Leases

12 Months Ended

Dec. 31, 2018

Leases [Abstract]

Leases

15. Leases

Arrangements with Commercial Airlines — Pursuant to contractual agreements with our airline partners, we place our equipment on commercial aircraft operated by the airlines for the purpose of delivering our service to passengers on the aircraft. There are currently two types of commercial airline arrangements: turnkey and airline-directed. See Note 2, “Summary of Significant Accounting Policies,” for additional information on airline-directed arrangements.

We recognized $31.7 million, $41.8 million, and $29.5 million, respectively, for the years ended December 31, 2018, 2017 and 2016, as a reduction to our cost of service revenue in our consolidated statements of operations. As of December 31, 2018, deferred airborne lease incentives of $24.1 million and $129.1 million, respectively, are included in current and non-current liabilities in our consolidated balance sheet. As of December 31, 2017, deferred airborne lease incentives of $42.1 million and $142.9 million, respectively, are included in current and non-current liabilities in our consolidated balance sheet. The decrease in our deferred airborne lease incentives and the amortization of the deferred airborne lease incentives relate to the accounting impact of the transition of one of our airline agreements to the airline-directed model. See Note 2, “Summary of Significant Accounting Policies,” for additional information.

Under the turnkey model, the revenue share paid to our airline partners represents operating lease payments. They are deemed to be contingent rental payments, as the payments due to each airline are based on a percentage of our CA-NA and CA-ROW service revenue generated from that airline’s passengers, which is unknown until realized. Therefore, we cannot estimate the lease payments due to an airline at the commencement of our contract with such airline. This rental expense is included in cost of service revenue and is partially offset by the amortization of the deferred airborne lease incentives discussed above. Such rental expenses totaled a net charge of $24.5 million, $30.5 million, and $41.6 million, respectively, for the years ended December 31, 2018, 2017 and 2016. The decrease in rental expense was due to the transition of one of our airline agreements to the airline-directed model. See Note 2, “Summary of Significant Accounting Policies,” for additional information.

Leases and Cell Site Contracts - We have lease agreements relating to certain facilities and equipment, which are considered operating leases. Rent expense for such operating leases was $12.6 million, $12.0 million and $11.8 million, respectively, for the years ended December 31, 2018, 2017 and 2016. Additionally, we have operating leases with wireless service providers for tower space and base station capacity on a volume usage basis (“cell site leases”), some of which provide for minimum annual payments. Our cell site leases generally provide for an initial noncancelable term with various renewal options. Total cell site rental expense was $10.5 million, $9.5 million and $9.4 million, respectively, for the years ended December 31, 2018, 2017 and 2016.

Annual future minimum obligations for operating leases for each of the next five years and thereafter, other than the arrangements we have with our commercial airline partners, as of December 31, 2018, are as follows (in thousands):

	Operating
Years ending December 31,	Leases
2019	$	21,902
2020	$	19,867
2021	$	19,742
2022	$	18,420
2023	$	14,826
Thereafter	$	78,100

Equipment Leases – We lease certain computer and network equipment under capital leases, for which interest has been imputed with annual interest rates ranging from approximately 8% to 14%. As of December 31, 2018, the computer equipment leases were classified as part of office equipment, furniture, and fixtures and other in our consolidated balance sheet at a gross cost of $6.3 million. As of December 31, 2018, the network equipment leases were classified as part of network equipment in our consolidated balance sheet at a gross cost of $7.5 million. Annual future minimum obligations under capital leases for each of the next five years and thereafter, as of December 31, 2018, are as follows (in thousands):

	Capital
Years ending December 31,	Leases
2019	$	707
2020		218
Thereafter		—
Total minimum lease payments		925
Less: Amount representing interest		(72	)
Present value of net minimum lease payments	$	853

The $0.9 million present value of net minimum lease payments as of December 31, 2018 has a current portion of $0.7 million included in current portion of long-term debt and capital leases and a non-current portion of $0.2 million included in other non-current liabilities.