FLEET TRANSITION

6 Months Ended

Jun. 30, 2022

Property, Plant and Equipment [Abstract]

Fleet Transition and Related Activities Disclosure

FLEET TRANSITION

In the first quarter of 2022, the Company announced plans to accelerate the transition of mainline operations to an all-Boeing 737 fleet. It also announced new plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. Under these plans, Alaska will accelerate the retirement of its Airbus A320 aircraft, with all expected to exit the fleet by early 2023. Alaska also operates A321neo aircraft, and is evaluating options to remove them from its fleet by the end of 2023, subject to agreement with counterparties. The Company operated 29 A320 and ten A321neo aircraft as of June 30, 2022. Horizon plans to retire its Q400 fleet, which includes 25 owned and seven leased aircraft in operation at June 30, 2022, in early 2023.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an asset or asset group may not be recoverable. During the first quarter of 2022, the Company recorded an impairment charge of $70 million related to the Q400 fleet, reflecting the amount by which carrying value exceeded fair value of the owned Q400 aircraft as of March 31, 2022. This amount was recorded within the "Special items - fleet transition and related charges" line in the consolidated statement of operations. Refer to Note 2 to our consolidated financial statements in our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 for additional details.

In the second quarter, the Company adjusted useful lives and depreciation schedules for Airbus and Q400 capitalized leasehold improvements, spare engines, inventory, and other fixed assets, as well as the amortization schedules for the right of use assets and aircraft rent expenses. These accelerated schedules are based on the dates the aircraft are expected to be removed from operating service and were effective beginning this quarter. Incremental costs associated with the accelerated schedules are recognized within the "Special items - fleet transition and related charges" line item.

The Company has estimated future lease return costs for the leased Airbus aircraft. Costs of returning leased aircraft begin accruing when the costs are probable and reasonably estimable, and are recognized over the remaining operating life of the aircraft. These estimates are based on the time remaining on the lease, planned aircraft usage, and lease terms. These estimates may change as actual amounts due to any lessor upon return may not be known with certainty until lease termination. In the second quarter, all lease return costs were recorded within the "Special items - fleet transition and related charges" line in the consolidated statement of operations.

A summary of special charges for fleet transition activities is included below for the three and six months ended June 30, 2022. The impairment charges are one-time in nature, while the other special charges continue to be recorded consistent with the

schedules described above. The majority of remaining special charges associated with the fleet transition will be recorded in 2022, with additional amounts to be recorded in 2023. The Company will continue to evaluate the need for further impairment or adjustments for owned and leased long-lived assets as fleet decisions evolve.

	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
(in millions)	Airbus		Q400		Total		Airbus		Q400		Total
Impairment of long-lived assets	$	—	$	—	$	—	$	—	$	70	$	70
Accelerated aircraft ownership expenses	40		3		43		40		3		43
Lease return costs and other expenses	103		—		103		108		—		108
Total special items - fleet transition and related charges	$	143	$	3	$	146	$	148	$	73	$	221