Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

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. During the fourth quarter of 2019, the Company entered into an A320 NEO Family Purchase Agreement with Airbus for the purchase of 100 new Airbus A320neo family aircraft, with options to purchase up to 50 additional aircraft. In June 2020, the Company entered into an agreement to defer certain aircraft deliveries scheduled in 2020 and 2021, as well as the related pre-delivery deposit payments. During the six months ended June 30, 2020, the Company took delivery of 9 aircraft and with this agreement, the Company has 3 remaining aircraft scheduled for delivery during the remainder of 2020 and 16 aircraft scheduled for delivery in 2021. For additional information, please refer to Note 2, Impact of COVID-19. As of June 30, 2020, the Company's total firm aircraft orders consisted of 129 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. In addition, the Company has financing agreements in place for 10 direct operating leases for A320neos with third-party lessors with deliveries scheduled in 2021.

The Company also has one spare engine order for a V2500 SelectTwo engine with International Aero Engines ("IAE") and two spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2021 through 2023. As of June 30, 2020, purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $119.0 million for the remainder of 2020, $356.4 million in 2021, $606.1 million in 2022, $707.6 million in 2023, $1,073.0 million in 2024, and $3,763.4 million in 2025 and beyond. During the third quarter of 2019, the United States announced its decision to levy tariffs on certain imports from the European Union, including commercial aircraft and related parts. These tariffs include aircraft and other parts that the Company is already contractually obligated to purchase including those reflected above. In February 2020, the rate of this tariff was increased from 10% to 15%. The imposition of these tariffs may substantially increase the cost of new Airbus aircraft and parts required to service the Company's Airbus fleet.

As of June 30, 2020, the Company has secured debt financing commitments for two aircraft scheduled for delivery from Airbus in 2020. As of June 30, 2020, the Company did not have financing commitments in place for the remaining 127 Airbus aircraft on firm order through 2027. However, the Company has a financing letter of agreement with Airbus which provides

backstop financing for a majority of the aircraft included in the A320 NEO Family Purchase Agreement signed in the fourth quarter of 2019. The agreement provides a standby credit facility in the form of senior secured mortgage debt financing. In addition, as of June 30, 2020, the Company has secured 10 direct operating leases for A320neos with third-party lessors, with deliveries expected in 2021.

As of June 30, 2020, principal and interest commitments related to the Company's future secured debt financing of the two undelivered aircraft are approximately $0.9 million for the remainder of 2020, $8.5 million in 2021, $6.5 million in 2022, $7.0 million in 2023, $7.1 million in 2024, and $64.7 million in 2025 and beyond. Aircraft rent commitments for future aircraft deliveries to be financed under direct leases from third-party lessors are expected to be approximately zero for the remainder of 2020, $18.2 million in 2021, $33.4 million in 2022, $33.4 million in 2023, $33.4 million in 2024, and $282.5 million in 2025 and beyond.

Interest commitments related to the secured debt financing of 70 delivered aircraft as of June 30, 2020 are $40.7 million for the remainder of 2020, $76.2 million in 2021, $69.5 million in 2022, $58.9 million in 2023, $47.9 million in 2024, and $131.2 million in 2025 and beyond. As of June 30, 2020, interest commitments related to the Company's unsecured term loans and convertible debt financing are $4.4 million for the remainder of 2020, $8.9 million in 2021, $8.9 million in 2022, $8.9 million in 2023, $8.9 million in 2024, and $10.7 million in 2025 and beyond. For principal commitments related to the Company's debt financing, refer to Note 13, Debt and Other Obligations.

The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system and other miscellaneous subscriptions and services as of June 30, 2020: $10.7 million for the remainder of 2020, $17.1 million in 2021, $16.2 million in 2022, $14.4 million in 2023, $14.5 million in 2024, and $50.3 million in 2025 and thereafter. During the first quarter of 2018, the Company entered into a contract renewal with its reservation system provider which expires in 2028.

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 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.

The Company's credit card processors do not require the Company to maintain cash collateral provided that the Company satisfies certain liquidity and other financial covenants. Failure to meet these covenants would provide the processors the right to place a holdback resulting in a commensurate reduction of unrestricted cash. As of June 30, 2020 and December 31, 2019, the Company's credit card processors were holding back no 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 June 30, 2020 and December 31, 2019, was $417.3 million and $342.3 million, respectively.

Employees

The Company has 5 union-represented employee groups that together represented approximately 81% of all employees as of June 30, 2020. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of June 30, 2020.

Employee Groups

Representative

Amendable Date

Percentage of Workforce

Pilots

Air Line Pilots Association, International ("ALPA")

February 2023

28%

Flight Attendants

Association of Flight Attendants ("AFA-CWA")

May 2021

46%

Dispatchers

Professional Airline Flight Control Association ("PAFCA")

October 2023

Ramp Service Agents

International Association of Machinists and Aerospace Workers ("IAMAW")

June 2020

Passenger Service Agents

Transport Workers Union of America ("TWU")

In February 2020, the IAMAW notified the Company, as required by the Railway Labor Act, that it intends to submit proposed changes to the collective bargaining agreement covering the Company's ramp service agents which became amendable in June 2020. The parties expect to schedule meeting dates for negotiations soon.

The Company's passenger service agents are represented by the TWU, but the representation applies only to the Company's Fort Lauderdale station where the Company has direct employees in the passenger service classification. The Company and the TWU began meeting in late October 2018 to negotiate an initial collective bargaining agreement. As of June 30, 2020, the Company continued to negotiate with the TWU.

The Company is self-insured for healthcare claims, up to a stop-loss amount 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 $5.2 million and $5.2 million in health care claims as of June 30, 2020 and December 31, 2019, respectively.