Note H - Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Commitments Contingencies and Guarantees [Text Block]

NOTE H—COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases property, aircraft, aircraft engines and other types of equipment under operating leases. The Company's airlines operate 16 freighter aircraft provided by customers and five 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 nine 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 three months ended March 31, 2024 and 2023, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $0.5 million and $0.4 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 March 31, 2024 and December 31, 2023 was 4.1% and 4.0%, respectively. 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 3.8 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024 and 2023, cash payments against operating lease liabilities were $5.9 million and $6.6 million, respectively. As of March 31, 2024, the maturities of operating lease liabilities are as follows (in thousands):

	Operating Leases
2024	$	16,115
2025		15,659
2026		8,962
2027		4,673
2028		3,526
2029 and beyond		5,730
Total undiscounted cash payments		54,665
Less: amount representing interest		(4,468	)
Present value of future minimum lease payments		50,197
Less: current obligations under leases		18,947
Long-term lease obligation	$	31,250

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 March 31, 2024, the Company owned thirteen Boeing 767-300 aircraft, six Airbus A321-200 aircraft and five Airbus A330 aircraft that were in or awaiting the modification process. As of March 31, 2024, the Company has agreements to purchase three more Boeing 767-300 aircraft and five Airbus A330-300 passenger aircraft through 2025. As of March 31, 2024, the Company's commitments to acquire aircraft and convert these aircraft totaled $478.1 million, including estimated payments of $116.7 million through the remainder of 2024 and the remaining payments through 2026. Actual conversion payments will be based on the achievement of progress milestones.  The Company also has access to 20 additional slots for aircraft modifications with inductions between 2025 and the end of 2027.  The Company's costs related to such aircraft modifications could vary based on the Company's election to utilize the modification slot, the timing of such election, the aircraft type and the vendor.

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 its financial condition or results of operations.

Employees Under Collective Bargaining Agreements

As of March 31, 2024, 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:

		Percentage of
		the Company’s
Airline	Labor Agreement Unit	Employees
ABX	International Brotherhood of Teamsters	5.1	%
ATI	Air Line Pilots Association	11.7	%
OAI	International Brotherhood of Teamsters	6.4	%
ATI	Association of Flight Attendants	0.8	%
OAI	Association of Flight Attendants	6.6	%

In addition, OAI has less than 20 flight dispatchers that are represented by a recognized labor unit and are beginning to negotiate a collective bargaining agreement.