Leases, Commitments, Guarantees and Contingencies

6 Months Ended

Jun. 30, 2023

Leases, Commitments, Guarantees and Contingencies

Leases, Commitments, Guarantees and Contingencies

(7) 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 six months ended June 30, 2023, the Company acquired 32 CRJ aircraft under an early lease buyout arrangement with the lessor for $125.5 million. As of June 30, 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 seven 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 June 30, 2023, the Company’s right-of-use assets were $92.8 million, the Company’s current maturities of operating lease liabilities were $18.7 million, and the Company’s noncurrent lease liabilities were $73.9 million. During the six months ended June 30, 2023, the Company paid $17.9 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of June 30, 2023:

Weighted-average remaining lease term for operating leases	9.7 years
Weighted-average discount rate for operating leases	6.1%

The Company’s lease costs for the three and six months ended June 30, 2023 and 2022 included the following components (in thousands):

	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	7,857	$	21,822	$	32,805	$	43,663
Variable and short-term lease cost		534		805		1,337		1,822
Sublease income		(1,351)		(1,845)		(2,701)		(3,648)
Total lease cost	$	7,040	$	20,782	$	31,441	$	41,837

As of June 30, 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 June 30, 2023 (in thousands):

July 2023 through December 2023	$	9,846
2024		22,266
2025		17,188
2026		13,509
2027		12,316
Thereafter		54,344
Total future minimum operating lease payments	$	129,469

As of June 30, 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		Jul - Dec 2023		2024		2025		2026		2027		Thereafter
Operating lease payments for aircraft and facility obligations	$	129,469	$	9,846	$	22,266	$	17,188	$	13,509	$	12,316	$	54,344
Firm aircraft and spare engine commitments		127,337		72,670		26,896		27,771		—		—		—
Interest commitments (1)		515,372		64,590		115,322		95,225		75,663		54,039		110,533
Principal maturities on long-term debt		3,212,622		223,985		444,898		529,506		507,629		461,083		1,045,521
Total commitments and obligations	$	3,984,800	$	371,091	$	609,382	$	669,690	$	596,801	$	527,438	$	1,210,398

(1) At June 30, 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.