Lease Obligations

6 Months Ended

Jun. 30, 2023

7. Lease Obligations

The Company reviewed all contracts and service agreements in effect for the three months ended June 30, 2023 for criteria meeting the definition of a lease within the frameworks of Topic 842 and Topic 606. Those that were determined to be a lease may contain both a lease and a

non-lease

component. In those instances, the Company elected to account for such components as a single lease component.

The Company’s operating lease activities are recorded in operating lease

right-of-use

assets, current portion of operating lease liability, and long-term operating lease liability on the

condensed

consolidated balance sheets. Air Wisconsin has operating leases with terms greater than

months for training simulators and facility space including office space and maintenance facilities. The remaining lease terms for training simulators and facility space vary from two months to 10.5 years. For leases of 12 months or less, the Company elected a short-term lease practical expedient for all leases, regardless of the underlying class of asset, that allows the lessee to not recognize a lease

right-of-use

asset or lease liability. As a result, the Company recognized lease payments for short-term leases as an expense on a straight-line basis over the lease term. 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 the lease payments over the lease term. The Company used Air Wisconsin’s incremental borrowing rate to discount the lease payments based on information available at lease inception. Air Wisconsin’s operating leases with lease rates that are variable based on operating costs, use of the facilities, or other variable factors were excluded from the Company’s

right-of-use

assets and operating lease liabilities in accordance with the applicable accounting guidance. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

Certain leases contain an option to extend or terminate the lease agreement. The Company evaluates each option prior to its expiration and may or may not exercise such option depending on conditions present at the time. At the inception of the lease, if it is reasonably certain that the Company will exercise an option to extend or terminate a lease, the Company considers the option in determining the classification and measurement of the lease. The Company expects that in the normal course of business operating leases that expire will be renewed or replaced by other leases.

As of June 30, 2023, the Company’s

right-of-use

assets were $11,113, the Company’s current maturities of operating lease liabilities were $4,199, and the Company’s long-term lease liabilities were $4,500. During the six months ended June 30, 2023, the Company paid $2,832 in operating lease payments, which are reflected as a reduction to operating cash flows.

The table below presents operating lease related terms and discount rates as of:


	June 30, 2023
Weighted-average remaining lease term		2.72 years
Weighted-average discount rate		5.92%

Components of lease costs were as follows for the periods presented:


	Three Months Ended June 30,					Six Months Ended June 30,

	2023			2022		2023			2022
Operating lease costs	$	1,489		$	1,472	$	2,958		$	2,946
Short-term lease costs		61			125		126			229
Variable lease costs		(76	)		60		(16	)		95

Total Lease Costs	$	1,474		$	1,657	$	3,068		$	3,270

Certain leases are subject to

non-cancellable

lease terms or may include variable rate increases tied to the consumer price index. One of our leases also provides that Air Wisconsin reimburse the lessor for Air Wisconsin’s

pro-rata

share of taxes and other operating expenses applicable to the leased property. During the second quarter of 2023, Air Wisconsin received a temporary rent concession due to construction at a leased facility, which is being recorded as negative variable rent. Rent expense recorded under all operating leases, inclusive of engine leases, was $1,474 and $1,657 in the three months ended June 30, 2023 and June 30, 2022, respectively. Rent expense recorded under all operating leases, inclusive of engine leases, was $3,068 and $3,270 for the six months ended June 30, 2023 and June 30, 2022, respectively.

The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining

non-cancelable

lease terms greater than

2 months as of June 30, 2023:


Fiscal Year	Amount
July 2023 through December 2023	$	2,826
2024		3,342
2025		2,609
2026		212
2027		75
Thereafter		358

Total lease payments		9,422

Less imputed interest		723
Total Lease Liabilities	$	8,699