Fair Value Measurements

9 Months Ended

Sep. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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.

Long-Lived Assets Impairment Analysis

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 determined that indicators related to changes in its projected cash flows existed as of September 30, 2024. In estimating the undiscounted future cash flows, the Company uses certain assumptions, including, but not limited to, the estimated, undiscounted future cash flows expected to be generated by these assets, estimates of length of service the asset will be used in the Company’s operations and estimated salvage values. The Company assessed whether any impairment of its long-lived assets existed as of September 30, 2024 and has determined that the assets are recoverable. The Company’s assumptions about future conditions important to its assessment of potential impairment of its long-lived assets 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.

Aircraft Sale

On October 29, 2024, the Company entered into an aircraft sale and purchase agreement with GA Telesis, LLC (“GAT”) for the sale of 23 A320ceo and A321ceo aircraft to GAT for an expected total gross purchase price of approximately $519 million, together with a contemporaneous escrow arrangement that involved the deposit of $50.0 million to be allocated equally to each such aircraft. The purchase and sale of the aircraft by GAT and the Company, respectively, are subject to certain conditions precedent. The aircraft are planned for delivery through February 2025. The Company estimates the net proceeds of the sale of these aircraft, combined with the early extinguishment of the aircraft-related long-term debt, will increase its liquidity by approximately $225 million through 2025.

During the fourth quarter of 2024, the Company concluded that Management’s plan to early retire and sell the 23 aircraft meets the required criteria to be classified as held for sale. In addition, during the fourth quarter of 2024, the Company will measure these assets at the lower of their carrying amount or fair value less cost to sell and expects to record a related impairment loss of approximately $285 million.

Long-Term Debt

The estimated fair value of the Company's secured notes, term loan debt agreements and revolving credit facility 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, 2024 and December 31, 2023 were as follows:

	September 30, 2024				December 31, 2023				Fair Value Level Hierarchy
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in millions)
8.00% senior secured notes	$	1,110.0	$	1,125.0	$	1,110.0	$	1,121.9	Level 3
Fixed-rate term loans	1,011.8		1,049.6		1,093.3		1,099.9		Level 3
Unsecured term loans	136.3		136.9		136.3		128.3		Level 3
2015-1 EETC Class A	245.6		228.4		256.6		230.8		Level 2
2015-1 EETC Class B	—		—		40.0		39.4		Level 2
2017-1 EETC Class AA	160.3		139.4		172.2		149.6		Level 2
2017-1 EETC Class A	53.4		44.3		57.4		48.5		Level 2
2017-1 EETC Class B	44.7		39.1		48.2		42.9		Level 2
4.75% convertible notes due 2025	25.1		16.4		25.1		42.3		Level 2
1.00% convertible notes due 2026	500.0		153.0		500.0		349.9		Level 2
Total long-term debt	$	3,287.2	$	2,932.1	$	3,439.1	$	3,253.5

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2024 and December 31, 2023 were 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 accounts 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, 2024, the Company had $69.6 million in standby letters of credit secured by $69.7 million of restricted cash, of which $56.3 million were issued letters of credit. In addition, the Company had $50.0 million of restricted cash held in an account subject to a control agreement under its credit card processing agreement, $44.4 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 and $6.0 million in pledged cash pursuant to its corporate credit cards.

Short-term Investment Securities

Short-term investment securities at September 30, 2024 and December 31, 2023 were classified as available-for-sale and generally consisted 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.

Derivative Liability

The Merger Agreement with JetBlue modified the settlement terms for any conversions of the convertible notes due 2026 such that, the conversion option, which is an embedded derivative, did not qualify for the derivative accounting scope exception provided under ASC 815. As such, the Company bifurcated the fair value of the conversion option of the convertible notes due 2026 as a derivative liability with subsequent changes in fair value recorded in earnings. Refer to Note 13, Debt and Other Obligations, for additional information.

The Company recorded the fair value of the embedded derivative as a derivative liability within deferred gains and other long-term liabilities on its condensed consolidated balance sheets. The fair value of the derivative liability was estimated as the difference in value of the traded price of the convertible notes, including the conversion option and the value of the convertible notes in the absence of the conversion option (the debt component). The value of the debt component was estimated using a

discounted cash flow analysis with a yield calibrated to the traded price of the convertible notes. The change in fair value of the derivative liability is recorded within interest expense on the Company's condensed consolidated statements of operations.

Upon the termination of the Merger, the conversion settlement terms reverted to the original settlement terms of the indenture. The Company performed a discounted cash flow analysis to reassess the fair value of the derivative liability as of March 3, 2024, the day prior to the announcement of the termination of the Merger Agreement. During the first quarter of 2024, the Company recorded $0.5 million in favorable mark to market adjustments related to the change in fair value of the derivative liability through the date of termination. During the three and nine months ended September 30, 2023, the Company recorded $5.9 million and $18.4 million, respectively, in favorable mark to market adjustments related to the change in fair value of the derivative liability. The fair value of the derivative liability has been determined to be Level 2, as observable inputs were used to determine the fair value of derivative liability. For additional information, refer to Note 13, Debt and Other Obligations.

In addition, as of the date of the Termination Agreement, the Company reclassified the remaining derivative liability as of the Termination Agreement execution date of $8.2 million, net of taxes, to additional paid-in-capital within the Company's condensed consolidated balance sheets.

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

	Fair Value Measurements as of September 30, 2024
	Total		Level 1		Level 2		Level 3
	(in millions)
Cash and cash equivalents	$	423.5	$	423.5	$	—	$	—
Restricted cash	170.1		170.1		—		—
Short-term investment securities	117.1		117.1		—		—
Total assets	$	710.7	$	710.7	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

	Fair Value Measurements as of December 31, 2023
	Total		Level 1		Level 2		Level 3
	(in millions)
Cash and cash equivalents	$	865.2	$	865.2	$	—	$	—
Restricted cash	119.4		119.4		—		—
Short-term investment securities	112.5		112.5		—		—
Total assets	$	1,097.1	$	1,097.1	$	—	$	—
Derivative liability	$	11.1	$	—	11.1		$	—
Total liabilities	$	11.1	$	—	$	11.1	$	—

The Company had no transfers of assets or liabilities between any of the above levels during the nine months ended September 30, 2024 and the year ended December 31, 2023.