - AAG expects its consolidated NOL position to increase significantly compared to the independent NOLs of AA and US described above as a result of AA’s emergence from bankruptcy. Updated combined NOL information will be provided at a later date. Under AAG’s certificate of incorporation, AAG common stock (AAL) and convertible preferred stock (AALCP) are subject to certain transfer restrictions designed to preserve its NOLs and related income tax benefits. A copy of the certificate of incorporation was contained in a Form 8-K filed on December 9, 2013 by AAG with the Securities and Exchange Commission. " Shares Outstanding - Per the Plan of Reorganization and the related Merger Agreement, the Company became obligated to issue approximately 756 million shares of common stock (assuming, among other things, conversion of all shares of convertible preferred stock). The Company’s current estimated diluted share count is approximately 746 million. The decrease in diluted share count is primarily due to approximately 13 million shares withheld by the Company during the fourth quarter in satisfaction of employee tax obligations at an average price of $22.55 per share. The Company may withhold additional shares in satisfaction of tax liabilities for eligible employee groups in connection with future issuances contemplated by the Plan of Reorganization, principally to be at the remaining mandatory conversion dates (days 60, 90 and 120 following the effective date).

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