COVID-19 Pandemic

12 Months Ended

Dec. 31, 2021

The public health and economic crisis resulting from the outbreak of COVID-19 in 2020 continues to have a significant impact on the Company. Although the relaxation of restrictions by state and local governments and the rollout of vaccination programs have allowed for the return of demand, passenger enplanements remain below pre-pandemic levels and variants continue to drive volatility in recovery. As a result, the Company continues to fly less capacity than it had pre-pandemic.

Beginning in 2020, the Company implemented various cost-saving initiatives, including permanently parking aircraft, restructuring the workforce through early-out and incentive leave programs, and obtaining funding available under programs offered by the Treasury. As demand has improved and the business has grown back toward pre-pandemic flying levels, these programs have been adjusted to meet the needs of the airlines. The impacts of these programs for the years ended December 31, 2021 and 2020 are described further below.

Lease Return Costs

Alaska removed 40 leased Airbus aircraft from operating service in 2020, and recorded an estimate of the expected future lease return costs for the aircraft of $209 million to Special items - impairment charges and other in the consolidated statements of operations. In 2021, the Company recorded a net benefit of $1 million associated with changes in these estimates. Lease return costs also include the write off of associated maintenance deposits when the Company no longer expects to perform maintenance events covered by those deposits. The Company continues to evaluate the estimated costs to return leased aircraft. The lease return cost estimates are based on the Company's best estimate of costs to return aircraft as of the date of this filing.

In 2021, Alaska initiated a plan to reactivate up to 12 previously parked Airbus aircraft to support Alaska's plan for restoring capacity to pre-pandemic levels by summer 2022. Nine of these reactivated aircraft returned to the operating fleet in 2021, with three more expected to be reactivated in early 2022. The Company currently anticipates all twelve aircraft temporarily returned to service will be removed again from operating service by the end of 2023. At this time, the Company does not anticipate the return to service of these aircraft will materially change estimated lease return costs previously recorded, as leases for aircraft returning to service generally expire within a near-term window.

Workforce restructuring

The Company's subsidiaries reduced their operating workforce in 2020 to better align with the expected size of the business. To mitigate the need for involuntary furloughs, various early-out and voluntary leave programs were made available to all frontline work groups, in addition to incentive leave programs made available to Alaska pilots and mechanics. Through these programs over 600 employees took permanent early-outs, and over 3,300 employees took voluntary or incentive leaves. All employees on these temporary leave programs were called back to work by October 1, 2021.

In 2020, as a result of these programs, the Company recorded $220 million in wage expense to Special items - restructuring charges in the consolidated statement of operations for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage and lump-sum termination payments. Throughout 2021, the Company continued to refine and update capacity expectations and training schedules, which resulted in changes to anticipated leave lengths. As a result, the Company recorded a net benefit of $10 million during the year ended December 31, 2021.

The table below presents a roll forward of the outstanding voluntary leave liability (in millions):


	Twelve Months Ended December 31, 2021
Total voluntary leave liability balance at January 1	$	127
Cash payments	(105)
Charges and adjustments	(10)
Total voluntary leave liability balance at December 31	$	12

The outstanding accrual at December 31, 2021 is for final payments to participants on a retirement incentive leave who will not return to active employment. The balance is reflected in accrued wages, benefits and payroll taxes on the consolidated balance sheet.

Impairment charges

In 2020, the Company temporarily and permanently parked certain aircraft in response to the loss of demand driven by the COVID-19 pandemic. At that time, the Company performed impairment tests on certain long-lived and intangible assets, as well as receivable balances to evaluate recoverability. These impairment tests indicated impairment on the Q400 fleet, permanently parked Airbus aircraft, and related capital improvements, resulting in impairment charges of $363 million. The Company also identified certain intangible assets, purchase deposits, and receivable balances deemed unrecoverable, and recorded an additional $30 million in charges for those balances. The total of these special charges, lease return costs summarized above, the recognition of a legal settlement and other immaterial charges comprise the $627 million recorded as Special items - impairment charges and other on the consolidated statement of operations for the period ending December 31, 2020. In 2021, the Company did not identify any indicators of impairment of long-lived assets, goodwill, intangibles or receivables.

CARES Act Funding

In 2020, Alaska, Horizon, and McGee finalized agreements with the Treasury through the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, made available under the Consolidated Appropriations Act, 2020 (PSP 1). Under PSP 1 and associated agreements, Alaska, Horizon, and McGee received total funds of approximately $1.1 billion in 2020.

In 2021, Alaska, Horizon and McGee finalized agreements with the Treasury through an extension of the PSP, made available under the Consolidated Appropriations Act, 2021 (PSP 2) and received an additional $626 million.

Alaska, Horizon and McGee also finalized additional agreements with the Treasury under a third round of the PSP, made available under the American Rescue Plan of 2021 (PSP 3), and received total funds of $585 million.

Total funds contracted from the Treasury under the Payroll Support Programs are allocated as follows (in millions):


	Grants		Loans		Warrants		Total Proceeds
PSP 1	$	757	$	293	$	9	$	1,059
PSP 2	457		160		9		626
PSP 3	431		147		7		585
Total	$	1,645	$	600	$	25	$	2,270

Funds were exclusively used for payment of employee salaries, wages and benefits. In 2021 and 2020, $892 million and $753 million in PSP grant funds were recorded as an offset to wages, salaries and benefits as eligible expenses were incurred. Also included within the annual total offset are employee retention credits as provided for in the CARES Act of $21 million in 2021 and $29 million in 2020. The Company does not expect to record additional wage offsets in 2022.

Upon receipt of the funds issued under PSP 3, certain conditions and restrictions were extended. These conditions include, but are not limited to, refraining from conducting involuntary furloughs or reducing employee pay rates of pay through September 30, 2021, and placing limits on executive compensation through April 1, 2023. The conditions also included suspension of dividends and share repurchases through September 30, 2022.