SUBSEQUENT EVENT

3 Months Ended

Mar. 31, 2020

Subsequent Event [Line Items]

Subsequent Events [Text Block]

SUBSEQUENT EVENTS

On April 23, 2020, Alaska and Horizon finalized agreements with the U.S. Department of the Treasury and accepted full disbursement of funds through the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act. McGee Air Services has also applied for PSP support but has yet to come to an agreement or received funds from the U.S. Department of the Treasury.

Under the PSP and associated agreements, Alaska and Horizon received $992 million to be used exclusively toward continuing to pay employee salaries, wages and benefits. Of this amount, $267 million takes the form of an unsecured senior term loan with a 10-year term, bearing an interest rate of 1% in years 1 through 5, and an interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 2% in years 6 through 10. The loan is prepayable at par at any time. The PSP proceeds were deposited into an account which will be drawn down over time for payroll expenses. That account and the balance of the proceeds will serve as the only collateral for the loan. As additional taxpayer protection required under the PSP, the Company granted the Treasury Department 846,748 warrants to purchase Alaska Air Group (ALK) common stock at a strike price of $31.61, based on the closing price on April 9, 2020. The warrants are non-voting, freely transferable, may be settled as net shares or in cash at Alaska's option, and have a five year term.

As a condition to receiving PSP funds, Alaska and Horizon agreed to the following conditions:

•The Company must refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits for non-officer employees through September 30, 2020;

•The Company is subject to maximum limitations on executive compensation for officers and employees who earned more than $425,000 in total compensation in 2019, extending through March 24, 2022;

•The Company is prohibited from repurchasing its common stock and from paying dividends on its common stock until September 30, 2021;

•Alaska and Horizon must maintain air service to markets they served as of March 1, 2020, through March 1, 2022 unless exempted by the Department of Transportation; and

•The Company must maintain certain internal controls and records, and provide any additional reporting required by the U.S. government, relating to PSP funding.

PSP funding will be recorded upon initial receipt as cash and cash equivalents, and subsequently reclassified as a contra-wage expense relative to the wages and benefits incurred by Alaska and Horizon. The Company will allocate the proceeds received from the Treasury in accordance with applicable accounting guidance and based on the consideration provided in the transaction.

In April, the Company also applied for loan funding available under the CARES Act. The Company expects to be eligible to access up to $1.1 billion in incremental funding, and is currently evaluating participation under the program.