LEASES

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

LEASES

LEASES

The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. As allowed under ASC 842, Leases, the Company has elected a practical expedient to exclude from recognition lease assets and lease liabilities associated with leases that have an initial term of twelve months or less. Such expense was not material for the twelve months ended December 31, 2022, 2021, and 2020.

As of December 31, 2022, the Company held aircraft leases with remaining terms extending up to 11 years. The aircraft leases generally can be renewed for three months to three years at rates based on the fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material.

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 -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 737-8 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. For 2020, the 737-800 and 737-8 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 Income (Loss).

On December 5, 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms. As each aircraft purchase is finalized, the Company relieves its related lease liability and will continue to recognize the cost of the aircraft within Property and equipment section in the Consolidated Balance Sheet. As of December 31, 2022, the Company completed the purchase of 31 aircraft, with the remaining eight aircraft expected to be finalized by the end of February 2023. The Company paid the lessor $365 million as part of this transaction, of which $191 million was recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows. The remaining $174 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for 2022. Upon completion of this purchase, the Company will have 28 finance leased aircraft remaining. There was no gain or loss recorded as a result of these transactions.

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 remaining lease terms extending up to 38 years. Certain leases can be renewed from one year to 11 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. Because of the variable nature of these rates, these leases are not recorded as a right-of-use asset or a lease liability 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 with lease terms extending up to four years. Certain leases can be renewed from six months to three years.

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

(in millions)	Balance Sheet location	December 31, 2022		December 31, 2021
Assets
Operating	Operating lease right-of-use assets (net)	$	1,394	$	1,590
Finance	Property and equipment (net of allowance for depreciation and amortization of $634 million and $679 million)	297		556
Total lease assets		$	1,691	$	2,146
Liabilities
Current
Operating	Current operating lease liabilities	$	225	$	239
Finance	Current maturities of long-term debt	42		82
Noncurrent
Operating	Noncurrent operating lease liabilities	1,118		1,315
Finance	Long-term debt less current maturities	147		377
Total lease liabilities		$	1,532	$	2,013

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Operating lease cost - aircraft (a)	$	188	$	204	$	216
Operating lease cost - other	84		81		89
Short-term lease cost	2		1		1
Variable lease cost	1,447		1,406		1,260
Amortization of finance lease liabilities	106		112		113
Interest on finance lease liabilities	15		19		22
Total net lease cost	$	1,842	$	1,823	$	1,701

(a) Net of sublease income of $17 million, $41 million, and $78 million for the years ended December 31, 2022, 2021, and 2020.

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	303	$	346	$	398
Operating cash flows for finance leases	16		19		22
Financing cash flows for finance leases	78		83		85
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	58		327		915

As of December 31, 2022, maturities of lease liabilities were as follows:

(in millions)	Operating leases		Finance leases
2023	$	266	$	49
2024	228		46
2025	187		33
2026	178		24
2027	174		22
Thereafter	522		36
Total lease payments	$	1,555	$	210
Less imputed interest	(212)		(21)
Total lease obligations	1,343		189
Less current obligations	(225)		(42)
Long-term lease obligations	$	1,118	$	147

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

Weighted average remaining lease term	December 31, 2022		December 31, 2021
Operating leases	8 years		8 years
Finance leases	6 years		6 years
Weighted average discount rate
Operating leases (a)	3.6	%	3.5	%
Finance leases	3.9	%	3.8	%

LEASES

LEASES

The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. As allowed under ASC 842, Leases, the Company has elected a practical expedient to exclude from recognition lease assets and lease liabilities associated with leases that have an initial term of twelve months or less. Such expense was not material for the twelve months ended December 31, 2022, 2021, and 2020.

As of December 31, 2022, the Company held aircraft leases with remaining terms extending up to 11 years. The aircraft leases generally can be renewed for three months to three years at rates based on the fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material.

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 -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 737-8 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. For 2020, the 737-800 and 737-8 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 Income (Loss).

On December 5, 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms. As each aircraft purchase is finalized, the Company relieves its related lease liability and will continue to recognize the cost of the aircraft within Property and equipment section in the Consolidated Balance Sheet. As of December 31, 2022, the Company completed the purchase of 31 aircraft, with the remaining eight aircraft expected to be finalized by the end of February 2023. The Company paid the lessor $365 million as part of this transaction, of which $191 million was recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows. The remaining $174 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for 2022. Upon completion of this purchase, the Company will have 28 finance leased aircraft remaining. There was no gain or loss recorded as a result of these transactions.

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 remaining lease terms extending up to 38 years. Certain leases can be renewed from one year to 11 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. Because of the variable nature of these rates, these leases are not recorded as a right-of-use asset or a lease liability 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 with lease terms extending up to four years. Certain leases can be renewed from six months to three years.

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

(in millions)	Balance Sheet location	December 31, 2022		December 31, 2021
Assets
Operating	Operating lease right-of-use assets (net)	$	1,394	$	1,590
Finance	Property and equipment (net of allowance for depreciation and amortization of $634 million and $679 million)	297		556
Total lease assets		$	1,691	$	2,146
Liabilities
Current
Operating	Current operating lease liabilities	$	225	$	239
Finance	Current maturities of long-term debt	42		82
Noncurrent
Operating	Noncurrent operating lease liabilities	1,118		1,315
Finance	Long-term debt less current maturities	147		377
Total lease liabilities		$	1,532	$	2,013

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Operating lease cost - aircraft (a)	$	188	$	204	$	216
Operating lease cost - other	84		81		89
Short-term lease cost	2		1		1
Variable lease cost	1,447		1,406		1,260
Amortization of finance lease liabilities	106		112		113
Interest on finance lease liabilities	15		19		22
Total net lease cost	$	1,842	$	1,823	$	1,701

(a) Net of sublease income of $17 million, $41 million, and $78 million for the years ended December 31, 2022, 2021, and 2020.

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	303	$	346	$	398
Operating cash flows for finance leases	16		19		22
Financing cash flows for finance leases	78		83		85
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	58		327		915

As of December 31, 2022, maturities of lease liabilities were as follows:

(in millions)	Operating leases		Finance leases
2023	$	266	$	49
2024	228		46
2025	187		33
2026	178		24
2027	174		22
Thereafter	522		36
Total lease payments	$	1,555	$	210
Less imputed interest	(212)		(21)
Total lease obligations	1,343		189
Less current obligations	(225)		(42)
Long-term lease obligations	$	1,118	$	147

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

Weighted average remaining lease term	December 31, 2022		December 31, 2021
Operating leases	8 years		8 years
Finance leases	6 years		6 years
Weighted average discount rate
Operating leases (a)	3.6	%	3.5	%
Finance leases	3.9	%	3.8	%

LEASES

LEASES

The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. As allowed under ASC 842, Leases, the Company has elected a practical expedient to exclude from recognition lease assets and lease liabilities associated with leases that have an initial term of twelve months or less. Such expense was not material for the twelve months ended December 31, 2022, 2021, and 2020.

As of December 31, 2022, the Company held aircraft leases with remaining terms extending up to 11 years. The aircraft leases generally can be renewed for three months to three years at rates based on the fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material.

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 -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 737-8 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. For 2020, the 737-800 and 737-8 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 Income (Loss).

On December 5, 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms. As each aircraft purchase is finalized, the Company relieves its related lease liability and will continue to recognize the cost of the aircraft within Property and equipment section in the Consolidated Balance Sheet. As of December 31, 2022, the Company completed the purchase of 31 aircraft, with the remaining eight aircraft expected to be finalized by the end of February 2023. The Company paid the lessor $365 million as part of this transaction, of which $191 million was recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows. The remaining $174 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for 2022. Upon completion of this purchase, the Company will have 28 finance leased aircraft remaining. There was no gain or loss recorded as a result of these transactions.

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 remaining lease terms extending up to 38 years. Certain leases can be renewed from one year to 11 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. Because of the variable nature of these rates, these leases are not recorded as a right-of-use asset or a lease liability 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 with lease terms extending up to four years. Certain leases can be renewed from six months to three years.

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

(in millions)	Balance Sheet location	December 31, 2022		December 31, 2021
Assets
Operating	Operating lease right-of-use assets (net)	$	1,394	$	1,590
Finance	Property and equipment (net of allowance for depreciation and amortization of $634 million and $679 million)	297		556
Total lease assets		$	1,691	$	2,146
Liabilities
Current
Operating	Current operating lease liabilities	$	225	$	239
Finance	Current maturities of long-term debt	42		82
Noncurrent
Operating	Noncurrent operating lease liabilities	1,118		1,315
Finance	Long-term debt less current maturities	147		377
Total lease liabilities		$	1,532	$	2,013

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Operating lease cost - aircraft (a)	$	188	$	204	$	216
Operating lease cost - other	84		81		89
Short-term lease cost	2		1		1
Variable lease cost	1,447		1,406		1,260
Amortization of finance lease liabilities	106		112		113
Interest on finance lease liabilities	15		19		22
Total net lease cost	$	1,842	$	1,823	$	1,701

(a) Net of sublease income of $17 million, $41 million, and $78 million for the years ended December 31, 2022, 2021, and 2020.

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

(in millions)	Year ended December 31, 2022		Year ended December 31, 2021		Year ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	303	$	346	$	398
Operating cash flows for finance leases	16		19		22
Financing cash flows for finance leases	78		83		85
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	58		327		915

As of December 31, 2022, maturities of lease liabilities were as follows:

(in millions)	Operating leases		Finance leases
2023	$	266	$	49
2024	228		46
2025	187		33
2026	178		24
2027	174		22
Thereafter	522		36
Total lease payments	$	1,555	$	210
Less imputed interest	(212)		(21)
Total lease obligations	1,343		189
Less current obligations	(225)		(42)
Long-term lease obligations	$	1,118	$	147

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

Weighted average remaining lease term	December 31, 2022		December 31, 2021
Operating leases	8 years		8 years
Finance leases	6 years		6 years
Weighted average discount rate
Operating leases (a)	3.6	%	3.5	%
Finance leases	3.9	%	3.8	%