XML 46 R22.htm IDEA: XBRL DOCUMENT v3.20.4
Special Charges and Unrealized (Gains) Losses on Investments
 12 Months Ended
Dec. 31, 2020
Restructuring and Related Activities [Abstract]  
SPECIAL CHARGES AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS SPECIAL CHARGES AND UNREALIZED (GAINS) LOSSES ON INVESTMENTS
Special charges and unrealized gains and losses on investments in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):
Operating:202020192018
CARES Act grant$(3,536)$— $— 
Severance and benefit costs575 1641 
Impairment of assets318 171 377 
Termination of an engine maintenance service agreement— — 64 
(Gains) losses on sale of assets and other special charges27 59 5 
Total operating special charges (credit)(2,616)246 487 
Nonoperating credit loss on BRW Term Loan and related guarantee697 — — 
Nonoperating special termination benefits and settlement losses687 — — 
Nonoperating unrealized (gains) losses on investments194 (153)5 
Total nonoperating special charges and unrealized (gains) losses on investments1,578 (153)5 
Total operating and nonoperating special charges (credit) and unrealized (gains) losses on investments(1,038)93 492 
Income tax expense (benefit), net of valuation allowance404 (21)(110)
Income tax adjustments (Note 6)— — (5)
Total operating and nonoperating special charges (credit) and unrealized (gains) losses on investments, net of income taxes$(634)$72 $377 
2020
CARES Act grant. During 2020, the Company received approximately $5.1 billion in funding pursuant to the Payroll Support Program under the CARES Act, which consisted of a $3.6 billion grant and a $1.5 billion unsecured loan. The Company recorded $66 million for warrants issued to Treasury, within stockholders' equity, as an offset to the grant income. For 2020, we recognized the $3.5 billion grant as a credit to Special charges (credit).
Severance and benefit costs. In July 2020, the Company started the involuntary furlough process by issuing WARN Act notices to approximately 36,000 of its employees. Since then, the Company worked to reduce the total number of furloughs to approximately 13,000 employees by working closely with its union partners, introducing new voluntary options selected by approximately 9,000 employees and proposing creative solutions that would save jobs. This workforce reduction is part of the Company's strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic on the Company's operations and cost structure. The Company recorded $575 million during 2020 related to the workforce reduction, employee severance, pay continuance from voluntary retirements, and benefits-related costs (and additional costs associated with special termination benefits and settlement losses discussed below under "Nonoperating special termination benefits and settlement losses"). See also Note 7 of this report for further information.
Impairment of assets. United assesses its goodwill and intangible assets for potential impairment on an annual basis as of October 1, and on an interim basis if there are indicators that an impairment of goodwill or the intangible assets may have occurred. For goodwill and certain of its intangible assets, including the Company's China routes, London-Heathrow slots, alliances and the United trade name and logo, the Company performed a quantitative assessment which involved determining the fair value of the asset and comparing that amount to the asset's carrying value and, in the case of goodwill, comparing the Company's fair value to its carrying value. For all other intangible assets, the Company performed a qualitative assessment of whether it was more likely than not that an impairment had occurred. To determine fair value, the Company used discounted cash flow methods appropriate for each asset. Key inputs into the models included forecasted capacity, revenues, fuel costs, other operating costs and an overall discount rate. The assumptions used for future projections include that demand will likely remain suppressed through 2021. These assumptions are inherently uncertain as they relate to future events and circumstances. The Company performed intangible asset impairment reviews throughout the year.
In light of the ongoing impact of the COVID-19 pandemic on both the U.S. and global economies, the significant, sustained impact on the demand for travel and government policies that restrict air travel, the exact timing of the recovery from the COVID-19 pandemic, and the speed at which such recovery could occur, continues to remain uncertain and could result in
additional impairment charges in the future. We expect to continue to modify our cost management structure and capacity as the timing of demand recovery becomes more certain.
As a result of the impairment assessments, the Company recorded impairment charges of $130 million during 2020 for its China routes which was primarily caused by the COVID-19 pandemic, the Company's subsequent suspension of flights to China and a further delay in the expected return of full capacity to the China markets. The Company's China routes are subject to China slot usage rules and U.S. Department of Transportation frequency use requirements. For the summer and winter 2020 seasons, both governments issued relief from these rules. The Company, therefore, has been able to reduce its mainland China service without violating the governments' rules. The Company is advocating for a continuation of this relief through the summer 2021 season.
United assesses its long-lived assets whenever there are indicators that an impairment of the assets may have occurred. During 2020, in response to decreased demand caused by the COVID-19 pandemic, the Company temporarily grounded certain of its mainline fleet, some of which continue to be temporarily grounded. United performed forecasted cash flow analyses and determined that the carrying value of the tested fleets is recoverable from future cash flows expected to be generated by those fleets. To determine whether impairments exist for active and temporarily parked mainline aircraft, we group assets at the fleet-type level. In the fourth quarter of 2020, the Company permanently grounded 11 of its Boeing 757-200 aircraft. The Company's decision was influenced by the FAA's rescission of the order that grounded the Boeing 737MAX aircraft in March of 2019. As a result of the cash flow analysis for the 11 permanently-grounded aircraft, we recorded $94 million of impairments related to those aircraft and the related engines and spare parts.
During 2020, the Company recorded an impairment of $38 million of the right-of-use asset associated with the embedded aircraft lease in one of our CPAs. We measure cash flows at the contract level with our CPA partners. This impairment was primarily due to the impact to cash flows from the pandemic and the relatively short remaining term under the CPA.
During 2020, the Company also recorded $56 million of impairments related to various cancelled facility, aircraft induction and information technology capital projects. The decisions driving these impairments were the result of the COVID-19 pandemic's impact on our operations.
To the extent we make future decisions to permanently ground any of our fleet, or our estimates of future cash flows generated by our fleet change, we may be required to record impairment charges in future periods.
The aircraft and intangible asset impairments described above required Level 3 fair value inputs including the maintenance condition of the aircraft (for impaired aircraft) and future assumptions about profit margin and our weighted average cost of capital (for the China route intangible).
Nonoperating special termination benefits and settlement losses. During 2020, the Company recorded $687 million of settlement losses related to the Company's primary defined benefit pension plan covering certain U.S. non-pilot employees, and special termination benefits offered, under furlough and voluntary separation programs. See Note 7 of this report for additional information.
Nonoperating unrealized gains (losses) on investments, net. During 2020, the Company recorded losses of $170 million primarily for changes in the fair value of its investment in Azul. Also during 2020, the Company recorded losses of $24 million for the decrease in fair value of the AVH Derivative Assets.
Nonoperating credit loss on BRW Term Loan and related guarantee. During 2020, the Company recorded a $697 million expected credit loss allowance for the BRW Term Loan and related guarantee. AVH is currently in bankruptcy. See Notes 8 and 13 of this report for additional information.
2019
During 2019, the Company recorded a special non-cash impairment charge of $90 million associated with its Hong Kong routes. 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.
During 2019, the Company recorded a $43 million impairment primarily for surplus Boeing 767 aircraft engines removed from operations, an $18 million charge primarily for the write-off of unexercised aircraft purchase options, and $20 million in other aircraft impairments.
During 2019, the Company recorded $14 million of management severance and $2 million of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and received a
severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019.
During 2019, the Company recorded charges of $25 million related to contract terminations, $18 million for the settlement of certain legal matters, $14 million for costs related to the transition of fleet types within a regional carrier contract and $2 million of other charges.
During 2019, the Company recorded gains of $140 million for the change in market value of certain of its equity investments, primarily Azul, and $13 million for the change in fair value of the AVH Derivative Assets.
2018
During 2018, the Company recorded a special non-cash impairment charge of $206 million associated with its Hong Kong routes as a result of its annual intangible assets impairment review. The Company determined the fair value of the Hong Kong routes using a variation of the income approach as described above for the 2019 Hong Kong impairment.
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 to write off the entire value of the intangible asset associated with its Brazil routes. Also during 2018, the Company recorded $66 million 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 $22 million 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 2018, the Company recorded other management severance of $19 million.
During 2018, the Company recorded a one-time termination charge of $64 million related to one of its engine maintenance service agreements.
During 2018, the Company recorded gains of $28 million for the change in market value of certain of its equity investments, primarily Azul. Also, the Company recorded losses of $33 million for the change in fair value of the AVH Derivative Assets.