Leases, Commitments, Guarantees and Contingencies

3 Months Ended

Mar. 31, 2023

Leases, Commitments, Guarantees and Contingencies

Leases, Commitments, Guarantees and Contingencies

(6) Leases, Commitments, Guarantees and Contingencies

The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Aircraft

During the three months ended March 31, 2023, the Company acquired 32 CRJ aircraft under an early lease buyout arrangement with the lessor for $125.5 million. As of March 31, 2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased 11 aircraft under long-term lease agreements with remaining terms ranging from one year to eight years.

Airport facilities

The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 33 years. The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

Leases

As of March 31, 2023, the Company’s right-of-use assets were $96.4 million, the Company’s current maturities of operating lease liabilities were $18.7 million, and the Company’s noncurrent lease liabilities were $76.4 million.

During the three months ended March 31, 2023, the Company paid $13.6 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of March 31, 2023:

Weighted-average remaining lease term for operating leases	9.8 years
Weighted-average discount rate for operating leases	6.0%

The Company’s lease costs for the three months ended March 31, 2023 and 2022 included the following components (in thousands):

	For the three months ended March 31,
	2023		2022
Operating lease cost	$	24,948	$	21,841
Variable and short-term lease cost		803		1,018
Sublease income		(1,350)		(1,803)
Total lease cost	$	24,401	$	21,056

As of March 31, 2023, the Company leased aircraft, airport facilities, office space and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of March 31, 2023 (in thousands):

April 2023 through December 2023	$	14,586
2024		22,180
2025		16,517
2026		13,436
2027		12,293
Thereafter		54,321
Total future minimum operating lease payments	$	133,333

As of March 31, 2023, the Company had a firm purchase commitment for four E175 aircraft from Embraer with anticipated delivery dates through 2025.

The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):

	Total		Apr - Dec 2023		2024		2025		2026		2027		Thereafter
Operating lease payments for aircraft and facility obligations	$	133,333	$	14,586	$	22,180	$	16,517	$	13,436	$	12,293	$	54,321
Firm aircraft and spare engine commitments		140,337		53,170		59,396		27,771		—		—		—
Interest commitments (1)		537,120		95,916		113,943		93,846		74,283		52,660		106,472
Principal maturities on long-term debt		3,326,765		338,821		446,277		530,357		507,226		460,455		1,043,629
Total commitments and obligations	$	4,137,555	$	502,493	$	641,796	$	668,491	$	594,945	$	525,408	$	1,204,422

(1) At March 31, 2023, the Company’s long-term debt had fixed interest rates.

Guarantees

In 2022, the Company agreed to guarantee $19.8 million of debt for a 14 CFR Part 135 air carrier. The debt is secured by the Part 135 air carrier’s aircraft and engines and has a five-year term. The purpose of the arrangement is to increase the potential number of commercial pilots in the Company’s hiring pipeline. In exchange for providing the guarantee, the Company received 6.5% of the guaranteed amount as consideration, payable in common stock of the Part 135 air carrier, which will be recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income over the term of the guarantee. The Company also recorded the estimated credit loss associated with the guarantee in “Other long-term liabilities” on the Company’s consolidated balance sheet based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.