Due to the rapid and unprecedented spread of COVID-19, what began with the Company's suspension of service to South Korea and Japan in late February accelerated in March when governments instituted requirements of self-isolation or quarantine for incoming travelers. This was followed by the announcement in March 2020 of a 14-day mandatory quarantine for all travelers to, from and within the State of Hawai‘i. While quarantine requirements have ceased for travel within the State of Hawai‘i, restrictions related to travel to the State of Hawai‘i continued through the second quarter. As a result, travel demand declined precipitously to historically low levels and has remained depressed through the second quarter.

On June 10, 2020, the Governor of Hawai‘i extended the quarantine requirements for passengers traveling to Hawai‘i until at least July 31, 2020, but lifted them for Neighbor Island travel effective June 16, 2020. Following this announcement, the Company saw increases in bookings of Neighbor Island flights in June and have slowly begun rebuilding its Neighbor Island flight schedule commensurate with increases in demand. While the Governor of Hawai‘i announced the near-term possibility of lifting the quarantine requirement for passengers traveling to Hawai‘i upon demonstration of a negative COVID-19 test, on July 13, 2020, the Governor’s office announced that the mandatory quarantine would extend through at least the end of August 2020. The exact timing and pace of the recovery remains uncertain as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, while others, particularly international markets, remain closed or are enforcing extended quarantines for most U.S. residents. See Note 6, for a discussion of the recognition of passenger revenue, the Company's air traffic liability and ticket breakage.

Capacity Reductions. Beginning in the second half of March, the Company experienced a significant decline in demand as COVID-19 spread globally. In response, the Company significantly reduced system capacity to a level that maintained essential services to align capacity with expected demand. During the three and six months ended June 30, 2020, the Company reduced capacity by 92% and 46%, respectively, as compared to the same period in 2019. As a result of our capacity reductions, the Company temporarily parked approximately 38% of its fleet as of June 30, 2020.

•In July 2020, the Company announced a Voluntary Separation Program (VSEP), which will provide eligible, non-contract employees compensation in exchange for voluntary separation, and is currently in negotiations with labor unions related to voluntary separation packages.

The Company anticipates it may implement further discretionary changes and other cost reduction and liquidity preservation measures as needed to address the volatile and quickly-changing dynamics of passenger demand and changes in revenue, regulatory and public health directives and prevailing government policy and financial market conditions.

Cash Flow and Liquidity Management. Our cash, cash equivalents and short-term investments as of June 30, 2020 was $760.9 million as a result of various actions taken to increase liquidity and strengthen financial position during the six months ended June 30, 2020, including, but not limited to:

•During the three and six months ended June 30, 2020, the Company received $214.2 million in grants and $49.0 million in loans pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) Payroll Support Program (PSP), as discussed in further detail below. As of June 30, 2020, we have approximately $124.2 million remaining in PSP proceeds to be utilized and expects to receive an additional $29.2 million in July 2020.

In June 2020, the Company entered into a Letter of Intent (LOI) with the U.S. Department of the Treasury (Treasury), and is eligible to receive up to $364 million in loans through the CARES Act Economic Relief Program (ERP), which is expected to be collateralized by the Company's non-aircraft assets. The Company has not yet made a determination as to whether to accept the ERP loans and continues to evaluate the terms of the financing. The Company has until September 30, 2020 to decide if it will accept the ERP loans.

Based on these actions, including recovery assumptions made for the impact of COVID-19, the Company has concluded that it will be able to generate sufficient liquidity to satisfy its obligations and remain in compliance with existing covenants in the Company's financing agreements for more than the next twelve months, prior to giving effect to any additional financing that may occur. The Company's assumptions about future conditions used to estimate liquidity requirements, including the impact of the COVID-19 pandemic and other ongoing impacts to the business, are subject to uncertainty, and actual results could differ from these estimates. The Company will continue to monitor these conditions as new information becomes available, and will update its analyses accordingly.

Goodwill and intangible assets with indefinite lives are not amortized. The Company applies a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company assesses the value of our goodwill and indefinite-lived assets under either a qualitative or quantitative approach.

During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove the Company's stock price to 52-week lows and significantly reduced future cash flow projections. The Company qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of its goodwill and indefinite-lived intangible assets. The Company determined that the estimated fair value of the Company's one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the unaudited Consolidated Balance Sheet, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.

Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in the Company's determination of fair value required significant judgments by management. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate for a control premium.

As of June 30, 2020, the Company had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. The Company determined that the fair value of its indefinite-lived intangible assets exceeded its carrying value and was not impaired.

The Company's long-lived assets, consisting principally of aircraft and other non-aircraft equipment, are classified as property and equipment, net on the unaudited Consolidated Balance Sheet, and have a recorded value of approximately $2.3 billion at June 30, 2020. The Company reviews long-lived assets used in operations for impairment when events and circumstances indicate the assets may be impaired.

As part of the Company's response to COVID-19, discussed above, including substantial capacity reductions and the temporary grounding of the majority of its fleet, as well as reduced cash flow projections, the Company identified indicators of impairment of its long-lived assets. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. Based on the Company's evaluation, including consideration of the continuing impact of the COVID-19 pandemic and revised financial projections, it was determined that the net carrying values of the Company's ATR-42 and ATR-72 fleets, and assets held under its commercial real estate subsidiary were not recoverable through the generation of undiscounted future cash flows as of June 30, 2020.

The Company estimated the fair value of its ATR-42 and ATR-72 fleets using a 3rd party valuation, which resulted in a $27.5 million impairment charge. The Company estimated the fair value of the assets held in its commercial real-estate subsidiary using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, resulting in a $3.4 million impairment charge. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates.

On March 27, 2020, President Trump signed into law the CARES Act, which provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides for, among other things: (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of loans and loan guarantees available for operations under the ERP, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional corporate tax benefits that are further discussed in Note 13.

On April 22, 2020 (PSP Closing Date), the Company entered into a Payroll Support Program agreement (the PSP Agreement) with the Treasury under the CARES Act. In connection with the PSP Agreement, the Company entered into a Warrant Agreement (the Warrant Agreement) with the Treasury, and the Company issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury will provide the Company with financial assistance to be released in installments expected to total approximately $292.5 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, the Company agreed to (i) refrain from conducting involuntary furloughs or

reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on the Company. Finally, the Company is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the U.S. Department of Transportation (DOT) and subject to exemptions granted by the DOT to the Company given the absence of demand for such services.

The Note issued by Hawaiian to the Treasury will increase to a total principal sum of approximately $57.8 million as Hawaiian receives installments from the Treasury under the PSP Agreement. The Note has a ten-year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.

As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the Warrant Agreement, the Company agreed to issue to the Treasury a total of 488,477 warrants to purchase shares of the Company’s common stock at an exercise price of $11.82 per share (the Warrants). The Warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company’s option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. Refer to Note 9 for additional discussion.

In June 2020, the Company entered into an LOI with the Treasury, and is eligible to receive up to $364 million in loans under the CARES Act ERP. Conditions of the loan are consistent with the PSP; certain restrictions, however, including prohibition of share repurchases and dividend payments for 12 months after the loan is no longer outstanding. The Company has not yet made a determination on whether to accept the ERP loans and continues to evaluate the terms of the financing. The Company has until September 30, 2020 to decide if it will accept the ERP loans.


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)
Collective bargaining agreement payment ⁽¹⁾	$	—	$	—	$	20,242	$	—
Goodwill impairment ⁽²⁾	—		—		106,662		—
Long-lived asset impairment ⁽³⁾	34,014		—		34,014		—
Total Special items	$	34,014	$	—	$	160,918	$	—

(1)In March 2020, the Company reached an agreement in principle with the flight attendants of Hawaiian, represented by the Association of Flight Attendants (the AFA) on a new five-year contract that runs through April 2025. On April 3, 2020, the Company received notice from the AFA that the collective bargaining agreement (CBA) was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flights attendants upon retirement. During the six months ended June 30, 2020, the Company recorded a $23.5 million ratification bonus, of which $20.2 million was related to service prior to January 1, 2020, and was recorded as a Special item in the unaudited Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of Wages and benefits in the unaudited Consolidated Statements of Operations.