Leases and Capacity Purchase Agreements

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases and Capacity Purchase Agreements

LEASES AND CAPACITY PURCHASE AGREEMENTS

United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, available seat miles, enplaned passengers, passenger facility charges, terminal equipment usage fees, departures, and airports' annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on our balance sheet as a right-of-use asset and lease liability.

For leases with terms greater than 12 months, we record the related right-of-use asset and lease liability at the present value of fixed lease payments over the lease term. To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, we have recognized those amounts as part of our right-of-use assets and lease liabilities. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the term of the lease. We combine lease and non-lease components, such as common area maintenance costs, in calculating the right-of-use assets and lease liabilities for all asset groups except for our CPAs, which contain embedded leases for regional aircraft. In addition to the lease component cost for regional aircraft, our CPAs also include non-lease components primarily related to the regional carriers' operating costs incurred in providing regional aircraft services. We allocate consideration for the lease components and non-lease components of each CPA based on their relative standalone values.

Lease Cost. The Company's lease cost for the years ended December 31 included the following components (in millions):

	2019			2018			2017
Operating lease cost	$	1,038		$	1,213		$	1,433
Variable and short-term lease cost	2,548			2,569			2,209
Amortization of finance lease assets	68			75			77
Interest on finance lease liabilities	85			44			24
Sublease income	(32		)	(38		)	(36		)
Total lease cost	$	3,707		$	3,863		$	3,707

Lease terms and commitments. United's leases include aircraft leases for aircraft that are directly leased by United and aircraft that are operated by regional carriers on United's behalf under CPAs (but excluding aircraft owned by United) and non-aircraft leases. Aircraft operating leases relate to leases of 114 mainline and 325 regional aircraft while finance leases relate to leases of 28 mainline and 17 regional aircraft. United's aircraft leases have remaining lease terms of one month to 10 years with expiration dates ranging from 2020 through 2029. Under the terms of most aircraft leases, United has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value, and in others, at a percentage of cost.

Non-aircraft leases have remaining lease terms of one month to 34 years, with expiration dates ranging from 2020 through 2053.

The table below summarizes the Company's scheduled future minimum lease payments under operating and finance leases, recorded on the balance sheet, as of December 31, 2019 (in millions):

	Operating Leases			Finance Leases
2020	$	920		$	62
2021	754			75
2022	591			49
2023	633			38
2024	626			35
After 2024	4,214			57
Minimum lease payments	7,738			316
Imputed interest	(2,106		)	(50		)
Present value of minimum lease payments	5,632			266
Less: current maturities of lease obligations	(686		)	(46		)
Long-term lease obligations	$	4,946		$	220

As of December 31, 2019, we have additional leases of approximately $500 million for several mainline aircraft, regional jets under a CPA and airport facilities and office space leases that have not yet commenced. These leases will commence in 2020 and 2021 with lease terms of up to 13 years.

Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate United's incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value. The table below presents additional information related to our leases as of December 31:

	2019		2018
Weighted-average remaining lease term - operating leases	11 years		10 years
Weighted-average remaining lease term - finance leases	6 years		5 years
Weighted-average discount rate - operating leases	5.2	%	5.2	%
Weighted-average discount rate - finance leases	5.7	%	45.8	%

The table below presents supplemental cash flow information related to leases during the year ended December 31 (in millions):

	2019		2018		2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	902	$	1,078	$	1,451
Operating cash flows for finance leases	70		53		24
Financing cash flows for finance leases	151		79		84

Regional CPAs. United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable rate adjustment based on agreed performance metrics, subject to annual adjustments. The fees are based on specific rates multiplied by specific operating statistics (e.g., block hours, departures), as well as fixed monthly amounts. Under these CPAs, the Company is also responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. In some cases, the Company owns some or all of the aircraft subject to the CPA and leases such aircraft to the regional carrier. United's CPAs are for 581 regional aircraft as of December 31, 2019, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United and operated by the regional carriers. See Part I, Item 2. Properties, of this report for additional information.

In 2019, United amended an agreement with GoJet Airlines to operate up to 54 Bombardier CRJ-550s under a 10-year CPA arrangement. United also amended an agreement with Mesa Airlines, which added 20 new Embraer E175 LL aircraft under a 12-year CPA and also extended 42 United-owned Embraer E175 aircraft for an additional 5 years.

United recorded approximately $1 billion, $979 million and $907 million in expenses related to its CPAs with its regional carriers in which United is a minority shareholder, for the years ended December 31, 2019, 2018 and 2017, respectively. There were approximately $69 million and $53 million in accounts payable due to these companies as of December 31, 2019 and December 31, 2018, respectively. There were no material accounts receivables due from these companies as of December 31, 2019 and December 31, 2018. The CPAs with these related parties were executed in the ordinary course of business.

Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. The most important of these variables is the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions. United's estimates of its future payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and facility rent that are disclosed as part of operating leases above. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier's operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts exclude variable pass-through costs such as fuel and landing fees, among others. Based on these assumptions as of December 31, 2019, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

2020	$	2.9
2021	2.9
2022	2.4
2023	1.5
2024	1.3
After 2024	4.7
	$	15.7

The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10% increase or decrease in scheduled block hours for all of United's regional operators (whether as a result of changes in average daily utilization or otherwise) in 2020 would result in a corresponding change in annual cash obligations under the CPAs of approximately $202 million.

Leases and Capacity Purchase Agreements

LEASES AND CAPACITY PURCHASE AGREEMENTS

United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, available seat miles, enplaned passengers, passenger facility charges, terminal equipment usage fees, departures, and airports' annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on our balance sheet as a right-of-use asset and lease liability.

For leases with terms greater than 12 months, we record the related right-of-use asset and lease liability at the present value of fixed lease payments over the lease term. To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, we have recognized those amounts as part of our right-of-use assets and lease liabilities. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the term of the lease. We combine lease and non-lease components, such as common area maintenance costs, in calculating the right-of-use assets and lease liabilities for all asset groups except for our CPAs, which contain embedded leases for regional aircraft. In addition to the lease component cost for regional aircraft, our CPAs also include non-lease components primarily related to the regional carriers' operating costs incurred in providing regional aircraft services. We allocate consideration for the lease components and non-lease components of each CPA based on their relative standalone values.

Lease Cost. The Company's lease cost for the years ended December 31 included the following components (in millions):

	2019			2018			2017
Operating lease cost	$	1,038		$	1,213		$	1,433
Variable and short-term lease cost	2,548			2,569			2,209
Amortization of finance lease assets	68			75			77
Interest on finance lease liabilities	85			44			24
Sublease income	(32		)	(38		)	(36		)
Total lease cost	$	3,707		$	3,863		$	3,707

Lease terms and commitments. United's leases include aircraft leases for aircraft that are directly leased by United and aircraft that are operated by regional carriers on United's behalf under CPAs (but excluding aircraft owned by United) and non-aircraft leases. Aircraft operating leases relate to leases of 114 mainline and 325 regional aircraft while finance leases relate to leases of 28 mainline and 17 regional aircraft. United's aircraft leases have remaining lease terms of one month to 10 years with expiration dates ranging from 2020 through 2029. Under the terms of most aircraft leases, United has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value, and in others, at a percentage of cost.

Non-aircraft leases have remaining lease terms of one month to 34 years, with expiration dates ranging from 2020 through 2053.

The table below summarizes the Company's scheduled future minimum lease payments under operating and finance leases, recorded on the balance sheet, as of December 31, 2019 (in millions):

	Operating Leases			Finance Leases
2020	$	920		$	62
2021	754			75
2022	591			49
2023	633			38
2024	626			35
After 2024	4,214			57
Minimum lease payments	7,738			316
Imputed interest	(2,106		)	(50		)
Present value of minimum lease payments	5,632			266
Less: current maturities of lease obligations	(686		)	(46		)
Long-term lease obligations	$	4,946		$	220

As of December 31, 2019, we have additional leases of approximately $500 million for several mainline aircraft, regional jets under a CPA and airport facilities and office space leases that have not yet commenced. These leases will commence in 2020 and 2021 with lease terms of up to 13 years.

Our lease agreements do not provide a readily determinable implicit rate nor is it available to us from our lessors. Instead, we estimate United's incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value. The table below presents additional information related to our leases as of December 31:

	2019		2018
Weighted-average remaining lease term - operating leases	11 years		10 years
Weighted-average remaining lease term - finance leases	6 years		5 years
Weighted-average discount rate - operating leases	5.2	%	5.2	%
Weighted-average discount rate - finance leases	5.7	%	45.8	%

The table below presents supplemental cash flow information related to leases during the year ended December 31 (in millions):

	2019		2018		2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	902	$	1,078	$	1,451
Operating cash flows for finance leases	70		53		24
Financing cash flows for finance leases	151		79		84

Regional CPAs. United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable rate adjustment based on agreed performance metrics, subject to annual adjustments. The fees are based on specific rates multiplied by specific operating statistics (e.g., block hours, departures), as well as fixed monthly amounts. Under these CPAs, the Company is also responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. In some cases, the Company owns some or all of the aircraft subject to the CPA and leases such aircraft to the regional carrier. United's CPAs are for 581 regional aircraft as of December 31, 2019, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United and operated by the regional carriers. See Part I, Item 2. Properties, of this report for additional information.

In 2019, United amended an agreement with GoJet Airlines to operate up to 54 Bombardier CRJ-550s under a 10-year CPA arrangement. United also amended an agreement with Mesa Airlines, which added 20 new Embraer E175 LL aircraft under a 12-year CPA and also extended 42 United-owned Embraer E175 aircraft for an additional 5 years.

United recorded approximately $1 billion, $979 million and $907 million in expenses related to its CPAs with its regional carriers in which United is a minority shareholder, for the years ended December 31, 2019, 2018 and 2017, respectively. There were approximately $69 million and $53 million in accounts payable due to these companies as of December 31, 2019 and December 31, 2018, respectively. There were no material accounts receivables due from these companies as of December 31, 2019 and December 31, 2018. The CPAs with these related parties were executed in the ordinary course of business.

Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. The most important of these variables is the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions. United's estimates of its future payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and facility rent that are disclosed as part of operating leases above. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier's operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts exclude variable pass-through costs such as fuel and landing fees, among others. Based on these assumptions as of December 31, 2019, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

2020	$	2.9
2021	2.9
2022	2.4
2023	1.5
2024	1.3
After 2024	4.7
	$	15.7

The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10% increase or decrease in scheduled block hours for all of United's regional operators (whether as a result of changes in average daily utilization or otherwise) in 2020 would result in a corresponding change in annual cash obligations under the CPAs of approximately $202 million.