Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

CARES Act

Two of the Company's airline subsidiaries, OAI and ATI, have been granted government funds totaling $75.4 million pursuant to payroll support program agreements under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The grants were received between May and September 2020. The grants are not required to be repaid if the Company complies with provisions of the CARES Act and the payroll support program agreements. The grants are recognized over the periods in which the Company recognizes the related expenses for which the grants are intended to compensate.

The Company received $75.4 million of grant funds under the CARES Act payroll support program. The Company recognizes the grants as contra-expense during the periods in which passenger flight operations and combi flight operations levels are expected to be negatively impacted by the pandemic. During the three and nine month periods ended September 30, 2020, the Company recognized $21.7 million and $31.5 million, respectively, of the grants and deferred recognition of $43.9 million. The Company expects to recognize all of the CARES Act funds by June of 2021.

In conjunction with the payroll support program agreements, the airlines agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and certain of their affiliates, executive compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, the Company may not pay dividends or repurchase its shares through September 30, 2021.

Lease Commitments

The Company leases property, five aircraft, aircraft engines and other types of equipment under operating leases. Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and lease terms ranging from one month to six years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable lease expense when incurred and are not material. Equipment leases include ground support and industrial equipment as well as computer hardware with fixed rent payments and terms of one month to five years.

The Company records the initial right-to-use asset and lease liability at the present value of lease payments scheduled during the lease term. For the nine month period ending September 30, 2020, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $26.4 million compared to $15.7 million for the corresponding period of 2019. Unless the rate implicit in the lease is readily determinable, the Company discounts the lease payments using an estimated incremental borrowing rate at the time of lease commencement. The Company estimates the incremental borrowing rate based on the information available at the lease commencement date, including the rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company's weighted-average discount rate for operating leases at September 30, 2020 was 3.5% compared to 4.7% at December 31, 2019. Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Although not material, the amount of such options is reflected below in the maturity of operating lease liabilities table. Lease expense is recognized on a straight-line basis over the lease term. Our weighted-average remaining lease term is 4.4 years and 4.6 years as of September 30, 2020 and December 31, 2019, respectively.

For the nine month periods ended September 30, 2020 and 2019, cash payments against operating lease liabilities were $12.8 million and $15.5 million, respectively. As of September 30, 2020, the maturities of operating lease liabilities are as follows (in thousands):


	Operating Leases
Remaining 2020	$	4,378
2021	15,277
2022	11,291
2023	9,943
2024	8,776
2025 and beyond	7,303
Total undiscounted cash payments	56,968
Less: amount representing interest	(4,064)
Present value of future minimum lease payments	52,904
Less: current obligations under leases	14,551
Long-term lease obligation	$	38,353

The Company expects to lease one additional passenger aircraft and an additional facility commencing later in 2020 that is not reflected in the table above.

Purchase Commitments

The Company has agreements with Israel Aerospace Industries Ltd. ("IAI") for the conversion of Boeing 767 passenger aircraft into a standard configured freighter aircraft. The conversions primarily consist of the installation of a standard cargo door and loading system. As of September 30, 2020, the Company had nine aircraft that were in or awaiting the modification process. The Company had placed non-refundable deposits of $25.8 million to purchase six more Boeing 767-300 passenger aircraft through 2021. As of September 30, 2020, the Company's commitments to acquire and convert aircraft totaled $176.2 million through 2021.

Guarantees and Indemnifications

Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.

Other

In addition to the foregoing matters, the Company is also a party to legal proceedings in various federal and state jurisdictions from time to time arising out of the operation of the Company's business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, the Company believes that its ultimate liability, if any, arising from pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations.

Employees Under Collective Bargaining Agreements

As of September 30, 2020, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:


Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	4.7%
ATI	Air Line Pilots Association	8.4%
OAI	International Brotherhood of Teamsters	7.0%
ATI	Association of Flight Attendants	0.7%
OAI	Association of Flight Attendants	7.6%