LEASES

12 Months Ended

Dec. 31, 2023

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 the fixed minimum 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.

We use the rate implicit in the lease to discount lease payments to present value, when readily determinable. As the rate implicit in the lease is rarely readily determinable, 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 guarantees represent an immaterial portion of our lease liability.

Aircraft

As of December 31, 2023, including aircraft operated by our regional carriers, we leased 225 aircraft, of which 111 were under finance leases and 114 were operating leases. Our aircraft leases had remaining lease terms of five months to 12 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 fair values. Lease components of these agreements consist of 116 aircraft as of December 31, 2023 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone fair 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 sheets 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 six 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 sheets. 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 sheets. The amounts of these lease and nonlease components are not significant.

Lease Position

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

Lease asset and liability balance sheet position by category
		December 31,
(in millions)	Classification on the Balance Sheet	2023			2022
Assets
Operating lease assets	Operating lease right-of-use assets	$	7,004		$	7,036
Finance lease assets	Property and equipment, net	1,338			1,487
Total lease assets		$	8,342		$	8,523
Liabilities
Current
Operating	Current maturities of operating leases	$	759		$	714
Finance	Current maturities of debt and finance leases	358			304
Noncurrent
Operating	Noncurrent operating leases	6,468			6,866
Finance	Debt and finance leases	1,086			1,345
Total lease liabilities		$	8,671		$	9,229
Weighted-average remaining lease term
Operating leases		13 years			13 years
Finance leases		4 years			5 years
Weighted-average discount rate
Operating leases		3.73		%	4.30		%
Finance leases		3.12		%	3.05		%

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)	2023		2022		2021
Finance lease cost
Amortization of leased assets	$	109	$	120	$	131
Interest of lease liabilities	42		45		55
Operating lease cost(1)	981		949		863
Short-term lease cost(1)	258		281		245
Variable lease cost(1)	2,230		1,859		1,599
Total lease cost	$	3,620	$	3,254	$	2,893

(1)Expenses are primarily classified within aircraft rent, landing fees and other rents and regional carrier expense on our income statement.

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)	2023		2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	1,230	$	809	$	999
Operating cash flows for finance leases	71		49		46
Financing cash flows for finance leases	264		363		336

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 sheets.

Future lease cash flows and reconciliation to the balance sheet
(in millions)	Operating Leases		Finance Leases
2024	$	1,021	$	395
2025	990		257
2026	899		192
2027	860		391
2028	772		164
Thereafter	4,705		157
Total minimum lease payments	9,247		1,556
Less: amount of lease payments representing interest	(2,020)		(112)
Present value of future minimum lease payments	7,227		1,444
Less: current obligations under leases	(759)		(358)
Long-term lease obligations	$	6,468	$	1,086

As of December 31, 2023, we had additional leases that had not yet commenced of $151 million. These leases will commence in 2024 with lease terms of 4 to 19 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 the fixed minimum 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.

We use the rate implicit in the lease to discount lease payments to present value, when readily determinable. As the rate implicit in the lease is rarely readily determinable, 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 guarantees represent an immaterial portion of our lease liability.

Aircraft

As of December 31, 2023, including aircraft operated by our regional carriers, we leased 225 aircraft, of which 111 were under finance leases and 114 were operating leases. Our aircraft leases had remaining lease terms of five months to 12 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 fair values. Lease components of these agreements consist of 116 aircraft as of December 31, 2023 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone fair 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 sheets 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 six 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 sheets. 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 sheets. The amounts of these lease and nonlease components are not significant.

Lease Position

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

Lease asset and liability balance sheet position by category
		December 31,
(in millions)	Classification on the Balance Sheet	2023			2022
Assets
Operating lease assets	Operating lease right-of-use assets	$	7,004		$	7,036
Finance lease assets	Property and equipment, net	1,338			1,487
Total lease assets		$	8,342		$	8,523
Liabilities
Current
Operating	Current maturities of operating leases	$	759		$	714
Finance	Current maturities of debt and finance leases	358			304
Noncurrent
Operating	Noncurrent operating leases	6,468			6,866
Finance	Debt and finance leases	1,086			1,345
Total lease liabilities		$	8,671		$	9,229
Weighted-average remaining lease term
Operating leases		13 years			13 years
Finance leases		4 years			5 years
Weighted-average discount rate
Operating leases		3.73		%	4.30		%
Finance leases		3.12		%	3.05		%

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)	2023		2022		2021
Finance lease cost
Amortization of leased assets	$	109	$	120	$	131
Interest of lease liabilities	42		45		55
Operating lease cost(1)	981		949		863
Short-term lease cost(1)	258		281		245
Variable lease cost(1)	2,230		1,859		1,599
Total lease cost	$	3,620	$	3,254	$	2,893

(1)Expenses are primarily classified within aircraft rent, landing fees and other rents and regional carrier expense on our income statement.

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)	2023		2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	1,230	$	809	$	999
Operating cash flows for finance leases	71		49		46
Financing cash flows for finance leases	264		363		336

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 sheets.

Future lease cash flows and reconciliation to the balance sheet
(in millions)	Operating Leases		Finance Leases
2024	$	1,021	$	395
2025	990		257
2026	899		192
2027	860		391
2028	772		164
Thereafter	4,705		157
Total minimum lease payments	9,247		1,556
Less: amount of lease payments representing interest	(2,020)		(112)
Present value of future minimum lease payments	7,227		1,444
Less: current obligations under leases	(759)		(358)
Long-term lease obligations	$	6,468	$	1,086

As of December 31, 2023, we had additional leases that had not yet commenced of $151 million. These leases will commence in 2024 with lease terms of 4 to 19 years.