XML 27 R17.htm IDEA: XBRL DOCUMENT v3.22.2.2
Commitments and Contingencies
 9 Months Ended
Sep. 30, 2022
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
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 (the “CARES Act”). In February 2021, OAI was approved for $37.4 million of additional non-repayable government funds pursuant to a payroll support program agreement under 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 funds pursuant to a payroll support program agreement under the American Rescue Plan Act of 2021 (the "American Rescue Plan").
The three programs are structured in a substantially similar manner. These grants are not required to be repaid if the Company complies with the provisions of the payroll support program agreements under the CARES Act, the PSP Extension Law and the American Rescue Plan. 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 recognized the grants as contra-expense during the periods in which passenger flight operations and combi flight operations levels were expected to be negatively impacted by the pandemic. During the three month and nine month periods ended September 30, 2021, the Company recognized $30.3 million and $96.6 million of the grants, respectively. The Company recognized all of the CARES Act funds by the end of 2021.
In conjunction with the payroll support program agreements under the CARES Act, OAI and ATI agreed on behalf of themselves and ABX to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020. Thereafter, OAI agreed as a condition of receiving grants under the PSP Extension Law and the American Rescue Plan to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through March 31, 2021, and September 30, 2021, respectively. Under the CARES Act, OAI and ATI agreed to limit, on behalf of themselves and certain affiliates, executive compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by the DOT 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 as a condition of receiving grants under the PSP Extension Law and thereafter the American Rescue Plan, to limit executive compensation through October 1, 2022 and April 1, 2023, respectively. In addition, the Company agreed to refrain from paying dividends or repurchasing its shares through September 30, 2022. The Company has repurchased approximately 1.6 million shares of its common stock since the restrictions expired on September 30, 2022.
Lease Commitments
The Company leases property, aircraft, aircraft engines and other types of equipment under operating leases. The Company's airlines operate ten freighter aircraft provided by customers and four passenger aircraft leased from external companies. 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, 2022 and 2021, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $15.9 million and $8.3 million, respectively. 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, 2022 was 2.4% compared to 2.4% at December 31, 2021. 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. The weighted-average remaining lease term is 3.3 years and 3.8 years as of September 30, 2022 and December 31, 2021, respectively.
For the nine month periods ending September 30, 2022 and 2021, cash payments against operating lease liabilities were $16.9 million and $15.4 million, respectively. As of September 30, 2022, the maturities of operating lease liabilities are as follows (in thousands):
Operating Leases
Remaining 2022$6,000 
202322,216 
202417,006 
202512,302 
20266,734 
2027 and beyond541 
Total undiscounted cash payments64,799 
Less: amount representing interest(2,339)
Present value of future minimum lease payments62,460 
Less: current obligations under leases21,879 
Long-term lease obligation$40,581 
Purchase Commitments
The Company has agreements with vendors for the conversion of Boeing 767-300, Airbus A321 and Airbus A330 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, 2022, the Company owned fourteen Boeing 767-300 aircraft and seven Airbus A321-200 aircraft that were in or awaiting the modification process. As of September 30, 2022, the Company has agreements to purchase seventeen more Boeing 767-300 aircraft, two more Airbus A321 passenger aircraft and six Airbus A330 passenger aircraft through 2024. As of September 30, 2022, the Company's commitments to acquire and complete the conversion of these aircraft totaled $781.7 million, including estimated payments of $441.1 million through 2023 and the remaining payments through 2026. Actual conversion payments will be based on the achievement of progress milestones.
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.
Employees Under Collective Bargaining Agreements
As of September 30, 2022, 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:
AirlineLabor Agreement UnitPercentage of
the Company’s
Employees
ABXInternational Brotherhood of Teamsters5.9%
ATIAir Line Pilots Association9.9%
OAIInternational Brotherhood of Teamsters5.9%
ATIAssociation of Flight Attendants0.8%
OAIAssociation of Flight Attendants5.6%
The labor agreements with ATI 's flight crew members and Omni's flight crew members are amendable at this time. Under the Railway Labor Act, as amended, airline labor agreements do not expire, so the existing contract remains in effect throughout the negotiation process.
Hangar Foam Discharge
On August 7, 2022 the fire suppression system at one of the Company's aircraft maintenance hangars in Wilmington, Ohio malfunctioned and discharged a significant amount of expansive foam. The event impacted employees, three aircraft and equipment in and around the hangar at the time of discharge. The hangar resumed operations after approximately three weeks while the cause of the incident was investigated and the hangar was cleaned and restored. While one aircraft was returned to service, the timeframes needed to return two of the aircraft and related engines to operating condition are not known at this time. The Company maintains insurance for employee claims, remediation expenses, property and equipment damage, customer claims and business interruption subject to customary deductibles and policy limits. The anticipated insurance recoveries related to clean-up expenses, remediation, part repairs and property damages are recorded when receipt is probable. Insurance recoveries in excess of the net book value of the damaged operating assets and for business interruption claims are recorded when all contingencies related to the claim have been resolved. Through September 30, 2022 the Company has recognized charges in operating income, net of recorded insurance recoveries, of $1.0 million for employee coverage, property damage, clean-up and repairs. Work to determine the extent of the damages, business disruption losses, other claims and insurance recoveries is ongoing.
Other
The Company is 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.