UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                      to                      

Commission File Number 1-8957

ALASKA AIR GROUP, INC.

 

Delaware	91-1292054
(State of Incorporation)	(I.R.S. Employer Identification No.)

19300 International Boulevard, Seattle, WA 98188

Telephone: (206) 392-5040

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	ALK	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange

Act.

Large accelerated filer ☒ Accelerated filer   ☐ Non-accelerated filer   
(Do not check if a smaller reporting company) ☐ Smaller reporting company   ☐ Emerging growth company   ☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

The registrant has 127,910,957 common shares, par value $0.01, outstanding at April 30, 2023.

This document is also available on our website at http://investor.alaskaair.com.

ALASKA AIR GROUP, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023

 TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	4
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	37
ITEM 4.	CONTROLS AND PROCEDURES	38
PART II.	OTHER INFORMATION	39
ITEM 1.	LEGAL PROCEEDINGS	39
ITEM 1A.	RISK FACTORS	39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41
ITEM 4.	MINE SAFETY DISCLOSURES	41
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	41
	SIGNATURES	42

As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2022. Please consider our forward-looking statements in light of those risks as you read this report.

3

PART I 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions)	March 31, 2023		December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	516	$	338
Marketable securities	1,913		2,079
Total cash and marketable securities	2,429		2,417
Receivables - net	340		296
Inventories and supplies - net	105		104
Prepaid expenses	181		163
Other current assets	44		60
Total Current Assets	3,099		3,040
Property and Equipment
Aircraft and other flight equipment	9,189		9,053
Other property and equipment	1,661		1,661
Deposits for future flight equipment	580		670
	11,430		11,384
Less accumulated depreciation and amortization	4,178		4,127
Total Property and Equipment - Net	7,252		7,257
Other Assets
Operating lease assets	1,534		1,471
Goodwill and intangible assets	2,037		2,038
Other noncurrent assets	374		380
Total Other Assets	3,945		3,889
Total Assets	$	14,296	$	14,186

4

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except share amounts)	March 31, 2023		December 31, 2022
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	206	$	221
Accrued wages, vacation and payroll taxes	431		619
Air traffic liability	1,613		1,180
Other accrued liabilities	908		846
Deferred revenue	1,218		1,123
Current portion of operating lease liabilities	213		228
Current portion of long-term debt	268		276
Total Current Liabilities	4,857		4,493
Long-Term Debt, Net of Current Portion	1,795		1,883
Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	1,455		1,393
Deferred income taxes	523		574
Deferred revenue	1,325		1,374
Obligation for pension and post-retirement medical benefits	355		348
Other liabilities	297		305
Total Noncurrent Liabilities	3,955		3,994
Commitments and Contingencies (Note 7)
Shareholders' Equity
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding	—		—
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2023 - 137,006,134 shares; 2022 - 136,883,042 shares, Outstanding: 2023 - 127,243,454 shares; 2022 - 127,533,916 shares	1		1
Capital in excess of par value	587		577
Treasury stock (common), at cost: 2023 - 9,763,498 shares; 2022 - 9,349,944 shares	(692)		(674)
Accumulated other comprehensive loss	(365)		(388)
Retained earnings	4,158		4,300
	3,689		3,816
Total Liabilities and Shareholders' Equity	$	14,296	$	14,186

5

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended March 31,
(in millions, except per share amounts)	2023		2022
Operating Revenue
Passenger revenue	$	1,984	$	1,511
Mileage Plan other revenue	154		112
Cargo and other revenue	58		58
Total Operating Revenue	2,196		1,681
Operating Expenses
Wages and benefits	723		606
Variable incentive pay	47		36
Aircraft fuel, including hedging gains and losses	665		347
Aircraft maintenance	124		135
Aircraft rent	59		73
Landing fees and other rentals	152		138
Contracted services	95		78
Selling expenses	66		58
Depreciation and amortization	104		102
Food and beverage service	54		41
Third-party regional carrier expense	52		42
Other	177		152
Special items - fleet transition and other	13		75
Special items - labor and related	51		—
Total Operating Expenses	2,382		1,883
Operating Loss	(186)		(202)
Non-operating Income (Expense)
Interest income	17		7
Interest expense	(28)		(27)
Interest capitalized	7		2
Other - net	(9)		14
Total Non-operating Expense	(13)		(4)
Loss Before Income Tax	(199)		(206)
Income tax benefit	(57)		(63)
Net Loss	$	(142)	$	(143)
Basic Loss Per Share:	$	(1.11)	$	(1.14)
Diluted Loss Per Share:	$	(1.11)	$	(1.14)
Shares used for computation:
Basic	127.501		125.984
Diluted	127.501		125.984

6

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)

	Three Months Ended March 31,
(in millions)	2023		2022
Net Loss	$	(142)	$	(143)
Other comprehensive income (loss), net of tax
Marketable securities	21		(40)
Employee benefit plans	4		1
Interest rate derivative instruments	(2)		9
Total other comprehensive income (loss), net of tax	$	23	$	(30)
Total Comprehensive Loss, Net of Tax	$	(119)	$	(173)

7

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)

(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balance at December 31, 2022	127.534	$	1	$	577	$	(674)	$	(388)	$	4,300	$	3,816
Net loss	—	—		—		—		—		(142)		(142)
Other comprehensive income	—	—		—		—		23		—		23
Common stock repurchase	(0.414)	—		—		(18)		—		—		(18)
Stock-based compensation	—	—		12		—		—		—		12
Stock issued under stock plans	0.123	—		(2)		—		—		—		(2)
Balance at March 31, 2023	127.243	$	1	$	587	$	(692)	$	(365)	$	4,158	$	3,689

(in millions)	Common Stock Outstanding	Common Stock		Capital in Excess of Par Value		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
Balance at December 31, 2021	125.906	$	1	$	494	$	(674)	$	(262)	$	4,242	$	3,801
Net loss	—	—		—		—		—		(143)		(143)
Other comprehensive loss	—	—		—		—		(30)		—		(30)
Stock-based compensation	—	—		13		—		—		—		13
Stock issued under stock plans	0.182	—		(4)		—		—		—		(4)
Balance at March 31, 2022	126.088	$	1	$	503	$	(674)	$	(292)	$	4,099	$	3,637

8

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three Months Ended March 31,
(in millions)	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(142)	$	(143)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	104		102
Stock-based compensation and other	23		5
Special items - fleet transition and other	13		75
Special items - labor and related	51		—
Changes in certain assets and liabilities:
Changes in deferred income taxes	(56)		(58)
Increase in accounts receivable	(44)		(112)
Increase in air traffic liability	433		480
Increase in deferred revenue	46		74
Other - net	(206)		(136)
Net cash provided by operating activities	222		287
Cash Flows from Investing Activities:
Property and equipment additions
Aircraft and aircraft purchase deposits	(50)		(207)
Other flight equipment	(50)		(24)
Other property and equipment	(24)		(57)
Total property and equipment additions	(124)		(288)
Purchases of marketable securities	(201)		(552)
Sales and maturities of marketable securities	388		880
Other investing activities	(3)		(1)
Net cash provided by investing activities	60		39
Cash Flows from Financing Activities:
Long-term debt payments	(96)		(170)
Common stock repurchases	(18)		—
Other financing activities	—		2
Net cash used in financing activities	(114)		(168)
Net increase in cash and cash equivalents	168		158
Cash, cash equivalents, and restricted cash at beginning of period	369		494
Cash, cash equivalents, and restricted cash at end of the period	$	537	$	652

9

	Three Months Ended March 31,
(in millions)	2023		2022
Supplemental disclosure:
Cash paid during the period for:
Interest, net of amount capitalized	$	32	$	35
Non-cash transactions:
Right-of-use assets acquired through operating leases	111		158
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	516		628
Restricted cash included in Prepaid expenses and Other noncurrent assets	21		24
Total cash, cash equivalents, and restricted cash at end of the period	$	537	$	652

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska, and other immaterial business units. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of March 31, 2023 and the results of operations for the three months ended March 31, 2023 and 2022. Such adjustments were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three months ended March 31, 2023 are not necessarily indicative of operating results for the entire year.

NOTE 2. FLEET TRANSITION

In the first quarter of 2022, the Company announced plans to accelerate the transition of its mainline operations to an all-Boeing 737 fleet. It also announced plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. All remaining A320 and Q400 aircraft were removed from operating service in January 2023. Alaska operates ten A321neo aircraft, and plans to remove them from its operating fleet by the end of the third quarter of 2023.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the total carrying amount of an asset or asset group may not be recoverable.

In 2023, charges will continue to be recorded for certain accelerated aircraft ownership expenses related to the A321neo fleet consistent with the time period the aircraft are expected to remain in operation. Charges will also be recorded to reflect adjustments to estimated costs to return the A320 fleet. The Company continues to evaluate options for the A321neo aircraft and will consider the need for further impairment or adjustments for owned and leased long-lived assets whenever indicators of impairment are present.

The following table summarizes our special charges for fleet transition costs for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
(in millions)	2023		2022
Lease return costs and other expenses	$	7	$	5
Accelerated aircraft ownership expenses	6		—
Impairment of long-lived assets	—		70
Special items - fleet transition and other	$	13	$	75

Subsequent to quarter end, Alaska signed agreements to exit the existing leases for four of the ten leased A321neo aircraft from one lessor, and subsequently purchase the aircraft with intent to resell. The settlement of the leases and purchase of the aircraft are expected to occur in the fourth quarter of 2023. The transactions will result in cash outflows of approximately $250 million in 2023, of which approximately half will settle the outstanding lease liability, with the remainder representing the purchase price of the aircraft. The agreements were not contractually obligated at March 31, 2023, and are not reflected within the consolidated financial statements or accompanying notes.

11

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue is passenger ancillary revenue such as bag fees, on-board food and beverage, and certain revenue from the frequent flyer program. Mileage Plan other revenue includes brand and marketing revenue from the co-branded credit card and other partners, and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

The Company disaggregates revenue by segment in Note 10. The level of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing, and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

Passenger revenue recognized in the condensed consolidated statements of operations (in millions):

	Three Months Ended March 31,
	2023		2022
Passenger ticket revenue, including ticket breakage, net of taxes and fees	$	1,648	$	1,232
Passenger ancillary revenue	104		91
Mileage Plan passenger revenue	232		188
Total Passenger revenue	$	1,984	$	1,511

Mileage Plan Loyalty Program

Mileage Plan revenue included in the condensed consolidated statements of operations (in millions):

	Three Months Ended March 31,
	2023		2022
Passenger revenue	$	232	$	188
Mileage Plan other revenue	154		112
Total Mileage Plan revenue	$	386	$	300

Cargo and Other Revenue

Cargo and other revenue included in the condensed consolidated statements of operations (in millions):

	Three Months Ended March 31,
	2023		2022
Cargo revenue	$	29	$	29
Other revenue	29		29
Total Cargo and other revenue	$	58	$	58

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $485 million and $390 million from the prior year-end air traffic liability balance for the three months ended March 31, 2023 and 2022.

Mileage Plan assets and liabilities

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had $94 million of such receivables as of March 31, 2023 and $83 million as of December 31, 2022.

12

The table below presents a roll forward of the total frequent flyer liability (in millions):

	Three Months Ended March 31,
	2023		2022
Total Deferred Revenue balance at January 1	$	2,497	$	2,358
Travel miles and companion certificate redemption - Passenger revenue	(218)		(176)
Miles redeemed on partner airlines - Other revenue	(21)		(9)
Increase in liability for mileage credits issued	285		259
Total Deferred Revenue balance at March 31	$	2,543	$	2,432

NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.

Fair Value of Financial Instruments on a Recurring Basis

As of March 31, 2023, total cost basis for all marketable securities was $2.0 billion, compared to a total fair value of $1.9 billion. The decline in value is primarily due to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of industry and duration exposure, credit ratings of the securities, liquidity profiles, and other observable information as of March 31, 2023.

Fair values of financial instruments on the condensed consolidated balance sheet (in millions):

	March 31, 2023						December 31, 2022
	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets
Marketable securities
U.S. government and agency securities	$	520	$	—	$	520	$	505	$	—	$	505
Equity mutual funds	6		—		6		5		—		5
Foreign government bonds	—		25		25		—		25		25
Asset-backed securities	—		235		235		—		261		261
Mortgage-backed securities	—		160		160		—		196		196
Corporate notes and bonds	—		909		909		—		1,025		1,025
Municipal securities	—		58		58		—		62		62
Total Marketable securities	526		1,387		1,913		510		1,569		2,079
Derivative instruments
Fuel hedge contracts - call options	—		21		21		—		44		44
Interest rate swap agreements	—		12		12		—		15		15
Total Assets	$	526	$	1,420	$	1,946	$	510	$	1,628	$	2,138

The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts are determined based on the difference between the fixed interest rate in the agreements and the observable interest LIBOR-based and SOFR-based forward rates at period end multiplied by the total notional value.

13

Activity and Maturities for Marketable Securities

Maturities for marketable securities (in millions):

March 31, 2023	Cost Basis		Fair Value
Due in one year or less	$	425	$	415
Due after one year through five years	1,532		1,465
Due after five years	28		27
No maturity date	5		6
Total	$	1,990	$	1,913

Fair Value of Other Financial Instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit. They are carried at cost, which approximates fair value.

The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.

Debt: To estimate the fair value of all fixed-rate debt as of March 31, 2023, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate (EETC) debt is Level 2, as it is estimated using observable inputs, while the estimated fair value of $564 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt on the consolidated balance sheet and the estimated fair value of long-term fixed-rate debt (in millions):

	March 31, 2023		December 31, 2022
Fixed-rate debt	$	1,591	$	1,660
Estimated fair value	$	1,435	$	1,473

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. No material impairment charges were recorded in the three months ended March 31, 2023. Refer to Note 2 for details regarding impairment charges recorded in the three months ended March 31, 2022.

14

NOTE 5. LONG-TERM DEBT

Long-term debt obligations on the consolidated balance sheet (in millions):

	March 31, 2023			December 31, 2022
Fixed-rate notes payable due through 2029	$	100		$	113
Fixed-rate PSP notes payable due through 2031	600			600
Fixed-rate EETC payable due through 2025 & 2027	891			947
Variable-rate notes payable due through 2029	487			514
Less debt issuance costs	(15)			(15)
Total debt	2,063			2,159
Less current portion	268			276
Long-term debt, less current portion	$	1,795		$	1,883
Weighted-average fixed-interest rate	3.5		%	3.5		%
Weighted-average variable-interest rate	6.1		%	5.8		%

Approximately $286 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at March 31, 2023, resulting in an effective weighted-average interest rate for the full debt portfolio of 3.7%.

During the three months ended March 31, 2023, the Company made scheduled debt payments of $94 million and prepayments of $2 million.

Debt Maturity

At March 31, 2023, long-term debt principal payments for the next five years and thereafter are as follows (in millions):

	Total
Remainder of 2023	$	185
2024	243
2025	296
2026	176
2027	535
Thereafter	643
Total Principal Payments	$	2,078

Bank Lines of Credit

Alaska has three credit facilities totaling $486 million as of March 31, 2023. One of the credit facilities for $150 million expires in March 2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. A second credit facility for $250 million expires in June 2024 and is secured by aircraft. Both facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for $86 million expires in June 2023 and is secured by aircraft.

Alaska has secured letters of credit against the third facility, but has no plans to borrow using either of the other two facilities. All credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. Alaska was in compliance with this covenant at March 31, 2023.

15

NOTE 6. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs for qualified defined-benefit plans include the following (in millions):

	Three Months Ended March 31,
	2023		2022
Service cost	$	7	$	11
Pension expense included in Wages and benefits	7		11
Interest cost	27		16
Expected return on assets	(28)		(32)
Recognized actuarial loss	6		2
Pension expense included in Non-operating Income (Expense)	$	5	$	(14)

NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of March 31, 2023 (in millions):

	Aircraft-Related Commitments(a)		Capacity Purchase Agreements and Other Obligations (b)
Remainder of 2023	$	1,742	$	154
2024	1,393		224
2025	1,440		227
2026	689		219
2027	335		220
Thereafter	598		739
Total	$	6,197	$	1,783

(a)Includes contractual commitments for aircraft, engines, and aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise.

(b)Primarily comprised of non-lease costs associated with capacity purchase agreements, as well as other various sponsorship agreements and investment commitments.

Alaska has received information from Boeing that certain B737 deliveries in 2023 are expected to be delayed into 2024. The fleet commitments outlined above reflect the expected impact of these delays.

Aircraft Commitments

Aircraft purchase commitments include contractual commitments for aircrafts and engines. Details for contractual aircraft commitments as of March 31, 2023 are outlined in the table below.

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	Firm Orders	Options and Other Rights	Total
Aircraft Type	2023-2027	2025-2030	2023-2030
B737	102	105	207
E175	17	13	30
Total	119	118	237

Aircraft Maintenance

Aircraft maintenance commitments include contractual commitments for engine maintenance agreements requiring monthly payments based upon utilization, such as flight hours, cycles, and age of the aircraft. In turn, these maintenance agreements transfer certain risks to the third-party service provider. Alaska has contracts for maintenance on its B737-800 and B737-900ER aircraft engines through 2026 and 2032, respectively. Horizon has a contract for maintenance on its E175 aircraft engines through 2033.

Contingencies

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws (Bernstein v. Virgin America, Inc.). The court certified a class of approximately 1,800 flight attendants in November 2016. The Company pursued numerous appeal paths following a February 2019 federal district court order against Virgin America and Alaska Airlines awarding plaintiffs approximately $78 million, including approximately $25 million in penalties under California’s Private Attorneys General Act (PAGA). An appellate court reversed portions of the lower court decision and significantly reduced the PAGA penalties and total judgment value, remanding the matter to the district court for further consideration. In December 2022, the district court issued a final total judgment amount of $31 million. Additional proceedings will determine the attorneys’ fee award due to plaintiffs’ counsel. The Company holds an accrual for $37 million in Other accrued liabilities on the condensed consolidated balance sheets.

In June 2022, the U.S. Supreme Court declined to take the Company’s appeal for a conclusive ruling that the California laws on which the judgment is based are invalid as applied to airlines. The decision leaves open the possibility that other states in the Ninth Circuit judicial district may attempt to apply similar laws to airlines, and, in fact, a lawsuit based on similar claims to those asserted in Bernstein has been initiated by a Washington-based Alaska Airlines flight attendant (Krueger v. Alaska Airlines, Inc.). The Company plans to assert all available legal defenses, but to date has not determined its probable and estimable liability in this matter.

The Company is analyzing a range of potential options to balance new compliance obligations with operational and labor considerations. Some or all of these solutions may have an adverse impact on the Company’s operations and financial position due in part to the unresolved conflicts between the laws and federal regulations applicable to airlines.

As part of the 2016 acquisition of Virgin America, Alaska assumed responsibility for the Virgin trademark license agreement with the Virgin Group. In 2019, pursuant to that agreement's venue provision, the Virgin Group sued Alaska in England, alleging that the agreement requires Alaska to pay $8 million per year as a minimum annual royalty through 2039, adjusted annually for inflation and irrespective of Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and $160 million. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. The Company believes the claims in the case are without factual and legal merit, a position supported by Virgin America’s representations during pre-merger due diligence, and has made an application to appeal in the English courts. Alaska also commenced a separate claim for breach of the agreement against the Virgin Group that may affect the Company’s total liability in the matter.

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NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. In March 2020, subject to restrictions under the CARES Act, the Company suspended the share repurchase program indefinitely. These restrictions ended on October 1, 2022. The Company restarted the share repurchase program in February 2023 pursuant to the existing repurchase program. As of March 31, 2023, the Company has repurchased 8 million shares for $562 million under this program.

Share purchase activity (in millions, except share amounts):