LEASES

As discussed in Note 1, we adopted ASC 842 on a prospective basis on April 1, 2019 and used the effective date as the date of initial application. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with our historical accounting policies. The lease standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

We elected to adopt the “package of practical expedients”, which allows us to carry forward historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. We also elected to account for non-lease and lease components as a single lease component for all asset classes and exclude short-term leases (those with terms of 12 months or less) from balance sheet presentation.

The adoption of this accounting standard had the effects specified in Note 1.

Accounting Policy for Leases

We determine if an arrangement is a lease at inception. All of our leases are operating leases and are recorded in ROU assets, accounts payable and operating lease liabilities in our condensed consolidated balance sheet as of September 30, 2019.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. The lease term includes options to extend when we are reasonably certain to exercise the option. We are not, however, reasonably certain that we will exercise any option(s) to extend at commencement of a lease as each extension would be based on the relevant facts and circumstances at the time of the decision to exercise or not exercise an extension option, and as such, they have not been included in the remaining lease terms. We will evaluate the impact of lease extensions, if and when the exercise of an extension option is probable.

Overview

We have non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities used in our operations. The related lease agreements, which range from non-cancelable and month-to-month terms, generally provide for fixed monthly rentals, and can also include renewal options. We generally pay all insurance, taxes, and maintenance expenses associated with these leases, and these costs are not included in the lease liability and are recognized in the period in which they are incurred.

The aircraft leases range from base terms of up to 180 months with renewal options of up to 240 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and require us to pay a stipulated amount if we default on our obligations under the agreements. The following is a summary of the terms related to aircraft leased under operating leases with original or remaining terms in excess of one year as of September 30, 2019:



	End of Lease Term		Number of Aircraft
	Six months ending March 31, 2019 to fiscal year 2020		6
	Fiscal year 2021 to fiscal year 2023		23
	Fiscal year 2024 to fiscal year 2025		20
			49

Rent expense incurred under all operating leases was $38.3 million and $49.6 million for the three months ended September 30, 2019 and 2018, respectively, and $90.4 million and $99.7 million for the six months ended September 30, 2019 and 2018, respectively. For the three and six months ended September 30, 2019, a portion of the total operating lease expense relating to short-term leases was $0.3 million and $0.6 million, respectively. Rent expense incurred under operating leases for aircraft was $32.8 million and $43.2 million for the three months ended September 30, 2019 and 2018, respectively, and $79.3 million and $87.3 million for the six months ended September 30, 2019 and 2018, respectively.

Operating leases as of September 30, 2019 were as follows (in thousands):




Operating lease right-of-use assets	$	331,743

Current portion of operating lease liabilities	83,630
Operating lease liabilities	251,399
Total operating lease liabilities	$	335,029

	Six Months Ended September 30, 2019

Cash paid for operating leases	$	83,113
ROU assets obtained in exchange for lease obligations	$	134,352
Weighted average remaining lease term	5 years
Weighted average discount rate	7.14		%

As of September 30, 2019, aggregate future payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year, including leases for 49 aircraft, are as follows (in thousands):



	Aircraft		Other		Total
Fiscal year ending March 31,
2020	$	47,496	$	4,254	$	51,750
2021	87,201		6,849		94,050
2022	77,440		5,725		83,165
2023	57,126		4,424		61,550
2024	44,722		4,020		48,742
Thereafter	32,400		23,394		55,794
	$	346,385	$	48,666	$	395,051

We lease six S-92 model aircraft and one AW139 model aircraft from VIH Aviation Group, which is a related party due to common ownership of Cougar Helicopters Inc. (“Cougar”) and paid lease fees of $3.0 million and $4.5 million during the three months ended September 30, 2019 and 2018, respectively, and $7.5 million and $9.5 million during the six months ended September 30, 2019 and 2018, respectively. Additionally, we lease a facility in Galliano, Louisiana from VIH Helicopters USA, Inc., another related party due to common ownership of Cougar, and paid lease fees of $0.1 million and $0.1 million during the three months ended September 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million during the six months ended September 30, 2019 and 2018, respectively.

In April and May 2019, we returned our remaining four H225 leased aircraft and paid $4.3 million in lease return costs. As of June 30, 2019, we accrued an additional $2.8 million in lease return costs, $9.7 million in future rent and $9.4 million in deferred rent related to these four H225 lease returns. These amounts are included in liabilities subject to compromise in our condensed consolidated balance sheet as of September 30, 2019. Also, we reduced our right-of-use assets by $11.9 million and operating lease liabilities by $12.4 million in connection with these lease returns. For further information regarding the Omnibus Agreement, see Note 5.

In June 2019, we rejected ten aircraft leases including nine S-76C+s and one S-76D and recorded $26.0 million of lease termination costs, net. In September 2019, we recorded an additional $4.2 million of lease termination costs to adjust our liabilities subject to compromise to the allowed claim. Also, in connection with these ten aircraft lease returns, we reduced our right-of-use assets by $18.6 million and operating lease liabilities by $20.2 million. On October 31, 2019, as part of the Amended Plan, we settled and paid these liabilities in full for $3.9 million.

In September 2019, we rejected the lease for our corporate headquarters in Houston, Texas. As of September 30, 2019, we recorded an allowed claim of $5.3 million, which was settled and paid in full for $0.6 million on October 31, 2019, as part of the Amended Plan.