Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

CARES Act and Payroll Support Programs

During 2020, two of the Company's airline subsidiaries, OAI and ATI, received government funds totaling $75.8 million pursuant to payroll support program agreements under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). In February of 2021, OAI was approved for $37.4 million of additional non-repayable government funds pursuant to a payroll support program agreement under Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021 (the “PSP Extension Law”). This grant was subsequently increased by $5.6 million. Further, in April 2021, OAI was approved for $40.0 million of additional non-repayable government grants pursuant to a payroll support program agreement under section 7301 of the American Rescue Plan Act of 2021 (the “American Act”).

The three programs are structured in a substantially similar manner. These grants are not required to be repaid if the Company complies with provisions of the CARES Act, the PSP Extension Law, the American 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 recognizes the grants as contra-expense during the periods in which passenger flight operations and combi flight operations are expected to be negatively impacted by the pandemic. During the three and nine month periods ended September 30, 2021, the Company recognized $30.3 million and $96.6 million of the grants, respectively. The Company expects to recognize all of grant funds into earnings by December 31, 2021. As of September 30, 2021, grants approved and received but not recognized totaled $15.0 million.

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. OAI further agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2021. The airlines agreed to 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 funds and comply with certain reporting requirements. OAI further agreed to limit executive compensation through April 1, 2023. In addition, the Company may not pay dividends or repurchase its shares through September 30, 2022.

Lease Commitments

The Company leases property, eight 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, 2021, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $8.3 million compared to $26.4 million for the corresponding period of 2020. 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, 2021 was 2.51% compared to 2.9% at December 31, 2020. 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 3.9 years and 4.5 years as of September 30, 2021 and December 31, 2020, respectively.

For the nine month periods ended September 30, 2021 and 2020, cash payments against operating lease liabilities were $15.4 million and $12.8 million, respectively. As of September 30, 2021, the maturities of operating lease liabilities are as follows (in thousands):


	Operating Leases
Remaining 2021	$	4,884
2022	18,017
2023	16,339
2024	12,841
2025	9,080
2026 and beyond	3,591
Total undiscounted cash payments	64,752
Less: amount representing interest	(2,999)
Present value of future minimum lease payments	61,753
Less: current obligations under leases	17,292
Long-term lease obligation	$	44,461

Purchase Commitments

The Company has agreements with vendors for the conversion of Boeing 767-300, Airbus A321 and Airbus A330 passenger aircraft into standard configured freighter aircraft. The conversions primarily consist of the installation of a standard cargo door and loading system. As of September 30, 2021, the Company owned fifteen Boeing 767-300 aircraft and one Airbus A321-200 aircraft that were in or awaiting the modification process. As of September 30, 2021, the Company has agreements to purchase twelve more Boeing 767-300 passenger aircraft and two Airbus 321-200 passenger aircraft through 2024. As of September 30, 2021, the Company's commitments to acquire aircraft and convert them totaled $412.8 million.

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, 2021, the flight crewmember employees of ABX, ATI and Omni and flight attendant employees of ATI and Omni were represented by the labor unions listed below:


Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	4.8%
ATI	Air Line Pilots Association	9.2%
OAI	International Brotherhood of Teamsters	6.2%
ATI	Association of Flight Attendants	0.6%
OAI	Association of Flight Attendants	5.8%