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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to       
 
Commission file number 1-31443
 HAWAIIAN HOLDINGS INC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 71-0879698
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3375 Koapaka Street,Suite G-350  
Honolulu,HI 96819
(Address of Principal Executive Offices) (Zip Code)

(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)HANASDAQ Stock Market, LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer Accelerated filer 
Non-accelerated filer  Smaller reporting company 
 Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No
 
As of July 21, 2020, 45,997,188 shares of the registrant’s common stock were outstanding.



Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended June 30, 2020
 
Table of Contents
 
   
   
 
   
 
  
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
 
2


PART I. FINANCIAL INFORMATION

ITEM 1.                FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (unaudited)
Operating Revenue:  
Passenger$29,762  $653,423  $533,231  $1,254,727  
Other30,242  58,766  85,917  114,213  
Total60,004  712,189  619,148  1,368,940  
Operating Expenses:  
Wages and benefits30,329  180,070  218,583  355,135  
Aircraft fuel, including taxes and delivery7,003  140,600  120,481  266,704  
Maintenance, materials and repairs13,994  58,131  74,403  121,176  
Aircraft and passenger servicing3,036  39,641  41,319  78,541  
Depreciation and amortization39,333  39,527  78,782  77,678  
Aircraft rent23,886  30,843  50,890  61,239  
Commissions and other selling2,927  32,471  29,643  63,307  
Other rentals and landing fees13,677  31,386  43,443  62,432  
Purchased services19,887  32,733  54,128  65,186  
Special items34,014    160,918    
Other20,882  37,906  63,618  75,985  
Total208,968  623,308  936,208  1,227,383  
Operating Income (Loss)(148,964) 88,881  (317,060) 141,557  
Nonoperating Income (Expense):  
Interest expense and amortization of debt discounts and issuance costs(8,221) (7,300) (15,016) (14,830) 
Gains (losses) on fuel derivatives(184) (3,220) (6,636) (2,650) 
Interest income2,766  3,074  5,786  6,057  
Capitalized interest921  1,257  1,752  2,542  
Other, net1,161  (3,083) 3,465  (4,108) 
Total(3,557) (9,272) (10,649) (12,989) 
Income (Loss) Before Income Taxes(152,521) 79,609  (327,709) 128,568  
Income tax expense (benefit)(45,617) 21,776  (76,433) 34,377  
Net Income (Loss)$(106,904) $57,833  $(251,276) $94,191  
Net Income (Loss) Per Share  
Basic$(2.33) $1.21  $(5.47) $1.96  
Diluted$(2.33) $1.21  $(5.47) $1.96  
Weighted Average Number of Common Stock Shares Outstanding:
Basic45,971  47,854  45,969  48,122  
Diluted45,971  47,889  45,969  48,158  

See accompanying Notes to Consolidated Financial Statements.
3


Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 Three Months Ended June 30,
 20202019
 (unaudited)
Net Income (Loss)$(106,904) $57,833  
Other comprehensive loss, net:  
Net change related to employee benefit plans, net of tax expense of $242 and $218 for 2020 and 2019, respectively
736  669  
Net change in derivative instruments, net of tax benefit of $795 and $1,186 for 2020 and 2019, respectively
(2,419) (3,646) 
Net change in available-for-sale investments, net of tax expense of $350 and $250 for 2020 and 2019, respectively
1,065  769  
Total other comprehensive loss(618) (2,208) 
Total Comprehensive Income (Loss)$(107,522) $55,625  

 Six Months Ended June 30,
 20202019
 (unaudited)
Net Income (Loss)$(251,276) $94,191  
Other comprehensive income, net:  
Net change related to employee benefit plans, net of tax expense of $439 and $352 for 2020 and 2019, respectively
1,334  1,245  
Net change in derivative instruments, net of tax benefit of $682 and $811 for 2020 and 2019, respectively
(2,075) (2,501) 
Net change in available-for-sale investments, net of tax expense of $478 and $425 for 2020 and 2019, respectively
1,454  1,309  
Total other comprehensive income713  53  
Total Comprehensive Income (Loss)$(250,563) $94,244  


See accompanying Notes to Consolidated Financial Statements.

4


Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
June 30, 2020
(unaudited)
December 31, 2019
ASSETS  
Current Assets:  
Cash and cash equivalents$592,520  $373,056  
Short-term investments168,410  245,599  
Accounts receivable, net28,467  97,380  
Income taxes receivable92,365  64,192  
Spare parts and supplies, net35,660  37,630  
Prepaid expenses and other45,431  56,849  
Total962,853  874,706  
Property and equipment, less accumulated depreciation and amortization of $823,757 and $762,544 as of June 30, 2020 and December 31, 2019, respectively
2,267,826  2,316,772  
Other Assets:  
Operating lease right-of-use assets592,933  632,545  
Long-term prepayments and other159,383  182,438  
Intangible assets, net13,500  13,500  
Goodwill  106,663  
Total Assets$3,996,495  $4,126,624  
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$101,641  $148,748  
Air traffic liability and current frequent flyer deferred revenue553,554  606,684  
Other accrued liabilities221,881  161,430  
Current maturities of long-term debt, less discount60,079  53,273  
Current maturities of finance lease obligations21,667  21,857  
Current maturities of operating leases78,655  83,224  
Total1,037,477  1,075,216  
Long-Term Debt792,766  547,254  
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations131,631  141,861  
Noncurrent operating leases476,401  514,685  
Accumulated pension and other post-retirement benefit obligations200,411  203,596  
Other liabilities and deferred credits80,350  97,434  
Noncurrent frequent flyer deferred revenue179,740  175,218  
Deferred tax liability, net271,786  289,564  
Total1,340,319  1,422,358  
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of June 30, 2020 and December 31, 2019
    
Common stock, $0.01 par value per share, 45,996,537 and 46,121,859 shares outstanding as of June 30, 2020 and December 31, 2019, respectively
460  461  
Capital in excess of par value143,374  135,651  
Accumulated income785,269  1,049,567  
Accumulated other comprehensive loss, net(103,170) (103,883) 
Total825,933  1,081,796  
Total Liabilities and Shareholders’ Equity$3,996,495  $4,126,624  
See accompanying Notes to Consolidated Financial Statements.
5


Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2019$461  $  $135,651  $1,049,567  $(103,883) $1,081,796  
Net Loss—  —  —  (144,372) —  (144,372) 
Dividends declared on common stock ($0.12 per share)
—  —  —  (5,514) —  (5,514) 
Other comprehensive income, net—  —  —  —  1,331  1,331  
Issuance of 88,141 shares of common stock, net of shares withheld for taxes
1  —  (1,231) —  —  (1,230) 
Repurchase and retirement of 259,910 shares common stock
(2) —  —  (7,508) —  (7,510) 
Share-based compensation expense—  —  (135) —  —  (135) 
Balance at March 31, 2020$460  $  $134,285  $892,173  $(102,552) $924,366  
Net Loss—  —  —  (106,904) —  (106,904) 
Other comprehensive loss, net—  —  —  —  (618) (618) 
Issuance of 46,447 shares of common stock, net of shares withheld for taxes
  —  (83) —  —  (83) 
CARES Act PSP warrant issuance—  —  7,403  —  —  7,403  
Share-based compensation expense—  —  1,769  —  —  1,769  
Balance at June 30, 2020$460  $  $143,374  $785,269  $(103,170) $825,933  

(*) Common Stock—$0.01 par value; 118,000,000 authorized as of June 30, 2020 and December 31, 2019.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of June 30, 2020 and December 31, 2019.

6


Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2018$485  $  $128,448  $912,201  $(93,140) $947,994  
Net Income—  —  —  36,358  —  36,358  
Dividends declared on common stock ($0.12 per share)
—  —  —  (5,811) —  (5,811) 
Other comprehensive income, net—  —  —  —  2,261  2,261  
Issuance of 65,517 shares of common stock, net of shares withheld for taxes
1  —  (983) —  —  (982) 
Repurchase and retirement of 403,598 shares common stock
(4) —  —  (11,082) —  (11,086) 
Share-based compensation expense—  —  1,426  —  —  1,426  
Cumulative effect of accounting change (ASU 2016-02), net of tax
—  —  —  4,900  —  4,900  
Balance at March 31, 2019$482  $  $128,891  $936,566  $(90,879) $975,060  
Net Income—  —  —  57,833  —  57,833  
Dividends declared on common stock ($0.12 per share)
—  —  —  (5,743) —  (5,743) 
Other comprehensive loss, net—  —  —  —  (2,208) (2,208) 
Issuance of 28,927 shares of common stock, net of shares withheld for taxes
—  —  (32) —  —  (32) 
Repurchase and retirement of 725,105 shares common stock
(7) —  —  (19,597) —  (19,604) 
Share-based compensation expense—  —  1,384  —  —  1,384  
Balance at June 30, 2019$475  $  $130,243  $969,059  $(93,087) $1,006,690  

(*) Common Stock—$0.01 par value; 118,000,000 authorized as of June 30, 2019 and December 31, 2018.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of June 30, 2019 and December 31, 2018.

See accompanying Notes to Consolidated Financial Statements.
7


Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Six Months Ended June 30,
 20202019
(unaudited)
Net cash provided by Operating Activities$3,458  $311,212  
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments(93,956) (151,577) 
Proceeds from the disposition of aircraft related equipment  4,350  
Purchases of investments(64,215) (189,929) 
Sales of investments143,679  225,706  
Other  (6,275) 
Net cash used in investing activities(14,492) (117,725) 
Cash flows from Financing Activities:  
Long-term borrowings283,964    
Repayments of long-term debt and finance lease obligations(39,129) (77,471) 
Dividend payments(5,514) (11,554) 
Debt issuance costs  (33) 
Repurchases of common stock(7,510) (30,690) 
Other(1,313) (1,012) 
Net cash provided by (used in) financing activities230,498  (120,760) 
Net increase in cash and cash equivalents219,464  72,727  
Cash, cash equivalents, and restricted cash - Beginning of Period373,056  268,577  
Cash, cash equivalents, and restricted cash - End of Period$592,520  $341,304  
 
See accompanying Notes to Consolidated Financial Statements.

8


Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. General
 
Business and Basis of Presentation

Hawaiian Holdings, Inc. (the Company, Holdings, we, us and our) and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian. The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal variations in the demand for air travel, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations for the entire year. Furthermore, the severe impacts of the global coronavirus (COVID 19) pandemic make any comparison to prior or future periods unreliable. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

2. Impact of the COVID-19 Pandemic

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.

In response to the COVID-19 pandemic, the Company implemented various measures to mitigate declining demand through capacity and cost reductions, while managing cash flow and liquidity.

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.

Expense Management. In response to the reduction in revenue, the Company has implemented, and will continue to implement cost savings and liquidity measures, including:

In March 2020, the Company instituted a hiring freeze, except for operationally critical and essential positions.
Reduced capital expenditures for 2020 and continue to evaluate non-essential, non-aircraft capital expenditures. During the six months ended June 30, 2020, capital expenditures were approximately $94.0 million.
The Company currently has aircraft deliveries scheduled between 2021 to 2025 and is in discussions regarding the potential deferment of deliveries initially scheduled in 2021.
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Offered voluntary unpaid leave and float day purchase programs to each work group, including early retirement options for eligible employees.
All of the Company’s officers have reduced their base salaries by between 10% and 50% through at least September 30, 2020. Members of the Board of Directors have also temporarily reduced their compensation.
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:

On March 16, 2020, the Company drew down fully from its previously undrawn $235.0 million revolving credit facility. Refer to Note 9 for additional discussion.
On March 18, 2020, the Company suspended its stock repurchase program and on April 22, 2020, the Company suspended payment of dividends.
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.

The Company continues to explore and pursue options to raise additional financing by leveraging its unencumbered assets, which as of June 30, 2020, included 36 aircraft with an estimated fair value of approximately $860.0 million.

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.

Valuation of Goodwill and Indefinite-Lived Intangibles

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.

10


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.

Valuation of Long-Lived Assets

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.

In addition, during the three and six months ended June 30, 2020, the Company identified and wrote-off $3.1 million related to software-related projects that were discontinued as a result of the COVID-19 pandemic.

The Company will continue to monitor the duration and extent of the impact of COVID-19 on its business, and will continue to evaluate its current fleet and other long-lived assets for impairment accordingly.

CARES Act

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.

Payroll Support Program

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
11


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.

Economic Relief Program

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.

3. Significant Accounting Policies
 
Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (ASU 2016-13), which requires the use of an "expected loss" model on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates over the lifetime of the asset. The Company adopted ASU 2016-13 effective January 1, 2020. The adoption of this standard did not have a material impact on its financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (ASU 2017-04), which simplifies the measurement of goodwill as Step 2 of the goodwill impairment test was eliminated. ASU 2017-04 replaces the implied fair value of goodwill method with a methodology that compares the fair value of a reporting unit with its carrying amount. The Company adopted ASU 2017-04 effective January 1, 2020. Refer to Note 2 for discussion of the goodwill impairment recognized during in the first quarter of 2020.

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4. Accumulated Other Comprehensive Income (Loss)
 
Reclassifications out of accumulated other comprehensive income (loss) by component are as follows: 
Details about accumulated other comprehensive (income) loss componentsThree months ended June 30,Six months ended June 30,Affected line items in the statement where net income is presented
2020201920202019
 (in thousands) 
Derivative instruments under ASC 815     
Foreign currency derivative gains, net$(1,961) $(1,749)