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Special Charges | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
SPECIAL CHARGES | SPECIAL CHARGES Special charges in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):
Operating: |  | 2018 |  | 2017 (a) |  | 2016 (a)
Impairment of assets |  | $ | 377 |  |  | $ | 25 |  |  | $ | 412 |
Termination of an engine maintenance service agreement |  | 64 |  |  | — |  |  | — |
Severance and benefit costs |  | 41 |  |  | 116 |  |  | 37 |
Cleveland airport lease restructuring |  | — |  |  | — |  |  | 74 |
Labor agreement costs |  | — |  |  | — |  |  | 171 |
(Gains) losses on sale of assets and other special charges |  | 5 |  |  | 35 |  |  | 51 |
Total operating special charges |  | 487 |  |  | 176 |  |  | 745 |
Nonoperating: |  |  |  |  |  |
Postretirement curtailment gain |  | — |  |  | — |  |  | (107 | )
Gains on extinguishment of debt and other |  | — |  |  | — |  |  | (1 | )
Total operating and nonoperating special charges before income taxes |  | 487 |  |  | 176 |  |  | 637 |
Nonoperating mark-to-market ("MTM") losses on financial instruments |  | 5 |  |  | — |  |  | — |
Total special charges and MTM losses on financial instruments |  | 492 |  |  | 176 |  |  | 637 |
Income tax benefit |  | (110 | ) |  | (63 | ) |  | (229 | )
Income tax adjustments (Note 7) |  | (5 | ) |  | (179 | ) |  | 180 |
Total special charges and MTM losses on financial instruments, net of income taxes and income tax adjustments |  | $ | 377 |  |  | $ | (66 | ) |  | $ | 588 |
(a) Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) and Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information. 2018 The Company conducted its annual impairment review of intangible assets in the fourth quarter of 2018, which consisted of a comparison of the book value of specific assets to the fair value of those assets. Due to increased costs without sufficient corresponding increases in revenue in the Hong Kong market, the Company determined that the value of its Hong Kong routes had been impaired. Accordingly, in the fourth quarter of 2018, the Company recorded a special non-cash impairment charge of $206 million ($160 million net of taxes) associated with its Hong Kong routes. The collateral pledged under the Company's term loan, including the Hong Kong routes, continues to be sufficient to satisfy the loan covenants. The Company determined the fair value of the Hong Kong routes using a variation of the income approach known as the excess earnings method, which discounts an asset's projected future net cash flows to determine the current fair value. Assumptions used in the discounted cash flow methodology include a discount rate, which is based upon the Company's current weighted average cost of capital plus an asset-specific risk factor, and a projection of sales, expenses, gross margin, tax rates and contributory asset charges for four future years and a terminal growth rate. The assumptions used for future projections are determined based upon the Company's asset-specific forecasts along with the Company's strategic plan. These assumptions are inherently uncertain as they relate to future events and circumstances. Actual results will be influenced by the competitive environment, fuel costs and other expenses, and potentially other unforeseen events or circumstances that could have a material negative impact on future results. In May 2018, the Brazil–United States open skies agreement was ratified, which provides air carriers with unrestricted access between the United States and Brazil. The Company determined that the approval of the open skies agreement impaired the entire value of its Brazil route authorities because the agreement removes all limitations or reciprocity requirements for flights between the United States and Brazil. Accordingly, the Company recorded a $105 million special charge ($82 million net of taxes) to write off the entire value of the intangible asset associated with its Brazil routes. This asset is not part of any collateral pledged against any of the Company's borrowings. The Company continues to maintain its slot assets related to Brazil since airport access is still regulated by slot allocations that are limited by airport facility constraints. During 2018, the Company also recorded $66 million ($51 million net of taxes) of fair value adjustments related to aircraft purchased off lease, write-offs of unexercised aircraft purchase options and other impairments related to certain fleet types and international slots no longer in use. During 2018, the Company recorded a one-time termination charge of $64 million ($50 million net of tax) related to one of its engine maintenance service agreements. During 2018, the Company recorded severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT of $22 million ($17 million net of taxes). In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2018. Also during 2018, the Company recorded other management severance of $19 million ($15 million net of taxes). During 2018, the Company recorded gains of $28 million ($22 million net of taxes) for the change in market value of certain of its equity investments. Also, the Company recorded losses of $33 million ($26 million net of taxes) for the change in fair value of certain derivative assets related to equity of Avianca Holdings S.A. For equity investments and derivative assets subject to MTM accounting, the Company records gains and losses as part of Nonoperating income (expense): Miscellaneous, net in its statements of consolidated operations. 2017 During 2017 the Company recorded a $10 million ($6 million net of taxes) impairment charge related to obsolete spare parts inventory and a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement. During 2017, the Company recorded $83 million ($53 million net of taxes) of severance and benefit costs related to the voluntary early-out program for its technicians and related employees represented by the IBT as described above. Also during 2017, the Company recorded $33 million ($21 million net of taxes) of other management severance. 2016 In April 2016, the Federal Aviation Administration ("FAA") announced that it will 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 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 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntary early-out program for the Company's flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016. In 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 ("Cleveland"). 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 net charge of $74 million ($47 million net of taxes) related to the amended lease. 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 technicians and related employees represented by the IBT ratified a six-year joint collective bargaining agreement which extended the contract through 2022. During 2016, the Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. As part of the ratified contract with the IBT, the Company amended some of its technicians and related employees' postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a one-time $60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans. Also, as part of the ratified 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. Accrual Activity Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions):
| Severance/ Benefit Costs |  | Permanently Grounded Aircraft
Balance at December 31, 2015 | $ | 27 |  |  | $ | 78 |
Accrual and related adjustments | 37 |  |  | (17 | )
Payments | (50 | ) |  | (20 | )
Balance at December 31, 2016 | 14 |  |  | 41 |
Accrual | 116 |  |  | (4 | )
Payments | (93 | ) |  | (15 | )
Balance at December 31, 2017 | 37 |  |  | 22 |
Accrual | 41 |  |  | (7 | )
Payments | (53 | ) |  | (3 | )
Balance at December 31, 2018 | $ | 25 |  |  | $ | 12 |

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- Definition The entire description for costs incurred to effect a business combination that have been expensed during the period. Such costs could include business integration costs, systems integration and conversion costs, and severance and other employee-related costs. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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