Delaware | 91-1292054 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
19300 International Boulevard, Seattle, Washington 98188 |
Telephone: (206) 392-5040 |
Large accelerated filer T | Accelerated filer £ | Non-accelerated filer £ | Smaller reporting company £ |
• | our pending acquisition and the subsequent integration of Virgin America Inc. (Virgin America); |
• | the competitive environment in our industry; |
• | changes in our operating costs, primarily fuel, which can be volatile; |
• | general economic conditions, including the impact of those conditions on customer travel behavior; |
• | our ability to meet our cost reduction goals; |
• | operational disruptions; |
• | an aircraft accident or incident; |
• | labor disputes and our ability to attract and retain qualified personnel; |
• | the concentration of our revenue from a few key markets; |
• | actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities; |
• | our reliance on automated systems and the risks associated with changes made to those systems; |
• | changes in laws and regulations. |
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(in millions) | March 31, 2016 | December 31, 2015 | |||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 78 | $ | 73 | |||
Marketable securities | 1,486 | 1,255 | |||||
Total cash and marketable securities | 1,564 | 1,328 | |||||
Receivables - net | 235 | 212 | |||||
Inventories and supplies - net | 45 | 51 | |||||
Prepaid expenses and other current assets | 79 | 72 | |||||
Total Current Assets | 1,923 | 1,663 | |||||
Property and Equipment | |||||||
Aircraft and other flight equipment | 5,945 | 5,690 | |||||
Other property and equipment | 967 | 955 | |||||
Deposits for future flight equipment | 617 | 771 | |||||
7,529 | 7,416 | ||||||
Less accumulated depreciation and amortization | 2,699 | 2,614 | |||||
Total Property and Equipment - Net | 4,830 | 4,802 | |||||
Other Assets | 76 | 65 | |||||
Total Assets | $ | 6,829 | $ | 6,530 |
(in millions, except share amounts) | March 31, 2016 | December 31, 2015 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 63 | $ | 63 | |||
Accrued wages, vacation and payroll taxes | 213 | 298 | |||||
Air traffic liability | 868 | 669 | |||||
Other accrued liabilities | 809 | 661 | |||||
Current portion of long-term debt | 116 | 114 | |||||
Total Current Liabilities | 2,069 | 1,805 | |||||
Long-Term Debt, Net of Current Portion | 531 | 569 | |||||
Other Liabilities and Credits | |||||||
Deferred income taxes | 678 | 682 | |||||
Deferred revenue | 467 | 431 | |||||
Obligation for pension and postretirement medical benefits | 270 | 270 | |||||
Other liabilities | 359 | 362 | |||||
1,774 | 1,745 | ||||||
Commitments and Contingencies | |||||||
Shareholders' Equity | |||||||
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding | — | — | |||||
Common stock, $0.01 par value, Authorized: 200,000,000 shares, Issued: 2016 - 128,901,410 shares; 2015 - 128,442,099 shares, Outstanding: 2016 - 123,913,223 shares; 2015 - 125,175,325 shares | 1 | 1 | |||||
Capital in excess of par value | 86 | 73 | |||||
Treasury stock (common), at cost: 2016 - 4,988,187 shares; 2015 - 3,266,774 shares | (377 | ) | (250 | ) | |||
Accumulated other comprehensive loss | (294 | ) | (303 | ) | |||
Retained earnings | 3,039 | 2,890 | |||||
2,455 | 2,411 | ||||||
Total Liabilities and Shareholders' Equity | $ | 6,829 | $ | 6,530 |
Three Months Ended March 31, | |||||||
(in millions, except per share amounts) | 2016 | 2015 | |||||
Operating Revenues | |||||||
Passenger | |||||||
Mainline | $ | 927 | $ | 901 | |||
Regional | 206 | 186 | |||||
Total passenger revenue | 1,133 | 1,087 | |||||
Freight and mail | 24 | 23 | |||||
Other - net | 190 | 159 | |||||
Total Operating Revenues | 1,347 | 1,269 | |||||
Operating Expenses | |||||||
Wages and benefits | 336 | 306 | |||||
Variable incentive pay | 32 | 26 | |||||
Aircraft fuel, including hedging gains and losses | 167 | 235 | |||||
Aircraft maintenance | 68 | 63 | |||||
Aircraft rent | 29 | 26 | |||||
Landing fees and other rentals | 80 | 71 | |||||
Contracted services | 60 | 52 | |||||
Selling expenses | 49 | 53 | |||||
Depreciation and amortization | 88 | 76 | |||||
Food and beverage service | 31 | 25 | |||||
Third-party regional carrier expense | 23 | 15 | |||||
Other | 94 | 83 | |||||
Total Operating Expenses | 1,057 | 1,031 | |||||
Operating Income | 290 | 238 | |||||
Nonoperating Income (Expense) | |||||||
Interest income | 6 | 5 | |||||
Interest expense | (13 | ) | (11 | ) | |||
Interest capitalized | 8 | 8 | |||||
Other - net | 1 | — | |||||
2 | 2 | ||||||
Income before income tax | 292 | 240 | |||||
Income tax expense | 108 | 91 | |||||
Net Income | $ | 184 | $ | 149 | |||
Basic Earnings Per Share: | $ | 1.47 | $ | 1.13 | |||
Diluted Earnings Per Share: | $ | 1.46 | $ | 1.12 | |||
Shares used for computation: | |||||||
Basic | 124.550 | 131.120 | |||||
Diluted | 125.328 | 132.230 | |||||
Cash dividend declared per share: | $ | 0.275 | $ | 0.20 |
Three Months Ended March 31, | |||||||
(in millions) | 2016 | 2015 | |||||
Net Income | $ | 184 | $ | 149 | |||
Other Comprehensive Income (Loss): | |||||||
Related to marketable securities: | |||||||
Unrealized holding gains (losses) arising during the period | 12 | 7 | |||||
Reclassification of (gains) losses into Other-net nonoperating income (expense) | — | — | |||||
Income tax effect | (4 | ) | (3 | ) | |||
Total | 8 | 4 | |||||
Related to employee benefit plans: | |||||||
Reclassification of net pension expense into Wages and benefits | 5 | 3 | |||||
Income tax effect | (2 | ) | (1 | ) | |||
Total | 3 | 2 | |||||
Related to interest rate derivative instruments: | |||||||
Unrealized holding gains (losses) arising during the period | (5 | ) | (4 | ) | |||
Reclassification of (gains) losses into Aircraft rent | 1 | 2 | |||||
Income tax effect | 2 | 1 | |||||
Total | (2 | ) | (1 | ) | |||
Other Comprehensive Income | 9 | 5 | |||||
Comprehensive Income | $ | 193 | $ | 154 |
Three Months Ended March 31, | |||||||
(in millions) | 2016 | 2015 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 184 | $ | 149 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 88 | 76 | |||||
Stock-based compensation and other | 9 | 9 | |||||
Changes in certain assets and liabilities: | |||||||
Changes in deferred tax provision | (8 | ) | (6 | ) | |||
Increase (decrease) in air traffic liability | 199 | 183 | |||||
Increase (decrease) in deferred revenue | 36 | 8 | |||||
Other - net | 17 | 95 | |||||
Net cash provided by operating activities | 525 | 514 | |||||
Cash flows from investing activities: | |||||||
Property and equipment additions: | |||||||
Aircraft and aircraft purchase deposits | (91 | ) | (245 | ) | |||
Other flight equipment | (15 | ) | (21 | ) | |||
Other property and equipment | (13 | ) | (13 | ) | |||
Total property and equipment additions, including capitalized interest | (119 | ) | (279 | ) | |||
Purchases of marketable securities | (358 | ) | (403 | ) | |||
Sales and maturities of marketable securities | 140 | 259 | |||||
Proceeds from disposition of assets and changes in restricted deposits | 1 | 2 | |||||
Net cash used in investing activities | (336 | ) | (421 | ) | |||
Cash flows from financing activities: | |||||||
Long-term debt payments | (36 | ) | (35 | ) | |||
Common stock repurchases | (127 | ) | (102 | ) | |||
Dividends paid | (34 | ) | (26 | ) | |||
Other financing activities | 13 | 14 | |||||
Net cash used in financing activities | (184 | ) | (149 | ) | |||
Net increase (decrease) in cash and cash equivalents | 5 | (56 | ) | ||||
Cash and cash equivalents at beginning of year | 73 | 107 | |||||
Cash and cash equivalents at end of the period | $ | 78 | $ | 51 | |||
Supplemental disclosure: | |||||||
Cash paid during the period for: | |||||||
Interest (net of amount capitalized) | $ | 8 | $ | 7 | |||
Income taxes paid (received) | 13 | (65 | ) |
March 31, 2016 | Cost Basis | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
Cash | $ | 3 | $ | — | $ | — | $ | 3 | |||||||
Cash equivalents | 75 | — | — | 75 | |||||||||||
Cash and cash equivalents | 78 | — | — | 78 | |||||||||||
U.S. government and agency securities | 410 | 2 | — | 412 | |||||||||||
Foreign government bonds | 28 | — | — | 28 | |||||||||||
Asset-backed securities | 154 | 1 | (1 | ) | 154 | ||||||||||
Mortgage-backed securities | 120 | 1 | — | 121 | |||||||||||
Corporate notes and bonds | 749 | 6 | (1 | ) | 754 | ||||||||||
Municipal securities | 17 | — | — | 17 | |||||||||||
Marketable securities | 1,478 | 10 | (2 | ) | 1,486 | ||||||||||
Total | $ | 1,556 | $ | 10 | $ | (2 | ) | $ | 1,564 |
December 31, 2015 | Cost Basis | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
Cash | $ | 4 | $ | — | $ | — | $ | 4 | |||||||
Cash equivalents | 69 | — | — | 69 | |||||||||||
Cash and cash equivalents | 73 | — | — | 73 | |||||||||||
U.S. government and agency securities | 254 | — | (1 | ) | 253 | ||||||||||
Foreign government bonds | 31 | — | — | 31 | |||||||||||
Asset-backed securities | 130 | — | — | 130 | |||||||||||
Mortgage-backed securities | 117 | — | (1 | ) | 116 | ||||||||||
Corporate notes and bonds | 711 | 1 | (4 | ) | 708 | ||||||||||
Municipal securities | 17 | — | — | 17 | |||||||||||
Marketable securities | 1,260 | 1 | (6 | ) | 1,255 | ||||||||||
Total | $ | 1,333 | $ | 1 | $ | (6 | ) | $ | 1,328 |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Proceeds from sales and maturities | $ | 140 | $ | 259 | |||
Gross realized gains | — | 1 | |||||
Gross realized losses | — | (1 | ) |
March 31, 2016 | Cost Basis | Fair Value | |||||
Due in one year or less | $ | 258 | $ | 258 | |||
Due after one year through five years | 1,218 | 1,226 | |||||
Due after five years through 10 years | 2 | 2 | |||||
Due after 10 years | — | — | |||||
Total | $ | 1,478 | $ | 1,486 |
March 31, 2016 | Level 1 | Level 2 | Total | ||||||||
Assets | |||||||||||
Marketable securities | |||||||||||
U.S. government and agency securities | $ | 412 | $ | — | $ | 412 | |||||
Foreign government bonds | — | 28 | 28 | ||||||||
Asset-backed securities | — | 154 | 154 | ||||||||
Mortgage-backed securities | — | 121 | 121 | ||||||||
Corporate notes and bonds | — | 754 | 754 | ||||||||
Municipal securities | — | 17 | 17 | ||||||||
Total Marketable securities | 412 | 1,074 | 1,486 | ||||||||
Derivative instruments | |||||||||||
Fuel hedge call options | — | 8 | 8 | ||||||||
Total Assets | 412 | 1,082 | 1,494 | ||||||||
Liabilities | |||||||||||
Derivative instruments | |||||||||||
Interest rate swap agreements | — | (22 | ) | (22 | ) | ||||||
Total Liabilities | — | (22 | ) | (22 | ) |
December 31, 2015 | Level 1 | Level 2 | Total | ||||||||
Assets | |||||||||||
Marketable securities | |||||||||||
U.S. government and agency securities | $ | 253 | $ | — | $ | 253 | |||||
Foreign government bonds | — | 31 | 31 | ||||||||
Asset-backed securities | — | 130 | 130 | ||||||||
Mortgage-backed securities | — | 116 | 116 | ||||||||
Corporate notes and bonds | — | 708 | 708 | ||||||||
Municipal securities | — | 17 | 17 | ||||||||
Total Marketable securities | 253 | 1,002 | 1,255 | ||||||||
Derivative instruments | |||||||||||
Fuel hedge call options | — | 4 | 4 | ||||||||
Total Assets | 253 | 1,006 | 1,259 | ||||||||
Liabilities | |||||||||||
Derivative instruments | |||||||||||
Interest rate swap agreements | — | (18 | ) | (18 | ) | ||||||
Total Liabilities | — | (18 | ) | (18 | ) |
March 31, 2016 | December 31, 2015 | ||||||
Carrying amount | $ | 491 | $ | 520 | |||
Fair value | 529 | 557 |
March 31, 2016 | December 31, 2015 | ||||||
Current Liabilities: | |||||||
Other accrued liabilities | $ | 388 | $ | 368 | |||
Other Liabilities and Credits: | |||||||
Deferred revenue | 464 | 427 | |||||
Other liabilities | 19 | 19 | |||||
Total | $ | 871 | $ | 814 |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Passenger revenues | $ | 69 | $ | 64 | |||
Other - net revenues | 103 | 76 | |||||
Total | $ | 172 | $ | 140 |
March 31, 2016 | December 31, 2015 | ||||||
Fixed-rate notes payable due through 2024 | $ | 491 | $ | 520 | |||
Variable-rate notes payable due through 2025 | 159 | 166 | |||||
Less debt issuance costs | (3 | ) | (3 | ) | |||
Total debt | 647 | 683 | |||||
Less current portion | 116 | 114 | |||||
Long-term debt, less current portion | $ | 531 | $ | 569 | |||
Weighted-average fixed-interest rate | 5.7 | % | 5.7 | % | |||
Weighted-average variable-interest rate | 2.1 | % | 1.8 | % |
Total | |||
Remainder of 2016 | $ | 79 | |
2017 | 121 | ||
2018 | 151 | ||
2019 | 114 | ||
2020 | 116 | ||
Thereafter | 69 | ||
Total | $ | 650 |
Three Months Ended March 31, | |||||||
Qualified | |||||||
2016 | 2015 | ||||||
Service cost | $ | 9 | $ | 10 | |||
Interest cost | 18 | 21 | |||||
Expected return on assets | (27 | ) | (31 | ) | |||
Recognized actuarial loss (gain) | 6 | 7 | |||||
Total | $ | 6 | $ | 7 |
March 31, 2016 | Aircraft Leases | Facility Leases | Aircraft Purchase Commitments | Capacity Purchase Agreements (a) | |||||||||||
Remainder of 2016 | $ | 60 | $ | 70 | $ | 402 | $ | 53 | |||||||
2017 | 104 | 90 | 516 | 90 | |||||||||||
2018 | 98 | 43 | 472 | 94 | |||||||||||
2019 | 90 | 42 | 381 | 99 | |||||||||||
2020 | 81 | 40 | 320 | 106 | |||||||||||
Thereafter | 467 | 147 | 392 | 858 | |||||||||||
Total | $ | 900 | $ | 432 | $ | 2,483 | $ | 1,300 |
Three Months Ended March 31, | |||||||||||||
2016 | 2015 | ||||||||||||
Shares | Amount | Shares | Amount | ||||||||||
2015 Repurchase Program - $1 billion | 1,721,413 | $ | 127 | — | $ | — | |||||||
2014 Repurchase Program - $650 million | — | $ | — | 1,580,747 | $ | 102 | |||||||
Total | 1,721,413 | $ | 127 | 1,580,747 | $ | 102 |
March 31, 2016 | December 31, 2015 | ||||||
Marketable securities | $ | 5 | $ | (3 | ) | ||
Employee benefit plans | (285 | ) | (288 | ) | |||
Interest rate derivatives | (14 | ) | (12 | ) | |||
Total | $ | (294 | ) | $ | (303 | ) |
Three Months Ended March 31, 2016 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 927 | $ | — | $ | — | $ | — | $ | 927 | $ | — | $ | 927 | |||||||||||||
Regional | — | 206 | — | — | 206 | — | 206 | ||||||||||||||||||||
Total passenger revenues | 927 | 206 | — | — | 1,133 | — | 1,133 | ||||||||||||||||||||
CPA revenues | — | — | 103 | (103 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 23 | 1 | — | — | 24 | — | 24 | ||||||||||||||||||||
Other - net | 172 | 17 | 1 | — | 190 | — | 190 | ||||||||||||||||||||
Total operating revenues | 1,122 | 224 | 104 | (103 | ) | 1,347 | — | 1,347 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 701 | 186 | 105 | (102 | ) | 890 | — | 890 | |||||||||||||||||||
Economic fuel | 144 | 25 | — | — | 169 | (2 | ) | 167 | |||||||||||||||||||
Total operating expenses | 845 | 211 | 105 | (102 | ) | 1,059 | (2 | ) | 1,057 | ||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 6 | — | — | — | 6 | — | 6 | ||||||||||||||||||||
Interest expense | (12 | ) | — | (1 | ) | — | (13 | ) | — | (13 | ) | ||||||||||||||||
Other | 7 | — | — | 2 | 9 | — | 9 | ||||||||||||||||||||
1 | — | (1 | ) | 2 | 2 | — | 2 | ||||||||||||||||||||
Income (loss) before income tax | $ | 278 | $ | 13 | $ | (2 | ) | $ | 1 | $ | 290 | $ | 2 | $ | 292 |
Three Months Ended March 31, 2015 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 901 | $ | — | $ | — | $ | — | $ | 901 | $ | — | $ | 901 | |||||||||||||
Regional | — | 186 | — | — | 186 | — | 186 | ||||||||||||||||||||
Total passenger revenues | 901 | 186 | — | — | 1,087 | — | 1,087 | ||||||||||||||||||||
CPA revenues | — | — | 99 | (99 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 22 | 1 | — | — | 23 | — | 23 | ||||||||||||||||||||
Other - net | 142 | 16 | 1 | — | 159 | — | 159 | ||||||||||||||||||||
Total operating revenues | 1,065 | 203 | 100 | (99 | ) | 1,269 | — | 1,269 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 639 | 164 | 91 | (98 | ) | 796 | — | 796 | |||||||||||||||||||
Economic fuel | 203 | 32 | — | — | 235 | — | 235 | ||||||||||||||||||||
Total operating expenses | 842 | 196 | 91 | (98 | ) | 1,031 | — | 1,031 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 5 | — | — | — | 5 | — | 5 | ||||||||||||||||||||
Interest expense | (7 | ) | — | (4 | ) | — | (11 | ) | — | (11 | ) | ||||||||||||||||
Other | 7 | — | 1 | — | 8 | — | 8 | ||||||||||||||||||||
5 | — | (3 | ) | — | 2 | — | 2 | ||||||||||||||||||||
Income (loss) before income tax | $ | 228 | $ | 7 | $ | 6 | $ | (1 | ) | $ | 240 | $ | — | $ | 240 |
(a) | The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain income and charges. |
(b) | Includes mark-to-market fuel-hedge accounting charges. |
March 31, 2016 | December 31, 2015 | ||||||
Alaska(a) | $ | 8,630 | $ | 8,127 | |||
Horizon | 717 | 717 | |||||
Parent company | 4,929 | 4,734 | |||||
Elimination of inter-company accounts | (7,447 | ) | (7,048 | ) | |||
Consolidated | $ | 6,829 | $ | 6,530 |
(a) | There are no assets associated with capacity purchase flying at Alaska. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | First Quarter Review—highlights from the first quarter of 2016 outlining some of the major events that happened during the period and how they affected our financial performance. |
• | Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three months ended March 31, 2016. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of 2016. |
• | Liquidity and Capital Resources—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments. |
New Non-Stop Routes Launched in Q1 | New Non-Stop Routes Announced (Launch Dates) |
Reno, Nevada to Orange County, California | San Diego, California to San Jose, California (6/8/16) |
Orange County, California to Santa Rosa, California | Orange County, California to San Jose, California (6/8/16) |
Bellingham, Washington to Kona, Hawaii (11/12/16) |
Forecast Q2 2016 | Change Y-O-Y | Forecast Full Year 2016 | Change Y-O-Y | ||||
Consolidated: | |||||||
ASMs (000,000) "capacity" | 11,000 - 11,050 | ~ 11% | 43,100 - 43,200 | ~ 8% | |||
CASM excluding fuel (cents) | 8.00¢ - 8.05¢ | ~ (1)% | 8.25¢ - 8.30¢ | ~ (0.5)% | |||
Mainline: | |||||||
ASMs (000,000) "capacity" | 9,825 - 9,875 | ~ 9.5% | 38,250 - 38,350 | ~ 6.5% | |||
CASM excluding fuel (cents) | 7.05¢ - 7.10¢ | ~ (1.5)% | 7.35¢ - 7.40¢ | ~ (0.5)% |
• | By eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management. |
• | Cost per ASM (CASM) excluding fuel and certain special items is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance. |
• | Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan that covers all Alaska and Horizon employees. |
• | CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors. |
• | Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines. |
• | Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business. |
Three Months Ended March 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except per share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
Net income and diluted EPS as reported | $ | 184 | $ | 1.46 | $ | 149 | $ | 1.12 | |||||||
Mark-to-market fuel hedge adjustments, net of tax | (1 | ) | (0.01 | ) | — | — | |||||||||
Non-GAAP adjusted income and per-share amounts | $ | 183 | $ | 1.45 | $ | 149 | $ | 1.12 |
Three Months Ended March 31, | ||||||||||
(in cents) | 2016 | 2015 | % Change | |||||||
Consolidated: | ||||||||||
CASM | 10.11 | ¢ | 11.14 | ¢ | (9.2 | )% | ||||
Less the following components: | ||||||||||
Aircraft fuel, including hedging gains and losses | 1.60 | 2.53 | (36.8 | )% | ||||||
CASM excluding fuel | 8.51 | ¢ | 8.61 | ¢ | (1.2 | )% | ||||
Mainline: | ||||||||||
CASM | 9.01 | ¢ | 10.09 | ¢ | (10.7 | )% | ||||
Less the following components: | ||||||||||
Aircraft fuel, including hedging gains and losses | 1.52 | 2.43 | (37.4 | )% | ||||||
CASM excluding fuel | 7.49 | ¢ | 7.66 | ¢ | (2.2 | )% |
Three Months Ended March 31, | |||||
2016 | 2015 | Change | |||
Consolidated Operating Statistics:(a) | |||||
Revenue passengers (000) | 7,835 | 7,316 | 7.1% | ||
Revenue passenger miles (RPM) (000,000) "traffic" | 8,571 | 7,723 | 11.0% | ||
Available seat miles (ASM) (000,000) "capacity" | 10,453 | 9,257 | 12.9% | ||
Load factor | 82.0% | 83.4% | (1.4) pts | ||
Yield | 13.22¢ | 14.08¢ | (6.1)% | ||
Passenger revenue per ASM (PRASM) | 10.84¢ | 11.74¢ | (7.7)% | ||
Revenue per ASM (RASM) | 12.88¢ | 13.71¢ | (6.1)% | ||
Operating expense per ASM (CASM) excluding fuel(b) | 8.51¢ | 8.61¢ | (1.2)% | ||
Economic fuel cost per gallon(b) | $1.29 | $1.98 | (34.8)% | ||
Fuel gallons (000,000) | 132 | 119 | 10.9% | ||
ASMs per fuel gallon | 79.2 | 77.8 | 1.8% | ||
Average full-time equivalent employees (FTEs) | 14,357 | 13,274 | 8.2% | ||
Mainline Operating Statistics: | |||||
Revenue passengers (000) | 5,642 | 5,236 | 7.8% | ||
RPMs (000,000) "traffic" | 7,716 | 6,994 | 10.3% | ||
ASMs (000,000) "capacity" | 9,354 | 8,347 | 12.1% | ||
Load factor | 82.5% | 83.8% | (1.3) pts | ||
Yield | 12.01¢ | 12.88¢ | (6.8)% | ||
PRASM | 9.91¢ | 10.79¢ | (8.2)% | ||
RASM | 11.99¢ | 12.75¢ | (6.0)% | ||
CASM excluding fuel(b) | 7.49¢ | 7.66¢ | (2.2)% | ||
Economic fuel cost per gallon(b) | $1.28 | $1.97 | (35.0)% | ||
Fuel gallons (000,000) | 113 | 103 | 9.7% | ||
ASMs per fuel gallon | 82.8 | 81.0 | 2.2% | ||
Average FTEs | 11,123 | 10,380 | 7.2% | ||
Aircraft utilization | 10.6 | 10.6 | —% | ||
Average aircraft stage length | 1,237 | 1,199 | 3.2% | ||
Operating fleet | 152 | 137 | 15 a/c | ||
Regional Operating Statistics:(c) | |||||
Revenue passengers (000) | 2,192 | 2,080 | 5.4% | ||
RPMs (000,000) "traffic" | 855 | 728 | 17.4% | ||
ASMs (000,000) "capacity" | 1,100 | 910 | 20.9% | ||
Load factor | 77.7% | 80.0% | (2.3 pts) | ||
Yield | 24.09¢ | 25.58¢ | (5.8)% | ||
PRASM | 18.72¢ | 20.46¢ | (8.5)% | ||
Operating fleet | 67 | 60 | 7 a/c |
(a) | Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements. |
(b) | See reconciliation of operating expenses excluding fuel, a reconciliation of economic fuel costs in the accompanying pages. |
(c) | Data presented includes information related to flights operated by Horizon and third-party carriers. |
Three Months Ended March 31, | ||||||||||
(in millions) | 2016 | 2015 | % Change | |||||||
Passenger | ||||||||||
Mainline | $ | 927 | $ | 901 | 3 | % | ||||
Regional | 206 | 186 | 11 | % | ||||||
Total passenger revenue | 1,133 | 1,087 | 4 | % | ||||||
Freight and mail | 24 | 23 | 4 | % | ||||||
Other - net | 190 | 159 | 19 | % | ||||||
Total operating revenues | $ | 1,347 | $ | 1,269 | 6 | % |
Three Months Ended March 31, | ||||||||||
(in millions) | 2016 | 2015 | % Change | |||||||
Fuel expense | $ | 167 | $ | 235 | (29 | )% | ||||
Non-fuel expenses | 890 | 796 | 12 | % | ||||||
Total Operating Expenses | $ | 1,057 | $ | 1,031 | 3 | % |
Three Months Ended March 31, | ||||||||||
(in millions) | 2016 | 2015 | % Change | |||||||
Wages | $ | 251 | $ | 230 | 9 | % | ||||
Pension - Defined benefit plans | 6 | 7 | (14 | )% | ||||||
Defined contribution plans | 16 | 15 | 7 | % | ||||||
Medical and other benefits | 44 | 38 | 16 | % | ||||||
Payroll taxes | 19 | 16 | 19 | % | ||||||
Total wages and benefits | $ | 336 | $ | 306 | 10 | % |
Three Months Ended March 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gal | Dollars | Cost/Gal | |||||||||||
Raw or "into-plane" fuel cost | $ | 165 | $ | 1.26 | $ | 229 | $ | 1.93 | |||||||
Losses on settled hedges | 4 | 0.03 | 6 | 0.05 | |||||||||||
Consolidated economic fuel expense | 169 | 1.29 | 235 | 1.98 | |||||||||||
Mark-to-market fuel hedge adjustments | (2 | ) | (0.02 | ) | — | — | |||||||||
GAAP fuel expense | $ | 167 | $ | 1.27 | $ | 235 | $ | 1.98 | |||||||
Fuel gallons | 132 | 119 |
Three Months Ended March 31, | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | Change | ||||||||||||||
(in millions, except CASM) | Amount | Amount | CASM | CASM | CASM | |||||||||||||
Wages and benefits | $ | 336 | $ | 306 | 3.21 | ¢ | 3.31 | ¢ | (3 | )% | ||||||||
Variable incentive pay | 32 | 26 | 0.31 | 0.28 | 11 | % | ||||||||||||
Aircraft maintenance | 68 | 63 | 0.65 | 0.68 | (4 | )% | ||||||||||||
Aircraft rent | 29 | 26 | 0.28 | 0.28 | — | % | ||||||||||||
Landing fees and other rentals | 80 | 71 | 0.77 | 0.77 | — | % | ||||||||||||
Contracted services | 60 | 52 | 0.57 | 0.56 | 2 | % | ||||||||||||
Selling expenses | 49 | 53 | 0.47 | 0.57 | (18 | )% | ||||||||||||
Depreciation and amortization | 88 | 76 | 0.83 | 0.83 | — | % | ||||||||||||
Food and beverage service | 31 | 25 | 0.30 | 0.27 | 11 | % | ||||||||||||
Third-party regional carrier expense | 23 | 15 | 0.22 | 0.16 | 38 | % | ||||||||||||
Other | 94 | 83 | 0.90 | 0.90 | — | % | ||||||||||||
Non-fuel Expenses | $ | 890 | $ | 796 | 8.51 | ¢ | 8.61 | ¢ | (1 | )% |
• | Our existing cash and marketable securities balance of $1.6 billion, and our expected cash from operations; |
• | Our 95 unencumbered aircraft in our operating fleet that could be financed, if necessary; |
• | Our combined $252 million bank line-of-credit facilities, with no outstanding borrowings. |
(in millions, except per share and debt-to-capital amounts) | March 31, 2016 | December 31, 2015 | Change | |||||||
Cash and marketable securities | $ | 1,564 | $ | 1,328 | 17.8 | % | ||||
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months revenue | 32 | % | 28 | % | 4 pts | |||||
Long-term debt, net of current portion | $ | 531 | $ | 569 | (6.7 | )% | ||||
Shareholders’ equity | $ | 2,455 | $ | 2,411 | 1.8 | % | ||||
Long-term debt-to-capital including net present value of aircraft operating lease payments(a) | 26%:74% | 27%:73% | (1) pts |
(a) | Calculated using the present value of remaining aircraft lease payments for aircraft in our operating fleet as of the end of the period. |
(in millions) | 2016 | 2017 | 2018 | 2019 | |||||||||||
Aircraft and aircraft purchase deposits - firm | $ | 485 | $ | 745 | $ | 660 | $ | 585 | |||||||
Other flight equipment | 55 | 75 | 55 | 55 | |||||||||||
Other property and equipment | 145 | 105 | 110 | 110 | |||||||||||
Total property and equipment additions | $ | 685 | $ | 925 | $ | 825 | $ | 750 | |||||||
Option aircraft and aircraft deposits, if exercised(a) | $ | 70 | $ | 140 | $ | 275 | $ | 675 |
(a) | Alaska has options to acquire 46 B737 aircraft with deliveries from 2018 through 2024. Horizon has options for 33 E175 aircraft with deliveries from 2019 to 2021. Horizon also has options to acquire five Q400 aircraft with deliveries from 2018 through 2019 which we currently do not expect to exercise and related deposits are excluded from the table above. |
Actual Fleet | Expected Fleet Activity(a) | |||||||||||||
Aircraft | Dec 31, 2015 | 2016 Changes | Dec 31, 2016 | 2017-2018 Changes | Dec 31, 2018 | |||||||||
737 Freighters & Combis (b) | 6 | — | 6 | (3 | ) | 3 | ||||||||
737 Passenger Aircraft (b) | 141 | 3 | 144 | 12 | 156 | |||||||||
Total Mainline Fleet | 147 | 3 | 150 | 9 | 159 | |||||||||
Q400 (d) | 52 | — | 52 | (15 | ) | 37 | ||||||||
E175 (c) | 5 | 10 | 15 | 28 | 43 | |||||||||
CRJ700 (c) | 8 | (8 | ) | — | — | — | ||||||||
Total Regional Fleet | 65 | 2 | 67 | 13 | 80 | |||||||||
Total | 212 | 5 | 217 | 22 | 239 |
(a) | The expected fleet counts at December 31, 2016 and beyond are subject to change. |
(b) | 2016 change in 737 Passenger Aircraft reflects delivery of 19 737-900 aircraft, the retirement of 13 737-400 aircraft and the removal from service of three 737-700 aircraft. The three 737-700 aircraft are being converted to freighters and will return to service in 2017. |
(c) | Aircraft are operated under capacity purchase agreements with Horizon or other regional airlines. |
(d) | Excludes deliveries of two Q400 aircraft that are currently contracted. At this time we do not expect to take delivery of those aircraft. |
Approximate % of Expected Fuel Requirements | Weighted-Average Crude Oil Price per Barrel | Average Premium Cost per Barrel | ||||
Second Quarter 2016 | 50 | % | $66 | $3 | ||
Third Quarter 2016 | 50 | % | $62 | $3 | ||
Fourth Quarter 2016 | 40 | % | $61 | $3 | ||
Remainder 2016 | 47 | % | $63 | $3 | ||
First Quarter 2017 | 30 | % | $57 | $3 | ||
Second Quarter 2017 | 20 | % | $55 | $3 | ||
Third Quarter 2017 | 10 | % | $54 | $4 | ||
Full Year 2017 | 15 | % | $55 | $3 |
(in millions) | Remainder of 2016 | 2017 | 2018 | 2019 | 2020 | Beyond 2020 | Total | ||||||||||||||||||||
Current and long-term debt obligations | $ | 79 | $ | 121 | $ | 151 | $ | 114 | $ | 116 | $ | 69 | $ | 650 | |||||||||||||
Operating lease commitments(a) | 130 | 194 | 141 | 132 | 121 | 614 | 1,332 | ||||||||||||||||||||
Aircraft purchase commitments (d) | 402 | 516 | 472 | 381 | 320 | 392 | 2,483 | ||||||||||||||||||||
Interest obligations(b) | 21 | 27 | 20 | 13 | 7 | 5 | 93 | ||||||||||||||||||||
Capacity Purchase Agreements(c) | 53 | 90 | 94 | 99 | 106 | 858 | 1,300 | ||||||||||||||||||||
Total | $ | 685 | $ | 948 | $ | 878 | $ | 739 | $ | 670 | $ | 1,938 | $ | 5,858 |
(a) | Operating lease commitments generally include aircraft operating leases including those under capacity purchase agreements, airport property and hangar leases, office space, and other equipment leases. |
(b) | For variable-rate debt, future obligations are shown above using interest rates in effect as of March 31, 2016. |
(c) | Includes minimum obligations associated with third-party CPAs with SkyWest and PenAir. Refer to the "Commitments" note in the condensed consolidated financial statements for further information. |
(d) | Includes payments for two Q400 aircraft deliveries in 2018 that are currently contracted. However, at this time we do not expect to take delivery of those aircraft. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
ITEM 4. CONTROLS AND PROCEDURES |
ITEM 1. LEGAL PROCEEDINGS |
ITEM 1A. RISK FACTORS |
• | we will be required to pay certain costs relating to the acquisition, whether or not it is completed, such as legal, accounting, and financial advisers, which could be substantial; |
• | our management will have focused its attention on negotiating and preparing for the acquisition instead of on pursuing other opportunities that could have been beneficial to us; |
• | the failure to consummate the acquisition may result in negative publicity and a negative impression of us in the investment community; and |
• | any disruptions to our business resulting from the announcement of the acquisition, including any adverse changes in our relationships with our customers, partners and employees, may continue or intensify in the event the acquisition is not consummated. |
• | successfully managing relationships with our combined customer base and retaining Virgin America’s customers; |
• | the inability to successfully integrate Virgin America's business with ours in a manner that permits us to achieve the synergies and other benefits anticipated to result from the acquisition; |
• | the challenge of integrating complex systems, operating procedures, regulatory compliance programs, technology, aircraft fleets, networks, and other assets of the two companies in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; |
• | diversion of the attention of our and Virgin America's management and other key employees; |
• | the challenge of integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service and running a safe and efficient operation; |
• | disruption of, or the loss of momentum in, our ongoing business; |
• | liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the acquisition, including transition costs to integrate the two businesses that may exceed the costs that we currently anticipate; |
• | maintaining productive and effective employee relationships and, in particular, successfully and promptly integrating seniority lists and achieving cost-competitive collective bargaining agreements that cover the combined union-represented work groups; |
• | limitations prior to the completion of the acquisition on the ability of management of our company and of Virgin America to conduct planning regarding the integration of the two companies; |
• | the increased scale of our operations resulting from the acquisition; |
• | retaining key employees of our company and Virgin America; and |
• | obligations that we will have to counterparties of Virgin America that arise as a result of the change in control of Virgin America. |
• | limit our ability to obtain additional funding for capital expenditures, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained; |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes; |
• | make us more vulnerable to economic downturns and catastrophic external events; |
• | contain restrictive covenants that could: |
◦ | limit our ability to merge, consolidate, sell assets, incur additional indebtedness, make investments and pay dividends; and |
◦ | significantly constrain our ability to respond, or respond quickly, to unexpected disruptions in our operations, the U.S. or global economy, or the businesses in which we operate, or to take advantage of opportunities that would improve our business, operations, or competitive position versus other airlines; and |
• | limit our ability to withstand competitive pressures and reduce its flexibility in responding to changing business and economic conditions. |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Total Number of Shares Purchased | Average Price Paid per Share | Maximum remaining dollar value of shares that can be purchased under the plan (in millions) | ||||||||
January 1, 2016 - January 31, 2016 | 461,388 | $ | 71.22 | |||||||
February 1, 2016 - February 29, 2016 | 586,975 | 68.52 | ||||||||
March 1, 2016 - March 31, 2016 | 673,050 | 79.47 | ||||||||
Total | 1,721,413 | $ | 73.52 | $ | 754 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. MINE SAFETY DISCLOSURES |
ITEM 5. OTHER INFORMATION |
ITEM 6. EXHIBITS |
1. | Exhibits: See Exhibit Index. |
ALASKA AIR GROUP, INC. | |
/s/ CHRISTOPHER M. BERRY | |
Christopher M. Berry | |
Managing Director, Accounting and Controller | |
(Principal Accounting Officer) | |
May 9, 2016 |
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number |
2.1 | Agreement and Plan of Merger, dated as of April 1, 2016, by and among Virgin America Inc., Alaska Air Group, Inc. and Alpine Acquisition Corp. | 8-K | April 4, 2016 | 2.1 |
10.1#† | Purchase Agreement, dated April 11, 2016, between Embraer S.A. and Horizon Air Industries, Inc. | 10-Q | May 9, 2016 | |
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 10-Q | ||
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 10-Q | ||
32.1† | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 10-Q | ||
32.2† | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 10-Q | ||
101.INS† | XBRL Instance Document | |||
101.SCH† | XBRL Taxonomy Extension Schema Document | |||
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | |||
† | Filed herewith | |||
# | Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Application filed with the Commission. |
1. | I have reviewed this annual report on Form 10-Q of Alaska Air Group, Inc. for the period ended March 31, 2016; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
e) | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By | /s/ BRADLEY D. TILDEN |
Bradley D. Tilden | |
Chairman, President and Chief Executive Officer |
1. | I have reviewed this annual report on Form 10-Q of Alaska Air Group, Inc. for the period ended March 31, 2016; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By | /s/ BRANDON S. PEDERSEN |
Brandon S. Pedersen | |
Executive Vice President/Finance and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By | /s/ BRADLEY D. TILDEN |
Bradley D. Tilden | |
Chairman, President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By | /s/ BRANDON S. PEDERSEN |
Brandon S. Pedersen | |
Executive Vice President/Finance and Chief Financial Officer |
INDEX | |||
ARTICLE | PAGE | ||
1. | INTERPRETATION | 4 | |
2. | SUBJECT | 6 | |
3. | PRICE | 7 | |
4. | PAYMENT | 7 | |
5. | DELIVERY | 8 | |
6. | CERTIFICATION | 8 | |
7. | ACCEPTANCE AND TRANSFER OF OWNERSHIP | 9 | |
8. | STORAGE CHARGE | 10 | |
9. | DELAYS IN DELIVERY | 11 | |
10. | [***] DELIVERY INSPECTION | 13 | |
11. | CHANGES | 14 | |
12. | WARRANTY [***] | 15 | |
13. | PRODUCT SUPPORT PACKAGE | 16 | |
14. | ASSIGNMENT | 16 | |
15. | RESTRICTIONS AND PATENT INDEMNITY | 16 | |
16. | MARKETING PROMOTIONAL RIGHTS | 18 | |
17. | TAXES | 18 | |
18. | APPLICABLE LAW | 18 | |
19. | JURISDICTION | 19 | |
20. | TERMINATION | 19 | |
21. | OPTION AIRCRAFT | 20 | |
22. | INDEMNITY | 21 | |
23. | NOTICES | 22 | |
24. | CONFIDENTIALITY | 23 | |
25. | FOREIGN CONTENT | 23 | |
26. | COMPLIANCE WITH LAWS | 23 | |
27. | SEVERABILITY | 24 | |
28. | NON-WAIVER | 24 | |
29. | INTEGRATED AGREEMENT | 24 | |
30. | NEGOTIATED AGREEMENT | 24 | |
31. | COUNTERPARTS | 24 | |
32. | ENTIRE AGREEMENT | 24 |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
"A" - | AIRCRAFT CONFIGURATION |
"B" - | FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
"C" - | WARRANTY CERTIFICATE - MATERIAL AND WORKMANSHIP |
"D" - | PRICE ESCALATION FORMULA |
"E" - | AIRCRAFT DELIVERY SCHEDULE |
"F" - | [***] |
"G" - | [***] |
"H" - | [***] |
"I" - | [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
1.1.1. | “Actual Delivery Date”: shall mean, with respect to each Aircraft, the date on which Buyer obtains title to that Aircraft in accordance with Article 7. |
1.1.2. | “AD’s”: shall mean effective airworthiness directives issued by either the ANAC or the Airworthiness Authority, in connection with and with respect to the Aircraft. |
1.1.3. | “Agreement” or “Purchase Agreement”: shall mean this purchase agreement and any amendments thereto. |
1.1.4. | “Aircraft”: shall mean the EMBRAER 175 LR (certification designation: ERJ 170-200 LR) aircraft, manufactured by Embraer according to Attachment “A”, for sale to Buyer pursuant to this Agreement, equipped with two engines identified therein (or, where there is more than one of such aircraft, each of such aircraft). |
1.1.5. | “Aircraft Basic Price”: shall mean the Aircraft price, as defined in Article 3.1. |
1.1.6. | “Aircraft Purchase Price”: shall mean the Aircraft price, effective on the relevant Aircraft Contractual Delivery Date, resulting from the application of the Escalation Formula to the Aircraft Basic Price as set forth in Article 3.3. |
1.1.7. | “Airworthiness Authority”: shall mean the United States Federal Aviation Administration or FAA or such other entity in the United States from time to time charged with the administration of civil aviation. |
1.1.8. | “ANAC”: shall mean the Brazilian civil aviation authority – Agência Nacional de Aviação Civil. |
1.1.9. | “Business Day(s)”: shall mean a day on which banks are open for business in São José dos Campos and São Paulo in Brazil, Seattle and New York in the United States. |
1.1.10. | “Buyer”: shall mean Horizon Air Industries, Inc., a company organized and existing under the laws of Washington State with its principal place of business at 19521 International Boulevard, Seattle, Washington, 98168, USA. |
1.1.11. | “Contractual Delivery Date”: unless as otherwise provided for herein, the Contractual Delivery Date shall mean the last Working Day in the month |
1.1.12. | “Day(s)": shall mean calendar days. |
1.1.13. | “Embraer”: shall mean Embraer S.A., a Brazilian corporation organized and existing under the laws of Brazil with its principal place of business at Av. Brigadeiro Faria Lima, 2170, São José dos Campos, SP, Brazil. |
1.1.14. | “Escalation Formula”: shall mean the escalation formula contained in Attachment “D”. |
1.1.15. | “FAF": shall mean delivery of an Aircraft in fly-away-factory condition (equivalent to Ex-Works condition – Incoterms 2010 - flying from the place designated in Article 5 and cleared for export by Embraer). |
1.1.16. | “Initial Deposit”: shall mean the aggregate initial deposit referred to in Article 4.1.1. |
1.1.17. | “LIBOR”: for purposes of calculating any rate under this Agreement for any period for which the same is to be established, shall mean the applicable rate per annum equal to the US$ Six-Month LIBOR displayed on pages LIBOR01 or LIBOR02 of the Thomson Reuters screen (or any successor or substitute page of such screen, providing rate quotations comparable to those currently provided on such page of such screen) at 11:00 a.m. London time, in the London interbank market on the first day of such period (or if such date is not a London business day, the immediately preceding London business day) and in an amount comparable to the amount for which such rate is to be established and, if any such rate is below zero, LIBOR will be deemed to be zero. For purposes of this definition, ”London business day” means any day excluding Saturday, Sunday and any day on which commercial banks in London, England are authorized or required by law to remain closed. |
1.1.18. | “Major Changes”: shall mean the changes to the design of the Aircraft, as defined in Article 11.2.2. |
1.1.19. | “Mandatory Service Bulletins”: shall mean the mandatory service bulletins applicable to the Aircraft, which are issued by Embraer to implement the AD’s referred to in Article 11.4. |
1.1.20. | “Minor Changes”: shall mean the changes to the design of the Aircraft defined as per the terms and conditions of Article 11.2.1. |
1.1.21. | “Option Aircraft” shall be the additional EMBRAER 175 aircraft that Buyer shall have the option to purchase as per the terms of Article 21. |
1.1.22. | “Parties”: shall mean Embraer and Buyer. |
1.1.23. | “Product Support Package”: shall mean the products and Services to be provided by Embraer as per Article 13. |
1.1.24. | “Scheduled Inspection Date”: shall mean the date on which a certain Aircraft is available for inspection, acceptance and subsequent delivery to Buyer, as per the terms and conditions of Article 7.1. |
1.1.25. | “Services”: shall mean the services, as defined in Article 2.3 of Attachment “B”. |
1.1.26. | “Technical Description”: shall mean TD 175 – Rev 21 December 2015 as provided for in Attachment “A”. |
1.1.27. | “Technical Publications”: shall mean the technical documentation pertaining and related to the Aircraft, as identified in Article 2.2 and Exhibit 1 of Attachment “B”. |
1.1.28. | “USD” or “US$”: shall mean the legal currency of the United States of America. |
1.1.29. | “Vendor”: shall mean third party suppliers of equipment, parts, tools, ground support and test equipment to Embraer to use on or in connection with the Aircraft. |
1.1.30. | “Working Day(s)": shall mean a day, other than Saturday, Sunday or holiday, on which Embraer in São José dos Campos, SP, Brazil is open for business. |
1.2 | Construction |
3. | PRICE |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
23. | NOTICES |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
24. | CONFIDENTIALITY |
ATTACHMENT "A" AIRCRAFT CONFIGURATION |
1. | STANDARD AIRCRAFT |
2. | OPTIONAL EQUIPMENT |
[***] | ||||||
[***] | [***] | [***] | ||||
Seats | ||||||
Class | Count/Mode | Details | ||||
FC | 12 First | 2 seats @ [***] 1 seat @ {***. 9 seats @ 37" pitch | ||||
YC | 64 Slim Plus | 2 seats @ [***] 2 seats @ [***] 12 seats @ 34" pitch 28 seats @ 31" pitch | ||||
** Pitch In Class Divider | ||||||
NOTES: | ||||||
[***] | [***] |
3. | EXTERIOR FINISHING |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "A" AIRCRAFT CONFIGURATION |
4. | INTERIOR DETAILING |
5. | BUYER FURNISHED EQUIPMENT (BFE) AND BUYER INSTALLED EQUIPMENT (BIE) |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "A" AIRCRAFT CONFIGURATION |
6. | EMBRAER RIGHT TO PERFORM FOR BUYER |
7. | REGISTRATION MARKS, TRANSPONDER AND ELT CODES: |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "A" AIRCRAFT CONFIGURATION |
8. | EXPORT CONTROL ITEMS |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
1. | FERRY FLIGHT ASSISTANCE |
1.1 | Embraer will make available to Buyer, [***], the services of a third party representative at the airport in which the Aircraft will make the last stop in Brazilian territory, to assist Buyer’s crew in the interface with Brazilian customs clearances. Such services do not include handling services such as refueling, ground equipment and communications and Buyer shall hire such services from a handling service company. Buyer shall also be responsible for the [***] and overflight permits required for the ferry flight. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
2.1 | MATERIAL SUPPORT |
2.1.1. | SPARES POLICY |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
2.1.2. | RSPL |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
2.1.3. | OTHER SPARES SERVICES |
2.2 | AIRCRAFT TECHNICAL PUBLICATIONS: |
2.2.1. | EMBRAER PUBLICATIONS [***] |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
2.2.2. | VENDOR PUBLICATIONS |
2.2.3. | [***] |
2.3 | SERVICES |
2.3.1 | Familiarization Programs: |
a. | The familiarization programs specified below are offered [***], except for any travel, board and lodging expenses of Buyer’s trainees and except for any operational and incidental expenses related to training requirements of Buyer, whether imposed by the Airworthiness Authority or other authority of Buyer’s country having jurisdiction, and which differ from or are supplementary to the familiarization programs described herein. |
b. | The familiarization programs shall, at Embraer’s election, be conducted by Embraer, Flight Safety International or other Embraer designated training provider, in accordance with the scope, syllabi and duration of the training program developed by Embraer, Flight Safety International or other Embraer-designated training provider. Such familiarization programs shall be in accordance with all applicable regulations and requirements of and approved by the Airworthiness Authority. Buyer may choose to use the training programs “as is” or to develop its own training programs. In any case Buyer shall be solely responsible for preparing and submitting its training programs to the Airworthiness Authority for approval. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
c. | All familiarization programs shall be provided at the training centers of Embraer, Flight Safety International or other Embraer designated training provider at its respective training center in the United States or in such other location in the United States as Embraer, Flight Safety International or other Embraer designated training provider may reasonably indicate. Buyer shall be responsible for all costs and expenses related to the training services (including but not limited to instructor travel tickets, local transportation, lodging, per diem and non-productive days), in the event Buyer requires that any training services be carried outside such indicated training facilities. |
d. | Notwithstanding the eventual use of the term “training” in this paragraph 2.3.1, the intent of this program is solely to familiarize Buyer’s pilots, mechanics, employees or representatives with the operation and maintenance of the Aircraft. It is not the intent of Embraer to provide basic training (“ab-initio”) to any representatives of Buyer. |
e. | Any trainee appointed by Buyer for participation in any of the familiarization programs shall be duly qualified per the governing body in the country of Buyer’s operation and fluent in the English language as all training will be conducted in, and all training material will be presented in, such language. Pilots and mechanics shall also have [***] in the [***], as applicable, of [***] or, [***], of [***]. Neither Embraer, Flight Safety International nor other Embraer designated training provider make any representation or give any guarantee regarding the successful completion of any training program by Buyers trainees, for which Buyer is solely responsible. |
f. | The familiarization programs shall be carried out prior to the Contractual Delivery Date of the last Aircraft, in accordance with a schedule to be agreed upon by Buyer and Embraer not less than [***] prior to the intended beginning of such training schedule. Buyer shall give [***] advance notice to Embraer of the full name and professional identification data of each trainee. Substitutions of appointed trainees shall be permitted with the reasonable prior approval of Embraer or Flight Safety International or other Embraer designated training provider. |
g. | Training entitlements regarding each Aircraft that remain unused up to [***] following the Actual Delivery Date of the last Aircraft to Buyer shall expire and Buyer shall be deemed to have fully waived its rights to such service, on refund or compensation being due by Embraer to Buyer in this case. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
h. | The familiarization programs referred to above covers: |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
i. | The presence of Buyer’s authorized trainees shall be allowed exclusively in those areas of Embraer’s facilities related to the training hereof and Buyer agrees to hold harmless Embraer from and against all and any kind of liabilities in respect of such trainees to the extent permitted by law. |
j. | In the event that Buyer does not use [***], as described in [***]: |
a. | Embraer shall provide the following on site support services: |
a.1 | [***] field support representative (“FSR”) to stay at Buyer’s main maintenance base for a period of [***] beginning on the Actual Delivery Date of the first Aircraft. |
a.2 | [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
b. | [***], Buyer shall provide such FSR [***] (hereinafter defined as “Embraer Rep”) with communication services (international telephone line, facsimile, internet service and photocopy equipment) as well as suitable secure and private office facilities and related equipment including desk, table, chairs and file cabinet, located at Buyer’s main base of operation or other location as may be mutually agreed by the Parties. Buyer shall also (a) arrange all necessary work permits such as support for visa issuance, local pilot’s license validation and airport security clearances required for Embraer Rep, to permit the accomplishment of the Services mentioned in this item 2.3.2, in due time; and (b) obtain all necessary custom clearances both to enter and depart from Buyer’s country for Embraer’s Rep [***]. |
c. | During the stay of the Embraer Rep at Buyer’s facilities, Buyer shall permit access to the maintenance and operation facilities as well as to the technical data and technical files of Buyer’s Aircraft fleet. |
d. | Embraer shall [***] of the Embraer Rep, including without limitation transportation, board and lodging, while the Embraer Rep is rendering such on site support at Buyer’s main facility. Buyer shall bear all expenses related to the transportation, board & lodging of the Embraer Rep in the event any Embraer Rep is required to render the Services provided for herein in any place other than Buyer’s main operation base (for the pilots) or main maintenance base (for the mechanics). [***], Buyer shall provide to the Embraer’s pilots transportation from/to Buyer operational base or airport where such pilots will render the Services, so that the pilots can report to Buyer’s operation facilities or leave the airport in a timely manner according to the schedule of the flights they are engaged in. |
e. | The Embraer Rep shall not participate in test flights or flight demonstrations without the previous written authorization from Embraer. |
f. | Buyer shall include Embraer as additional insured in its Hull and Comprehensive Airline Liability insurance policies in accordance with the clauses contained in Exhibit “1” to this Attachment. Buyer shall supply Embraer with a certificate evidencing such endorsements to the insurance policies prior to the date of which the Services are to begin (provided however that Buyer shall make its commercial reasonable efforts to supply Embraer with such certificate [***] prior to the date of which the Services are to begin (and at each renewal of Buyer Hull and Comprehensive Airline Liability insurance). |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
g. | The Parties further understand and agree that in the event Buyer elects not to take all or any portion of the on site support provided for herein, no refund or other financial adjustment of the Aircraft Basic Price will be made since such on site support is offered at no charge to Buyer. Any other additional on site support shall depend on mutual agreement between the Parties and shall be charged by Embraer accordingly. |
h. | The presence of Embraer Rep shall be allowed exclusively in those areas related to the subject matter hereof and Embraer agrees to hold harmless Buyer from and against all and any kind of liabilities in respect of such Embraer Rep to the extent permitted and required by law. |
i. | Embraer may, at its own cost and without previous notice to Buyer, substitute at its sole discretion the Embraer Reps rendering the Services at any time during the period in which Services are being rendered. |
j. | The rendering of the Services by Embraer’s Rep shall, at all times, be carried out in compliance with the applicable labor legislation. |
k. | During the rendering of the Services, while on the premises of Buyer, Embraer Reps shall strictly follow the administrative routines and proceedings of Buyer, which shall have been expressly and clearly informed to Embraer Reps upon their arrival at said premises. |
l. | Embraer shall have the right to interrupt the rendering of the Services (i) should any situation occur which, at the sole discretion of Embraer, could represent a risk to the safety or health of Embraer Reps or (ii) upon the occurrence of any of the following events: strike, insurrection, labor disruptions or disputes, riots, or military conflicts. Upon the occurrence of such an interruption, Embraer shall resume the rendering of the Services for the remainder period immediately after having been informed by Buyer, in writing, of the cessation thereof. No such interruption in the rendering of the Services shall give reason for the extension of the Services beyond the periods identified above. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "B" FERRY FLIGHT ASSISTANCE AND PRODUCT SUPPORT PACKAGE |
2.4 | PRODUCT SUPPORT PACKAGE FOR THE OPTION AIRCRAFT |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
EXHIBIT 1 - SPECIAL INSURANCE CLAUSES |
a) | Hull All Risks Policy, including War, Hi-jacking and Other Perils. |
c) | Notwithstanding anything to the contrary as specified in the Policy or any endorsement thereof, the coverage stated in paragraphs a) and b) above, shall not be cancelled or modified by the Insurer, without [***] advance written notice to Embraer to such effect. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "C" WARRANTY - MATERIAL AND WORKMANSHIP |
1) | Embraer, subject to the conditions and limitations hereby expressed, warrants the Aircraft subject of the Purchase Agreement, as follows: |
a. | For a period of [***] from the date of delivery to Buyer, the Aircraft will be free from: |
• | Defects in materials, workmanship and manufacturing processes in relation to parts manufactured by Embraer or by its subcontractors holding an Embraer part number; |
• | Defects inherent to the design of the Aircraft and its parts designed or manufactured by Embraer or by its subcontractors holding an Embraer part number. |
b. | For a period of [***] from the date of delivery to Buyer, the Aircraft will be free from: |
• | Defects in operation of parts manufactured by Vendors, excluding the Engines, Auxiliary Power Unit (APU) and their accessories (“Vendor Parts”), as well as failures of Vendor Parts due to incorrect installation or installation not complying with the instructions [***]. For the purpose of this warranty, Engine shall mean the complete power plant system which comprises the engine, the nacelle including thrust reverser, the engine mounting structure, all systems inside the nacelle and their integration with the Aircraft, and the Full Authority Digital Engine Control (FADEC) unit. |
• | Defects due to non-conformity of Vendor Parts to the technical specification referred to in the Purchase Agreement. |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "C" WARRANTY - MATERIAL AND WORKMANSHIP |
2) | The obligations of Embraer as expressed in this Warranty are limited to replacing or repairing defective parts and related systems if damaged by such defects as determined by Embraer based, upon its own reasonable judgment. The defective parts shall be returned to Embraer or its Representatives (“Representatives”, as used herein, is defined as subsidiaries or affiliates of Embraer in the United States or repair shops in the United States authorized by Embraer to repair parts under warranty) within a period of [***] after the discovery of the defect, adequately packed, provided that such components are actually defective and that the defect has occurred within the periods stipulated in this certificate. Should the defective part not be returned to Embraer within such [***] period, Embraer may have the right, at its sole discretion, to deny the warranty claim. |
3) | Embraer will accept no warranty claims under any of the circumstances listed below: |
a. | When the Aircraft has been used in an attempt to break records, or subjected to experimental flights, or in any other way not in conformity with the flight manual or the airworthiness certificate, or subjected to any manner of use in contravention of the applicable aerial navigation or other regulations and rules, issued or recommended by government authorities of whatever country in which the aircraft is operated, when accepted and recommended by I.C.A.O.; |
b. | When the Aircraft or any of its parts have been altered or modified by Buyer, without prior approval from Embraer or from the manufacturer of the parts through a service bulletin; |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "C" WARRANTY - MATERIAL AND WORKMANSHIP |
c. | Whenever the Aircraft or any of its parts have been involved in an accident, or when parts either defective or not complying to manufacturer's design or specification have been used; |
d. | Whenever parts have had their identification marks, designation, seal or serial number altered or removed; |
e. | In the event of negligence, misuse or maintenance services done on the Aircraft, or any of its parts not in accordance with the respective maintenance manual; |
f. | In cases of deterioration, wear, breakage, damage or any other defect resulting from the use of inadequate packing methods when returning items to Embraer or its representatives. |
4) | This Warranty does not apply to [***]. |
5) | The Warranty hereby expressed is established between Embraer and Buyer, and it cannot be transferred, assigned or novated to any third party, except as provided otherwise pursuant to Article 14 (Assignment) of the Purchase Agreement. |
6) | TO THE EXTENT PERMITTED BY LAW, THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND REMEDIES OF BUYER SET FORTH IN THIS WARRANTY CERTIFICATE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND ANY ASSIGNEE OF EMBRAER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF BUYER AGAINST EMBRAER OR ANY ASSIGNEE OF EMBRAER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON-CONFORMANCE OR DEFECT OR FAILURE OR ANY OTHER REASON IN ANY AIRCRAFT OR OTHER THING DELIVERED UNDER THE PURCHASE AGREEMENT OF WHICH THIS IS AN ATTACHMENT, INCLUDING DATA, DOCUMENT, INFORMATION OR SERVICE, INCLUDING BUT NOT LIMITED TO: |
a. | ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS; |
b. | ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; |
c. | ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OR OTHER RELATED CAUSES OF EMBRAER OR ANY ASSIGNEE OF EMBRAER, WHETHER ACTIVE, PASSIVE OR IMPUTED; AND |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "C" WARRANTY - MATERIAL AND WORKMANSHIP |
d. | ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO ANY AIRCRAFT OR FOR ANY DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. |
7) | No representative or employee of Embraer is authorized to establish any other warranty than the one hereby expressed, nor to assume any additional obligation, relative to the matter, in the name of Embraer and therefore any such statements eventually made by, or in the name of Embraer, shall be void and without effect. |
ATTACHMENT "D" ESCALATION FORMULA |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "E" AIRCRAFT DELIVERY SCHEDULE |
1. | Firm Aircraft Delivery Schedule (ref. Purchase Agreement, Article 5) |
Firm Aircraft | Delivery Date | Firm Aircraft | Delivery Date |
01 | [***] 2017 | 16 | [***] |
02 | [***] | 17 | [***] |
03 | [***] | 18 | [***] |
04 | [***] | 19 | [***] |
05 | [***] | 20 | [***] |
06 | [***] | 21 | [***] |
07 | [***] | 22 | [***] |
08 | [***] | 23 | [***] |
09 | [***] | 24 | [***] |
10 | [***] | 25 | [***] |
11 | [***] | 26 | [***] |
12 | [***] | 27 | [***] |
13 | [***] | 28 | [***] |
14 | [***] | 29 | [***] |
15 | [***] | 30 | [***] 2019 |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "E" AIRCRAFT DELIVERY SCHEDULE |
2. | Option Aircraft Delivery Schedule (ref. Purchase Agreement, Article 21) |
Option Aircraft | Option Aircraft | Option Aircraft Delivery Date | Option Aircraft | Option Aircraft | Option Aircraft Delivery Date |
[***] | 1 | [***] 2019 | 19 | [***] | |
2 | [***] | [***] | 20 | [***] | |
3 | [***] | 21 | [***] | ||
[***] | 4 | [***] | 22 | [***] | |
5 | [***] | 23 | [***] | ||
6 | [***] | 24 | [***] | ||
7 | [***] | 25 | [***] | ||
8 | [***] | [***] | 26 | [***] | |
[***] | 9 | [***] | 27 | [***] | |
10 | [***] | 28 | [***] | ||
11 | [***] | 29 | [***] | ||
12 | [***] | 30 | [***] | ||
13 | [***] | 31 | [***] | ||
[***] | 14 | [***] | 32 | [***] | |
15 | [***] | 33 | [***] 2021 | ||
16 | [***] | ||||
17 | [***] | ||||
18 | [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "F" EMBRAER 175 - [***] |
Fleet Size: | After the Aircraft fleet ramp up [***] to be delivered in accordance with the following delivery schedule: |
Aircraft Number | Contractual Delivery Date | Aircraft Number | Contractual Delivery Date | |
01 | [***] 2017 | 16 | [***] | |
02 | [***] | 17 | [***] | |
03 | [***] | 18 | [***] | |
04 | [***] | 19 | [***] | |
05 | [***] | 20 | [***] | |
06 | [***] | 21 | [***] | |
07 | [***] | 22 | [***] | |
08 | [***] | 23 | [***] | |
09 | [***] | 24 | [***] | |
10 | [***] | 25 | [***] | |
11 | [***] | 26 | [***] | |
12 | [***] | 27 | [***] | |
13 | [***] | 28 | [***] | |
14 | [***] | 29 | [***] | |
15 | [***] | 30 | [***] 2019 |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "G" EMBRAER 175 - [***] |
Fleet Size: | A [***], to be delivered in accordance with the following delivery schedule: |
Aircraft Number | Contractual Delivery Date | Aircraft Number | Contractual Delivery Date | |
01 | [***] 2017 | 16 | [***] | |
02 | [***] | 17 | [***] | |
03 | [***] | 18 | [***] | |
04 | [***] | 19 | [***] | |
05 | [***] | 20 | [***] | |
06 | [***] | 21 | [***] | |
07 | [***] | 22 | [***] | |
08 | [***] | 23 | [***] | |
09 | [***] | 24 | [***] | |
10 | [***] | 25 | [***] | |
11 | [***] | 26 | [***] | |
12 | [***] | 27 | [***] | |
13 | [***] | 28 | [***] | |
14 | [***] | 29 | [***] | |
15 | [***] | 30 | [***] 2019 |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
SCHEDULE 1 TO ATTACHMENT "G" EMBRAER 175 - [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "H" [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
ATTACHMENT "I" [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
LETTER AGREEMENT COM0042-16 |
INDEX | |||
ARTICLE | PAGE | ||
1. | [***] | 2 | |
2. | [***] | 3 | |
3. | SPARE PARTS [***] | 5 | |
4. | SPARE PARTS [***] | 6 | |
5. | [***] | 6 | |
6. | [***] | 7 | |
7. | [***] | 7 | |
8. | [***] | 8 | |
9. | [***] SUPPORT | 8 | |
10. | [***] | 9 | |
11. | EXPORT CONTROL | 10 | |
12. | COMPLIANCE WITH LAWS | 10 | |
13. | REINSTATEMENT OF THE PURCHASE AGREEMENT | 10 | |
14. | COUNTERPARTS | 10 |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
LETTER AGREEMENT COM0042-16 |
a) | Pursuant and subject to the terms and conditions of the Purchase Agreement, Buyer shall buy and EMBRAER shall sell thirty (30) EMBRAER 175 LR aircraft (the “Firm Aircraft”) and Buyer shall have the right to purchase up to thirty (30) options EMBRAER 175 LR aircraft (the “Option Aircraft”) (collectively, the “Aircraft”). |
b) | Embraer and Buyer wish to set forth the additional agreements with respect to certain matters related to the purchase of the Aircraft. |
1. | [***] |
2. | [***] |
3. | SPARE PARTS [***] |
4. | SPARE PARTS [***] |
5. | [***] |
6. | [***] |
7. | [***] |
LETTER AGREEMENT COM0042-16 |
8. | [***] |
9. | [***] SUPPORT |
10. | [***] |
11. | EXPORT CONTROL |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
LETTER AGREEMENT COM0042-16 |
12. | COMPLIANCE WITH LAWS |
13. | REINSTATEMENT OF THE PURCHASE AGREEMENT |
14. | COUNTERPARTS |
LETTER AGREEMENT COM0042-16 |
SCHEDULE "A" [***] |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
SCHEDULE "B" EMBRAER 175 - [***] SUPPORT |
* | Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested with respect to the omitted portions. |
DOCUMENT AND ENTITY INFORMATION - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Apr. 30, 2016 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q1 | |
Entity Registrant Name | ALASKA AIR GROUP, INC. | |
Entity Central Index Key | 0000766421 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 123,252,559 |
CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICALS) - $ / shares |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Stockholders' Equity: | ||
Preferred Stock, par value (usd per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (shares) | 5,000,000 | 5,000,000 |
Preferred stock, shares issued (shares) | 0 | 0 |
Preferred stock, shares outstanding (shares) | 0 | 0 |
Common stock, par value (usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (shares) | 200,000,000 | 200,000,000 |
Common stock, shares issued (shares) | 128,901,410 | 128,442,099 |
Common stock, shares outstanding (shares) | 123,913,223 | 125,175,325 |
Treasury Stock, Shares (shares) | 4,988,187 | 3,266,774 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Statement of Comprehensive Income [Abstract] | ||
Net Income | $ 184 | $ 149 |
Related to marketable securities: | ||
Unrealized holding gains (losses) arising during the period | 12 | 7 |
Reclassification of (gains) losses into Other-net nonoperating income (expense) | 0 | 0 |
Income tax effect | (4) | (3) |
Total | 8 | 4 |
Related to employee benefit plans: | ||
Reclassification of net pension expense into Wages and benefits | 5 | 3 |
Income tax effect | (2) | (1) |
Total | 3 | 2 |
Related to interest rate derivative instruments: | ||
Unrealized holding gains (losses) arising during the period | (5) | (4) |
Reclassification of (gains) losses into Aircraft rent | 1 | 2 |
Income tax effect | 2 | 1 |
Total | (2) | (1) |
Other Comprehensive Income | 9 | 5 |
Comprehensive Income | $ 193 | $ 154 |
GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended |
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Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation The interim condensed consolidated financial statements include the accounts of Alaska Air Group, Inc. (Air Group or the Company) and its subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), through which the Company conducts substantially all of its operations. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in the Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments have been made that are necessary to present fairly the Company’s financial position as of March 31, 2016, as well as the results of operations for the three months ended March 31, 2016 and 2015. The adjustments made were of a normal recurring nature. In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three months ended March 31, 2016, are not necessarily indicative of operating results for the entire year. Certain reclassifications have been made to prior year financial statements to conform with classifications used in the current year. Recently Issued Accounting Pronouncements In May 2014, the FASB issued Accounting Standard Update 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. At this time, the Company believes the most significant impact to the financial statements will be in Mileage Plan revenues and liabilities. The Company currently uses the incremental cost approach for miles earned through travel. This standard eliminates that option and the Company will be required to increase its liability for earned miles through a relative selling price model. The Company has not evaluated the full impact of the standard, although application is expected to result in a material increase to Deferred Revenue. The Company has not yet selected a transition method. In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30), which requires debt issuance costs related to a debt liability be presented as a direct deduction from the carrying value of the debt liability. The amendment was adopted as of January 1, 2016. Prior period debt balances have been adjusted to reflect the adoption of ASU 2015-03. The adoption of the ASU had no impact on the Statements of Operations or retained earnings. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases currently classified as operating leases. Under the new standard a lessee will recognize a liability on the balance sheet representing the lease payments owed, and a right-of-use-asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The new standard would be effective for the Company on January 1, 2019. Early adoption of the standard is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures. The Company has not yet determined whether it will early adopt the standard. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations. The proposed standard provides guidance when a revenue transaction involves a third party in providing goods or services to a customer in determining whether the Company is considered the principal or the agent in the transaction. When an entity is engaged to provide the underlying good or service, such entity is classified as the principal in the transaction. When an entity is engaged to arrange for a third party to provide the goods or services, such entity is classified as the agent in the transaction. This ASU has the same effective date as the new revenue standard. Entities are required to adopt this ASU using the same transition method they use to adopt the new revenue accounting standard. The Company is evaluating the effect that ASU 2016-08 will have on its consolidated financial statements and related disclosures. The Company has not yet elected a transition method nor has it determined whether it will early adopt. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The proposed standard simplifies several aspects of accounting for employee share-based payment awards, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is evaluating the effect of ASU 2016-09 on the consolidated financial statements and related disclosures. The ASU will be effective for the Company beginning January 1, 2017, however early adoption is permitted. The Company has not yet elected a transition method nor has it determined whether it will early adopt. |
PROPOSED ACQUISITION OF VIRGIN AMERICA INC. |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Business Combinations [Abstract] | |
PROPOSED ACQUISITION OF VIRGIN AMERICA INC. | PROPOSED ACQUISITION OF VIRGIN AMERICA INC. On April 1, 2016 the Company entered into an agreement to acquire Virgin America Inc. (Virgin America). The Company has agreed to pay Virgin America shareholders $57 per share, or approximately $2.6 billion, in cash for the outstanding common stock of Virgin America. In addition, the Company expects to assume Virgin America's debt and lease obligations, other than related party debt, on the date of acquisition. The merger is subject to approval by Virgin America's shareholders and various regulatory bodies, among other customary closing conditions. To date, the financial impacts of the pending acquisition have not been material, and future financial impacts are not yet estimable. The Company currently expects the acquisition will close no later than January 1, 2017. |
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES |
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Cash, Cash Equivalents, and Short-term Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES | CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES Components for cash, cash equivalents and marketable securities (in millions):
Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of March 31, 2016. Activity for marketable securities (in millions):
Maturities for marketable securities (in millions):
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FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs. Fair Value of Financial Instruments on a Recurring Basis Fair values of financial instruments on the consolidated balance sheet (in millions):
The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information. The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets, or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts is determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end, multiplied by the total notional value. The Company has no financial assets that are measured at fair value on a nonrecurring basis at March 31, 2016. Fair Value of Other Financial Instruments The Company used the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below. Cash and Cash Equivalents: Carried at amortized cost, which approximates fair value. Debt: The carrying amount of the Company's variable-rate debt approximates fair values. For fixed-rate debt, the Company uses the income approach to determine the estimated fair value, by using discounted cash flows using borrowing rates for comparable debt over the weighted life of the outstanding debt. The estimated fair value of the fixed-rate debt is Level 3 as certain inputs used are unobservable. Fixed-rate debt that is not carried at fair value on the consolidated balance sheet and the estimated fair value of long-term fixed-rate debt (in millions) is as follows:
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MILEAGE PLAN |
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MILEAGE PLAN [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MILEAGE PLAN | MILEAGE PLAN Alaska's Mileage Plan liabilities and deferrals on the consolidated balance sheets (in millions):
Alaska's Mileage Plan revenue included in the consolidated statements of operations (in millions):
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LONG-TERM DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT | LONG-TERM DEBT Long-term debt obligations on the consolidated balance sheet (in millions):
During the three months ended March 31, 2016, the Company made debt payments of $36 million. As discussed in Note 1, the Company adopted ASU 2015-03 which resulted in a reclassification of debt issuance costs as an offset to debt in the consolidated balance sheet. At March 31, 2016, long-term debt principal payments for the next five years and thereafter are as follows (in millions):
Bank Lines of Credit The Company has two $100 million credit facilities and one $52 million credit facility. All three facilities have variable interest rates based on LIBOR plus a specified margin. One of the $100 million facilities, which expires in September 2017, is secured by aircraft. The other $100 million facility, which expires in March 2017, is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. The $52 million facility expires in October 2016 with a mechanism for annual renewal and is secured by two 737-800 aircraft. The Company has no immediate plans to borrow using any of these facilities. All three credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. The Company is in compliance with this covenant at March 31, 2016. |
EMPLOYEE BENEFIT PLANS |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFIT PLANS | EMPLOYEE BENEFIT PLANS Net periodic benefit costs recognized included the following components for the three months ended March 31, 2016 (in millions):
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COMMITMENTS |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS | COMMITMENTS Future minimum fixed payments for commitments (in millions):
(a) Includes all non-aircraft lease costs associated with CPA arrangements. Lease Commitments At March 31, 2016, the Company had lease contracts for 27 B737 aircraft, 15 Q400 aircraft, 6 CRJ-700 aircraft (operated under the CPA with SkyWest) and 8 CRJ-700 aircraft that are subleased and operated by another carrier (i.e., not in the Company's fleet). The Company has 23 E175 lease commitments under the CPA with SkyWest, 7 of which are included in the fleet as of March 31, 2016. All lease contracts have remaining noncancelable lease terms ranging from 2016 to 2029. The Company has the option to increase capacity flown by SkyWest with eight additional E175 aircraft with 2017 and 2018 delivery dates. The majority of airport and terminal facilities are also leased. Rent expense for aircraft and facility leases was $81 million and $73 million for the three months ended March 31, 2016 and 2015, respectively. Aircraft Purchase Commitments As of March 31, 2016, the Company is committed to purchasing 62 B737 aircraft (25 737-900ER aircraft and 37 737 MAX aircraft) and two Q400 aircraft, with deliveries in 2016 through 2022. As of March 31, 2016 we do not intend to take delivery of the two Q400 aircraft that are currently contracted. In addition, the Company has options to purchase 46 B737 aircraft and five Q400 aircraft, which are not reflected in the commitments table above. Subsequent to March 31, 2016, the Company placed an order for 30 Embraer E175 regional jets with options to purchase an additional 33. The above table does not reflect this purchase. See Note 11 for additional information. Capacity Purchase Agreements (CPAs) At March 31, 2016, Alaska had CPAs with three carriers, including the Company's wholly-owned subsidiary, Horizon. Horizon sells 100% of its capacity under a CPA with Alaska. In addition, Alaska has CPAs with SkyWest to fly certain routes and PenAir to fly certain routes in the state of Alaska. Under these agreements, Alaska pays the carriers an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. Future payments (excluding Horizon) are based on minimum levels of flying by the third-party carriers, which could differ materially due to variable payments based on actual levels of flying and certain costs associated with operating flights such as fuel. Contingencies The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Management believes the ultimate disposition of these matters is not likely to materially affect the Company's financial position or results of operations. This forward-looking statement is based on management's current understanding of the relevant law and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of arbitrators, judges and juries. |
SHAREHOLDERS' EQUITY |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY | SHAREHOLDERS' EQUITY Dividends During the three months ended March 31, 2016, the Company declared and paid cash dividends of $0.275 per share, or $34 million. Common Stock Repurchase In May 2014, the Board of Directors authorized a $650 million share repurchase program, which was completed in October 2015. In August 2015, the Board of Directors authorized a $1 billion share repurchase program. Share repurchase activity (in millions, except share amounts):
Accumulated Other Comprehensive Loss Components of accumulated other comprehensive income (loss), net of tax (in millions):
Earnings Per Share (EPS) Diluted EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options and restricted stock units, using the treasury-stock method. For the three months ended March 31, 2016 and 2015, anti-dilutive shares excluded from the calculation of EPS were not material. |
OPERATING SEGMENT INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING SEGMENT INFORMATION | OPERATING SEGMENT INFORMATION Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams. To manage the two operating airlines and the revenues and expenses associated with the CPAs, management views the business in three operating segments: Alaska Mainline - The Boeing 737 part of Alaska's business. Alaska Regional - Alaska's shorter distance network. In this segment, Alaska Regional records actual on board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under CPAs. Additionally, Alaska Regional includes a small allocation of corporate overhead such as IT, finance and other administrative costs incurred by Alaska and on behalf of the regional operations. Horizon - Horizon operates regional aircraft. All of Horizon's capacity is sold to Alaska under a CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs, station handling costs, and maintenance costs. Additionally, the following table reports “Air Group adjusted,” which is not a measure determined in accordance with GAAP. The Company's chief operating decision-makers and others in management use this measure to evaluate operational performance and determine resource allocations. Adjustments are further explained below in a reconciliation to consolidated GAAP results. Operating segment information is as follows (in millions):
Total assets were as follows (in millions):
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SUBSEQUENT EVENT |
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Mar. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTS See discussion of the pending acquisition of Virgin America at Note 2. On April 11, 2016 Horizon placed an order for 30 Embraer E 175 regional aircraft (E175s), with the option to purchase an additional 33. The E175s will be flown by Horizon exclusively for Alaska beginning in 2017. An estimate of the future financial impacts related to the purchase agreement is included in our forward looking capital expenditures table within Item 2, MD&A. |
GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Organization and Basis of Presentation | Organization and Basis of Presentation The interim condensed consolidated financial statements include the accounts of Alaska Air Group, Inc. (Air Group or the Company) and its subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), through which the Company conducts substantially all of its operations. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in the Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments have been made that are necessary to present fairly the Company’s financial position as of March 31, 2016, as well as the results of operations for the three months ended March 31, 2016 and 2015. The adjustments made were of a normal recurring nature. In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three months ended March 31, 2016, are not necessarily indicative of operating results for the entire year. Certain reclassifications have been made to prior year financial statements to conform with classifications used in the current year. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In May 2014, the FASB issued Accounting Standard Update 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. At this time, the Company believes the most significant impact to the financial statements will be in Mileage Plan revenues and liabilities. The Company currently uses the incremental cost approach for miles earned through travel. This standard eliminates that option and the Company will be required to increase its liability for earned miles through a relative selling price model. The Company has not evaluated the full impact of the standard, although application is expected to result in a material increase to Deferred Revenue. The Company has not yet selected a transition method. In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30), which requires debt issuance costs related to a debt liability be presented as a direct deduction from the carrying value of the debt liability. The amendment was adopted as of January 1, 2016. Prior period debt balances have been adjusted to reflect the adoption of ASU 2015-03. The adoption of the ASU had no impact on the Statements of Operations or retained earnings. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases currently classified as operating leases. Under the new standard a lessee will recognize a liability on the balance sheet representing the lease payments owed, and a right-of-use-asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The new standard would be effective for the Company on January 1, 2019. Early adoption of the standard is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures. The Company has not yet determined whether it will early adopt the standard. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations. The proposed standard provides guidance when a revenue transaction involves a third party in providing goods or services to a customer in determining whether the Company is considered the principal or the agent in the transaction. When an entity is engaged to provide the underlying good or service, such entity is classified as the principal in the transaction. When an entity is engaged to arrange for a third party to provide the goods or services, such entity is classified as the agent in the transaction. This ASU has the same effective date as the new revenue standard. Entities are required to adopt this ASU using the same transition method they use to adopt the new revenue accounting standard. The Company is evaluating the effect that ASU 2016-08 will have on its consolidated financial statements and related disclosures. The Company has not yet elected a transition method nor has it determined whether it will early adopt. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). The proposed standard simplifies several aspects of accounting for employee share-based payment awards, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is evaluating the effect of ASU 2016-09 on the consolidated financial statements and related disclosures. The ASU will be effective for the Company beginning January 1, 2017, however early adoption is permitted. The Company has not yet elected a transition method nor has it determined whether it will early adopt. |
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES (Tables) |
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Cash, Cash Equivalents, and Short-term Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash, Cash Equivalents and Short-term Investments | Components for cash, cash equivalents and marketable securities (in millions):
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Schedule of Realized Gain (Loss) | Activity for marketable securities (in millions):
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Schedule of Debt Investment Maturities | Maturities for marketable securities (in millions):
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Measurement Inputs, Disclosure | Fair values of financial instruments on the consolidated balance sheet (in millions):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping | Fixed-rate debt that is not carried at fair value on the consolidated balance sheet and the estimated fair value of long-term fixed-rate debt (in millions) is as follows:
|
MILEAGE PLAN MILEAGE PLAN (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MILEAGE PLAN [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mileage Plan Liabilities | Alaska's Mileage Plan liabilities and deferrals on the consolidated balance sheets (in millions):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mileage Plan Revenue | Alaska's Mileage Plan revenue included in the consolidated statements of operations (in millions):
|
LONG-TERM DEBT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | Long-term debt obligations on the consolidated balance sheet (in millions):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Maturities of Long-term Debt | At March 31, 2016, long-term debt principal payments for the next five years and thereafter are as follows (in millions):
|
EMPLOYEE BENEFIT PLANS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Benefit Costs | Net periodic benefit costs recognized included the following components for the three months ended March 31, 2016 (in millions):
|
COMMITMENTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases and Unrecorded Unconditional Purchase Obligtaions | Future minimum fixed payments for commitments (in millions):
|
SHAREHOLDERS' EQUITY (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Treasury Stock by Class | Share repurchase activity (in millions, except share amounts):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | Components of accumulated other comprehensive income (loss), net of tax (in millions):
|
OPERATING SEGMENT INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment | Operating segment information is as follows (in millions):
Total assets were as follows (in millions):
|
PROPOSED ACQUISITION OF VIRGIN AMERICA INC. (Details) - Virgin America Inc. [Member] $ / shares in Units, $ in Billions |
Apr. 01, 2016
USD ($)
$ / shares
|
---|---|
Business Acquisition [Line Items] | |
Approximate Acquisition purchase price | $ | $ 2.6 |
Common Stock [Member] | |
Business Acquisition [Line Items] | |
Acquisition share price | $ / shares | $ 57 |
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES - MATURITIES (Details) - USD ($) $ in Millions |
Mar. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2015 |
---|---|---|---|
Cost Basis [Abstract] | |||
Due in one year or less | $ 258 | ||
Due after one year through five years | 1,218 | ||
Due after five years through 10 years | 2 | ||
Due after 10 years | $ 0 | ||
Marketable securities, Cost Basis | 1,478 | $ 1,260 | |
Fair Value [Abstract] | |||
Due in one year or less | 258 | ||
Due after one year through five years | 1,226 | ||
Due after five years through 10 years | 2 | ||
Due after 10 years | $ 0 | ||
Marketable securities, Fair Value | $ 1,486 | $ 1,255 |
FAIR VALUE MEASUREMENTS - LONG-TERM DEBT (Details) - USD ($) $ in Millions |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Carrying Amount [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Long-term debt | $ 491 | $ 520 |
Fair Value [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Long-term debt | $ 529 | $ 557 |
MILEAGE PLAN MILEAGE PLAN (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Mileage Plan [Line Items] | |||
Other accrued liabilities | $ 809 | $ 661 | |
Deferred revenue | 467 | 431 | |
Other liabilities | 359 | 362 | |
Passenger revenues | 1,133 | $ 1,087 | |
Other - net revenues | 190 | 159 | |
Liabilities From Mileage Plan [Member] | |||
Mileage Plan [Line Items] | |||
Other accrued liabilities | 388 | 368 | |
Deferred revenue | 464 | 427 | |
Other liabilities | 19 | 19 | |
Total | 871 | $ 814 | |
Revenue From Mileage Plan [Member] | |||
Mileage Plan [Line Items] | |||
Passenger revenues | 69 | 64 | |
Other - net revenues | 103 | 76 | |
Total Mileage Plan Revenues | $ 172 | $ 140 |
LONG-TERM DEBT - SCHEDULE OF LONG-TERM DEBT (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Debt Instrument [Line Items] | |||
Total | $ 647 | $ 683 | |
Less debt issuance costs | (3) | (3) | |
Less current portion | 116 | 114 | |
Long-term debt, less current portion | $ 531 | $ 569 | |
Weighted-average fixed-interest rate | 5.70% | 5.70% | |
Weighted-average variable-interest rate | 2.10% | 1.80% | |
Repayments of Long-term Debt | $ 36 | $ 35 | |
Fixed-rate notes payable due through 2024 [Member] | |||
Debt Instrument [Line Items] | |||
Total | 491 | $ 520 | |
Variable-rate notes payable due through 2025 [Member] | |||
Debt Instrument [Line Items] | |||
Total | $ 159 | $ 166 |
LONG-TERM DEBT LONG-TERM DEBT - FUTURE PAYMENTS (Details) $ in Millions |
Mar. 31, 2016
USD ($)
|
---|---|
Long-term Debt, Fiscal Year Maturity [Abstract] | |
Remainder of 2016 | $ 79 |
2017 | 121 |
2018 | 151 |
2019 | 114 |
2020 | 116 |
Thereafter | 69 |
Total | $ 650 |
EMPLOYEE BENEFIT PLANS - NET PENSION EXPENSE (Details) - Qualified Defined Benefit [Member] - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Defined Benefit Plan, Net Periodic Benefit Cost [Abstract] | ||
Service cost | $ 9 | $ 10 |
Interest cost | 18 | 21 |
Expected return on assets | (27) | (31) |
Recognized actuarial loss (gain) | 6 | 7 |
Net pension expense | $ 6 | $ 7 |
SHAREHOLDERS' EQUITY, COMMON STOCK REPURCHASE (Details) - USD ($) $ in Millions |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Aug. 31, 2015 |
May. 31, 2014 |
|
Class of Stock [Line Items] | ||||
Stock repurchased during period (shares) | 1,721,413 | 1,580,747 | ||
Stock repurchased during period | $ 127 | $ 102 | ||
2015 1 Billion Repurchase Program [Member] | ||||
Class of Stock [Line Items] | ||||
Stock repurchase program, authorized amount (shares) | $ 1,000 | |||
Stock repurchased during period (shares) | 1,721,413 | |||
Stock repurchased during period | $ 127 | |||
May 2014 Stock Repurchase Program [Member] | ||||
Class of Stock [Line Items] | ||||
Stock repurchase program, authorized amount (shares) | $ 650 | |||
Stock repurchased during period (shares) | 0 | 1,580,747 | ||
Stock repurchased during period | $ 0 | $ 102 |
SHAREHOLDERS' EQUITY, ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) - USD ($) $ in Millions |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Equity [Abstract] | ||
Marketable securities | $ 5 | $ (3) |
Employee benefit plans | (285) | (288) |
Interest rate derivatives | (14) | (12) |
Total | $ (294) | $ (303) |
SHAREHOLDERS' EQUITY, CASH DIVIDEND (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Equity [Abstract] | ||
Cash dividend declared per share (usd per share) | $ 0.275 | $ 0.20 |
Payments of Dividends | $ 34 | $ 26 |
OPERATING SEGMENT INFORMATION, ASSETS (Details) - USD ($) $ in Millions |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Total assets | $ 6,829 | $ 6,530 |
Alaska Airlines [Member] | ||
Total assets | 8,630 | 8,127 |
Horizon [Member] | ||
Total assets | 717 | 717 |
Parent [Member] | ||
Total assets | 4,929 | 4,734 |
Intersegment Elimination [Member] | ||
Total assets | $ (7,447) | $ (7,048) |
SUBSEQUENT EVENT (Details) - E175 [Member] - Subsequent Event [Member] |
Apr. 11, 2016
aircraft
|
---|---|
Subsequent Event [Line Items] | |
Committed to Purchase (in Aircraft) | 30 |
Options to Purchase Additional (in Aircraft) | 33 |
Horizon [Member] | |
Subsequent Event [Line Items] | |
Committed to Purchase (in Aircraft) | 30 |
Options to Purchase Additional (in Aircraft) | 33 |
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