LEASES

12 Months Ended

Dec. 31, 2020

LEASESThe Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. The accounting for these leases follows the requirements of the New Lease Standard, which the Company adopted as of January 1, 2019. See Note 3 for further information.

As of December 31, 2020, the Company held aircraft leases with remaining terms ranging from one month to 13 years. The aircraft leases generally can be renewed for three months to six years at rates based on fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material. On July 9, 2012, the Company signed an agreement with Delta Air Lines, Inc. and Boeing Capital Corp. to lease or sublease 88 AirTran Airways, Inc. Boeing 717-200 aircraft ("B717s") to Delta at agreed-upon lease rates. Eight and 20 operating leases expired during 2019 and 2020, respectively. Ten owned B717s were sold in 2019. The proceeds from the sale, which were not material, were netted within Capital expenditures in the Consolidated Statement of Cash Flows. Excluding the 20 aircraft for which operating leases expired during 2020, the following remained: 45 on operating leases and two on finance leases. The sublease terms for the 45 B717s on operating lease and the two B717s on finance lease coincide with the Company's remaining lease terms for these aircraft from the original lessor, which have remaining lease terms ranging from approximately one month to four years. The Company's future sublease income associated with the 45 B717s on operating lease as of December 31, 2020, was as follows: $41 million in 2021, $17 million in 2022, $7 million in 2023, and $1 million in 2024. The two B717s classified by the Company as finance leases are accounted for as direct financing leases, and the remaining 45 subleases are accounted for as operating leases. There are no contingent payments and no significant residual value conditions associated with the transaction.

In second quarter 2020, the Company entered into transactions with third parties, involving ten of the Company’s Boeing 737-800 aircraft and ten of the Company's Boeing 737 MAX 8 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance. The Company sold the ten 737-800 aircraft to a third party for $405 million, then immediately leased the aircraft back for approximately ten years. The Company sold the ten 737 MAX 8 aircraft to a third party for $410 million, then immediately leased the aircraft back for approximately 13 years. As such, the aircraft were de-recognized from Property and equipment at their remaining net book values. All of the leases from the sale-leasebacks are accounted for as operating leases, and thus are now reflected as part of the Company’s Operating lease right-of-use assets and operating lease liabilities in the accompanying Consolidated Balance Sheet. The 737-800 and 737 MAX 8 sale-leaseback transactions resulted in a recognized gain of $153 million and $69 million, respectively, reflected within Other operating expenses, net in the accompanying Consolidated Statement of Comprehensive Income (Loss).

At each airport where the Company conducts flight operations, the Company has lease agreements, generally with a governmental unit or authority, for the use of airport terminals, airfields, office space, cargo warehouses, gates, and/or maintenance facilities. These leases are classified as operating lease agreements and have lease terms remaining ranging from one month to 40 years. Certain leases can be renewed from 6 months to ten years. The majority of the airport terminal leases contain certain provisions for periodic adjustments to rates that depend upon airport operating costs or use of the facilities, and are reset at least annually. Due to the nature and variability of the rates, the majority of these leases are not recorded on the Consolidated Balance Sheet.

The Company also leases certain technology assets, fuel storage tanks, and various other equipment that qualify as leases under the applicable accounting guidance. The remaining lease terms range from three months to six years. Certain leases can be renewed from six months to five years.

Lease-related assets and liabilities recorded on the Consolidated Balance Sheet were as follows:


(in millions)	Balance Sheet location	December 31, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use assets (net)	$	1,892	$	1,349
Finance	Property and equipment (net of allowance for depreciation and amortization of $567 and $455)	667		779
Total lease assets		$	2,559	$	2,128

Liabilities
Current
Operating	Current operating lease liabilities	$	306	$	353
Finance	Current maturities of long-term debt	83		85
Noncurrent
Operating	Noncurrent operating lease liabilities	1,562		978
Finance	Long-term debt less current maturities	459		542
Total lease liabilities		$	2,410	$	1,958

The components of lease costs, included in the Consolidated Statement of Comprehensive Income (Loss), were as follows:


(in millions)	Statement of Comprehensive Income (Loss) location	Year ended December 31, 2020		Year ended December 31, 2019
Operating lease cost - aircraft (a)	Other operating expenses	$	216	$	182
Operating lease cost - other	Landing fees and airport rentals, and Other operating expenses	89		89
Short-term lease cost	Other operating expenses	1		4
Variable lease cost	Landing fees and airport rentals, and Other operating expenses	1,260		1,377
Finance lease cost:
Amortization of lease liabilities	Depreciation and amortization	113		116
Interest on lease liabilities	Interest expense	22		26
Total net finance lease cost		$	135	$	142

(a) Net of sublease income of $78 million and $97 million for the years ended December 31, 2020 and 2019.

Supplemental cash flow information related to leases, included in the Consolidated Statement of Cash Flows, was as follows:


(in millions)	Year ended December 31, 2020		Year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	398	$	379
Operating cash flows for finance leases	22		26
Financing cash flows for finance leases	85		85
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	915		230
Finance leases	—		1

As of December 31, 2020, maturities of lease liabilities were as follows:


(in millions)	Operating leases		Finance leases
2021	$	371	$	102
2022	253		98
2023	219		94
2024	193		90
2025	156		74
Thereafter	1,156		156
Total lease payments	$	2,348	$	614
Less imputed interest	(480)		(72)
Total lease obligations	1,868		542
Less current obligations	(306)		(83)
Long-term lease obligations	$	1,562	$	459

The table below presents additional information related to the Company's leases:



Weighted average remaining lease term	December 31, 2020		December 31, 2019
Operating leases	10 years		9 years
Finance leases	7 years		8 years

Weighted average discount rate
Operating leases (a)	3.8	%	3.7	%
Finance leases	3.8	%	3.8	%

(a) Upon adoption of the New Lease Standard, the incremental borrowing rate used for existing leases was established as of January 1, 2019.

As of December 31, 2020, the Company had additional operating lease commitments that had not yet commenced of approximately $291 million for nine Boeing 737 MAX 8 aircraft contractually to be delivered in 2021, each with lease terms of nine years.