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Leases
 6 Months Ended
Jun. 30, 2021
Leases [Abstract]  
Leases Leases
The Company leases aircraft, engines, airport terminals, maintenance and training facilities, aircraft hangars, commercial real estate, and office and computer equipment, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, enplaned passengers, and airports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on the Company's condensed consolidated balance sheets as a right-of-use asset and lease liability. Lease terms are generally 8 years to 18 years for aircraft and up to 99 years for other leased equipment and property.
As of June 30, 2021, the Company had a fleet consisting of 164 A320 family aircraft. As of June 30, 2021, the Company had 59 aircraft financed under operating leases with lease term expirations between 2023 and 2039. In addition, the Company owned 105 aircraft of which 33 were purchased off lease and were unencumbered as of June 30, 2021. As of June 30, 2021, the Company also had 8 spare engines financed under operating leases with lease term expiration dates ranging from 2023 to 2033 and owned 16 spare engines, all of which, as of June 30, 2021, were pledged as collateral under the Company's revolving credit facility maturing in 2024.
Some of the Company’s aircraft and engine 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. A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed, time-based contractual amounts. Maintenance reserve payments that are probable of being recovered when the Company performs qualifying maintenance are recorded in aircraft maintenance deposits on the Company's condensed consolidated balance sheets. Fixed maintenance reserve payments that are not probable of being
recovered are considered lease payments and are included in the right-of-use asset and lease liability. Maintenance reserve payments that are based on a utilization measure and are not probable of being recovered are considered variable lease payments that are recognized when they are probable of being incurred and are not included in the right-of-use asset and lease liability.
Some of the master lease agreements do not require that the Company pay maintenance reserves so long as the Company's cash balance does not fall below a certain level. As of June 30, 2021, the Company was in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis. Aircraft rent expense also includes maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable lease return condition obligations.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of 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 either fixed or variable lease payments (depending on the nature of the lease return condition) when it is probable that such amounts will be incurred. When determining probability and estimated cost of lease return obligations, there are various other factors that need to be considered such as the contractual terms of the lease, the ability to swap engines or other aircraft components, current condition of the aircraft, the age of the aircraft at lease expiration, utilization of engines and other components, the extent of repairs needed at return, return locations, current configuration of the aircraft and cost of repairs and materials at the time of return. Management assesses the factors listed above and the need to accrue lease return costs throughout the lease as facts and circumstances warrant an assessment. As a result of COVID-19, the Company is currently operating its aircraft at lower utilization levels. If the Company continues flying its aircraft at lower utilization levels beyond its current projections, the timing of future maintenance events may change such that the Company will be required to accrue lease return costs and/or record reserves against its maintenance deposits earlier than it would have expected and such amounts could be significant. The Company expects lease return costs and unrecoverable maintenance deposits will increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft. 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.
During the six months ended June 30, 2021, the Company took delivery of five aircraft under direct operating leases and two aircraft under sale-leaseback transactions. In addition, the Company purchased four previously leased aircraft.
As of June 30, 2021, the Company's finance lease obligations primarily relate to the lease of computer equipment used by the Company's flight crew and office equipment. Payments under these finance lease agreements are fixed for terms ranging from 4 to 5 years. Finance lease assets are recorded within property and equipment and the related liabilities are recorded within long-term debt and finance leases in the Company's condensed consolidated balance sheets.
The following table provides details of the Company's future minimum lease payments under finance lease liabilities and operating lease liabilities recorded on the Company's condensed consolidated balance sheets as of June 30, 2021. The table does
not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
Finance LeasesOperating Leases
Aircraft and Spare Engine LeasesProperty Facility LeasesTotal
Operating and Finance Lease Obligations
(in thousands)
remainder of 2021 (1) $433 $118,970 $2,479 $121,882 
2022842 227,481 4,711 233,034 
2023465 219,274 4,008 223,747 
2024214 197,212 2,819 200,245 
2025117 175,588 1,060 176,765 
2026 and thereafter39 1,248,820 143,093 1,391,952 
Total minimum lease payments$2,110 $2,187,345 $158,170 $2,347,625 
Less amount representing interest134 639,640 133,937 773,711 
Present value of minimum lease payments$1,976 $1,547,705 $24,233 $1,573,914 
Less current portion776 141,057 3,514 145,347 
Long-term portion$1,200 $1,406,648 $20,719 $1,428,567 
(1) Includes $5.2 million of aircraft and spare engine rent payment deferrals due to COVID-19 which are recorded in other current liabilities within the Company's condensed consolidated balance sheets.
Commitments related to the Company's noncancellable short-term operating leases not recorded on the Company's condensed consolidated balance sheets are expected to be $2.2 million for the remainder of 2021 and none for 2022 and beyond. During 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to facility rents and other airport service contracts at certain locations. Also during 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to certain aircraft and engine leases. The Company elected to apply the practical expedient issued by the Financial Accounting Standards Board in April 2020 which allows companies to treat a lease concession related to COVID-19 as though enforceable rights and obligations for the concessions existed regardless of whether those enforceable rights and obligations explicitly exist in the lease agreement. Amounts deferred as of June 30, 2021 are recorded in accrued rent within other current liabilities on the Company's condensed consolidated balance sheet.
The table below presents information for lease costs related to the Company's finance and operating leases:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in thousands)
Finance lease cost
Amortization of leased assets$176 $135 $345 $270 
Interest of lease liabilities24 26 48 139 
Operating lease cost
Operating lease cost (1)
52,632 51,006 104,774 98,223 
Short-term lease cost (1)
7,076 6,884 14,091 13,598 
Variable lease cost (1)
50,511 25,568 88,661 55,383 
Total lease cost$110,419 $83,619 $207,919 $167,613 
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed consolidated statements of operations.
The table below presents lease terms and discount rates related to the Company's finance and operating leases:
June 30, 2021June 30, 2020
Weighted-average remaining lease term
Operating leases13.7 years13.1 years
Finance leases2.9 years3.1 years
Weighted-average discount rate
Operating leases5.92 %6.07 %
Finance leases4.91 %5.56 %
Leases Leases
The Company leases aircraft, engines, airport terminals, maintenance and training facilities, aircraft hangars, commercial real estate, and office and computer equipment, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, enplaned passengers, and airports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on the Company's condensed consolidated balance sheets as a right-of-use asset and lease liability. Lease terms are generally 8 years to 18 years for aircraft and up to 99 years for other leased equipment and property.
As of June 30, 2021, the Company had a fleet consisting of 164 A320 family aircraft. As of June 30, 2021, the Company had 59 aircraft financed under operating leases with lease term expirations between 2023 and 2039. In addition, the Company owned 105 aircraft of which 33 were purchased off lease and were unencumbered as of June 30, 2021. As of June 30, 2021, the Company also had 8 spare engines financed under operating leases with lease term expiration dates ranging from 2023 to 2033 and owned 16 spare engines, all of which, as of June 30, 2021, were pledged as collateral under the Company's revolving credit facility maturing in 2024.
Some of the Company’s aircraft and engine 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. A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed, time-based contractual amounts. Maintenance reserve payments that are probable of being recovered when the Company performs qualifying maintenance are recorded in aircraft maintenance deposits on the Company's condensed consolidated balance sheets. Fixed maintenance reserve payments that are not probable of being
recovered are considered lease payments and are included in the right-of-use asset and lease liability. Maintenance reserve payments that are based on a utilization measure and are not probable of being recovered are considered variable lease payments that are recognized when they are probable of being incurred and are not included in the right-of-use asset and lease liability.
Some of the master lease agreements do not require that the Company pay maintenance reserves so long as the Company's cash balance does not fall below a certain level. As of June 30, 2021, the Company was in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis. Aircraft rent expense also includes maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable lease return condition obligations.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of 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 either fixed or variable lease payments (depending on the nature of the lease return condition) when it is probable that such amounts will be incurred. When determining probability and estimated cost of lease return obligations, there are various other factors that need to be considered such as the contractual terms of the lease, the ability to swap engines or other aircraft components, current condition of the aircraft, the age of the aircraft at lease expiration, utilization of engines and other components, the extent of repairs needed at return, return locations, current configuration of the aircraft and cost of repairs and materials at the time of return. Management assesses the factors listed above and the need to accrue lease return costs throughout the lease as facts and circumstances warrant an assessment. As a result of COVID-19, the Company is currently operating its aircraft at lower utilization levels. If the Company continues flying its aircraft at lower utilization levels beyond its current projections, the timing of future maintenance events may change such that the Company will be required to accrue lease return costs and/or record reserves against its maintenance deposits earlier than it would have expected and such amounts could be significant. The Company expects lease return costs and unrecoverable maintenance deposits will increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft. 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.
During the six months ended June 30, 2021, the Company took delivery of five aircraft under direct operating leases and two aircraft under sale-leaseback transactions. In addition, the Company purchased four previously leased aircraft.
As of June 30, 2021, the Company's finance lease obligations primarily relate to the lease of computer equipment used by the Company's flight crew and office equipment. Payments under these finance lease agreements are fixed for terms ranging from 4 to 5 years. Finance lease assets are recorded within property and equipment and the related liabilities are recorded within long-term debt and finance leases in the Company's condensed consolidated balance sheets.
The following table provides details of the Company's future minimum lease payments under finance lease liabilities and operating lease liabilities recorded on the Company's condensed consolidated balance sheets as of June 30, 2021. The table does
not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
Finance LeasesOperating Leases
Aircraft and Spare Engine LeasesProperty Facility LeasesTotal
Operating and Finance Lease Obligations
(in thousands)
remainder of 2021 (1) $433 $118,970 $2,479 $121,882 
2022842 227,481 4,711 233,034 
2023465 219,274 4,008 223,747 
2024214 197,212 2,819 200,245 
2025117 175,588 1,060 176,765 
2026 and thereafter39 1,248,820 143,093 1,391,952 
Total minimum lease payments$2,110 $2,187,345 $158,170 $2,347,625 
Less amount representing interest134 639,640 133,937 773,711 
Present value of minimum lease payments$1,976 $1,547,705 $24,233 $1,573,914 
Less current portion776 141,057 3,514 145,347 
Long-term portion$1,200 $1,406,648 $20,719 $1,428,567 
(1) Includes $5.2 million of aircraft and spare engine rent payment deferrals due to COVID-19 which are recorded in other current liabilities within the Company's condensed consolidated balance sheets.
Commitments related to the Company's noncancellable short-term operating leases not recorded on the Company's condensed consolidated balance sheets are expected to be $2.2 million for the remainder of 2021 and none for 2022 and beyond. During 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to facility rents and other airport service contracts at certain locations. Also during 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to certain aircraft and engine leases. The Company elected to apply the practical expedient issued by the Financial Accounting Standards Board in April 2020 which allows companies to treat a lease concession related to COVID-19 as though enforceable rights and obligations for the concessions existed regardless of whether those enforceable rights and obligations explicitly exist in the lease agreement. Amounts deferred as of June 30, 2021 are recorded in accrued rent within other current liabilities on the Company's condensed consolidated balance sheet.
The table below presents information for lease costs related to the Company's finance and operating leases:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in thousands)
Finance lease cost
Amortization of leased assets$176 $135 $345 $270 
Interest of lease liabilities24 26 48 139 
Operating lease cost
Operating lease cost (1)
52,632 51,006 104,774 98,223 
Short-term lease cost (1)
7,076 6,884 14,091 13,598 
Variable lease cost (1)
50,511 25,568 88,661 55,383 
Total lease cost$110,419 $83,619 $207,919 $167,613 
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed consolidated statements of operations.
The table below presents lease terms and discount rates related to the Company's finance and operating leases:
June 30, 2021June 30, 2020
Weighted-average remaining lease term
Operating leases13.7 years13.1 years
Finance leases2.9 years3.1 years
Weighted-average discount rate
Operating leases5.92 %6.07 %
Finance leases4.91 %5.56 %