Leases, Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Leases, Commitments and Contingencies

Leases, Commitments and Contingencies

Note 7 — 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

As of March 31, 2020, the Company had 103 aircraft under operating leases with remaining terms ranging from less than one year to ten years.

With the adoption of Topic 842 on January 1, 2019, 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 CRJ200 aircraft. 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 various airports. The remaining lease terms for facility space vary from one month to 36 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 March 31, 2020, the Company’s right-of-use assets were $326.7 million, the Company’s current maturities of operating lease liabilities were $88.6 million, and the Company’s noncurrent lease liabilities were $259.0 million. During the three months ended March 31, 2020, the Company paid $17.7 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of March 31, 2020.

	March 31, 2020
Weighted-average remaining lease term for operating leases	6.8 years
Weighted-average discount rate for operating leases		6.4%

The Company’s lease costs for the three months ended March 31, 2020 and 2019 included the following components (in thousands):

	For the three months ended March 31,
	2020		2019
Operating lease cost	$	25,018	$	27,221
Variable and short-term lease cost		1,344		1,475
Sublease income		(1,571)		—
Total lease cost	$	24,791	$	28,696

As of March 31, 2020, 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 March 31, 2020 (in thousands):

April 2020 through December 2020	$	75,137
2021		85,409
2022		75,776
2023		69,623
2024		28,320
Thereafter		100,234
	$	434,499

The Company is coordinating with its major airline partners on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19-related schedule reductions. The anticipated future delivery dates are subject to change. As of March 31, 2020, the Company had a firm purchase commitment for 26 E175 aircraft from Embraer, S.A. (“Embraer”) with original delivery dates through 2021. The Company has also agreed to purchase two 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		Apr - Dec 2020		2021		2022		2023		2024		Thereafter
Operating lease payments for aircraft and facility obligations	$	434,499	$	75,137	$	85,409	$	75,776	$	69,623	$	28,320	$	100,234
Firm aircraft and spare engine commitments		714,797		435,183		274,114		5,500		—		—		—
Interest commitments (1)		543,153		88,581		104,678		90,251		73,946		59,373		126,324
Principal maturities on long-term debt		2,927,262		277,692		352,005		365,907		374,906		327,630		1,229,122
Total commitments and obligations	$	4,619,711	$	876,593	$	816,206	$	537,434	$	518,475	$	415,323	$	1,455,680

(1) At March 31, 2020, all of the Company’s total long-term debt had fixed interest rates.