Operating Leases

12 Months Ended

Dec. 31, 2023

Aircraft

As of December 31, 2023, the Company leased 136 aircraft with remaining terms ranging from 1 year to 12 years, all of which are under operating leases and are included within operating lease right-of-use assets and operating lease liabilities on the Company’s consolidated balance sheets. In addition, as of December 31, 2023, the Company leased 35 spare engines which are all under operating leases, with the remaining term ranging from 1 month to 12 years. As of December 31, 2023, the lease rates for 14 of the engines depend on usage-based metrics which are variable and, as such, these leases are not recorded on the Company’s consolidated balance sheets as operating lease right-of-use assets or as operating lease liabilities.

During the years ended December 31, 2023, 2022 and 2021, the Company executed sale-leaseback transactions with third-party lessors for 11, 13, and 13 new Airbus A320neo family aircraft, respectively, and also entered into direct leases for 10 new Airbus A320neo family aircraft during the year ended December 31, 2023. The Company did not enter into any direct leases during the years ended December 31, 2022 and 2021. Additionally, the Company completed sale-leaseback transactions for four engines during each of the years ended December 31, 2023 and 2022, and two engines during the year ended December 31, 2021. The Company recognized net sale-leaseback gains from those sale-leaseback transactions of $147 million, $87 million and $60 million during the years ended December 31, 2023, 2022 and 2021, respectively, which are included as a component of other operating expenses within the Company’s consolidated statements of operations.

In May 2021, the Company entered into an early termination and buyout agreement with one of its lessors for six aircraft previously owned by the Company. Of the four A319 aircraft originally scheduled to be returned in December 2021, two were returned during the second quarter of 2021 and two were returned during the third quarter of 2021. Additionally, two A320ceo aircraft were returned as scheduled during the fourth quarter of 2021. The early returns of these aircraft retired the remaining A319 aircraft in the Company’s fleet. As a result of this early termination and buyout arrangement, the Company recorded a $10 million charge included as a component of aircraft rent within the Company’s consolidated statements of operations for the year ended December 31, 2021 related to the accelerated rent and lease return obligations of the A319 aircraft returned early.

Aircraft Rent Expense and Maintenance Obligations

During the years ended December 31, 2023, 2022 and 2021, aircraft rent expense was $554 million, $556 million and $530 million, respectively. Aircraft rent expense includes supplemental rent, which is made up of maintenance reserves paid or to be paid that are not probable of being reimbursed and probable lease return condition obligations. Supplemental rent expense (benefit) for maintenance-related reserves that were deemed non-recoverable, and any impact from changes in those estimates, was $(2) million, $(1) million and $(3) million for the years ended December 31, 2023, 2022 and 2021, respectively. The portion of supplemental rent expense related to probable lease return condition obligations was $20 million, $90 million and $61 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023 and 2022, the Company’s total leased aircraft return cost liability was $26 million and $102 million, respectively, and are reflected in other current liabilities and other long-term liabilities on the Company’s consolidated balance sheets.

Additionally, certain of the Company’s aircraft lease agreements require the Company to pay maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. As of December 31, 2023 and 2022, the Company had aircraft maintenance deposits that are expected to be recoverable of $96 million and $117 million, respectively, on the Company’s consolidated balance sheets of which $12 million was included in accounts receivable as of December 31, 2023 and 2022, net on the Company’s consolidated balance sheets as the eligible maintenance has been performed. The remaining $84 million and $105 million are included within aircraft maintenance deposits on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, respectively.

A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles. Maintenance reserves collateralize the lessor for maintenance time run off the aircraft until the completion of the maintenance of the aircraft. As of December 31, 2023, fixed maintenance reserve payments for aircraft and spare engines, including estimated amounts for contractual price escalations, were expected to be $3 million per year for the years 2024 through 2026, $4 million for 2027 through 2028 and $1 million thereafter, before consideration of reimbursements.

In 2023, the Company extended the term for certain aircraft and spare engine operating leases that were slated to expire in 2023 and 2024, respectively. As a result of six aircraft and five engine extension events, for the year ended December 31, 2023, the Company recorded a benefit of $53 million to aircraft rent in the Company’s consolidated statement of operations related to previously accrued lease return costs that were variable in nature and associated with the anticipated utilization and condition of the airframes and engines at the original return date. Given the extension of these aircraft and engine operating leases, such variable return costs are no longer probable of occurring.

Airport Facilities

The Company’s facility leases are primarily for space at approximately 90 airports that are primarily located in the United States. These leases are classified as operating leases and reflect the use of airport terminals, ticket counters, office space, and maintenance facilities. Generally, this space is leased from government agencies that control the use of the airport. The majority of these leases are short-term in nature and renew on an evergreen basis.

For these leases, the contractual term is used as the lease term. As of December 31, 2023, the remaining lease terms vary from one month to eleven years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually, and because of the variable nature of the rates, these leases are not recorded on the Company’s consolidated balance sheets as a right-of-use assets and lease liabilities.

Other Property and Equipment

The Company leases certain other assets such as flight training equipment, building space, and various other equipment. Certain of the Company’s leases for other assets are deemed to contain fixed rental payments and, as such, are classified as operating leases and are recorded on the Company’s consolidated balance sheets as a right-of-use asset and liability. The remaining lease terms ranged from one month to eight years as of December 31, 2023.

Lessor Concessions

In response to the COVID-19 pandemic, beginning in 2020, the Company was granted payment deferrals on leases included in the Company’s right-of-use assets for certain aircraft and engines from lessors along with airport facilities and other vendors that are not included in the Company’s right-of-use assets. As these deferred payments are made, the Company will recognize the deferred payments in aircraft rent or station operations, as applicable, in the Company’s consolidated statements of operations. The payback of all previous aircraft and engine rent deferrals was completed as of December 31, 2021, and, therefore, there was no impact to aircraft rent in the Company’s consolidated statement of operations for the years ended December 31, 2023 and 2022. The payback of station deferrals decreased operating cash flows and unfavorably impacted station operations within the Company’s results of operations by $2 million and $3 million for the years ended December 31, 2023 and 2022, respectively. The deferrals for the year ended December 31, 2021 decreased operating cash flows and unfavorably impacted the Company’s results of operations by $22 million, including a $31 million unfavorable impact to aircraft rent and a $9 million favorable impact to station operations in the Company’s consolidated statement of operations. As of December 31, 2023, the Company had $6 million in station deferrals which will be recognized to station operations within the Company’s consolidated statements of operations in future periods as the deferrals are repaid.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the Company’s consolidated balance sheets as of December 31, 2023 and 2022 (in millions):


		December 31,
	Balance Sheet Classification	2023			2022
Assets
Operating lease assets	Operating lease right-of-use assets	$	2,964		$	2,484
Liabilities
Current operating leases	Current maturities of operating leases	$	549		$	465
Long-term operating leases	Long-term operating leases	2,440			2,034
Total lease liabilities		$	2,989		$	2,499
Weighted-average remaining lease term
Operating leases		9 years			8 years
Weighted-average discount rate
Operating leases		6.23		%	5.39		%

Lease Costs

The table below presents certain information related to lease costs for operating leases during the years ended December 31, 2023, 2022 and 2021 (in millions):


	Year Ended December 31,
	2023		2022		2021
Operating lease cost(a)	$	539	$	478	$	454
Variable lease cost(a)	304		219		284
Total lease costs	$	843	$	697	$	738

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(a) Expenses are included within aircraft rent, station operations, maintenance, materials and repairs and other operating within the Company’s consolidated statements of operations.

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows as of December 31, 2023 (in millions) for each of the next five years and total of the remaining years to the operating lease liability recorded on the Company’s consolidated balance sheet:


	Total
Operating Leases
2024	$	566
2025	563
2026	500
2027	434
2028	352
Thereafter	1,417
Total undiscounted minimum lease rentals	3,832
Less: amount of lease payments representing interest	(843)
Present value of future minimum lease rentals	2,989
Less: current obligations under operating leases	(549)
Long-term operating lease obligations	$	2,440

During the years ended December 31, 2023 and 2022, the Company acquired, through new operating leases, operating lease assets totaling $864 million and $405 million, respectively, which are included in operating lease right-of-use assets on the Company’s consolidated balance sheets. During the years ended December 31, 2023, 2022 and 2021, the Company paid cash of $535 million, $464 million and $461 million net of lessor incentives received, respectively, for amounts included in the measurement of lease liabilities.