Commitments and Contingencies

Aircraft-Related Commitments and Financing Arrangements

The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of March 31, 2013, firm aircraft orders with Airbus and a third party consisted of 102 A320 family aircraft (52 of the existing aircraft model and 50 A320neos), and engine orders with International Aero Engines consisted of two spare V2500 IAE International Aero Engines AG engines. Aircraft are scheduled for delivery from 2013 through 2021, and spare engines are scheduled for delivery from 2014 through 2015. Committed expenditures for these aircraft and related flight equipment, including estimated amounts for contractual price escalations and pre-delivery payments, will be approximately $248 million for the remainder of 2013, $354 million in 2014, $524 million in 2015, $501 million in 2016, $607 million in 2017, and $2,336 million in 2018 and beyond. We have secured financing commitments for our next five aircraft deliveries which are scheduled for delivery in 2013. We do not have financing commitments in place for the remaining 97 aircraft currently on firm order which are scheduled for delivery in 2014 through 2021.

During the first three months of 2013, the Company took delivery of four aircraft, two of which were financed via direct operating leases and the remaining two under sale and leaseback transactions with third party aircraft lessors. The two sale and leaseback transactions resulted in net deferred losses of $0.4 million. Deferred losses are included in other long-term assets on the accompanying balance sheet. Deferred losses will be recognized as an increase to rent expense on a straight-line basis over the term of the respective operating leases. Deferred gains are included in deferred credits and other long-term liabilities on the accompanying balance sheet. Deferred gains will be recognized as an decrease to rent expense on a straight-line basis over the term of the respective operating leases. The Company had agreements in place prior to the delivery of these aircraft which resulted in the settlement of the purchase obligation by the lessor and the refund of $12.0 million in pre-delivery deposits from Airbus during the three months ended March 31, 2013. The refunded pre-delivery deposits have been disclosed in the accompanying statements of cash flows as investing activities within pre-delivery deposits for flight equipment, net of refunds. In addition, the Company entered into sale and leaseback transactions with third-party lessors for the sale and leaseback of one V2500 IAE International Aero Engines AG engine. Cash outflows related to the purchase of the engine have been disclosed in the accompanying statements of cash flows as investing activities within purchases of property and equipment and the cash inflows from the sale of the engine as financing activities within proceeds received from sale lease back transactions. All of the leases from these sale and leaseback transactions are accounted for as operating leases. Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the lease agreements are fixed for the term of the lease. The lease agreements contain standard termination events, including termination upon a breach of the Company's obligations to make rental payments and upon any other material breach of the Company's obligations under the leases, and standard maintenance and return condition provisions. These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as additional rent expense when it is probable that such amounts will be paid to the lessor. Upon a termination of the lease due to a breach by the Company, the Company would be liable for standard contractual damages, possibly including damages suffered by the lessor in connection with remarketing the aircraft or while the aircraft is not leased to another party.

Future minimum lease payments under noncancelable operating leases as of March 31, 2013 and the periods in which payments are due were as follows:



	Operating Lease Obligations
	(in thousands)
Remainder of 2013	$	135,348
2014	177,788
2015	176,200
2016	169,458
2017	143,969
2018 and thereafter	438,513
Total minimum lease payments	$	1,241,276

Some of the Company’s master lease agreements provide that the Company pays maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. Maintenance reserve payments are either fixed contractual amounts or utilization based. Fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, will be approximately $7.7 million for the remainder of 2013, $10.6 million in 2014, $11.0 million in 2015, $11.4 million in 2016, $11.1 million in 2017, and $40.0 million in 2018 and beyond. These lease agreements provide that maintenance reserves are reimbursable to the Company upon completion of the maintenance event in an amount equal to the lesser of (1) the amount of the maintenance reserve held by the lessor associated with the specific maintenance event or (2) the qualifying costs related to the specific maintenance event.

Litigation

The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. The Company believes the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on its financial position, liquidity or results of operations.

Credit Card Processing Arrangements

The Company has agreements with organizations that process credit card transactions arising from the purchase of air travel, baggage charges, and other ancillary services by customers. As it is standard in the airline industry, the Company's contractual arrangements with credit card processors permit them, under certain circumstances, to retain a holdback or other collateral, which the Company records as restricted cash, when future air travel and other future services are purchased via credit card transactions. The required holdback is the percentage of the Company's overall credit card sales that its credit card processors hold to cover refunds to customers if the Company fails to fulfill its flight obligations. If the Company fails to satisfy certain liquidity and other financial covenants, the processing agreements provide the processors the right to require the Company to maintain cash collateral equal to approximately 100% of the Company's air traffic liability, resulting in a commensurate reduction of unrestricted cash. As of March 31, 2013 and December 31, 2012, the Company continued to be in compliance with its credit card processing agreements, and the processors were holding back $0 of remittances.

The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and $9 Fare Club memberships as of March 31, 2013 and December 31, 2012, was $197.0 million and $144.8 million, respectively.

Employees

Approximately 56% of the Company’s employees are covered under collective bargaining agreements. The table below sets forth our employee groups and status of the collective bargaining agreements as of March 31, 2013.



Employee Groups	Representative	Amendable Date	Percentage of Workforce
Pilots	Air Line Pilots Association, International (ALPA)	August 2015	22%
Flight Attendants	Association of Flight Attendants (AFA-CWA)	August 2007	33%
Dispatchers	Transport Workers Union (TWU)	July 2012	1%

The Company is currently in negotiations with both the AFA-CWA and the TWU to reach new collective bargaining agreements.

The Company is self-insured for health care claims for eligible participating employees and qualified dependent medical claims, subject to deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate of the ultimate aggregate liability for claims incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued $1.9 million and $1.9 million for health care claims as of March 31, 2013 and December 31, 2012, respectively.

Other

The Company is contractually obligated to pay the following minimum guaranteed payments to the provider of its reservation system as of March 31, 2013: $3.1 million for the remainder of 2013, $3.7 million in 2014, $3.7 million in 2015, $3.7 million in 2016, $3.7 million in 2017, and $2.5 million in 2018.