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Note 7 - Leases

6 Months Ended

Jun. 30, 2023

Lessee and Lessor, Operating Lease [Text Block]

7.	Leases

Lessee

All of the Company’s ground leases at airports are classified as operating leases under ASC Topic 842. Management has determined that it is reasonably certain that the Company will exercise its options to renew the leases, and therefore the renewal options are included in the lease term and the resulting ROU asset and operating lease liability balances. As the Company’s lease agreements do not provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

The Company’s lease population does not include any residual value guarantees. The Company has operating leases that contain variable payments, most commonly in the form of common area maintenance and operating expense charges, which are based on actual costs incurred. These variable payments were excluded from the calculation of the ROU asset and operating lease liability balances since they are not fixed or in-substance fixed payments. These variable payments were not material in amount for the three and six month periods ended June 30, 2023 and 2022. Some of the leases contain covenants that require the Company to construct the hangar facilities on the leased grounds within a certain period and spend a set minimum dollar amount. For one of the leases, the shortfall (if any) must be paid to the lessor. See Note 14.

The Company’s ground leases have remaining terms ranging between 26 to 74 years, including options for the Company to extend the terms. These leases expire between 2049 and 2097, which include all lease extension options available to the Company. Certain of the Company's ground leases contain options to lease additional parcels of land at the Company's option within a specified period of time.

In January 2023, the Company executed a lease amendment with the Town of Addison, Texas, to add two additional parcels of land (the "ADS Expansion Parcels") to the existing lease at ADS (the "ADS Lease"). The land associated with the ADS Expansion Parcels became available for possession in June 2023 for one parcel, and is expected to become available for possession in July 2024 for the other. The lease term for the ADS Expansion Parcels will be 40 years from the completion of construction for each respective parcel, and will effectively extend the term of the existing ADS Lease to be co-terminus with the ADS Expansion Parcels. The ADS Lease and the ADS Expansion Parcels contain no additional extension options as the lease term is the maximum allowable term permitted by the Town of Addison.

In addition to the Company’s ground leases, the company has operating leases for office space and ground support vehicles, and finance leases for vehicles supporting operations at Rapidbuilt.

Supplemental consolidated cash flow information related to the Company’s leases was as follows:

	*Six months ended*
	*June 30,*		*June 30,*
	*2023*		*2022*
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases as lessee	$	1,022	$	448

Supplemental consolidated balance sheet information related to the Company’s leases was as follows:

Weighted Average Remaining Lease Term	*June 30, 2023*			*December 31, 2022*
Operating leases as lessee (in years)		54.5			55.3

Weighted Average Discount Rate
Operating leases as lessee		4.65	%		4.62	%

The Company’s future minimum lease payments required under leases as of June 30, 2023 were as follows:

Year Ending December 31,	Operating Leases			Finance Leases
2023 (remainder of year)	$	963		$	15
2024		2,137			29
2025		2,380			24
2026		2,431			17
2027		2,494			2
Thereafter		199,870			-
Total lease payments		210,275			87
Less imputed interest		(155,395	)		(6	)
Total	$	54,880		$	81

Lessor

The Company leases the hangar facilities that it constructs to third-party tenants. These leases have been classified as operating leases. The Company does not have any leases classified as sales-type or direct financing leases. Lease agreements with tenants are either on a month-to-month basis or have a defined term with an option to extend the term. The defined term leases vary in length from one to ten years with options to renew for additional term(s) given to the lessee. One of the agreements contains an option by either party to terminate with appropriate notice, as defined. There are no options given to the lessee to purchase the underlying assets.

The leases may contain variable fees, most commonly in the form of tenant reimbursements, which are recoveries of the common area maintenance and operating expenses of the property and are recognized as income in the same period as the expenses are incurred. The leases did not have any initial direct costs. The leases do not contain any restrictions or covenants to incur additional financial obligations by the lessee.

Tenant leases to which the Company is the lessor require the following non-cancelable future minimum lease payments from tenants as of June 30, 2023:

Year Ending December 31,	*Operating Leases*
2023 (remainder of year)	$	3,300
2024		5,270
2025		4,610
2026		2,924
2027		2,872
Thereafter		3,048
Total lease payments		22,024
Less rent concessions to be applied at Company’s discretion		(214	)
Total	$	21,810