Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Under ASC 820, "Fair Value Measurements and Disclosures," disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of the Company’s financial assets and liabilities.

The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated fair value. The Company has assessed whether any impairment of its long-lived assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of September 30, 2020. The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets, including the impact of the COVID-19 pandemic to its business, are subject to uncertainty, and the Company will continue to monitor these conditions in future periods as new information becomes available, and will update its analyses accordingly.

Long-Term Debt

The estimated fair value of the Company's secured notes, term loan debt agreements and revolving credit facilities have been determined to be Level 3 as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 long-term debt. The estimated fair value of the Company's publicly and non-publicly held EETC debt agreements and the Company's convertible notes has been determined to be Level 2 as the Company utilizes quoted market prices in markets with low trading volumes to estimate the fair value of its Level 2 long-term debt.

The carrying amounts and estimated fair values of the Company's long-term debt at September 30, 2020 and December 31, 2019 were as follows:


	September 30, 2020				December 31, 2019				Fair Value Level Hierarchy
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in millions)
8.00% senior secured notes	$	841.4	$	853.6	$	—	$	—	Level 3
Fixed-rate senior term loans	270.9		262.2		296.1		296.4		Level 3

Fixed-rate term loans	1,014.5		1,034.7		778.2		823.6		Level 3
Unsecured term loans	73.3		77.6		—		—		Level 3
2015-1 EETC Class A	333.6		299.4		348.6		372.2		Level 2
2015-1 EETC Class B	68.0		60.0		72.0		74.5		Level 2
2015-1 EETC Class C	92.4		76.0		98.1		100.5		Level 2
2017-1 EETC Class AA	214.4		202.6		228.4		237.0		Level 2
2017-1 EETC Class A	71.5		60.4		76.1		78.8		Level 2
2017-1 EETC Class B	60.6		48.2		70.6		72.0		Level 2
2017-1 EETC Class C	85.5		69.2		85.5		88.0		Level 2
Convertible debt	105.2		254.3		—		—		Level 2
Revolving credit facilities	275.1		275.1		160.0		160.0		Level 3
Total long-term debt	$	3,506.4	$	3,573.3	$	2,213.6	$	2,303.0

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2020 and December 31, 2019 are comprised of liquid money market funds and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions.

Restricted Cash

Restricted cash is comprised of cash held in account subject to account control agreements or otherwise pledged as collateral against the Company's letters of credit and is categorized as a Level 1 instrument. As of September 30, 2020, the Company had a $30.0 million standby letter of credit secured by restricted cash, of which $23.1 million had been drawn upon for issued letters of credit. In addition, the Company had $24.8 million of restricted cash held in accounts subject to control agreements to be used for the payment of interest and fees on the 8.00% senior secured notes.

Short-term Investment Securities

Short-term investment securities at September 30, 2020 and December 31, 2019 are classified as available-for-sale and generally consist of U.S. Treasury and U.S. government agency securities with contractual maturities of 12 months or less. The Company's short-term investment securities are categorized as Level 1 instruments, as the Company uses quoted market prices in active markets when determining the fair value of these securities. For additional information, refer to Note 8, Short-term Investment Securities.

Assets Held for Sale

The Company's assets held for sale consist of rotable aircraft parts. When long-lived assets are identified as held for sale and the required criteria are met, the Company reclassifies the assets from property and equipment to prepaid expenses and other current assets on the Company's condensed consolidated balance sheets and discontinues depreciation. The assets are measured at the lower of the carrying amount or fair value less cost to sell and a loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less cost to sell. Such valuations include estimations of fair values and incremental direct costs to transact a sale. The fair value measurements for the Company's held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources. As of September 30, 2020 and December 31, 2019, the Company had $2.3 million in assets held for sale recorded within prepaid expenses and other current assets in the Company's condensed consolidated balance sheets. The balance of the Company's held-for-sale assets remained the same during the nine

months ended September 30, 2020, as the Company had no purchases, sales nor realized and unrealized losses or gains related to these assets during this period.

Assets and liabilities measured at gross fair value on a recurring basis are summarized below:


	Fair Value Measurements as of September 30, 2020
	Total		Level 1		Level 2		Level 3
	(in millions)
Cash and cash equivalents	$	1,947.6	$	1,947.6	$	—	$	—


Restricted cash	54.8		54.8		—		—
Short-term investment securities	106.3		106.3		—		—
Assets held for sale	2.3		—		—		2.3
Total assets	$	2,111.0	$	2,108.7	$	—	$	2.3




Total liabilities	$	—	$	—	$	—	$	—


	Fair Value Measurements as of December 31, 2019
	Total		Level 1		Level 2		Level 3
	(in millions)
Cash and cash equivalents	$	979.0	$	979.0	$	—	$	—


Short-term investment securities	105.3		105.3		—		—
Assets held for sale	2.3		—		—		2.3
Total assets	$	1,086.6	$	1,084.3	$	—	$	2.3




Total liabilities	$	—	$	—	$	—	$	—

The Company had no transfers of assets or liabilities between any of the above levels during the nine months ended September 30, 2020 and the year ended December 31, 2019.

The Company's Valuation Group, which reports to the Chief Financial Officer, is made up of individuals from the Company's Treasury and Corporate Accounting departments. The Valuation Group is responsible for the execution of the Company's valuation policies and procedures. The Valuation Group compares the results of the Company's internally developed valuation methods with counterparty reports at each balance sheet date, assesses the Company's valuation methods for accurateness and identifies any needs for modification.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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