Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

LEASES

We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, we have an insignificant number of leases representing an immaterial portion of our lease liability that provide readily determinable implicit rates. When the rate implicit in the lease is not available, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date.

Some of our aircraft lease agreements include provisions for residual value guarantees. These provisions primarily relate to our regional aircraft and the amounts are not significant. We do not have other forms of variable interests with the lessors of our leased assets, other than at New York-JFK, in which we are not the primary beneficiary as discussed in Note 8, "Airport Redevelopment," and with respect to one lessor, in which we have a variable interest in certain immaterial aircraft leases, that we have consolidated.

Aircraft

As of December 31, 2021, including aircraft operated by our regional carriers, we leased 290 aircraft, of which 107 were under finance leases and 183 were operating leases. Our aircraft leases had remaining lease terms of one month to 14 years.

In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 110 aircraft as of December 31, 2021 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements.

Airport Facilities

Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability.

Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects.

Other Ground Property and Equipment

We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to eight years. Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant.

Sale-Leaseback Transactions

In 2020, we entered into $2.8 billion of sale-leaseback transactions for 85 aircraft including 25 A321-200s, 25 A220-100s, 23 CRJ-900s, 10 737-900ERs and two A330-900s. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement.

The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

Lease asset and liability balance sheet position by category
		December 31,
(in millions)	Classification on the Balance Sheet	2021			2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	7,237		$	5,733
Finance lease assets	Property and equipment, net	1,596			1,002
Total lease assets		$	8,833		$	6,735
Liabilities
Current
Operating	Current maturities of operating leases	$	703		$	678
Finance	Current maturities of debt and finance leases	280			289
Noncurrent
Operating	Noncurrent operating leases	7,056			5,713
Finance	Debt and finance leases	1,556			894
Total lease liabilities		$	9,595		$	7,574
Weighted-average remaining lease term
Operating leases		13 years			12 years
Finance leases		6 years			5 years
Weighted-average discount rate
Operating leases		3.81		%	4.88		%
Finance leases		3.36		%	3.61		%

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases.

Lease cost by category
	Year Ended December 31,
(in millions)	2021		2020		2019
Finance lease cost
Amortization of leased assets	$	131	$	131	$	110
Interest of lease liabilities	55		32		29
Operating lease cost(1)	863		1,019		1,013
Short-term lease cost	245		264		500
Variable lease cost(1)	1,599		1,406		1,456
Total lease cost	$	2,893	$	2,852	$	3,108

(1)Expenses are classified within aircraft rent, landing fees and other rents and regional carrier expense on the income statement. For the years ended December 31, 2021, 2020 and 2019, operating lease costs of $111 million, $187 million and $174 million, respectively, are attributed to our regional carriers. For the years ended December 31, 2021, 2020 and 2019, variable lease costs of $29 million, $50 million and $64 million, respectively, are attributable to our regional carriers.

Other Information

The table below presents supplemental cash flow information related to leases.

Supplemental lease-related cash flow information
	Year Ended December 31,
(in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	999	$	1,053	$	1,166
Operating cash flows for finance leases	46		32		27
Financing cash flows for finance leases	336		255		192

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

Future lease cash flows and reconciliation to the balance sheet
(in millions)	Operating Leases		Finance Leases
2022	$	944	$	324
2023	974		286
2024	894		369
2025	866		232
2026	766		168
Thereafter	5,307		636
Total minimum lease payments	9,751		2,015
Less: amount of lease payments representing interest	(1,992)		(179)
Present value of future minimum lease payments	7,759		1,836
Less: current obligations under leases	(703)		(280)
Long-term lease obligations	$	7,056	$	1,556

As of December 31, 2021, we had additional leases that had not yet commenced of $403 million. These leases will commence in 2022 to 2024 with lease terms of 7 to 10 years.

Leases

LEASES

We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, we have an insignificant number of leases representing an immaterial portion of our lease liability that provide readily determinable implicit rates. When the rate implicit in the lease is not available, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date.

Some of our aircraft lease agreements include provisions for residual value guarantees. These provisions primarily relate to our regional aircraft and the amounts are not significant. We do not have other forms of variable interests with the lessors of our leased assets, other than at New York-JFK, in which we are not the primary beneficiary as discussed in Note 8, "Airport Redevelopment," and with respect to one lessor, in which we have a variable interest in certain immaterial aircraft leases, that we have consolidated.

Aircraft

As of December 31, 2021, including aircraft operated by our regional carriers, we leased 290 aircraft, of which 107 were under finance leases and 183 were operating leases. Our aircraft leases had remaining lease terms of one month to 14 years.

In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 110 aircraft as of December 31, 2021 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements.

Airport Facilities

Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability.

Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects.

Other Ground Property and Equipment

We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to eight years. Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant.

Sale-Leaseback Transactions

In 2020, we entered into $2.8 billion of sale-leaseback transactions for 85 aircraft including 25 A321-200s, 25 A220-100s, 23 CRJ-900s, 10 737-900ERs and two A330-900s. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement.

The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

Lease asset and liability balance sheet position by category
		December 31,
(in millions)	Classification on the Balance Sheet	2021			2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	7,237		$	5,733
Finance lease assets	Property and equipment, net	1,596			1,002
Total lease assets		$	8,833		$	6,735
Liabilities
Current
Operating	Current maturities of operating leases	$	703		$	678
Finance	Current maturities of debt and finance leases	280			289
Noncurrent
Operating	Noncurrent operating leases	7,056			5,713
Finance	Debt and finance leases	1,556			894
Total lease liabilities		$	9,595		$	7,574
Weighted-average remaining lease term
Operating leases		13 years			12 years
Finance leases		6 years			5 years
Weighted-average discount rate
Operating leases		3.81		%	4.88		%
Finance leases		3.36		%	3.61		%

Lease Costs

The table below presents certain information related to the lease costs for finance and operating leases.

Lease cost by category
	Year Ended December 31,
(in millions)	2021		2020		2019
Finance lease cost
Amortization of leased assets	$	131	$	131	$	110
Interest of lease liabilities	55		32		29
Operating lease cost(1)	863		1,019		1,013
Short-term lease cost	245		264		500
Variable lease cost(1)	1,599		1,406		1,456
Total lease cost	$	2,893	$	2,852	$	3,108

(1)Expenses are classified within aircraft rent, landing fees and other rents and regional carrier expense on the income statement. For the years ended December 31, 2021, 2020 and 2019, operating lease costs of $111 million, $187 million and $174 million, respectively, are attributed to our regional carriers. For the years ended December 31, 2021, 2020 and 2019, variable lease costs of $29 million, $50 million and $64 million, respectively, are attributable to our regional carriers.

Other Information

The table below presents supplemental cash flow information related to leases.

Supplemental lease-related cash flow information
	Year Ended December 31,
(in millions)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	999	$	1,053	$	1,166
Operating cash flows for finance leases	46		32		27
Financing cash flows for finance leases	336		255		192

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

Future lease cash flows and reconciliation to the balance sheet
(in millions)	Operating Leases		Finance Leases
2022	$	944	$	324
2023	974		286
2024	894		369
2025	866		232
2026	766		168
Thereafter	5,307		636
Total minimum lease payments	9,751		2,015
Less: amount of lease payments representing interest	(1,992)		(179)
Present value of future minimum lease payments	7,759		1,836
Less: current obligations under leases	(703)		(280)
Long-term lease obligations	$	7,056	$	1,556

As of December 31, 2021, we had additional leases that had not yet commenced of $403 million. These leases will commence in 2022 to 2024 with lease terms of 7 to 10 years.