Leases, Commitments, Guarantees and Contingencies

9 Months Ended

Sep. 30, 2024

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

As of September 30, 2024, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased eight aircraft under long-term lease agreements with remaining terms ranging from five to six 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 32 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 September 30, 2024, the Company’s right-of-use assets were $85.3 million, the Company’s current maturities of operating lease liabilities were $18.5 million, and the Company’s noncurrent lease liabilities were $66.8 million. During the nine months ended September 30, 2024, the Company paid $16.7 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of September 30, 2024:

Weighted-average remaining lease term for operating leases	11.4 years
Weighted-average discount rate for operating leases	6.3%

The Company’s lease costs for the three and nine months ended September 30, 2024 and 2023 included the following components (in thousands):

	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Operating lease cost	$	6,583	$	7,959	$	20,500	$	40,764
Variable and short-term lease cost		453		868		2,029		2,205
Sublease income		(1,268)		(1,350)		(3,782)		(4,051)
Total lease cost	$	5,768	$	7,477	$	18,747	$	38,918

As of September 30, 2024, 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 will be renewed or replaced by other leases. The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2024 (in thousands):

October 2024 through December 2024	$	5,272
2025		18,356
2026		16,545
2027		14,002
2028		11,012
Thereafter		62,392
Total future minimum operating lease payments	$	127,579

As of September 30, 2024, the Company had a firm purchase commitment for 20 E175 aircraft from Embraer with anticipated delivery dates through 2026. Additionally, the Company has a purchase agreement to acquire 11 used CRJ550 aircraft with anticipated closing dates into 2025. One of such CRJ550 aircraft was acquired during the three months ended September 30, 2024.

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

	Total		Oct- Dec 2024		2025		2026		2027		2028		Thereafter
Operating lease payments for aircraft and facility obligations	$	127,579	$	5,272	$	18,356	$	16,545	$	14,002	$	11,012	$	62,392
Firm aircraft and spare engine commitments		610,752		135,217		239,125		236,410		—		—		—
Interest commitments (1)		389,176		26,093		98,184		78,324		56,382		40,955		89,238
Principal maturities on long-term debt		2,714,421		114,907		534,315		512,046		465,695		294,352		793,106
Total commitments and obligations	$	3,841,928	$	281,489	$	889,980	$	843,325	$	536,079	$	346,319	$	944,736

(1) At September 30, 2024, the Company’s long-term debt had fixed interest rates.

In addition to the table above, in September 2024, the Company entered into a master equipment purchase agreement with another airline to acquire certain airframes and engines from the airline and lease the assets back to the airline under a five-year term. At September 30, 2024, the Company had not acquired any airframes or engines under the master equipment purchase agreement. The Company estimates the purchase obligation will be between $90.0 million and $100.0 million and anticipates closing on individual airframes and engines between the fourth quarter of 2024 and the end of 2025.

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. In exchange for providing the guarantee, the Company received 6.5% of the guaranteed amount as consideration, payable in the estimated value of common stock of the Part 135 air carrier, all of which was sold in 2023. The balance of the debt under the guarantee was $14.4 million as of September 30, 2024.

In 2023, the Company agreed to guarantee up to $12.0 million of debt for an aviation school. The debt is secured by the school’s aircraft and engines and has a five-year term. In exchange for providing the guarantee, the Company receives 2.0% of the guaranteed amount annually as consideration in cash. The balance of the debt under the guarantee was $11.2 million as of September 30, 2024.

The purpose of these guarantees is to help reduce the financing costs of aircraft for the third-parties in an effort to increase the potential number of commercial pilots in the Company’s hiring pipeline. The Company also recorded the estimated credit loss associated with the guarantees based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.