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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 September 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 October 21, 2020, 46,003,751 shares of the registrant’s common stock were outstanding.


Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended September 30, 2020
 
Table of Contents
 
   
   
 
   
 
  
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
 
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PART I. FINANCIAL INFORMATION

ITEM 1.                   FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 (unaudited)
Operating Revenue:  
Passenger$39,777 $694,263 $573,008 $1,948,990 
Other36,205 60,888 122,122 175,101 
Total75,982 755,151 695,130 2,124,091 
Operating Expenses:  
Wages and benefits19,494 182,862 238,077 537,997 
Aircraft fuel, including taxes and delivery14,544 138,586 135,025 405,290 
Maintenance, materials and repairs18,664 61,363 93,067 182,539 
Aircraft and passenger servicing5,140 41,762 46,459 120,303 
Depreciation and amortization36,734 41,596 115,516 119,274 
Aircraft rent26,230 30,534 77,120 91,773 
Commissions and other selling5,201 33,291 34,844 96,598 
Other rentals and landing fees14,156 33,345 57,599 95,777 
Purchased services22,878 33,120 77,006 98,306 
Special items17,489 — 178,407 — 
Other16,525 42,056 80,143 118,041 
Total197,055 638,515 1,133,263 1,865,898 
Operating Income (Loss)(121,073)116,636 (438,133)258,193 
Nonoperating Income (Expense):  
Other nonoperating special items(7,011)— (7,011)— 
Interest expense and amortization of debt discounts and issuance costs(11,596)(6,438)(26,612)(21,268)
Losses on fuel derivatives(297)(4,553)(6,933)(7,203)
Interest income1,942 3,148 7,728 9,205 
Capitalized interest831 1,171 2,583 3,713 
Other, net(6,380)(1,445)(2,915)(5,553)
Total(22,511)(8,117)(33,160)(21,106)
Income (Loss) Before Income Taxes(143,584)108,519 (471,293)237,087 
Income tax expense (benefit)(46,485)28,443 (122,918)62,820 
Net Income (Loss)$(97,099)$80,076 $(348,375)$174,267 
Net Income (Loss) Per Share  
Basic$(2.11)$1.70 $(7.58)$3.65 
Diluted$(2.11)$1.70 $(7.58)$3.64 
Weighted Average Number of Common Stock Shares Outstanding:
Basic46,001 47,119 45,980 47,784 
Diluted46,001 47,236 45,980 47,847 
Cash dividends declared per common stock share$— $0.12 $0.12 $0.36 

See accompanying Notes to Consolidated Financial Statements.
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Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 Three Months Ended September 30,
 20202019
 (unaudited)
Net Income (Loss)$(97,099)$80,076 
Other comprehensive income (loss), net:  
Net change related to employee benefit plans, net of tax benefit of $3,272 and net of tax expense of $38 for 2020 and 2019, respectively
(11,284)786 
Net change in derivative instruments, net of tax benefit of $416 and net of tax expense of $690 for 2020 and 2019, respectively
(1,266)2,096 
Net change in available-for-sale investments, net of tax benefit of $197 and net of tax expense of $32 for 2020 and 2019, respectively
(579)92 
Total other comprehensive income (loss)(13,129)2,974 
Total Comprehensive Income (Loss)$(110,228)$83,050 

 Nine Months Ended September 30,
 20202019
 (unaudited)
Net Income (Loss)$(348,375)$174,267 
Other comprehensive income (loss), net:  
Net change related to employee benefit plans, net of tax benefit of $2,833 and net of tax expense of $390 for 2020 and 2019, respectively
(9,950)2,031 
Net change in derivative instruments, net of tax benefit of $1,098 and $122 for 2020 and 2019, respectively
(3,341)(405)
Net change in available-for-sale investments, net of tax expense of $281 and $457 for 2020 and 2019, respectively
875 1,401 
Total other comprehensive income (loss)(12,416)3,027 
Total Comprehensive Income (Loss)$(360,791)$177,294 


See accompanying Notes to Consolidated Financial Statements.

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Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
September 30, 2020
(unaudited)		December 31, 2019
ASSETS  
Current Assets:  
Cash and cash equivalents$537,002 $373,056 
Short-term investments442,106 245,599 
Accounts receivable, net30,106 97,380 
Income taxes receivable67,758 64,192 
Spare parts and supplies, net36,621 37,630 
Prepaid expenses and other54,918 56,849 
Total1,168,511 874,706 
Property and equipment, less accumulated depreciation and amortization of $858,926 and $762,544 as of September 30, 2020 and December 31, 2019, respectively
2,121,218 2,316,772 
Other Assets:  
Operating lease right-of-use assets647,288 632,545 
Long-term prepayments and other146,619 182,438 
Intangible assets, net13,500 13,500 
Goodwill— 106,663 
Total Assets$4,097,136 $4,126,624 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$96,160 $148,748 
Air traffic liability and current frequent flyer deferred revenue515,424 606,684 
Other accrued liabilities132,734 161,430 
Current maturities of long-term debt, less discount114,810 53,273 
Current maturities of finance lease obligations21,618 21,857 
Current maturities of operating leases81,881 83,224 
Total962,627 1,075,216 
Long-Term Debt1,035,971 547,254 
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations126,159 141,861 
Noncurrent operating leases524,172 514,685 
Accumulated pension and other post-retirement benefit obligations223,907 203,596 
Other liabilities and deferred credits78,849 97,434 
Noncurrent frequent flyer deferred revenue186,618 175,218 
Deferred tax liability, net241,618 289,564 
Total1,381,323 1,422,358 
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of September 30, 2020 and December 31, 2019
— — 
Common stock, $0.01 par value per share, 46,003,751 and 46,121,859 shares outstanding as of September 30, 2020 and December 31, 2019, respectively
460 461 
Capital in excess of par value144,884 135,651 
Accumulated income688,170 1,049,567 
Accumulated other comprehensive loss, net(116,299)(103,883)
Total717,215 1,081,796 
Total Liabilities and Shareholders’ Equity$4,097,136 $4,126,624 
See accompanying Notes to Consolidated Financial Statements.
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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 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 
Net Loss— — — (97,099)— (97,099)
Other comprehensive loss, net— — — — (13,129)(13,129)
Issuance of 7,214 shares of common stock, net of shares withheld for taxes
— — (45)— — (45)
CARES Act warrant issuance, net of tax— — (7)— — (7)
Share-based compensation expense— — 1,562 — — 1,562 
Balance at September 30, 2020$460 $— $144,884 $688,170 $(116,299)$717,215 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of September 30, 2020 and December 31, 2019.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of September 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 
Net Income— — — 80,076 — 80,076 
Dividends declared on common stock ($0.12 per share)
— — — (5,652)— (5,652)
Other comprehensive income— — — — 2,974 2,974 
Issuance of 1,180 shares of common stock, net of shares withheld for taxes
— — (13)— — (13)
Repurchase and retirement of 762,543 shares common stock
(8)— — (19,993)— (20,001)
Share-based compensation expense— — 2,773 — — 2,773 
Balance at September 30, 2019$467 $— $133,003 $1,023,490 $(90,113)$1,066,847 

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

See accompanying Notes to Consolidated Financial Statements.
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Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Nine Months Ended September 30,
 20202019
(unaudited)
Net cash provided by (used in) Operating Activities$(173,482)$456,895 
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments(101,775)(280,288)
Proceeds from the purchase assignment and sale leaseback114,000 — 
Proceeds from the disposition of aircraft related equipment— 9,045 
Purchases of investments(408,955)(265,705)
Sales of investments214,469 267,464 
Other— (6,275)
Net cash used in investing activities(182,261)(275,759)
Cash flows from Financing Activities:  
Long-term borrowings602,264 227,889 
Repayments of long-term debt and finance lease obligations(64,686)(95,356)
Dividend payments(5,514)(17,206)
Debt issuance costs(3,506)(1,162)
Repurchases of common stock(7,510)(50,690)
Other(1,359)(1,026)
Net cash provided by financing activities519,689 62,449 
Net increase in cash and cash equivalents163,946 243,585 
Cash, cash equivalents, and restricted cash - Beginning of Period373,056 268,577 
Cash, cash equivalents, and restricted cash - End of Period$537,002 $512,162 
 
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. These restrictions, combined with the ongoing spread and impact of the COVID-19 pandemic globally, have continued to suppress customer demand.

Despite the easing of travel restrictions in recent months within the United States, restrictions for travel to and within the State of Hawai`i as well as travel to and from various international locations, including those in the Hawaiian network, remain in effect. In September 2020, the Governor of the State of Hawai`i announced that a program allowing travelers from the U.S. mainland coming to Hawai`i to bypass the quarantine requirement with proof of a negative COVID-19 test from a state-approved testing partner would begin on October 15, 2020. Following this announcement, the Company saw increases in bookings and has slowly begun rebuilding its Neighbor Island and North America flight schedule commensurate with the anticipated increases in demand.

The exact timing and pace of the recovery of passenger demand continues to remain uncertain. 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 nine months ended September 30, 2020, the Company reduced capacity by 86.5% and 60.2%, respectively, as compared to the same period in 2019. As a result of capacity reductions, the Company temporarily parked approximately 29% of its fleet as of September 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 the first quarter 2020, the Company instituted a temporary hiring freeze, except with respect to operationally critical and essential positions.
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•The Company reduced capital expenditures for 2020 and continues to evaluate non-essential, non-aircraft capital expenditures. During the three and nine months ended September 30, 2020, capital expenditures were approximately $7.8 million and $101.8 million, respectively.
•The Company’s officers reduced their base salaries between 10% and 50% through September 30, 2020. Members of the Board of Directors also reduced their compensation.
•During the third quarter of 2020, the Company announced and completed voluntary separation and temporary leave programs across each of its labor groups. Additionally, the Company completed involuntary terminations, the majority of which were effective October 1, 2020. Combined, separation and temporary leave programs resulted in an approximately 32% reduction of the Company's total workforce.
•On October 26, 2020, the Company entered into an amendment (the “Amendment”) to its 787-9 purchase agreement with Boeing, which provides for, among other things, a change in the aircraft delivery schedule from 2021 through 2025 to 2022 through 2026, with the first delivery now scheduled in September 2022. Refer to Note 11 for additional discussion, including the impact of the Amendment on the Company's future financial commitments.

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. The Company's cash, cash equivalents and short-term investments as of September 30, 2020 was $979.1 million. The Company has taken various actions to increase liquidity and strengthen our financial position during the nine months ended September 30, 2020, including, but not limited to:

•During the first quarter 2020, the Company fully drew down its previously undrawn $235.0 million revolving credit facility. Refer to Note 9 for additional discussion.
•During the first and second quarters of 2020, the Company suspended its stock repurchase program and payment of dividends.
•During the second and third quarters of 2020, the Company received $240.6 million in grants and $60.3 million in loans from the U.S. Department of Treasury (the Treasury) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) Payroll Support Program (PSP), as discussed in further detail below.
•During the third quarter 2020, the Company entered into a Loan and Guarantee Agreement (Loan Agreement) with Treasury pursuant to the CARES Act Economic Relief Program (ERP) to provide for a secured term loan which permits the Company to borrow up to $420.0 million. As of September 30, 2020, the Company had borrowed $45 million under the program as discussed in further detail below.
•During the third quarter 2020, the Company completed $376.0 million in other financings secured by aircraft, including the issuance of enhanced equipment trust certificates and two sale-leaseback transactions. Refer to Note 9 and the sale-leaseback transactions section in this Note 2 for more information on the Company's financing activities during the three and nine months ended September 30, 2020.

The Company continues to explore and pursue options to raise additional financing by leveraging its unencumbered assets, which as of September 30, 2020, included 12 aircraft with an estimated fair value of approximately $242.7 million.

Based on these actions, including revenue 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
10

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 Company's unaudited Consolidated Balance Sheets, 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 September 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 Company's unaudited Consolidated Balance Sheets, and have a recorded value of approximately $2.1 billion at September 30, 2020. The Company reviews long-lived assets used in operations for impairment when events and circumstances indicate the assets may be impaired.

As a result of the COVID-19 pandemic, including capacity reductions, the temporary grounding of the majority of its fleet, as well as reduced future cash flow projections, the Company previously identified, and continues to identify, indicators of impairment of its long-lived assets.

In the second quarter of 2020, the Company recorded an impairment charge of $34.0 million related to its ATR-42 and ATR-72 fleets, assets held under its commercial real estate subsidiary, and software-related projects that were discontinued as a result of the COVID-19 pandemic. The Company estimated the fair value of its ATR-42 and ATR-72 fleets using a third-party valuation and 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. 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.

To determine whether impairment exists for aircraft used in operations, assets are grouped by fleet-type (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, yield, fuel costs, labor costs and other relevant factors. Given the substantial reduction in the Company's active aircraft and diminished projections of future cash flows in the near term, the Company evaluated the remainder of its fleet and determined that only the fleet types discussed above were impaired as the future cash flows from operation of the fleet through the respective retirement dates exceeded the carrying value. The Company will continue to monitor the duration and extent of the impact of the COVID-19 pandemic 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 14.

Payroll Support Program

On April 22, 2020, 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
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(the PSP Warrant Agreement) with the Treasury, and the Company issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury provided the Company with financial assistance, paid in installments, totaling approximately $300.9 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 certain of such services.

The Note issued by Hawaiian to the Treasury was in the total principal amount of approximately $60.3 million. 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 PSP Warrant Agreement, the Company issued to the Treasury a total of 509,964 warrants to purchase shares of the Company’s common stock at an exercise price of $11.82 per share (the PSP Warrants). The PSP 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

On September 25, 2020 (ERP Closing Date), the Company entered into the Loan Agreement. The Loan Agreement provides for a secured term loan facility which permits the Company to borrow up to $420.0 million (the Facility). On the ERP Closing Date, the Company borrowed $45.0 million and may, at its option, borrow additional amounts in up to two subsequent borrowings until March 26, 2021, so long as, after giving effect to any further borrowing, the collateral coverage ratio is no less than 2.0 to 1.0. The proceeds from the Facility will be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Loan Agreement. As a condition to the drawing under the Facility, we are required to comply with all applicable provisions of the CARES Act.

Borrowings under the Facility will initially bear interest at a variable rate per annum equal to (a) the Adjusted LIBO Rate (as defined in the Loan Agreement) plus (b) 2.50% accrued interest on the loans is payable in arrears on the first business day following the 14th day of each March, June, September and December (beginning with September 15, 2021), and on the Maturity Date (as defined below). The applicable interest rate for the $45 million loan drawn on the ERP Closing Date under the Facility is 2.73% per annum for the period from the ERP Closing Date through September 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula. All advances under the Facility will be in the form of term loans, all of which will mature and be due and payable in a single installment on June 30, 2024.

The Facility is secured by (i) the Company's frequent flyer loyalty program, HawaiianMiles, including but not limited to loyalty program partner participation agreements (including rights to receive cash flows thereunder), documents, deposit accounts, securities accounts, books and records and intellectual property primarily used in connection with the loyalty program and (ii) 14 Boeing 717-200 airframes and the related 28 Rolls Royce BR715-A1-30 engines, together with their related accessories, aircraft documents and parts (collectively, the Collateral). The Facility is also subject to various financial covenants, including a minimum collateral coverage ratio of 2.0 to 1.0 and a minimum debt service coverage ratio of 1.75 to 1.00.

In connection with its entry into the Loan Agreement, the Company also entered into a warrant agreement (the ERP Warrant Agreement), with the Treasury under the ERP. Pursuant to the ERP Warrant Agreement, the Company agreed to issue warrants to purchase up to an aggregate of 3,553,299 shares of the Company's common stock (the ERP Warrants) at an exercise price of $11.82 per share (the “Exercise Price”). Pursuant to the ERP Warrant Agreement, (a) on the Closing Date, the Company issued to the Treasury an ERP Warrant to purchase up to 380,711 Warrant Shares of the Company's common stock and (b) on the date of each borrowing under the Loan Agreement, the Company will issue to the Treasury an additional ERP Warrant for a number of shares of the Company's common stock equal to 10% of such borrowing, divided by the Exercise Price. The ERP Warrants are non-voting, are 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.

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On October 23, 2020, the Company entered into an Amended and Restated Loan Agreement with the U.S. Treasury, providing for an increase to the Loan Agreement from $420 million to $622 million and correspondingly increased the aggregate number of ERP Warrants available to be issued up to 5,262,267.


Sale-Leaseback Transactions

During the three months ended September 30, 2020, the Company entered into sale-leaseback transactions for two A321-200 aircraft. The transactions qualified as a sale, generating an immaterial loss, and the associated assets were removed from property and equipment, net and recorded as operating lease right-of-use assets on the Company's unaudited consolidated Balance Sheets. The liabilities are recorded within current and noncurrent operating lease liabilities on the Company's unaudited Consolidated Balance Sheets.

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, eliminating Step 2 of the goodwill impairment test. 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 recorded during 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 September 30,Nine months ended September 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$— $(1,095)$(3,075)$(4,431)Passenger revenue
Foreign currency derivative losses (gains)418 — (4,363)— Nonoperating Income (Expense), Other, net
Total before tax418 (1,095)(7,438)(4,431) 
Tax expense (benefit)(103)271 1,840 1,025  
Total, net of tax$315 $(824)$(5,598)$(3,406) 
Amortization of defined benefit plan items     
Actuarial loss$1,046 $768 $2,890 $2,430 Nonoperating Income (Expense), Other, net
Prior service cost414 56 526 168 Nonoperating Income (Expense), Other, net
Special termination benefits5,258 — 5,258 — Other nonoperating special items
Curtailment loss1,753 — 1,753 — Other nonoperating special items
Total before tax8,471 824 10,427 2,598  
Tax benefit(1,904)(38)(2,388)(424) 
Total, net of tax$6,567 $786 $8,039 $2,174  
Short-term investments     
Realized losses (gain) on sales of investments, net$(283)$(97)$(654)$(126)Nonoperating Income (Expense), Other, net
Total before tax(283)(97)(654)(126) 
Tax expense (benefit)67 24 159 31  
Total, net of tax$(216)$(73)$(