LEASES

12 Months Ended

Dec. 31, 2019

The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. The accounting for these leases follows the requirements of the New Lease Standard, which the Company adopted as of January 1, 2019. See Note 2 for further information.

As of December 31, 2019, the Company held aircraft leases with remaining terms ranging from one month to 12 years. The aircraft leases generally can be renewed for one to six years at rates based on fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material. On July 9, 2012, the Company signed an agreement with Delta Air Lines, Inc. and Boeing Capital Corp. to lease or sublease 88 AirTran Airways, Inc. Boeing 717-200 aircraft ("B717s") to Delta at agreed-upon lease rates. Three operating leases expired during 2018. Of the 85 B717s remaining at the beginning of 2019, ten owned B717s were sold in 2019. The proceeds from the sale, which were not material, were netted within Capital expenditures in the Consolidated Statement of Cash Flows. Excluding the eight aircraft for which operating leases expired during 2019, the following remained: 65 on operating leases and two on finance leases. The sublease terms for the 65 B717s on operating lease and the two B717s on finance lease coincide with the Company's remaining lease terms for these aircraft from the original lessor, which have remaining lease terms ranging from approximately one month to five years. The Company's future sublease income associated with the 65 B717s on operating lease as of December 31, 2019 was as follows: $78 million in 2020, $41 million in 2021, $17 million in 2022, $7 million in 2023, and $1 million in 2024. The two B717s classified by the Company as finance leases are accounted for as direct financing leases, and the remaining 65 subleases are accounted for as operating leases. There are no contingent payments and no significant residual value conditions associated with the transaction.

At each airport where the Company conducts flight operations, the Company has lease agreements, generally with a governmental unit or authority, for the use of airport terminals, airfields, office space, cargo warehouses, gates, and/or maintenance facilities. These leases are classified as operating lease agreements and have lease terms remaining ranging from one month to 27 years. Certain leases can be renewed from one to ten years. The majority of the airport terminal leases contain certain provisions for periodic adjustments to rates that depend upon airport operating costs or use of the facilities, and are reset at least annually. Due to the nature and variability of the rates, the majority of these leases are not recorded on the Consolidated Balance Sheet.

The Company also leases certain technology assets, fuel storage tanks, and various other equipment that qualify as leases under the New Lease Standard. The remaining lease terms range from two months to seven years. Certain leases can be renewed from six months to five years.

Lease-related assets and liabilities recorded on the Consolidated Balance Sheet were as follows:




(in millions)	Balance Sheet location	December 31, 2019
Assets
Operating	Operating lease right-of-use assets (net)	$	1,349
Finance	Property and equipment (net of allowance for depreciation and amortization of $455)	779
Total lease assets		$	2,128

Liabilities
Current
Operating	Current operating lease liabilities	$	353
Finance	Current maturities of long-term debt	85
Noncurrent
Operating	Noncurrent operating lease liabilities	978
Finance	Long-term debt less current maturities	542
Total lease liabilities		$	1,958

The components of lease costs, included in the Consolidated Statement of Comprehensive Income, were as follows:



(in millions)	Statement of Comprehensive Income location	Year ended December 31, 2019
Operating lease cost - aircraft (a)	Other operating expenses	$	182
Operating lease cost - other	Landing fees and airport rentals, and Other operating expenses	89
Short-term lease cost	Other operating expenses	4
Variable lease cost	Landing fees and airport rentals, and Other operating expenses	1,377
Finance lease cost:
Amortization of lease liabilities	Depreciation and amortization	116
Interest on lease liabilities	Interest expense	26
Total net finance lease cost		$	142

(a) Net of sublease income of $97 million for the year ended December 31, 2019.

Supplemental cash flow information related to leases, included in the Consolidated Statement of Cash Flows, was as follows:



(in millions)	Year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	379
Operating cash flows for finance leases	26
Financing cash flows for finance leases	85
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	230
Finance leases	1

As of December 31, 2019, maturities of lease liabilities were as follows:



(in millions)	Operating leases			Finance leases
2020	$	392		$	107
2021	257			102
2022	141			98
2023	113			94
2024	92			90
Thereafter	661			230
Total lease payments	$	1,656		$	721
Less imputed interest	(325		)	(94		)
Total lease obligations	1,331			627
Less current obligations	(353		)	(85		)
Long-term lease obligations	$	978		$	542

The table below presents additional information related to the Company's leases as of December 31, 2019:



Weighted average remaining lease term
Operating leases	9 years
Finance leases	8 years

Weighted average discount rate
Operating leases (a)	3.7	%
Finance leases	3.8	%

(a) Upon adoption of the New Lease Standard, the incremental borrowing rate used for existing leases was established as of January 1, 2019.

As of December 31, 2019, the Company had additional operating lease commitments that had not yet commenced of approximately $543 million for 16 Boeing 737 MAX 8 aircraft contractually to be delivered in 2020, each with lease terms that range from eight to nine years.

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

As of December 31, 2018, the Company's fleet included 51 aircraft on operating lease and 72 aircraft on capital lease. Amounts applicable to these aircraft on capital lease that were included in property and equipment were $1.3 billion for flight equipment and $304 million in accumulated amortization.

Total rental expense for operating leases, both aircraft and other, charged to operations in 2018 and 2017 was $935 million and $939 million, respectively. The majority of the Company’s terminal operations space, as well as 124 aircraft, including 73 B717s subleased to Delta, were under operating leases at December 31, 2018. For aircraft operating leases and for terminal operating leases and other real estate leases, expense is recorded on a straight–line basis and included in Other operating expenses and in Landing fees and airport rentals, respectively, in the Consolidated Statement of Income. The majority of the Company’s terminal operations space payments are considered variable, and thus excluded from the Company’s disclosures of future minimum lease payments. Future minimum lease payments under capital leases and noncancelable operating leases and rentals to be received under subleases with initial or remaining terms in excess of one year at December 31, 2018, were:



(in millions)	Capital leases		Operating leases		Subleases			Operating leases, net
2019	$	111	$	348	$	(92	)	$	256
2020	109		357		(78		)	279
2021	105		244		(41		)	203
2022	100		172		(17		)	155
2023	97		146		(7		)	139
Thereafter	335		474		(1		)	473
Total minimum lease payments	$	857	$	1,741	$	(236	)	$	1,505
Less amount representing interest	126
Present value of minimum lease payments (a)	731
Less current portion	85
Long-term portion	$	646

(a) Excludes lease incentive obligation of $114 million.

In 2017, the Company recorded a charge of $63 million, within Other operating expenses in the accompanying Consolidated Statement of Income, related to the leased portion of the Classic fleet, representing the remaining net

lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors, as of the cease-use date. As of December 31, 2018, the remaining amounts associated with the cease-use liability had been paid in full.