Financing Activities

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

FINANCING ACTIVITIES

FINANCING ACTIVITIES

On May 1, 2020, the Company completed the public offering of $2.3 billion aggregate principal amount of Convertible Senior Notes (the "Convertible Notes"). The Convertible Notes bear interest at a rate of 1.25% and will mature on May 1, 2025. Interest on the notes is payable semi-annually in arrears.

Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering documents. The Convertible Notes did not meet the criteria to be converted as of the date of the financial statements, and thus are classified as Long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2023. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. The Company intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in cash or shares of common stock. The initial conversion rate was 25.9909 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $38.48 per share of common stock). However, based on the Company's cash dividends paid in January 2023 and March 2023, the bond conversion rate changed to 26.1250 on January 9, 2023,

and changed to 26.2650 on March 7, 2023. The net carrying amount and principal amount of the Convertible Notes was $1.6 billion as of March 31, 2023 and December 31, 2022.

The Company recognized interest expense associated with the Convertible Notes as follows:

	Three months ended March 31,
(in millions)	2023		2022
Non-cash amortization of debt issuance costs	3		3
Contractual coupon interest	5		6
Total interest expense	$	8	$	9

The unamortized debt issuance costs are being recognized as non-cash interest expense based on the 5-year term of the notes, through May 1, 2025, less amounts that were or will be required to be accelerated immediately upon conversion or repurchases. The Company had no changes to contingencies during the three months ended March 31, 2023. The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three months ended March 31, 2023.

The following table presents the impact of the partial extinguishment of the Company's Convertible Notes and early prepayment of debt (excluding payments on finance leases) for the three months ended March 31, 2022. No such instances of partial extinguishment or early prepayment of debt occurred for the three months ended March 31, 2023.

	Three months ended March 31, 2022
(in millions)	Cash paid for debt and interest		Principal repayment		Loss on extinguishment		Non-cash amortization of debt discount and (issuance) costs		Accrued Interest
1.25% Convertible Notes due 2025	$	230	$	164	$	69	$	(3)	$	—
5.125% Notes due 2027	34		30		3		—		1
Total	$	264	$	194	$	72	$	(3)	$	1

The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended A&R Credit Agreement"). In July 2022, this facility was amended to extend the expiration date to August 2025 and to change the benchmark rate from LIBOR to the Secured Overnight Financing Rate ("SOFR"). For the three months ended March 31, 2023 and 2022, there were no amounts outstanding under the Amended A&R Credit Agreement.

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 was purchased, the Company relieved its related lease liability but continues to recognize the cost of the aircraft within Property and equipment in the unaudited Condensed Consolidated Balance Sheet. As of March 31, 2023, the Company had completed the purchase of all 39 aircraft, including the 31 aircraft purchased in 2022. The Company paid the lessor $88 million as part of this transaction for the remaining eight aircraft in first quarter 2023, of which $50 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 unaudited Condensed Consolidated Statement of Cash Flows. The remaining $38 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for the three months ended March 31, 2023. The Company has 28 finance leased aircraft remaining. There was no gain or loss recorded as a result of these transactions.