Leases, Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Leases, Commitments and Contingencies

Leases, Commitments and Contingencies

Note 6 — Leases, Commitments and Contingencies

Effective January 1, 2019, the Company adopted Topic 842. The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Aircraft

During the first quarter of 2019, the Company acquired 52 CRJ aircraft under an early lease buyout arrangement with the lessor for $111.7 million. During the third quarter of 2019, the Company acquired four CRJ900 aircraft under an early lease buyout arrangement with the lessor for $30.0 million. As of September 30, 2019, the Company had 91 aircraft under operating leases with remaining terms ranging from less than one year to ten years.

With the adoption of Topic 842, the Company evaluated whether leased aircraft asset groups within the Company’s fleet were impaired. Under the transition guidance for Topic 842, a company is permitted to recognize a previously unrecognized impairment related to a right-of-use asset in the period prior to the adoption date of Topic 842 if the event giving rise to the impairment occurred before the adoption date. In 2016, the Company recorded an impairment on certain of its long-lived assets, which included the Company’s 50-seat Bombardier CRJ200 regional jet aircraft (“CRJ200”). In 2016, the market lease rate was less than the contractual lease rate on the Company’s CRJ200 leased aircraft. The Company recorded an impairment of $13.1 million (net of tax) as an adjustment to the Company’s January 1, 2019 retained earnings related to the previously unrecognized impairment of these leased CRJ200s.

Airport facilities

The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the airport. The remaining lease terms for facility space vary from one month to 37 years. The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

Leases

As of September 30, 2019, the Company’s right-of-use assets were $326.7 million, the Company’s current maturities of operating lease liabilities were $87.5 million, and the Company’s noncurrent lease liabilities were $254.3 million. During the nine months ended September 30, 2019, the Company paid $58.6 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of September 30, 2019.

	September 30, 2019
Weighted-average remaining lease term
Operating leases		6.75 years
Weighted-average discount rate
Operating leases		6.4%

The Company’s lease costs for the three- and nine-months ended September 30, 2019 and 2018 included the following components (in thousands):

	For the three months ended September 30,
	2019		2018
Operating lease cost	$	25,173	$	42,286
Variable and short-term lease cost		1,343		1,184
Sublease income		(357)		—
Total lease cost	$	26,159	$	43,470

	For the nine months ended September 30,
	2019		2018
Operating lease cost	$	80,041	$	140,544
Variable and short-term lease cost		4,164		3,996
Sublease income		(357)		—
Total lease cost	$	83,848	$	144,540

As of September 30, 2019, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire will be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2019 (in thousands):

October 2019 through December 2019	$	17,603
2020		91,892
2021		80,540
2022		70,900
2023		65,521
Thereafter		103,819
	$	430,275

As of September 30, 2019, the Company had a firm purchase commitment for eleven E175 aircraft from Embraer, S.A. (“Embraer”) with scheduled delivery dates through 2020. The Company has also agreed to purchase seven used CRJ700 aircraft from a third party with anticipated delivery dates in 2020.

The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):

	Total		Oct - Dec 2019		2020		2021		2022		2023		Thereafter
Operating lease payments for aircraft and facility obligations	$	430,275	$	17,603	$	91,892	$	80,540	$	70,900	$	65,521	$	103,819
Firm aircraft and spare engine commitments		365,794		167,037		187,757		11,000		—		—		—
Interest commitments (1)		582,997		31,628		116,550		101,468		87,294		71,252		174,805
Principal maturities on long-term debt		3,008,588		91,192		361,131		344,937		358,586		367,322		1,485,420
Total commitments and obligations	$	4,387,654	$	307,460	$	757,330	$	537,945	$	516,780	$	504,095	$	1,764,044

(1) At September 30, 2019, the Company had variable rate notes representing only 0.1% of its total long-term debt.

Disclosures related to periods prior to the adoption of the New Lease Standard

The following table summarizes future minimum rental payments required under operating leases that have non-cancelable lease terms in excess of one year as of December 31, 2018 (in thousands):

2019	$	87,256
2020		101,741
2021		90,787
2022		72,593
2023		65,749
Thereafter		59,820
	$	477,946