FLEET TRANSITION

3 Months Ended

6 Months Ended

Jun. 30, 2023

Jun. 30, 2023

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 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. The removal of all A320 and Q400 aircraft from operating service was completed in January 2023. Alaska continues to operate ten A321neo aircraft, and plans to remove them from its operating fleet by the end of the third quarter of 2023. Management plans to exit the leases by purchasing the aircraft, and subsequently sell them to a third-party. During the quarter, Alaska reached agreements with two lessors to exit six of the ten A321neo operating leases and purchase the aircraft. One of the aircraft purchases closed in the second quarter; the other five transactions are expected in the third and fourth quarters of 2023. As a result of the new agreements, the operating leases associated with the five aircraft that have not yet been purchased were considered modified, and upon evaluation were reclassified as finance leases.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the total carrying value of an asset or asset group may not be recoverable. Management identified indicators of impairment for the A321neo fleet and performed an impairment analysis in the second quarter.

For the purposes of recoverability testing, three asset groups were identified: owned A321neo aircraft, A321neo aircraft operated under finance leases, and A321neo aircraft operated under operating leases. The Company performed recoverability tests for the aircraft, comparing each asset group's carrying value to the sum of its estimated undiscounted future cash flows. Future cash flows were estimated utilizing a combination of historical data, forecasted results, and anticipated use of the aircraft as of June 30, 2023. The analysis indicated the carrying value for all three asset groups was not recoverable, and an impairment measurement was required.

The Company estimated the fair market value for the A321neo aircraft using available market price information with adjustments based on quantitative and qualitative considerations. Based on this fair market value, the Company recorded an impairment charge of $156 million, reflecting the amount by which carrying value exceeded fair value of these asset groups. This charge is included within "Special items - fleet transition and other" in the condensed consolidated statements of operations.

Other Fleet Related Disclosure

The five A321neo aircraft operated under finance leases are reflected within "Aircraft and other flight equipment." As of June 30, 2023, and subsequent to recognizing the related impairment charges, the assets total $175 million. The finance lease

liabilities are reflected within "Current portion of long-term debt and finance leases" and total $316 million as of June 30, 2023. Interest expense of $6 million associated with the finance leases was recognized within "Special items - net non-operating" in the condensed consolidated statements of operations.

Special charges were also recognized during the quarter reflecting adjustments to estimated costs to return the A320 fleet, as well as penalty rent for Airbus aircraft which have not yet been returned to the lessor as of the lease expiration date.

The following table summarizes our special charges for fleet transition costs for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Impairment of long-lived assets(a)	$	151	$	—	$	151	$	70
Accelerated aircraft ownership expenses	19		43		25		43
Lease return costs and other expenses	16		103		23		108
Special items - fleet transition and other	$	186	$	146	$	199	$	221

Special items - fleet transition and other [Table Text Block]

The following table summarizes our special charges for fleet transition costs for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Impairment of long-lived assets(a)	$	151	$	—	$	151	$	70
Accelerated aircraft ownership expenses	19		43		25		43
Lease return costs and other expenses	16		103		23		108
Special items - fleet transition and other	$	186	$	146	$	199	$	221

Subsequent Events [Text Block]

Subsequent to quarter end, Alaska executed an agreement with one lessor to exit two additional operating leases and purchase the A321neo aircraft. The transactions are expected to occur in the first quarter of 2024 and will result in cash outflows of approximately $130 million. The agreements were not contractually obligated as of June 30, 2023 and are not reflected within the consolidated financial statements or accompanying notes as of June 30, 2023.