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Summary of Significant Accounting Policies
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation
Harbor Diversified, Inc. ("Harbor") is a non-operating holding company that is the parent of a consolidated group of wholly-owned subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”), which has historically operated as a regional air carrier. Harbor is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (“Lotus”), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC, which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc. ("Therapeutics"), which is a non-operating entity with no material assets.
The accompanying condensed consolidated financial statements include the accounts of Harbor and its consolidated subsidiaries, which are collectively referred to in these condensed notes as the "Company". The condensed consolidated financial statements have been prepared, without audit, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly in all material respects the financial condition and results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. All of the dollar and share amounts set forth in these condensed notes to condensed consolidated financial statements are presented in thousands except share amounts and per share values.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Harbor’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on October 24, 2024 (the “2023 Annual Report”). As a result of numerous factors, including those discussed throughout this Quarterly Report, the results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any other reporting period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts and transactions of Harbor and its wholly-owned subsidiaries. All inter-company accounts and transactions are eliminated in consolidation.
Description of Operations
During the periods presented in this Quarterly Report, the Company had principal lines of business focused on (1) providing regional and other air services through Air Wisconsin (airline business), (2) acquiring flight equipment for the purpose of leasing the equipment to Air Wisconsin, and (3) providing flight equipment financing to Air Wisconsin. Air Wisconsin has also explored aircraft leasing opportunities and entered into its first short-term aircraft lease in September 2022. This lease was subsequently renegotiated into a sales-type lease in December 2023. For additional information, please refer to Note 8, Sales-type Lease, in this Quarterly Report.
The airline business is operated entirely through Air Wisconsin. For the three and nine months ended September 30, 2024, Air Wisconsin was engaged in the business of providing scheduled passenger service for American Airlines, Inc. ("American") under a capacity purchase agreement ("American capacity purchase agreement") which was entered into in August 2022. As of September 30, 2024, Air Wisconsin had 45 aircraft in service under the American capacity purchase agreement.
Prior to early June 2023, Air Wisconsin was also engaged in the business of providing scheduled passenger service for United Airlines, Inc. (“United”) under a capacity purchase agreement (“United capacity purchase agreement”), which was entered into in February 2017 and which terminated in early June 2023. Air Wisconsin commenced providing scheduled passenger service for American in March 2023, and American became Air Wisconsin's sole airline partner when all its aircraft were removed from United's flying operations in early June 2023. However, on January 3, 2025, American delivered notice to Air Wisconsin of its intent to terminate the American capacity purchase agreement effective April 3,
2025, at which time all remaining Air Wisconsin aircraft covered by that agreement were withdrawn from service under the agreement.
For additional information, please refer to Note 3, Capacity Purchase Agreements with United and American, and Note 14, Subsequent Events, in this Quarterly Report.
Contract Revenues
For both the three and nine months ended September 30, 2024, approximately 100.0% of the Company’s operating revenues were derived from operations associated with the American capacity purchase agreement. For the three months ended September 30, 2023, approximately 99.7% and 0.1% of the Company's operating revenues were derived from operations associated with the American capacity purchase agreement and the United capacity purchase agreement, respectively. For the nine months ended September 30, 2023, approximately 52.5% and 47.3% of the Company's operating revenues were derived from operations associated with the American capacity purchase agreement and the United capacity purchase agreement, respectively.
In performing an analysis of the American capacity purchase agreement, as amended, and previously the United capacity purchase agreement, as amended, within the framework of Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASC 842”) and Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company determined that a portion of the payments it receives under the agreements that is designed to reimburse Air Wisconsin for use of a certain number of aircraft, which is referred to as “right of use,” is considered lease revenue. All other revenue received by Air Wisconsin under the capacity purchase agreements is considered non-lease revenue. After consideration of the lease and non-lease components, within the context of ASC 842, the Company determined the non-lease component to be the predominant component of each capacity purchase agreement and elected a practical expedient to not separate the lease and non-lease components. Therefore, all compensation received by Air Wisconsin pursuant to the American capacity purchase agreement, and previously pursuant to the United capacity purchase agreement, has been accounted for under ASC 606.
Because Air Wisconsin's flights are distinct services that have the same pattern of transfer to the customer, and are satisfied over time with the measure of progress for each flight deemed to be substantially the same, the flight services promised pursuant to the American capacity purchase agreement and the United capacity purchase agreement, represented a series of services that were accounted for as a single performance obligation. Therefore, contract revenues were recognized when service was provided and the performance obligation was met on a per completed flight basis. The performance obligation of each completed flight was measured using departures.
The United capacity purchase agreement terminated in early June 2023 and no material contract revenues have been recorded under that agreement since then. In March 2023, Air Wisconsin commenced flying operations for American under the American capacity purchase agreement, at which time Air Wisconsin began recording contract revenues under that agreement. Under the United capacity purchase agreement, Air Wisconsin was entitled to receive a fixed rate for each departure and block hour, and a fixed amount per covered aircraft per day, in each case subject to annual increases during the term of the agreement. Air Wisconsin’s performance obligation was met and revenue was recognized over time, which was then reflected in contract revenues. The United capacity purchase agreement also provided for the reimbursement to Air Wisconsin of certain direct operating expenses, such as certain insurance premiums and property taxes. Air Wisconsin was also eligible to receive bonus compensation, or was required to pay penalties, based on the achievement, or failure to achieve, certain pre-established performance criteria.
Under the American capacity purchase agreement, Air Wisconsin was entitled to receive from American a fixed daily amount for each aircraft covered under the agreement, subject to Air Wisconsin’s ability to meet certain block hour utilization thresholds, a fixed payment for each departure, and a fixed payment for each block hour flown, in each case subject to annual increases during the term of the agreement. The American capacity purchase agreement also provided for the reimbursement to Air Wisconsin of certain direct operating expenses, such as certain insurance premiums and property taxes. Air Wisconsin was also eligible to receive bonus compensation, and was required to pay rebates, upon the achievement of, or failure to achieve, certain pre-established performance criteria.
Prior to the termination of the United capacity purchase agreement in early June 2023, United made provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments were then subsequently reconciled with United based on actual completed flight activity.
American made provisional cash payments to Air Wisconsin during each month of service based on projected flight schedules. These provisional cash payments were subsequently reconciled with American based on actual completed flight activity. As of the date of this filing, final payments through April 2025 have been reconciled. As of September 30, 2024, American owed Air Wisconsin $1,365, which is recorded in Receivables, net, in the condensed consolidated balance sheets.
Prior to the termination of the United capacity purchase agreement in early June 2023, Air Wisconsin was eligible to receive incentive payments, or was required to pay penalties, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. The incentives were defined in the agreement, and performance was measured on a monthly basis. At the end of each month during the term of the agreement, Air Wisconsin calculated the incentives achieved, or penalties payable, during that period and recognized revenue accordingly, subject to the variable constraint guidance under ASC 606. Since the United capacity purchase agreement had terminated in early June 2023, Air Wisconsin did not receive incentive payments or pay any penalties related to that agreement during the three and nine months ended September 30, 2024. Air Wisconsin paid net amounts of $6 to United and received net amounts of $1,236 from United during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, Air Wisconsin had no amounts recorded as part of Receivables, net, in the condensed consolidated balance sheets related to net incentive or penalty payments from or to United.
Under the American capacity purchase agreement, Air Wisconsin was eligible to receive bonus payments, and was required to pay rebates, upon the achievement of, or failure to achieve, certain performance criteria primarily based on flight completion, on-time performance, and customer satisfaction ratings. At the end of each month or quarter, Air Wisconsin calculated the bonus amounts achieved, or rebates payable, during that period and recognized revenue accordingly, subject to the variable constraint guidance under ASC 606. For the three and nine months ended September 30, 2024, Air Wisconsin recorded $207 and $862, respectively, in net rebate amounts payable under the American capacity purchase agreement. Air Wisconsin was not eligible for bonus payments, nor required to pay rebates, during the first six months of the American capacity purchase agreement in 2023. For both the three and nine months ended September 30, 2023 Air Wisconsin recorded no incentive or rebate amounts.
Under the United capacity purchase agreement, Air Wisconsin was entitled to receive a fixed amount per aircraft per day for each month during the term of the agreement. In accordance with GAAP, the Company recognized revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Air Wisconsin deferred fixed revenues between April 2020 and June 2021 due to the significant decrease in its completed flights as a result of the COVID-19 pandemic. Beginning in July 2021, due to an increase in completed flights and based on projected future completed flight activity, Air Wisconsin began reversing this deferral of fixed revenues, and it continued to do so until the termination of the agreement in early June 2023. Since the United capacity purchase agreement had terminated in early June 2023, during the three and nine months ended September 30, 2024, Air Wisconsin did not recognize any fixed revenues under the agreement that were previously deferred, compared to recognizing $0 and $11,601 of fixed revenues under the agreement that were previously deferred for the three and nine months ended September 30, 2023. As of September 30, 2024 and December 31, 2023, there were no deferred fixed revenues related to the United capacity purchase agreement.
Under the United capacity purchase agreement, Air Wisconsin also recognized decreased non-refundable upfront fee revenues and increased fulfillment costs, both of which were amortized over the remaining term of the United capacity purchase agreement in proportion to the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods. Since the United capacity purchase agreement had terminated in early June 2023, during the three and nine months ended September 30, 2024, Air Wisconsin recorded no revenue from upfront fees, and no fulfillment costs under the United capacity purchase agreement, compared to $0 and $1,335 in revenue from upfront fees that was previously deferred, and $0 and $143 of fulfillment costs under the agreement for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, there was no deferred non-refundable upfront fee revenue or fulfillment costs under the United capacity purchase agreement.
Under the American capacity purchase agreement, Air Wisconsin was entitled to receive from American a fixed daily amount for each aircraft covered under the agreement, which, during the three and nine months ended September 30, 2024 and September 30, 2023, was subject to Air Wisconsin's ability to meet certain block hour utilization thresholds. Because the fixed daily amounts for each aircraft covered under the agreement are specifically related to the performance obligation completed during the period, they were recognized in contract revenues in the period in which the applicable flights were
completed. During the three and nine months ended September 30, 2024, Air Wisconsin recorded $21,792 and $63,908, respectively, of fixed daily revenues under the American capacity purchase agreement which are included as part of Contract revenues in the condensed consolidated statements of operations, compared to $23,693 and $37,057 of fixed daily revenues recorded under the agreement for the three and nine months ended September 30, 2023, respectively.
Under the American capacity purchase agreement, Air Wisconsin was also entitled to be reimbursed for certain startup costs, such as livery changes to the aircraft, to prepare the aircraft for American flight services that were recognized as non-refundable upfront fee revenue. Through September 30, 2024, Air Wisconsin had incurred $3,998 in reimbursable costs. In accordance with GAAP, the Company recognized revenue related to the total estimated non-refundable upfront fee revenue of $3,998 on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights that were expected to be completed in subsequent periods during the remaining term of the agreement. Accordingly, during the three and nine months ended September 30, 2024, Air Wisconsin recognized $1,558 and $1,900 of non-refundable upfront fee revenues that were previously deferred compared to $193 and $319 for the three and nine months ended September 30, 2023. As of September 30, 2024 and December 31, 2023, Air Wisconsin deferred $1,593, and $3,493, respectively, in non-refundable upfront fee revenues under the American capacity purchase agreement. Air Wisconsin’s deferred revenues, related to the non-refundable upfront fee revenues under the American capacity purchase agreement, adjusted over the remaining contract term based on the number of flights actually completed in the period relative to the number of flights that were completed in subsequent periods during the remaining term of the agreement. As of September 30, 2024 and December 31, 2023, deferred non-refundable upfront fee revenues in the amount of $1,545 and $662, respectively, were netted as part of Contract liabilities, net, and $48 and $2,831, respectively, were recorded as part of Long-term contract liabilities, net in the condensed consolidated balance sheets.
Under the American capacity purchase agreement, Air Wisconsin also received a monthly support fee and was reimbursed for heavy maintenance expenses based on the fixed covered per aircraft per day rate over the term of the agreement. In addition, amendments to the American capacity purchase agreement entered into in February 2023 and November 2023 ("Amendment No. 1" and "Amendment No. 3", respectively) provided for a one-time payment, as well as revised compensation rates, to assist Air Wisconsin with pilot compensation and retention. In accordance with GAAP, the Company recognized revenue related to the monthly support fee, heavy maintenance revenue, and one-time pilot compensation assistance payment on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights that were expected to be completed in subsequent periods during the remaining term of the agreement. Accordingly, during the three and nine months ended September 30, 2024, Air Wisconsin recognized $2,176 and $5,982, respectively, of revenue related to these amounts compared to $1,946 and $3,206, respectively, for the three and nine months ended September 30, 2023. As of September 30, 2024 revenues related to the anticipated heavy maintenance reimbursements and one-time pilot compensation assistance payment in the amounts of $2,099 and $242 were recorded in Contract liabilities, net and Long-term contract liabilities, net, respectively, along with revenues related to the monthly support fee in the amounts of $1 and $7, respectively, in the condensed consolidated balance sheets. As of December 31, 2023 revenues related to the anticipated heavy maintenance reimbursements and one-time pilot compensation assistance payment in the amount of $562 were netted as part of short-term Contract liabilities, net, and revenues related to the monthly support fee in the amount of $152 were recorded in Long-term contract liabilities, net in the condensed consolidated balance sheets. Air Wisconsin’s Contract liabilities, net and Long-term contract liabilities, net related to the one-time pilot compensation assistance payment, estimated monthly support fee and heavy maintenance revenue adjusted over the remaining contract term, based on the actual reimbursement of the monthly support fee and heavy maintenance revenue and on the number of flights actually completed in each reporting period relative to the number of flights that were completed in subsequent periods during the remainder of the term of the agreement after September 30, 2024.
Under the American capacity purchase agreement, Air Wisconsin was eligible to receive a block hour minimum and fixed daily amount for aircraft when flying scheduled by American did not meet minimum thresholds based on Air Wisconsin's crew availability. Since the start of flying under the American capacity purchase agreement in March 2023, in all periods prior to the three months ended June 30, 2024, American had met such minimum thresholds and thus no minimum payments were received. During the three and nine months ended September 30, 2024, Air Wisconsin received $1,420 and $1,904, respectively, related to the block hour and crew availability minimums and estimated that it would receive an additional $14,623 over the remaining term of the American capacity purchase agreement. In accordance with GAAP, the Company recognized revenue related to the total block hour and crew availability minimums on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights that were expected to be completed in subsequent periods during the remaining term of the agreement. Accordingly, during the three and nine months ended September 30, 2024, Air Wisconsin recognized $3,819 and $3,901, respectively, of revenues for block hour and crew availability minimums compared to $0 for both the three and nine months ended September 30, 2023. As of
September 30, 2024, revenues related to the block hour and crew availability minimums in the amount of $1,998 were netted as part of Contract liabilities, net in the condensed consolidated balance sheets. As of December 31, 2023, there were no amounts recorded in contract assets or liabilities on the condensed consolidated balance sheets related to block hour and crew availability minimums. Air Wisconsin’s block hour and crew availability minimums that were netted as part of Contract liabilities, net on the condensed consolidated balance sheets were adjusted over the remaining contract term, based on the actual revenues that were received and recognized based on the number of flights that were completed in the period relative to the number of flights that were expected to be completed in subsequent periods during the remainder of the term of the agreement.
As part of an October 2020 amendment to the United capacity purchase agreement (“United Amendment”), United made a cash settlement payment of $670 and issued a note receivable to Air Wisconsin in the amount of $11,048, of which $4,410 was deferred as of December 31, 2020, with the remaining portion recognized in proportion to the number of flights completed in subsequent periods through the end of the term of the agreement. In October 2021, in accordance with the United Amendment, Air Wisconsin received $294 for the opening of a crew base, of which $73 was deferred as of December 31, 2021, with the remaining portion recognized in proportion to the number of flights completed in subsequent periods through the end of the term of the agreement. Due to the termination of the United capacity purchase agreement in early June 2023, for the three and nine months ended September 30, 2024, Air Wisconsin did not record any revenue related to these items compared to $0 and $649 that were previously deferred for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, there were no deferred revenues under the United capacity purchase agreement related to these items in the condensed consolidated balance sheets.
The timing of the recognition under the American capacity purchase agreement of non-refundable upfront fee revenue, fulfillment costs, monthly support fee revenues, heavy check maintenance revenues, one-time support fee revenues and minimum block hour and crew availability revenues in periods subsequent to September 30, 2024 was subject to considerable uncertainty due to a number of factors, including the estimated revenue amounts that were expected to be received and the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement.
Cash and Cash Equivalents
Money market funds, investments and deposits with an original maturity of three months or less when acquired are considered cash and cash equivalents.
Receivables, net
As of September 30, 2024 and December 31, 2023, the Company had a Receivables, net balance of $3,857 and $5,592, respectively. The table below sets forth the major categories that make up the balances:
    
September 30, 2024December 31, 2023
Trade receivables$1,365 $1,187 
Insurance and warranty claim receivables1,254 1,506 
State tax receivables700 1,024 
Other industry related receivables543 1,883 
Allowance for expected credit losses(5)(8)
Receivables, net$3,857 $5,592 
Other industry related receivables include employee receivables related to such items as uniforms and relocation expenses, transactions with our unions, and credits from vendors. The balance of trade receivables was $1,612 as of December 31, 2022 and $608 as of September 30, 2023.
Allowance for Credit Losses
The Company monitors publicly available credit ratings for entities for which the Company has a significant credit balance. The Company determined that its receivables for the three and nine months ended September 30, 2024 were primarily the result of its relationship with American (and prior relationship with United), insurance-related receivables and income tax
refunds. These receivables are payable by governmental entities or companies the Company believes to be creditworthy. Accordingly, the Company has not recorded an allowance for credit losses related to these receivables.
The Company historically maintained, and continues to maintain, an allowance for expected credit losses primarily related to employee receivables. The allowance for expected credit losses was $5 and $8 as of September 30, 2024 and December 31, 2023, respectively. The Company will continue to monitor its financial instruments for expected credit losses.
Marketable Securities and Long-term Restricted Investments (SESP)
The Company’s equity security investments, consisting of exchange-traded funds and mutual funds, are recorded at fair value based on quoted market prices (Level 1) in Marketable securities and Long-term restricted investments (SESP) in the condensed consolidated balance sheets, in accordance with the guidance in Accounting Standards Codification Topic 321, Investments-Equity Securities, with the change in fair value during the three and nine months ended September 30, 2024 included in the condensed consolidated statements of operations. For additional information, please refer to Note 1, Fair Value of Financial Instruments, in this Quarterly Report.
As of September 30, 2024 and December 31, 2023, the fair value of Marketable securities and Long-term restricted investments (SESP) was $101,042 and $95,941, respectively.
The calculation of net unrealized gains and losses that relate to Marketable securities and Long-term restricted investments (SESP) held as of September 30, 2024 is as follows:
Three Months Ended
September 30, 2024		Nine Months Ended September 30, 2024
Net gains recognized during the period on equity securities$2,252 $3,154 
Plus: Net gains (losses) recognized during the period on equity securities sold during the period— — 
Unrealized gains recognized during the period on equity securities held as of the end of the period$2,252 $3,154 
The calculation of net unrealized gains and losses that related to Marketable securities held as of September 30, 2023 is as follows:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Net losses recognized during the period on equity securities held as of the end of the period$(955)$(10)
Less: Net losses recognized during the period on equity securities sold during the period(30)(112)
Unrealized (losses) gains recognized during the period on equity securities$(925)$102 
Long-term restricted investments (SESP) reflects the assets held in the supplemental executive savings plan (the “SESP”). The value of assets and liabilities associated with the SESP was added to the consolidated financial statements as of December 31, 2023 and thus was not included in the comparative results for the three and nine months ended September 30, 2023. For additional information, please refer to Note 1, Supplemental Executive Savings Plan ("SESP"), in this Quarterly Report.
Spare Parts and Supplies
Spare parts and supplies include an inventory of expendable parts and miscellaneous aircraft supplies stated at average cost less an obsolescence allowance. The Company provides for an allowance for obsolescence after considering a number of
factors, including the useful life of the aircraft fleet, the estimated cost of expendable parts expected to be on hand at the end of the useful life and the estimated salvage value of the parts. This allowance is based on management estimates and is subject to change. Expendable parts are charged to expense at average cost when used. Expendable parts that are repairable are returned to inventory at the average cost of comparable parts, less a reserve for scrap. Supplies are stated at average cost. The inventory allowance was $17,126 and $17,146 as of September 30, 2024 and December 31, 2023, respectively.
The Company does, from time to time, consign certain of its spare parts and supplies to third parties for sale. Title of any such parts or supplies remains with the Company until a sale is made. To the extent the Company does consign any such spare parts and supplies, it is not material to its inventory. The Company views the net carrying value of any consigned spare parts and supplies to be $0 for all periods presented due to its obsolescence reserve.
Contract Costs
Contract costs arose from the incremental costs incurred by Air Wisconsin to fulfill its obligations under its capacity purchase agreements and included such costs such as aircraft painting and aircraft reconfiguration. Contract costs were amortized under the respective capacity purchase agreement based on the completion of Air Wisconsin's performance obligation as measured by departures.
Air Wisconsin incurred certain contract costs ("fulfillment costs") prior to the start of flying operations for American on March 1, 2023. These costs included changes to the livery, fuel costs, and certain training expenses. The total fulfillment costs incurred as of September 30, 2024 and December 31, 2023 were $774. The fulfillment costs incurred are included in Prepaid expenses and other in the Cash Flows from Operating Activities section in our condensed consolidated statements of cash flows. These costs were amortized on a proportional basis taking into account the number of flights actually completed in the period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the agreement. Those contract costs that were expected to be amortized over the next one-year period are included in Contract costs in the condensed consolidated balance sheets while those contract costs that were expected to be amortized in periods beyond one-year are included in Long-term contract costs in the condensed consolidated balance sheets.
For the three and nine months ended September 30, 2024 Air Wisconsin recorded $87 and $142, respectively, of amortization expense related to fulfillment costs compared to $33 and $54, respectively, for the three and nine months ended September 30, 2023. The amortization of fulfillment costs is included in Depreciation, amortization, and obsolescence allowance in the Cash Flows from Operating Activities section in the condensed consolidated statements of cash flows. As of September 30, 2024, Contract costs and Long-term contract costs were $299 and $9, respectively, in the condensed consolidated balance sheets and incurred under the American capacity purchase agreement. As of December 31, 2023, Contract costs and Long-term contract costs were $111 and $578, respectively, in the condensed consolidated balance sheets and incurred under the American capacity purchase agreement.
Contract Assets and Liabilities
Contract assets arise from revenue earned for services provided that were not yet billable to United or American as of the respective dates of the condensed consolidated balance sheets. Contract liabilities arise from payments received in advance of services provided.
Contract assets and liabilities expected to be settled within the next one-year period are netted in the condensed consolidated balance sheets and included either in Contract assets, net or Contract liabilities, net. Contract assets and liabilities expected to be settled more than a year in the future are netted and included either in Long-term contract assets, net or Long-term contract liabilities, net in the condensed consolidated balance sheets. As of September 30, 2024, the Company recorded Contract liabilities, net of $1,648 and Long-term contract liabilities, net of $297 related to the American
capacity purchase agreement. As of December 31, 2023, the Company recorded Contract liabilities, net of $100 and Long-term contract liabilities, net of $2,984 related to the American capacity purchase agreement.
The table below sets forth the opening and closing balances of both current and non-current contract liabilities.
CurrentNon-current
Balance as of December 31, 2022(1)
$13,586 $— 
Amounts received, excluding amounts recognized as revenue(1,618)2,792 
Revenues recognized included in opening contract balance(2)
(13,586)— 
Balance as of September 30, 2023$(1,618)$2,792 
Balance as of December 31, 2023$100 $2,984 
Amounts received, excluding amounts recognized as revenue663 242 
Revenues recognized included in opening contract balance(662)(1,382)
Reclassification between current and non-current1,547 (1,547)
Balance as of September 30, 2024$1,648 $297 
(1)Includes $11,601 classified on the balance sheet in Current Liabilities as Deferred revenues.
(2)Includes $11,601 classified on the balance sheet in Current Liabilities as Deferred revenues as of December 31, 2022.
Property and Equipment
The table below sets forth the original cost of the Company’s property and equipment and accumulated depreciation or amortization as of the dates presented. The table excludes construction in process of $4,024 and $3,983 as of September 30, 2024 and December 31, 2023, respectively. Construction in process primarily relates to the cost of parts that are not capitalized until the parts are placed into service.
September 30, 2024December 31, 2023
AssetsOriginal
Cost		Accumulated
Depreciation/
Amortization
Original
Cost
Accumulated
Depreciation/
Amortization
Aircraft$66,390 $53,921 $67,459 $48,011 
Spare engines160,694 133,166 160,694 119,575 
Rotable parts29,837 19,037 28,335 18,512 
Ground equipment2,912 2,433 2,912 2,277 
Office equipment4,772 4,521 4,757 4,391 
Leasehold improvements1,123 856 1,123 691 
Total$265,728 $213,934 $265,280 $193,457 
As of September 30, 2024, Air Wisconsin owned 63 CRJ-200 regional jets. The Company operates its aircraft under a continuous inspection and maintenance program. Generally, the normal cost of recurring maintenance is expensed when incurred. However, the Company uses the deferral method of accounting for Air Wisconsin’s planned major maintenance activities for engines pursuant to which the capitalized engine overhaul costs are amortized over the estimated useful life measured in engine cycles remaining until the next scheduled major maintenance activity. Lotus’ engine maintenance costs are expensed when incurred.
Depreciation expense during the three and nine months ended September 30, 2024 was $6,186 and $18,712, respectively, compared to $6,365 and $18,928 for the three and nine months ended September 30, 2023, respectively, and is included in Depreciation, amortization and obsolescence in the condensed consolidated statements of operations. Gains from the disposals of fixed assets for the three and nine months ended September 30, 2024 were $3 and $519, respectively,
compared to a loss on disposals of fixed assets of $10 and $219 for the three and nine months ended September 30, 2023, respectively, and are included in Purchased services and other in the condensed consolidated statements of operations.
Impairment of Long-Lived Assets and Indefinite-Lived Intangible Assets
The Company evaluates long-lived assets and indefinite-lived intangible assets for potential impairment and records impairment losses when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.
When considering whether an impairment of long-lived assets exists, the Company is required to group similar assets together at the lowest level for which identifiable cash flows for such assets are largely independent of the cash flows of other assets and liabilities. The Company determined that because there is only one operating segment, one revenue contract, and one aircraft type, the asset group was at the enterprise level and as such, included an assessment of all assets and liabilities of the Company.
The Company determined that indicators of impairment existed cumulatively through the twelve months ended December 31, 2023 and thus performed a quantitative test for impairment. Based on an analysis of the fair market value of its assets, the Company determined that an impairment charge was not required as of December 31, 2023.
The Company determined that the same indicators of impairment that existed during the twelve months ended December 31, 2023 continued to exist with respect to its long-lived assets during the three and nine months ended September 30, 2024, requiring the Company to perform a quantitative test for impairment. The accounting guidance provides examples of events that may indicate a long-lived asset group may not be recoverable. The relevant examples include a significant adverse change in the extent or manner in which a long-lived asset is used, a significant adverse change in the business climate that could affect the value of a long-lived asset group, or a current period operating or cash flow loss. The Company determined these indicators of impairment continued to be applicable due to the operating losses incurred during the three and nine months ended September 30, 2024, and in combination with lower usage rates for the aircraft as a result of the pilot shortage. This resulted in lower block hours and lower cash flows generated by the long-lived assets, continuing the trends which existed as of December 31, 2023. Based on an analysis of the fair market value of its long-lived assets, the Company determined that an impairment charge was not required as of September 30, 2024. The Company continues to monitor the risks for impairment and the required analysis in light of the termination of the American capacity purchase agreement in April 2025 and the implementation of changes to Air Wisconsin's business strategies going forward. For additional information, please refer to Note 14, Subsequent Events, in this Quarterly Report.
The Company further concluded that its indefinite lived intangible assets continue to be indefinite lived intangible assets as of September 30, 2024 and that its intangible assets should be evaluated as one unit of account for determining impairment. Although indicators of impairment existed as of September 30, 2024 with respect to the intangible assets, the Company concluded, based on a qualitative assessment weighing the positive and negative evidence, that the significant inputs used to determine the fair value of the indefinite-lived intangible assets were not materially changed as of September 30, 2024. As a result, the Company determined that the indefinite-lived intangible assets were not impaired as of September 30, 2024.
Supplemental Executive Savings Plan ("SESP")
The Company maintains the SESP for the benefit of certain executives. The SESP offers deferred compensation retirement benefits that would otherwise be subject to the compensation limits imposed by the Internal Revenue Code on Company contributions to the Air Wisconsin Airlines Savings Plan. At the end of each year, the Company accrues a long-term deferred compensation liability for contributions earned during that year that are contributed to the SESP in January of the successive year. Assets acquired within the plan are recorded as Long-term restricted investments (SESP) and an offsetting liability is recorded as Long-term deferred compensation (SESP) in the condensed consolidated balance sheets. Any increases or decreases in plan assets due to changes in market value are recorded as a Gain on Marketable securities and Long-term restricted investments (SESP), with an offsetting entry made to Payroll and related costs in the condensed consolidated statements of operations. This results in no impact on net loss before taxes. The values of Long-term restricted investments (SESP) and Long-term deferred compensation (SESP) liability associated with the SESP are adjusted quarterly to reflect changes in market value.
In January 2024, the Company made a contribution to the SESP in the amount of $22 compared to a contribution of $27 in January 2023. For the three and nine months ended September 30, 2024, the Company recorded $192 and $526,
respectively, in Gain (loss) on marketable securities and long-term restricted investments (SESP) and $5 and $17, respectively, of interest and dividend income, with an offsetting entry made to Payroll and related costs. As of September 30, 2024 and December 31, 2023, Long-term restricted investments (SESP) were $3,755 and $3,194, respectively, and Long-term deferred compensation (SESP) were $3,755 and $3,216, respectively, in the condensed consolidated balance sheets. The value of assets and liabilities associated with the SESP was added to the consolidated financial statements as of December 31, 2023 and thus was not included in the comparative results for the three and nine months ended September 30, 2023.
Other Assets
Other non-current assets consist of expected amounts to be received in future periods at least one-year beyond the respective dates of the condensed consolidated balance sheets. Other assets is made up of the items presented in the table below.
September 30, 2024December 31, 2023
Expected state tax refunds from 2021 and 2022 amended returns
$231 $231 
Expected federal refunds from 2021 and 2022 income tax returns
6,496 6,786 
Workers compensation loss fund831 945 
Long-term deposits78 89 
Other assets$7,636 $8,051 
For additional information with respect to the refunds expected for the amended 2021 and 2022 income tax returns, please refer to Note 2, Restatement of 2022 Consolidated Financial Statements in the notes to the audited consolidated financial statements in the 2023 Annual Report.
Interest and Dividend Income
The Company records investment income earned on its Cash and cash equivalents, Marketable securities, and Long-term restricted investments (SESP) consisting primarily of interest and dividends, in Interest and dividend income in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2024, interest income amounted to $65 and $211, respectively, while dividend income amounted to $1,025 and $2,539, respectively. For the three and nine months ended September 30, 2023, interest income amounted to $1 and $66, respectively, while dividend income amounted to $1,295 and $3,570, respectively.
Income Taxes
The Company utilizes the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities. Determining whether deferred tax assets are impaired requires significant judgement, including but not limited to, forecasting the reversal of temporary differences due to these basis differences. A valuation allowance is provided for those deferred tax assets for which the Company cannot conclude that it is more likely than not that such deferred tax assets will be realized. In determining the amount of any valuation allowance, in addition to the reversal of temporary differences, estimated future taxable income as well as feasible tax planning strategies for each taxing jurisdiction, are considered. Each fiscal quarter the Company reevaluates its tax provision and reconsiders the estimates and assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.
As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.
The Company is subject to federal, state and local income taxes in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant
judgment. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2020. With a few exceptions, the Company is no longer subject to state or local income tax examinations for years prior to 2019. As of September 30, 2024, the Company had no outstanding tax examinations.
Concentration of Credit Risk and Customer Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are held by financial institutions in the United States and accounts receivable. The Company at times has had bank deposits in excess of the Federal Deposit Insurance Corporation insurance limit. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, the Company believes it has minimal credit risk with respect to these financial institutions. The Company has not experienced material credit-related losses relating to its cash and cash equivalents balance.
Significant customers are those which represent more than 10% of the Total operating revenues or Receivables, net balance at each respective balance sheet date. Air Wisconsin entered into the American capacity purchase agreement in August 2022 and commenced flying operations for American in March 2023. American became Air Wisconsin’s sole airline partner once all aircraft were removed from United’s flying operations in early June 2023, at which point substantially all of the Company’s revenues were derived from the American capacity purchase agreement. Prior to April 2023 substantially all of the Company's revenues were derived from the United capacity purchase agreement.
Neither American's nor United’s obligations to pay Air Wisconsin the amounts required to be paid under the applicable capacity purchase agreement were collateralized.
For additional information, please refer to Note 3, Capacity Purchase Agreements with United and American, in this Quarterly Report.
Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to revenue recognition, long-lived assets, and income taxes. Management evaluates its estimates and assumptions on an ongoing basis using historical experience, existing and known circumstances, authoritative accounting guidance, and other factors it believes to be reasonable, including an assessment of current and anticipated future macroeconomic conditions, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the financial statements. To the extent there are differences between these estimated and actual results, it may result in material effects on the Company's financial condition, results of operations and liquidity.
Fair Value of Financial Instruments
The Company’s financial instruments include Cash and cash equivalents, Restricted cash, Marketable securities, Long-term restricted investments (SESP), Receivables, net, Long-term investments, Accounts payable, and Long-term promissory note. The Company believes the carrying amounts of these financial instruments, with the exception of Marketable securities and Long-term restricted investments (SESP), are a reasonable estimate of their fair value because of the short-term nature of such instruments, or, in the case of the Long-term promissory note, because the Company also holds the promissory note evidencing such obligation, which is reflected in Long-term investments on the condensed consolidated balance sheets. Marketable securities and Long-term restricted investments (SESP) are reported at fair value based on quoted market prices. Long-term investments are held-to-maturity debt securities and are reported at amortized cost. For additional information regarding the Long-term promissory note and Long-term investments, please refer to Note 5, Debt, in this Quarterly Report.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, which is otherwise referred to as an "exit price.". Accounting Standards Codification Topic 820, Fair Value Measurement ("ASC 820") establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.
Level 3 - Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.
The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates these determinations each reporting period, and it is possible that an asset or liability may be classified differently from year to year.
The tables below set forth the Company’s classification of Marketable securities, Long-term investments, and Long-term restricted investments (SESP) as of the dates presented:
September 30, 2024
TotalLevel 1Level 2Level 3
Marketable securities – exchange-traded funds$87,901 $87,901 $— $— 
Marketable securities – mutual funds9,386 9,386 — — 
Long-term investments – bonds (see Note 5)4,275 — 4,275 — 
Long-term restricted investments (SESP) - mutual funds3,755 3,755 — — 
Total$105,317 $101,042 $4,275 $— 
December 31, 2023
TotalLevel 1Level 2Level 3
Marketable securities – exchange-traded funds$83,826 $83,826 $— $— 
Marketable securities – mutual funds8,921 8,921 — — 
Long-term investments – bonds (see Note 5)4,275 — 4,275 — 
Long-term restricted investments (SESP) - mutual funds3,194 3,194 — — 
Total$100,216 $95,941 $4,275 $— 
Upcoming Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2023-07, Segment Reporting (ASC Topic 280) – Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. While the Company does not expect to adopt the accounting standard early, it continues to evaluate the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures. The Company does expect expanded disclosures in the future in response to this guidance.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (ASC Topic740) – Improvements to Income Tax Disclosures ("ASC 740"), which is intended to enhance the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. While the Company does not expect to adopt the accounting standard early, it continues to evaluate the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures. The Company does expect expanded disclosures in the future in response to this guidance.
In March 2024, the SEC adopted final rules requiring public entities to provide certain climate-related disclosures, including estimates of greenhouse gas emissions, in their registration statements and annual reports. As part of the disclosures, entities will be required to quantify effects of severe weather events and other natural conditions in notes to their audited financial statements. On April 4, 2024, the SEC paused the implementation of the final rules pending judicial review and as of the date of this Quarterly Report the judicial review is still in process. Assuming the implementation
timelines for the rules remain the same, the Company would begin to adopt the rules for the fiscal year ending December 31, 2025. The Company is currently evaluating the impact of the new rules on its financial statements and disclosures.