|
|
ITEM 1.
|
UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
Spirit Airlines, Inc.
Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Operating revenues:
|
|
|
|
|
|
|
|
Passenger
|
$
|
371,922
|
|
|
$
|
296,401
|
|
|
$
|
671,684
|
|
|
$
|
569,027
|
|
Non-ticket
|
329,760
|
|
|
287,732
|
|
|
621,744
|
|
|
553,249
|
|
Total operating revenues
|
701,682
|
|
|
584,133
|
|
|
1,293,428
|
|
|
1,122,276
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
129,892
|
|
|
112,930
|
|
|
257,030
|
|
|
229,340
|
|
Aircraft fuel
|
142,294
|
|
|
113,192
|
|
|
282,076
|
|
|
199,174
|
|
Aircraft rent
|
52,566
|
|
|
49,864
|
|
|
109,636
|
|
|
102,066
|
|
Landing fees and other rents
|
45,592
|
|
|
39,944
|
|
|
86,040
|
|
|
74,751
|
|
Depreciation and amortization
|
35,331
|
|
|
24,957
|
|
|
66,840
|
|
|
48,066
|
|
Maintenance, materials and repairs
|
28,985
|
|
|
20,627
|
|
|
55,297
|
|
|
41,567
|
|
Distribution
|
29,908
|
|
|
24,692
|
|
|
56,406
|
|
|
47,625
|
|
Special charges
|
—
|
|
|
8,052
|
|
|
4,776
|
|
|
24,254
|
|
Loss on disposal of assets
|
1,493
|
|
|
529
|
|
|
2,598
|
|
|
743
|
|
Other operating
|
102,885
|
|
|
67,511
|
|
|
180,588
|
|
|
131,556
|
|
Total operating expenses
|
568,946
|
|
|
462,298
|
|
|
1,101,287
|
|
|
899,142
|
|
|
|
|
|
|
|
|
|
Operating income
|
132,736
|
|
|
121,835
|
|
|
192,141
|
|
|
223,134
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
Interest expense
|
13,746
|
|
|
10,166
|
|
|
26,219
|
|
|
18,226
|
|
Capitalized interest
|
(3,342
|
)
|
|
(2,771
|
)
|
|
(6,922
|
)
|
|
(6,096
|
)
|
Interest income
|
(1,828
|
)
|
|
(1,447
|
)
|
|
(3,141
|
)
|
|
(3,013
|
)
|
Other expense
|
104
|
|
|
157
|
|
|
107
|
|
|
227
|
|
Total other (income) expense
|
8,680
|
|
|
6,105
|
|
|
16,263
|
|
|
9,344
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
124,056
|
|
|
115,730
|
|
|
175,878
|
|
|
213,790
|
|
Provision for income taxes
|
45,913
|
|
|
42,646
|
|
|
65,800
|
|
|
78,786
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
78,143
|
|
|
$
|
73,084
|
|
|
$
|
110,078
|
|
|
$
|
135,004
|
|
Basic earnings per share
|
$
|
1.13
|
|
|
$
|
1.03
|
|
|
$
|
1.59
|
|
|
$
|
1.90
|
|
Diluted earnings per share
|
$
|
1.12
|
|
|
$
|
1.03
|
|
|
$
|
1.58
|
|
|
$
|
1.89
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
$
|
78,143
|
|
|
$
|
73,084
|
|
|
$
|
110,078
|
|
|
$
|
135,004
|
|
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($6), $0, ($14) and $0
|
(11
|
)
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $62 and $65
|
53
|
|
|
56
|
|
|
107
|
|
|
113
|
|
Other comprehensive income (loss)
|
$
|
42
|
|
|
$
|
56
|
|
|
$
|
83
|
|
|
$
|
113
|
|
Comprehensive income
|
$
|
78,185
|
|
|
$
|
73,140
|
|
|
$
|
110,161
|
|
|
$
|
135,117
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Balance Sheets
(unaudited, in thousands)
|
|
|
|
|
|
|
|
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|
June 30, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
869,153
|
|
|
$
|
700,900
|
|
Short-term investment securities
|
100,464
|
|
|
100,155
|
|
Accounts receivable, net
|
47,996
|
|
|
41,136
|
|
Aircraft maintenance deposits
|
155,093
|
|
|
87,035
|
|
Prepaid expenses and other current assets
|
57,798
|
|
|
46,619
|
|
Total current assets
|
1,230,504
|
|
|
975,845
|
|
|
|
|
|
Property and equipment:
|
|
|
|
Flight equipment
|
1,809,747
|
|
|
1,461,525
|
|
Ground property and equipment
|
140,954
|
|
|
126,206
|
|
Less accumulated depreciation
|
(161,191
|
)
|
|
(122,509
|
)
|
|
1,789,510
|
|
|
1,465,222
|
|
Deposits on flight equipment purchase contracts
|
317,867
|
|
|
325,688
|
|
Long-term aircraft maintenance deposits
|
146,162
|
|
|
199,415
|
|
Deferred heavy maintenance, net
|
75,858
|
|
|
75,534
|
|
Other long-term assets
|
114,444
|
|
|
110,223
|
|
Total assets
|
$
|
3,674,345
|
|
|
$
|
3,151,927
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
33,186
|
|
|
$
|
15,193
|
|
Air traffic liability
|
312,587
|
|
|
206,392
|
|
Current maturities of long-term debt
|
95,428
|
|
|
84,354
|
|
Other current liabilities
|
244,629
|
|
|
226,011
|
|
Total current liabilities
|
685,830
|
|
|
531,950
|
|
|
|
|
|
Long-term debt, less current maturities
|
1,089,159
|
|
|
897,359
|
|
Deferred income taxes
|
372,998
|
|
|
308,143
|
|
Deferred gains and other long-term liabilities
|
18,125
|
|
|
19,868
|
|
Shareholders’ equity:
|
|
|
|
Common stock
|
7
|
|
|
7
|
|
Additional paid-in-capital
|
555,704
|
|
|
551,004
|
|
Treasury stock, at cost
|
(219,909
|
)
|
|
(218,692
|
)
|
Retained earnings
|
1,173,711
|
|
|
1,063,633
|
|
Accumulated other comprehensive loss
|
(1,280
|
)
|
|
(1,345
|
)
|
Total shareholders’ equity
|
1,508,233
|
|
|
1,394,607
|
|
Total liabilities and shareholders’ equity
|
$
|
3,674,345
|
|
|
$
|
3,151,927
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Statements of Cash Flows
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
Operating activities:
|
|
|
|
Net income
|
$
|
110,078
|
|
|
$
|
135,004
|
|
Adjustments to reconcile net income to net cash provided by operations:
|
|
|
|
Losses reclassified from other comprehensive income
|
167
|
|
|
178
|
|
Equity-based compensation
|
4,671
|
|
|
3,905
|
|
Allowance for doubtful accounts (recoveries)
|
(51
|
)
|
|
221
|
|
Amortization of deferred gains and losses and debt issuance costs
|
4,761
|
|
|
2,810
|
|
Depreciation and amortization
|
66,840
|
|
|
48,066
|
|
Deferred income tax expense
|
64,789
|
|
|
45,810
|
|
Loss on disposal of assets
|
2,598
|
|
|
743
|
|
Lease termination costs
|
4,776
|
|
|
24,254
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(6,808
|
)
|
|
(12,662
|
)
|
Aircraft maintenance deposits
|
(17,940
|
)
|
|
(29,721
|
)
|
Prepaid income taxes
|
(1,598
|
)
|
|
69,444
|
|
Long-term deposits and other assets
|
(44,900
|
)
|
|
(22,055
|
)
|
Accounts payable
|
16,388
|
|
|
3,024
|
|
Air traffic liability
|
105,486
|
|
|
66,531
|
|
Other liabilities
|
14,234
|
|
|
25,269
|
|
Other
|
239
|
|
|
—
|
|
Net cash provided by operating activities
|
323,730
|
|
|
360,821
|
|
Investing activities:
|
|
|
|
Purchase of available-for-sale investment securities
|
(68,459
|
)
|
|
—
|
|
Proceeds from the maturity of available-for-sale investment securities
|
67,857
|
|
|
—
|
|
Proceeds from sale of property and equipment
|
—
|
|
|
50
|
|
Pre-delivery deposits for flight equipment, net of refunds
|
(79,357
|
)
|
|
(60,772
|
)
|
Capitalized interest
|
(6,375
|
)
|
|
(4,554
|
)
|
Purchase of property and equipment
|
(269,519
|
)
|
|
(303,175
|
)
|
Net cash used in investing activities
|
(355,853
|
)
|
|
(368,451
|
)
|
Financing activities:
|
|
|
|
Proceeds from issuance of long-term debt
|
255,827
|
|
|
300,547
|
|
Proceeds from stock options exercised
|
29
|
|
|
92
|
|
Payments on debt and capital lease obligations
|
(50,099
|
)
|
|
(19,665
|
)
|
Excess tax (deficiency) benefit from equity-based compensation
|
—
|
|
|
(511
|
)
|
Repurchase of common stock
|
(1,217
|
)
|
|
(62,278
|
)
|
Debt issuance costs
|
(4,164
|
)
|
|
(107
|
)
|
Net cash provided by financing activities
|
200,376
|
|
|
218,078
|
|
Net (decrease) increase in cash and cash equivalents
|
168,253
|
|
|
210,448
|
|
Cash and cash equivalents at beginning of period
|
700,900
|
|
|
803,632
|
|
Cash and cash equivalents at end of period
|
$
|
869,153
|
|
|
$
|
1,014,080
|
|
Supplemental disclosures
|
|
|
|
Cash payments for:
|
|
|
|
Interest, net of capitalized interest
|
$
|
16,869
|
|
|
$
|
21,804
|
|
Income taxes paid, net of refunds
|
$
|
4,340
|
|
|
$
|
(36,142
|
)
|
Non-cash transactions:
|
|
|
|
Capital expenditures funded by capital lease borrowings
|
$
|
(1,370
|
)
|
|
$
|
(31
|
)
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Notes to Condensed Financial Statements
(unaudited)
The accompanying unaudited condensed financial statements include the accounts of Spirit Airlines, Inc. (the Company). These unaudited condensed financial statements reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 2016
filed with the Securities and Exchange Commission on February 13, 2017.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect both the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
The interim results reflected in the unaudited condensed financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year.
|
|
2.
|
Recent Accounting Developments
|
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers." The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new guidance is effective for the Company in the first quarter of 2018. Entities have the option to use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company currently anticipates utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented, and plans to adopt the standard as of January 1, 2018. While the Company is still evaluating the impact, it currently believes the most significant impact of this ASU will be the elimination of the incremental cost method for frequent flier program accounting, which will require the Company to re-value and record a liability associated with customer flight miles earned as part of the Company’s frequent flier program with a relative fair value approach. The Company also expects the classification and timing of recognition of certain ancillary fees to be impacted by adoption of ASU 2014-09. While the Company believes the adoption will not have a significant impact on earnings, the classification of certain revenues, such as bags, seats and other travel-related fees may be deemed part of the single performance obligation of providing passenger transportation. The Company expects that these revenues currently classified as non-ticket revenue, approximately
$1 billion
annually, will be reclassified to passenger revenue after adoption.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for the Company for interim and annual periods beginning January 1, 2018 and is not expected to have a material impact on the Company’s financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This standard will require all leases with durations greater than twelve months to be recognized on the condensed balance sheet and is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company is currently evaluating the new guidance and believes adoption of this standard will have a significant impact on its condensed balance sheets although adoption is not expected to
Notes to Condensed Financial Statements—(Continued)
significantly change the recognition, measurement or presentation of lease expenses within the statements of operations and cash flows. See Note 8, Commitments and Contingencies for information regarding the Company's undiscounted future lease payments and the timing of those payments.
Share-Based Compensation
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification on the statement of cash flows. The Company adopted this guidance on January 1, 2017. As a result, excess income tax benefits and deficiencies related to share-based compensation are now included within income tax expense rather than additional paid in capital. For the
six
months ended
June 30, 2017
,
$0.6 million
of income tax deficiency related to share-based compensation was included within income tax expense on the Company's statements of operations. Additionally, excess income tax benefits and deficiencies for share-based payments are now included in net operating cash flows rather than net financing cash flows. The changes have been applied prospectively in accordance with the guidance and prior periods have not been adjusted.
Accounting for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses." The standard requires the use of an "expected loss" model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows." The standard is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2018, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.
During the
six
months ended
June 30, 2017
, the Company purchased
one
engine which was previously financed under an operating lease agreement. The purchase price of the engine was
$8.1 million
, comprised of a cash payment of
$3.8 million
and the non-cash application of maintenance and security deposits held by the previous lessor of
$4.3 million
. The Company estimated the fair value of the engine to be
$3.1 million
and has recorded the purchased engine at fair value within flight equipment on the condensed balance sheets. The Company determined the valuation of the engine based on a third-party appraisal considering the condition of the engine (a Level 3 measurement). The Company recognized
$4.8 million
as a cost of terminating the lease within special charges on the condensed statement of operations, made up of the excess of the purchase price paid over the fair value of the engine, less other non-cash items of
$0.2 million
.
During the
six
months ended
June 30, 2016
, the Company purchased
three
A319 aircraft which were previously financed under operating lease agreements. The purchase price of the
3
aircraft was
$65.9 million
, comprised of a cash payment of
$33.8 million
and the non-cash application of maintenance and security deposits held by the previous lessor of
$32.1 million
. The Company estimated the fair value of the aircraft to be
$41.2 million
and has recorded the
3
purchased aircraft at fair value within flight equipment on the condensed balance sheets. The Company determined the valuation of the aircraft based on a third-party appraisal considering the condition of each aircraft (a Level 3 measurement). The Company recognized
$24.3 million
as a cost of terminating the leases within special charges on the condensed statement of operations, made up of the excess of the purchase price paid over the fair value of the aircraft, less other non-cash items of
$0.4 million
.
Notes to Condensed Financial Statements—(Continued)
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(in thousands, except per share amounts)
|
Numerator
|
|
|
|
|
|
|
|
Net income
|
$
|
78,143
|
|
|
$
|
73,084
|
|
|
$
|
110,078
|
|
|
$
|
135,004
|
|
Denominator
|
|
|
|
|
|
|
|
Weighted-average shares outstanding, basic
|
69,370
|
|
|
70,770
|
|
|
69,359
|
|
|
71,173
|
|
Effect of dilutive stock awards
|
191
|
|
|
143
|
|
|
217
|
|
|
174
|
|
Adjusted weighted-average shares outstanding, diluted
|
69,561
|
|
|
70,913
|
|
|
69,576
|
|
|
71,347
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
1.13
|
|
|
$
|
1.03
|
|
|
$
|
1.59
|
|
|
$
|
1.90
|
|
Diluted earnings per common share
|
$
|
1.12
|
|
|
$
|
1.03
|
|
|
$
|
1.58
|
|
|
$
|
1.89
|
|
|
|
|
|
|
|
|
|
Anti-dilutive weighted-average shares
|
17
|
|
|
54
|
|
|
52
|
|
|
69
|
|
|
|
5.
|
Short-term Investment Securities
|
The Company's short-term investment securities consist of available-for-sale asset-backed securities with contractual maturities of twelve months or less. These securities are stated at fair value within current assets on the Company's condensed balance sheets. Realized gains and losses on sales of investments, if any, are reflected in non-operating income (expense) in the condensed statements of operations. Unrealized gains and losses on investment securities are reflected as a component of accumulated other comprehensive income (AOCI).
As of
June 30, 2017
and
December 31, 2016
, the Company had
$100.5 million
and
$100.2 million
in short-term available-for-sale investment securities, respectively. For the
six
months ended
June 30, 2017
, these investments earned interest income at a weighted-average fixed rate of approximately
1.4%
. For the
three
and
six
months ended
June 30, 2017
, an unrealized loss of
$11 thousand
and
$24 thousand
, net of deferred taxes of
$6 thousand
and
$14 thousand
, respectively, was recorded within AOCI related to these investment securities. For the
three
and
six
months ended
June 30, 2016
, the Company had no unrealized gains or losses related to these instruments as the Company did not invest in them until the third quarter of 2016. The Company has not recognized any realized gains or losses related to these securities as the Company has not transacted any sale of these securities. As of
June 30, 2017
and
December 31, 2016
,
$46 thousand
and
$23 thousand
, net of tax, respectively, remained in AOCI, related to these instruments.
Other current liabilities as of
June 30, 2017
and
December 31, 2016
consist of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
(in thousands)
|
Federal excise and other passenger taxes and fees payable
|
$
|
62,708
|
|
|
$
|
42,064
|
|
Salaries and wages
|
49,109
|
|
|
54,578
|
|
Airport obligations
|
47,230
|
|
|
43,989
|
|
Aircraft maintenance
|
33,092
|
|
|
30,233
|
|
Aircraft and facility lease obligations
|
12,919
|
|
|
10,378
|
|
Interest payable
|
8,953
|
|
|
8,499
|
|
Fuel
|
7,846
|
|
|
14,828
|
|
Other
|
22,772
|
|
|
21,442
|
|
Other current liabilities
|
$
|
244,629
|
|
|
$
|
226,011
|
|
|
|
7.
|
Financial Instruments and Risk Management
|
As part of the Company’s risk management program, the Company, from time to time, may use a variety of financial instruments to reduce its exposure to fluctuations in the price of jet fuel and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.
The Company is exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. The Company periodically reviews and seeks to mitigate exposure to the financial deterioration and nonperformance of any counterparty by monitoring the absolute exposure levels, each counterparty's credit ratings and the historical performance of counterparties relating to hedge transactions. The credit exposure related to these financial instruments is limited to the fair value of contracts in a net receivable position at the reporting date. The Company also maintains security agreements that require the Company to post collateral if the value of selected instruments falls below specified mark-to-market thresholds. As of
June 30, 2017
, the Company did not hold any derivatives with requirements to post collateral. The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's credit risk.
Fuel Derivative Instruments
From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. Historically, the Company's fuel derivative contracts have generally consisted of United States Gulf Coast jet fuel swaps (jet fuel swaps) and United States Gulf Coast jet fuel options (jet fuel options). Both jet fuel swaps and jet fuel options have been used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Fair value of such instruments is determined using standard option valuation models.
The Company accounts for its fuel derivative contracts at fair value and recognizes them in the condensed balance sheet in prepaid expenses and other current assets or other current liabilities. The Company did not enter into any fuel derivative instruments during the
six
months ended
June 30, 2017
and
2016
. Historically, the Company has not elected hedge accounting on any fuel derivative instruments entered into and, as a result, changes in the fair value of fuel derivative contracts, if any, were recorded in aircraft fuel expense.
As of
June 30, 2017
and
December 31, 2016
, the Company did not have any outstanding fuel derivatives.
Interest Rate Swaps
During 2015, the Company settled
six
forward interest rate swaps that were designed to fix the benchmark interest rate component of interest payments on the debt related to
three
Airbus A321 aircraft, which the Company took delivery of during the third quarter of 2015. These instruments limited the Company's exposure to changes in the benchmark interest rate in the period from the trade date through the date of maturity. The interest rate swaps were designated as cash flow hedges. The Company accounts for interest rate swaps at fair value and recognizes them in the condensed balance sheet in prepaid expenses and other current assets or other current liabilities with changes in fair value recorded within accumulated other comprehensive income (AOCI). As of
June 30, 2017
and
December 31, 2016
, the Company did not have any outstanding interest rate swaps.
Notes to Condensed Financial Statements—(Continued)
Realized gains and losses from cash flow hedges are recorded in the statement of cash flows as a component of cash flows from operating activities. Subsequent to the issuance of each debt instrument, amounts remaining in AOCI are amortized over the life of the fixed-rate debt instrument. During the
three and six
months ended
June 30, 2017
and
2016
, there were no unrealized gains or losses recorded within AOCI related to these instruments as they settled in 2015. For the
three and six
months ended
June 30, 2017
, the Company reclassified interest rate swap losses of
$53 thousand
and
$107 thousand
, net of tax of
$31 thousand
and
$62 thousand
, respectively, into earnings. For the
three and six
months ended
June 30, 2016
, the Company reclassified interest rate swap losses of
$56 thousand
and
$113 thousand
, net of tax of
$32 thousand
and
$65 thousand
, respectively, into earnings. As of
June 30, 2017
and
December 31, 2016
,
$1.2 million
and
$1.3 million
, net of tax, respectively, remained in AOCI, related to these instruments.
|
|
8.
|
Commitments and Contingencies
|
Aircraft-Related Commitments and Financing Arrangements
The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. During the first quarter of 2017, the Company negotiated revisions to its A320 aircraft order. The Company originally had
four
A320neo aircraft scheduled for delivery in 2018 of which
two
were converted to A320ceo aircraft, to be delivered in 2017, and the remaining
two
are deferred until 2019. As of
June 30, 2017
, the Company's aircraft orders consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Airbus
|
|
|
|
A320ceo
|
|
A320neo
|
|
A321ceo
|
|
Total
|
remainder of 2017
|
|
3
|
|
|
|
7
|
|
10
|
2018
|
|
5
|
|
|
|
5
|
|
10
|
2019
|
|
1
|
|
14
|
|
|
|
15
|
2020
|
|
|
|
16
|
|
|
|
16
|
2021
|
|
|
|
18
|
|
|
|
18
|
|
|
9
|
|
48
|
|
12
|
|
69
|
The Company also has
six
spare engine orders for V2500 SelectTwo
engines with International Aero Engines (IAE) and
nine
spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from
2017
through
2023
. Purchase commitments for these aircraft and spare engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be
$413.2 million
for the remainder of
2017
,
$528.4 million
in
2018
,
$764.4 million
in
2019
,
$829.8 million
in
2020
,
$784.8 million
in
2021
, and
$24.6 million
in
2022 and beyond
. As of
June 30, 2017
, the Company had secured debt financing commitments of
$310.0 million
for
8
aircraft, scheduled for delivery in the remainder of 2017, and did not have financing commitments in place for the remaining
61
Airbus aircraft currently on firm order, which are scheduled for delivery in
2017
through
2021
.
Interest commitments related to the secured debt financing of
36
delivered aircraft as of
June 30, 2017
are
$25.5 million
for the remainder of 2017,
$47.5 million
in
2018
,
$43.3 million
in
2019
,
$39.0 million
in
2020
,
$34.8 million
in
2021
, and
$125.3 million
in
2022 and beyond
. For principal commitments related to these financed aircraft, refer to Note 10, Debt and Other Obligations. As of
June 30, 2017
, principal and interest commitments related to the Company's future secured debt financing of
8
undelivered aircraft under bank debt is approximately
$5.1 million
for the remainder of
2017
,
$32.6 million
in
2018
,
$32.4 million
in
2019
,
$33.3 million
in
2020
,
$32.1 million
in
2021
, and
$256.5 million
in
2022 and beyond
.
As of
June 30, 2017
, the Company had a fleet consisting of
104
A320 family aircraft. During the six months ended
June 30, 2017
, the Company took delivery of
seven
aircraft financed under secured debt arrangements,
two
aircraft under operating leases and purchased
one
previously leased engine. For further discussion on the previously leased engine, refer to Note 3, Special Charges. The purchased aircraft are capitalized within flight equipment with depreciable lives of
25
years and estimated residual values of
10%
. As of
June 30, 2017
, the Company had
61
aircraft and
10
spare engines financed under operating leases with lease term expiration dates ranging from 2017 to 2029. The Company entered into sale and leaseback transactions with third-party aircraft lessors for the majority of these aircraft and engine leases. Deferred losses resulting from these sale and leaseback transactions are included in other long-term assets on the accompanying condensed balance sheets. Deferred losses are recognized as an increase to rent expense on a straight-line basis over the term of the respective operating
Notes to Condensed Financial Statements—(Continued)
leases. Deferred gains are included in deferred credits and other long-term liabilities on the accompanying condensed balance sheets. Deferred gains are recognized as a decrease to rent expense on a straight-line basis over the term of the respective operating leases.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of the lease agreements are fixed for the term of the lease. The lease agreements contain standard termination events, including termination upon a breach of the Company's obligations to make rental payments and upon any other material breach of the Company's obligations under the leases, and standard maintenance and return condition provisions. These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as supplemental rent expense when it is probable that such amounts will be incurred. Upon a termination of the lease due to a breach by the Company, the Company would be liable for standard contractual damages, possibly including damages suffered by the lessor in connection with remarketing the aircraft or while the aircraft is not leased to another party.
In July 2015, the Company executed an upgrade service agreement with Airbus Americas Customer Services Inc. (Airbus) to reconfigure the seating and increase capacity in
40
of the Company’s A320ceos from
178
to
182
seats (reconfiguration). The reconfiguration of the aircraft commenced in the first quarter of 2016 and is expected to be completed in the fourth quarter of 2017 for a remaining committed cost of
$1.0 million
, as of
June 30, 2017
. These amounts will be capitalized within flight equipment on the condensed balance sheets.
In September 2015, the Company executed a lease agreement with Wayne County Airport Authority (the Authority), which owns and operates Detroit Metropolitan Wayne County Airport (DTW). Under the lease agreement, the Company leases a
10
-acre site, adjacent to the airfield at DTW, in order to construct, operate and maintain an approximately
126,000
-square-foot hangar facility (the project). The project allows for the development of a maintenance hangar in order to fulfill the requirements of the Company's growing fleet and will reduce dependence on third-party facilities and contract maintenance. The lease agreement has a
30
-year term with
two
10
-year extension options. Upon termination of the lease, title of the project, which will be fully depreciated, will automatically pass to the Authority. The Company completed the project during the
first quarter of 2017
and as of
June 30, 2017
, the Company had a remaining commitment of approximately
$0.2 million
related to this project.
Future minimum lease payments under capital leases and noncancellable operating leases with initial or remaining terms in excess of one year at
June 30, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
Aircraft and Spare Engine Leases
|
|
Property Facility Leases
|
|
Total
Operating and Capital Lease Obligations
|
|
(in thousands)
|
remainder of 2017
|
|
$
|
268
|
|
|
$
|
108,237
|
|
|
$
|
21,496
|
|
|
$
|
130,001
|
|
2018
|
|
537
|
|
|
206,595
|
|
|
41,024
|
|
|
248,156
|
|
2019
|
|
504
|
|
|
188,212
|
|
|
33,034
|
|
|
221,750
|
|
2020
|
|
188
|
|
|
180,235
|
|
|
21,817
|
|
|
202,240
|
|
2021
|
|
28
|
|
|
170,613
|
|
|
12,800
|
|
|
183,441
|
|
2022 and thereafter
|
|
—
|
|
|
570,087
|
|
|
73,285
|
|
|
643,372
|
|
Total minimum lease payments
|
|
$
|
1,525
|
|
|
$
|
1,423,979
|
|
|
$
|
203,456
|
|
|
$
|
1,628,960
|
|
Less amount representing interest
|
|
136
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
1,389
|
|
|
|
|
|
|
|
Less current portion
|
|
460
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
929
|
|
|
|
|
|
|
|
The majority of the Company's capital lease obligations relate to the lease of computer equipment used by the Company's flight crew. Payments under this lease agreement are fixed for the
3
-year term of the lease which began in the second quarter of 2017.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis. Aircraft rent expense also includes supplemental rent. Supplemental rent is made up of maintenance reserves paid or expected to be paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed, and probable return condition
Notes to Condensed Financial Statements—(Continued)
obligations. The Company expects supplemental rent to increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft.
Some of the Company’s master lease agreements provide that the Company pay maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. Substantially all of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed contractual amounts. Fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, are expected to be
$3.9 million
for the remainder of
2017
,
$7.0 million
in
2018
,
$5.7 million
in
2019
,
$5.4 million
in
2020
,
$5.5 million
in
2021
, and
$17.7 million
in
2022 and beyond
. These lease agreements provide that maintenance reserves are reimbursable to the Company upon completion of the maintenance event in an amount equal to either (1) the amount of the maintenance reserves held by the lessor associated with the specific maintenance event or (2) the qualifying costs related to the specific maintenance event. Some of the master lease agreements do not require that the Company pay maintenance reserves as long as the Company's cash balance does not fall below a certain level. As of
June 30, 2017
, the Company was in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system, advertising media, maintenance for new airport kiosks, data center, weather system and call center as of
June 30, 2017
:
$3.4 million
for the remainder of
2017
,
$4.9 million
in
2018
,
$0.8 million
in
2019
,
$0.6 million
in
2020
,
$0.2 million
in
2021
, and
$0.1 million
thereafter
. The Company's current agreement with its reservation system provider expires in 2018.
Litigation
The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. The Company believes the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on its financial position, liquidity or results of operations.
Credit Card Processing Arrangements
The Company has agreements with organizations that process credit card transactions arising from the purchase of air travel, baggage charges, and other ancillary services by customers. As is standard in the airline industry, the Company's contractual arrangements with credit card processors permit them, under certain circumstances, to retain a holdback or other collateral, which the Company records as restricted cash, when future air travel and other future services are purchased via credit card transactions. The required holdback is the percentage of the Company's overall credit card sales its credit card processors hold to cover refunds to customers if the Company fails to fulfill its flight obligations.
The Company's credit card processors do not require the Company to maintain cash collateral if the Company satisfies certain liquidity and other financial covenants. Failure to meet these covenants would provide the processors the right to place a holdback resulting in a commensurate reduction of unrestricted cash. As of
June 30, 2017
and
December 31, 2016
, the Company was in compliance with such liquidity and other financial covenants in its credit card processing agreements and the processors were holding back
no
remittances.
The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and $9 Fare Club memberships as of
June 30, 2017
and
December 31, 2016
, was
$364.7 million
and
$234.6 million
, respectively.
Notes to Condensed Financial Statements—(Continued)
Employees
The Company has
four
union-represented employee groups that together represented approximately
74%
of all employees at
June 30, 2017
. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of
June 30, 2017
.
|
|
|
|
|
|
|
|
Employee Groups
|
|
Representative
|
|
Amendable Date
|
|
Percentage of Workforce
|
Pilots
|
|
Air Line Pilots Association, International (ALPA)
|
|
August 2015
|
|
26%
|
Flight Attendants
|
|
Association of Flight Attendants (AFA-CWA)
|
|
May 2021
|
|
43%
|
Dispatchers
|
|
Transport Workers Union (TWU)
|
|
August 2018
|
|
1%
|
Ramp Service Agents
|
|
International Association of Machinists and Aerospace Workers (IAMAW)
|
|
June 2020
|
|
4%
|
In
August 2015
, the Company's collective bargaining agreement with its pilots, represented by ALPA, became amendable. In
June 2016
, ALPA requested the services of the National Mediation Board (NMB) to facilitate negotiations for an amended agreement and the Company joined ALPA in the request. The NMB has assigned mediators and the parties continue to meet and work toward an amended agreement with the guidance of the mediator. Under the Railway Labor Act (RLA), the parties' current agreement remains in effect until an amended agreement is reached.
In
March 2016
, under the supervision of the NMB, the Company and AFA-CWA reached a tentative agreement for a
five
-year contract with the Company's flight attendants. In
May 2016
, the flight attendants voted to approve the new
five
-year contract with the Company. In connection with this agreement, the Company paid a
$9.6 million
ratification incentive of which
$8.4 million
was recorded within salaries, wages and benefits in the condensed statement of operations for the
six
months ended
June 30, 2016
.
The Company is self-insured for health care claims, up to a stop loss amount for eligible participating employees and qualified dependent medical claims, subject to deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate of the ultimate aggregate liability for claims incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued
$5.6 million
and
$5.7 million
in health care claims as of
June 30, 2017
and
December 31, 2016
, respectively.
|
|
9.
|
Fair Value Measurements
|
Under ASC 820,
Fair Value Measurements and Disclosures
, disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:
Level 1
—Quoted prices in active markets for identical assets or liabilities.
Level 2
—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of the Company’s financial assets and liabilities.
Fuel Derivative Instruments
From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. The Company’s fuel derivative contracts generally consist of jet fuel swaps and jet fuel options. These instruments are valued using energy and commodity market data, which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities.
The Company utilizes the market approach to measure fair value for its fuel derivative instruments, if any. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Notes to Condensed Financial Statements—(Continued)
The Company does not elect hedge accounting on its fuel derivative instruments. As a result, the Company records the fair value adjustment of its fuel derivatives in the accompanying statement of operations within aircraft fuel and on the condensed balance sheets within prepaid expenses and other current assets or other current liabilities, depending on whether the net fair value of the derivatives is in an asset or liability position as of the respective date. Fair values of the fuel derivative instruments are determined using standard option valuation models. The Company also considers counterparty risk and its own credit risk in its determination of all estimated fair values. The Company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. The Company determines fair value of jet fuel options utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.
The fair value of the Company's jet fuel swaps is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company categorizes these instruments as Level 2. Due to the fact that certain inputs utilized to determine the fair value of jet fuel options are unobservable (principally implied volatility), the Company categorizes these derivatives as Level 3. Implied volatility of a jet fuel option is the volatility of the price of the underlying commodity that is implied by the market price of the option based on an option pricing model. Thus, it is the volatility that when used in a particular pricing model yields a theoretical value for the option equal to the current market price of that option. Implied volatility, a forward-looking measure, differs from historical volatility because the latter is calculated from known past returns. At each balance sheet date, the Company substantiates and adjusts unobservable inputs. The Company routinely assesses the valuation model's sensitivity to changes in implied volatility. Based on the Company's assessment of the valuation model's sensitivity to changes in implied volatility, it concluded that holding other inputs constant, a significant increase (decrease) in implied volatility would result in a significantly higher (lower) fair value measurement for the Company's aircraft fuel derivatives. As of
June 30, 2017
and
December 31, 2016
, the Company had no outstanding jet fuel derivatives.
Long-Term Debt
The estimated fair value of the Company's non-publicly held debt agreements has been determined to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 long-term debt. The estimated fair value of the Company's publicly held debt agreements has been determined to be Level 2, as the Company utilizes quoted market prices to estimate the fair value of its public long-term debt.
The carrying amounts and estimated fair values of the Company's long-term debt at
June 30, 2017
and
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Fair Value Level Hierarchy
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
|
(in millions)
|
|
|
Senior term loans
|
$
|
435.0
|
|
|
$
|
453.8
|
|
|
$
|
451.9
|
|
|
$
|
463.9
|
|
|
Level 3
|
Junior term loans
|
43.2
|
|
|
44.7
|
|
|
47.1
|
|
|
48.1
|
|
|
Level 3
|
Fixed-rate loans
|
216.3
|
|
|
221.5
|
|
|
—
|
|
|
—
|
|
|
Level 3
|
Class A enhanced equipment trust certificates
|
423.6
|
|
|
436.3
|
|
|
409.8
|
|
|
416.0
|
|
|
Level 2
|
Class B enhanced equipment trust certificates
|
100.0
|
|
|
102.3
|
|
|
103.6
|
|
|
105.7
|
|
|
Level 2
|
Total long-term debt
|
$
|
1,218.1
|
|
|
$
|
1,258.6
|
|
|
$
|
1,012.4
|
|
|
$
|
1,033.7
|
|
|
|
Cash and Cash Equivalents
Cash and cash equivalents at
June 30, 2017
and
December 31, 2016
are comprised of liquid money market funds and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions.
Short-term Investment Securities
Notes to Condensed Financial Statements—(Continued)
Short-term investment securities at
June 30, 2017
and
December 31, 2016
are comprised of available-for-sale asset-backed securities with contractual maturities of twelve months or less and are categorized as Level 1 instruments, as the Company uses quoted market prices in active markets when determining the fair value of these securities.
Assets and liabilities measured at gross fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2017
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
869.2
|
|
|
$
|
869.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investment securities
|
100.5
|
|
|
100.5
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
969.7
|
|
|
$
|
969.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
700.9
|
|
|
$
|
700.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investment securities
|
100.2
|
|
|
100.2
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
801.1
|
|
|
$
|
801.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company had no transfers of assets or liabilities between any of the above levels during the periods ended
June 30, 2017
and
December 31, 2016
.
The Company's Valuation Group, which reports to the Chief Financial Officer, is made up of individuals from the Company's Treasury and Corporate Accounting departments. The Valuation Group is responsible for the execution of the Company's valuation policies and procedures. The Valuation Group compares the results of the Company's internally developed valuation methods with counterparty reports at each balance sheet date, assesses the Company's valuation methods for accurateness and identifies any needs for modification.
|
|
10.
|
Debt and Other Obligations
|
As of
June 30, 2017
, the Company held non-public and public debt instruments. Long-term debt is comprised of the following:
Notes to Condensed Financial Statements—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
June 30, 2017
|
|
December 31, 2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(in millions)
|
|
(weighted-average interest rates)
|
Fixed-rate senior term loans due through 2027
|
|
$
|
435.0
|
|
|
$
|
451.9
|
|
|
4.10
|
%
|
|
4.10
|
%
|
|
4.10
|
%
|
|
4.10
|
%
|
Fixed-rate junior term loans due through 2022
|
|
43.2
|
|
|
47.1
|
|
|
6.90
|
%
|
|
6.90
|
%
|
|
6.90
|
%
|
|
6.90
|
%
|
Fixed-rate loans due through 2029
|
|
216.3
|
|
|
—
|
|
|
3.82
|
%
|
|
N/A
|
|
|
3.82
|
%
|
|
N/A
|
|
Fixed-rate class A enhanced equipment trust certificates due through 2028
|
|
423.6
|
|
|
409.8
|
|
|
4.10
|
%
|
|
4.03
|
%
|
|
4.10
|
%
|
|
4.03
|
%
|
Fixed-rate class B enhanced equipment trust certificates due through 2024
|
|
100.0
|
|
|
103.6
|
|
|
4.45
|
%
|
|
4.38
|
%
|
|
4.45
|
%
|
|
4.38
|
%
|
Long-term debt
|
|
$
|
1,218.1
|
|
|
$
|
1,012.4
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
95.4
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
Less unamortized discounts
|
|
33.5
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,089.2
|
|
|
$
|
897.4
|
|
|
|
|
|
|
|
|
|
During the
three
and
six
months ended
June 30, 2017
, the Company made scheduled principal payments of
$39.8 million
and
$50.0 million
on its outstanding debt obligations, respectively. During the
three
and
six
months ended
June 30, 2016
, the Company made scheduled principal payments of
$9.9 million
and
$19.6 million
, on its outstanding debt obligations, respectively.
At
June 30, 2017
, long-term debt principal payments for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
(in millions)
|
Remainder of 2017
|
|
$
|
49.8
|
|
2018
|
|
97.9
|
|
2019
|
|
96.9
|
|
2020
|
|
96.1
|
|
2021
|
|
95.5
|
|
2022 and beyond
|
|
781.9
|
|
Total debt principal payments
|
|
$
|
1,218.1
|
|
Interest Expense
Interest expense related to long-term debt consisted of the following:
Notes to Condensed Financial Statements—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(in thousands)
|
Senior term loans
|
$
|
4,619
|
|
|
$
|
4,964
|
|
|
$
|
9,290
|
|
|
$
|
10,012
|
|
Junior term loans
|
775
|
|
|
905
|
|
|
1,578
|
|
|
1,842
|
|
Fixed-rate loans
|
1,586
|
|
|
—
|
|
|
1,744
|
|
|
—
|
|
Class A enhanced equipment trust certificates
|
4,321
|
|
|
2,698
|
|
|
8,629
|
|
|
3,881
|
|
Class B enhanced equipment trust certificates
|
1,108
|
|
|
773
|
|
|
2,292
|
|
|
1,109
|
|
Commitment fees
|
28
|
|
|
30
|
|
|
58
|
|
|
65
|
|
Amortization of debt discounts
|
1,290
|
|
|
794
|
|
|
2,521
|
|
|
1,310
|
|
Total
|
$
|
13,727
|
|
|
$
|
10,164
|
|
|
$
|
26,112
|
|
|
$
|
18,219
|
|
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical factors are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in this report and in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2016
and subsequent Quarterly Reports on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Spirit Airlines is an ultra low-cost, low-fare airline headquartered in Miramar, Florida that offers affordable travel to price-conscious customers. Our all-Airbus Fit Fleet
TM
, the youngest fleet of any major U.S. airline, currently operates more than 470 daily flights to 60 destinations in the United States, Caribbean and Latin America. Our stock trades under the symbol "SAVE" on the NASDAQ Global Select Stock Market.
Our ultra low-cost carrier, or ULCC, business model allows us to compete principally by offering customers our Bare Fares
TM
, which are unbundled base fares that remove components traditionally included in the price of an airline ticket. We then give customers Frill Control
TM
, which provides customers the freedom to save by paying only for the options they choose, such as bags, advance seat assignments and refreshments. We record revenue related to these options in our financial statements as non-ticket revenue.
We are focused on price-sensitive travelers who pay for their own travel, and our business model is designed to deliver what we believe our customers want: low fares. We aggressively use low fares to address an underserved market, which helps us to increase passenger volume, load factors and non-ticket revenue on the flights we operate. We also have high-density seating configurations on our aircraft and a simplified onboard product designed to lower costs, which is part of our Plane Simple
TM
strategy. High passenger volumes and load factors help us sell more ancillary products and services, which in turn allows us to reduce the base fare we offer even further. We strive to be recognized by our customers and potential customers as the low-fare leader in the markets we serve.
We compete based on total price. We believe other airlines have used an all-inclusive pricing concept to effectively maintain higher total prices to consumers, rather than lowering fares by unbundling each product or service. For example, carriers that tout “free bags” have included the cost of checking bags in the total ticket price, which does not allow passengers to see how much they would save if they did not check luggage. We believe that we and our customers benefit when we allow our customers to know the total price of their travel by breaking out the cost of optional products or services.
We allow our customers to see all available options and their respective prices prior to purchasing a ticket, and this full transparency illustrates that our total price, including options selected, is lower than other airlines on average. Through branded campaigns, we educate the public on how our unbundled pricing model works, showing them how it gives them choice on how they spend their money and saves them money compared to other airlines.
Comparative Operating Statistics:
The following tables set forth our operating statistics for the
three and six
-month periods ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Operating Statistics (unaudited) (A):
|
|
|
|
|
|
Average aircraft
|
102.8
|
|
|
85.2
|
|
|
20.7
|
%
|
Aircraft at end of period
|
104
|
|
|
87
|
|
|
19.5
|
%
|
Average daily aircraft utilization (hours)
|
11.7
|
|
|
12.7
|
|
|
(7.9
|
)%
|
Average stage length (miles)
|
982
|
|
|
971
|
|
|
1.1
|
%
|
Block hours
|
109,296
|
|
|
98,399
|
|
|
11.1
|
%
|
Departures
|
41,563
|
|
|
38,025
|
|
|
9.3
|
%
|
Passenger flight segments (PFSs) (thousands)
|
6,206
|
|
|
5,606
|
|
|
10.7
|
%
|
Revenue passenger miles (RPMs) (thousands)
|
6,219,638
|
|
|
5,549,411
|
|
|
12.1
|
%
|
Available seat miles (ASMs) (thousands)
|
7,294,578
|
|
|
6,419,419
|
|
|
13.6
|
%
|
Load factor (%)
|
85.3
|
%
|
|
86.4
|
%
|
|
(1.1) pts
|
|
Average ticket revenue per passenger flight segment ($)
|
59.93
|
|
|
52.87
|
|
|
13.4
|
%
|
Average non-ticket revenue per passenger flight segment ($)
|
53.14
|
|
|
51.32
|
|
|
3.5
|
%
|
Total revenue per passenger flight segment ($)
|
113.07
|
|
|
104.19
|
|
|
8.5
|
%
|
Average yield (cents)
|
11.28
|
|
|
10.53
|
|
|
7.1
|
%
|
TRASM (cents)
|
9.62
|
|
|
9.10
|
|
|
5.7
|
%
|
CASM (cents)
|
7.80
|
|
|
7.20
|
|
|
8.3
|
%
|
Adjusted CASM (cents)
|
7.78
|
|
|
7.07
|
|
|
10.0
|
%
|
Adjusted CASM ex-fuel (cents)
|
5.83
|
|
|
5.30
|
|
|
10.0
|
%
|
Fuel gallons consumed (thousands)
|
85,533
|
|
|
77,013
|
|
|
11.1
|
%
|
Average economic fuel cost per gallon ($)
|
1.66
|
|
|
1.47
|
|
|
12.9
|
%
|
(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Percent Change
|
|
2017
|
|
2016
|
|
Operating Statistics (unaudited) (A):
|
|
|
|
|
|
Average aircraft
|
100.0
|
|
|
82.4
|
|
|
21.4
|
%
|
Aircraft at end of period
|
104
|
|
|
87
|
|
|
19.5
|
%
|
Average daily aircraft utilization (hours)
|
11.8
|
|
|
12.8
|
|
|
(7.8
|
)%
|
Average stage length (miles)
|
983
|
|
|
983
|
|
|
—
|
%
|
Block hours
|
213,332
|
|
|
191,943
|
|
|
11.1
|
%
|
Departures
|
80,893
|
|
|
73,185
|
|
|
10.5
|
%
|
Passenger flight segments (PFSs) (thousands)
|
11,775
|
|
|
10,594
|
|
|
11.1
|
%
|
Revenue passenger miles (RPMs) (thousands)
|
11,833,060
|
|
|
10,619,724
|
|
|
11.4
|
%
|
Available seat miles (ASMs) (thousands)
|
14,170,478
|
|
|
12,402,423
|
|
|
14.3
|
%
|
Load factor (%)
|
83.5
|
%
|
|
85.6
|
%
|
|
(2.1) pts
|
|
Average ticket revenue per passenger flight segment ($)
|
57.04
|
|
|
53.71
|
|
|
6.2
|
%
|
Average non-ticket revenue per passenger flight segment ($)
|
52.80
|
|
|
52.22
|
|
|
1.1
|
%
|
Total revenue per passenger flight segment ($)
|
109.84
|
|
|
105.93
|
|
|
3.7
|
%
|
Average yield (cents)
|
10.93
|
|
|
10.57
|
|
|
3.4
|
%
|
TRASM (cents)
|
9.13
|
|
|
9.05
|
|
|
0.9
|
%
|
CASM (cents)
|
7.77
|
|
|
7.25
|
|
|
7.2
|
%
|
Adjusted CASM (cents)
|
7.72
|
|
|
7.05
|
|
|
9.5
|
%
|
Adjusted CASM ex-fuel (cents)
|
5.73
|
|
|
5.44
|
|
|
5.3
|
%
|
Fuel gallons consumed (thousands)
|
164,597
|
|
|
147,563
|
|
|
11.5
|
%
|
Average economic fuel cost per gallon ($)
|
1.71
|
|
|
1.35
|
|
|
26.7
|
%
|
(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table.
Executive Summary
For the
second
quarter of
2017
, we achieved an
18.9%
operating margin, a
decrease
of
2.0
points compared to the prior year period. We generated pre-tax income of
$124.1 million
and net income of
$78.1 million
on operating revenues of
$701.7 million
. For the
second
quarter of
2016
, we generated pre-tax income of
$115.7 million
and net income of
$73.1 million
on operating revenues of
$584.1 million
.
Our adjusted CASM ex-fuel for the
second
quarter of
2017
was
5.83 cent
s, a
10.0%
increase
year over year. The
increase
on a per-ASM basis was primarily due to increases in other operating expense, depreciation and amortization expense and maintenance, materials and repairs expense, partially offset by a decrease in special charges expense and aircraft rent expense.
During the second quarter 2017, we had over 850 pilot-related flight cancellations. We estimate that these pilot-related cancellations adversely impacted our second quarter 2017 results by approximately $45 million (approximately $25 million of revenue loss and $20 million of additional operating costs, primarily related to higher passenger re-accommodation expense). In early May, we obtained a temporary restraining order to enjoin further illegal labor action, while contract negotiations continue under the supervision of the National Mediation Board.
As of
June 30, 2017
, we had
104
Airbus A320-family aircraft in our fleet comprised of 31 A319s, 53 A320s, and 20 A321s. With the scheduled delivery of
10
aircraft during the remainder of
2017
and
2
retirements, we expect to end
2017
with
112
aircraft in our fleet.
Since the delivery of our initial five A320neo aircraft in the fourth quarter of 2016, we have experienced introductory issues with the new-generation PW1100G-JM engines, which has resulted in diminished service availability of such aircraft. As a result of the reliability problems associated with introduction of the new engine, during the second quarter of 2017, we executed a support agreement with manufacturer Pratt & Whitney in order to obtain support and relief related to these
operational disruptions. The support agreement provides for compensation to the Company for grounded aircraft and for back-up spare engines, and sets milestone dates for remediation of the introductory into-service issues.
Comparison of three months ended
June 30, 2017
to three months ended
June 30, 2016
Operating Revenues
Operating revenues
increase
d
$117.5 million
, or
20.1%
, to
$701.7 million
for the
second
quarter of
2017
, as compared to the
second
quarter of
2016
, due primarily to an
increase
in traffic of
12.1%
and an
increase
in passenger yields of
7.1%
.
Total revenue per available seat mile (TRASM) for the
second
quarter of
2017
was
9.62 cent
s, an
increase
of
5.7%
, compared to the
second
quarter of
2016
. This
increase
was primarily driven by the calendar shift of the Easter holiday as compared to prior year. Company-driven revenue initiatives and a strong underlying pricing environment also contributed to the increase year over year. These positive influences were offset in part by revenue decreases due to an elevated level of pilot-related flight cancellations in the second quarter of 2017.
Total revenue per passenger flight segment
increase
d
8.5%
, year over year, driven by an
increase
of
13.4%
in ticket revenue per passenger flight segment and an
increase
of
3.5%
in non-ticket revenue per passenger flight segment. The increase in ticket revenue per passenger flight segment was primarily driven by a
7.1%
increase in average yield, period over period, due to a stronger pricing environment as compared to the prior year. The
increase
in non-ticket revenue per passenger flight segment was mostly driven by higher passenger usage fees year over year.
Operating Expenses
Operating expenses
increase
d
$106.6 million
, or
23.1%
, to
$568.9 million
for the
second
quarter of
2017
compared to
$462.3 million
for the
second
quarter of
2016
, primarily due to an increase in operations as reflected by a
13.6%
capacity growth and a
12.1%
increase
in traffic. Operating expenses also increased as a result of an
increase
in average economic fuel price per gallon of
12.9%
which drove higher aircraft fuel expense year over year.
Aircraft fuel expense includes into-plane fuel expense (defined below) and realized and unrealized gains and losses associated with our fuel derivative contracts, if any. Into-plane fuel expense is defined as the price that we generally pay at the airport, including taxes and fees. Into-plane fuel prices are affected by the global oil market, refining costs, taxes and fees, which can vary by region in the United States and other countries where we operate. Into-plane fuel expense approximates cash paid to the supplier and does not reflect the effect of our fuel derivatives. From time to time, we may enter into fuel derivative contracts to protect the refining price risk between the price of crude oil and the price of refined jet fuel. We had no activity related to fuel derivative instruments during the
six
months ended
June 30, 2017
and
2016
. Historically, management has chosen not to elect hedge accounting on any fuel derivative instruments and, as a result, changes in the fair value of fuel derivative contracts have been recorded each period in aircraft fuel expense.
Aircraft fuel expense
increase
d in the
second
quarter of
2017
by
$29.1 million
, or
25.7%
, compared to
$113.2 million
in the
second
quarter of 2016, due to an
11.1%
increase
in fuel gallons consumed and a
12.9%
increase
in average economic fuel cost per gallon.
The elements of the changes in aircraft fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Fuel gallons consumed
|
85,533
|
|
|
77,013
|
|
|
11.1
|
%
|
Into-plane fuel cost per gallon
|
1.66
|
|
|
1.47
|
|
|
12.9
|
%
|
Into-plane fuel expense
|
$
|
142,294
|
|
|
$
|
113,192
|
|
|
25.7
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Aircraft fuel expense (per statement of operations)
|
$
|
142,294
|
|
|
$
|
113,192
|
|
|
25.7
|
%
|
Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption and is impacted by both the price of crude oil as well as increases or decreases in refining margins associated with the conversion of crude oil to jet fuel. The into-plane fuel cost per gallon
increase
of
12.9%
was primarily a result of an
increase
in jet fuel prices.
We track economic fuel expense, which we believe is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. We define economic fuel expense as into-plane fuel expense and realized gains or losses on fuel derivative contracts. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding. Many industry analysts evaluate airline results using economic fuel expense and it is used in our internal management reporting.
The elements of the changes in economic fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Into-plane fuel expense
|
$
|
142,294
|
|
|
$
|
113,192
|
|
|
25.7
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Economic fuel expense
|
$
|
142,294
|
|
|
$
|
113,192
|
|
|
25.7
|
%
|
Fuel gallons consumed
|
85,533
|
|
|
77,013
|
|
|
11.1
|
%
|
Economic fuel cost per gallon
|
$
|
1.66
|
|
|
$
|
1.47
|
|
|
12.9
|
%
|
During the
three months ended
June 30, 2017
and
2016
, we had no activity related to fuel derivatives and thus had no realized or unrealized losses (gains) related to fuel derivative contracts, as we have historically.
We measure our operating cost performance on a per-ASM basis, since one ASM is the unit of production of an airline’s capacity. The following table presents our cost per-ASM, or unit cost, for the three months ended
June 30, 2017
and
2016
, followed by explanations of the material changes on a dollar basis and/or unit cost basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Dollar Change
|
|
Percent Change
|
|
Cost per ASM
|
|
Per-ASM Change
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
|
|
|
(in cents)
|
|
|
Salaries, wages, and benefits
|
$
|
129,892
|
|
|
$
|
112,930
|
|
|
$
|
16,962
|
|
|
15.0
|
%
|
|
1.78
|
|
|
1.76
|
|
|
0.02
|
|
|
1.1
|
%
|
Aircraft fuel
|
142,294
|
|
|
113,192
|
|
|
29,102
|
|
|
25.7
|
%
|
|
1.95
|
|
|
1.76
|
|
|
0.19
|
|
|
10.8
|
%
|
Aircraft rent
|
52,566
|
|
|
49,864
|
|
|
2,702
|
|
|
5.4
|
%
|
|
0.72
|
|
|
0.78
|
|
|
(0.06
|
)
|
|
(7.7
|
)%
|
Landing fees and other rents
|
45,592
|
|
|
39,944
|
|
|
5,648
|
|
|
14.1
|
%
|
|
0.63
|
|
|
0.62
|
|
|
0.01
|
|
|
1.6
|
%
|
Depreciation and amortization
|
35,331
|
|
|
24,957
|
|
|
10,374
|
|
|
41.6
|
%
|
|
0.48
|
|
|
0.39
|
|
|
0.09
|
|
|
23.1
|
%
|
Maintenance, materials and repairs
|
28,985
|
|
|
20,627
|
|
|
8,358
|
|
|
40.5
|
%
|
|
0.40
|
|
|
0.32
|
|
|
0.08
|
|
|
25.0
|
%
|
Distribution
|
29,908
|
|
|
24,692
|
|
|
5,216
|
|
|
21.1
|
%
|
|
0.41
|
|
|
0.38
|
|
|
0.03
|
|
|
7.9
|
%
|
Special charges
|
—
|
|
|
8,052
|
|
|
(8,052
|
)
|
|
NM
|
|
|
—
|
|
|
0.13
|
|
|
(0.13
|
)
|
|
NM
|
|
Loss on disposal of assets
|
1,493
|
|
|
529
|
|
|
964
|
|
|
NM
|
|
|
0.02
|
|
|
0.01
|
|
|
0.01
|
|
|
NM
|
|
Other operating
|
102,885
|
|
|
67,511
|
|
|
35,374
|
|
|
52.4
|
%
|
|
1.41
|
|
|
1.05
|
|
|
0.36
|
|
|
34.3
|
%
|
Total operating expenses
|
$
|
568,946
|
|
|
$
|
462,298
|
|
|
$
|
106,648
|
|
|
23.1
|
%
|
|
7.80
|
|
|
7.20
|
|
|
0.60
|
|
|
8.3
|
%
|
Adjusted CASM (1)
|
|
|
|
|
|
|
|
|
7.78
|
|
|
7.07
|
|
|
0.71
|
|
|
10.0
|
%
|
Adjusted CASM ex-fuel (2)
|
|
|
|
|
|
|
|
|
5.83
|
|
|
5.30
|
|
|
0.53
|
|
|
10.0
|
%
|
|
|
(1)
|
Reconciliation of CASM to Adjusted CASM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2017
|
|
2016
|
|
(in millions)
|
|
Per ASM
|
|
(in millions)
|
|
Per ASM
|
CASM (cents)
|
|
|
7.80
|
|
|
|
|
7.20
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Loss on disposal of assets
|
1.5
|
|
|
0.02
|
|
|
0.5
|
|
|
0.01
|
|
Special charges
|
—
|
|
|
—
|
|
|
8.1
|
|
|
0.13
|
|
Adjusted CASM (cents)
|
|
|
7.78
|
|
|
|
|
7.07
|
|
|
|
(2)
|
Excludes aircraft fuel expense, loss on disposal of assets and special charges.
|
Our adjusted CASM ex-fuel for the
second
quarter of
2017
was
up
10.0%
as compared to the
second
quarter of
2016
. The
increase
on a per-ASM basis was primarily due to increases in other operating, depreciation and amortization and maintenance, materials and repairs expense, partially offset by a decrease in special charges and aircraft rent expense.
Labor costs for the
second
quarter of
2017
increase
d
$17.0 million
, or
15.0%
, compared to the
second
quarter of
2016
, primarily driven by an
18.7%
increase
in our pilot and flight attendant workforce resulting from the introduction of
17
new aircraft since the
second
quarter of
2016
. On a per-ASM basis, labor costs
increase
d slightly primarily due to higher flight attendant wages, year over year, resulting from the collective bargaining agreement negotiated in the second quarter of 2016. This increase was partially offset by a decrease in bonus and group health care costs on a per-ASM basis, year over year.
Aircraft rent expense for the
second
quarter of
2017
increase
d by
$2.7 million
, or
5.4%
, compared to the
second
quarter of
2016
. This
increase
in aircraft rent expense was primarily driven by the delivery of
seven
new aircraft, financed under operating leases, subsequent to the end of the
second
quarter of
2016
. This increase was partially offset by the purchase of
four
aircraft made since the end of the
second
quarter of
2016
, which were formerly financed under operating lease agreements. On a per-ASM basis, aircraft rent expense
decrease
d primarily due to a change in the composition of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and purchased aircraft (for which depreciation expense is recorded under depreciation and amortization). Since the prior year period, we have purchased
14
aircraft, of which
4
were previously financed under operating lease agreements. In addition, we negotiated several lease extensions over the last twelve months that have also contributed to a decrease in aircraft rent expense on both a dollar and per-ASM basis.
Landing fees and other rents for the
second
quarter of
2017
increase
d
$5.6 million
, or
14.1%
, as compared to the
second
quarter of
2016
, primarily due to a
9.3%
increase
in departures as well as increased volume at higher cost airports, year over year. On a per-ASM basis, landing fees and other rents remained relatively stable period over period.
Depreciation and amortization
increase
d by
$10.4 million
compared to the prior year period. The increase on both a dollar and per-ASM basis was primarily due to increased depreciation expense resulting from the purchase of
14
aircraft made since the
second
quarter of
2016
.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of depreciation and amortization expense in the statement of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy maintenance costs was
$14.6 million
and $11.1 million for the
second
quarters of
2017
and
2016
, respectively. As our fleet continues to grow and age, we expect that the amount of deferred heavy maintenance events will increase and will result in an increase in the amortization of those costs. If heavy maintenance events were amortized within maintenance, materials and repairs expense in the statement of operations, our maintenance, materials and repairs expense would have been
$43.6 million
and $31.7 million for the
second
quarters of
2017
and
2016
, respectively.
Maintenance, materials and repairs expense for the
second
quarter of
2017
increase
d by
$8.4 million
, or
40.5%
, compared to the
second
quarter of
2016
. The
increase
in maintenance costs on a dollar basis was due to routine and ongoing maintenance on a growing fleet. On a per-unit basis, the increase in maintenance costs was primarily due to an increased number of scheduled maintenance events in the current period as compared to the prior year period. We expect maintenance expense to increase as our fleet continues to grow and age, resulting in the need for additional or more frequent repairs over time.
Distribution costs
increase
d by
$5.2 million
, or
21.1%
, in the
second
quarter of
2017
as compared to the
second
quarter of
2016
. The
increase
on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs increased slightly primarily due to higher average fare resulting in an increase in credit card fees year over year.
Other operating expense for the
second
quarter of
2017
increase
d by
$35.4 million
, or
52.4%
, compared to the
second
quarter of
2016
primarily due to an increase in overall operations and higher passenger re-accommodation expense year over year. As compared to the prior year period, we increased departures by
9.3%
and had
10.7%
more passenger flight segments, which drove increases in variable operating expenses. Other operating expense per ASM increased primarily due to operational disruptions during the second quarter of 2017 resulting from pilot-related cancellations which contributed to higher passenger re-accommodation expense, as compared to the prior year period.
Other Income (Expenses)
Our interest expense and corresponding capitalized interest for the
three months ended
June 30, 2017
and
2016
primarily represents interest related to the financing of purchased aircraft. As of
June 30, 2017
and
2016
, the Company had
36
and 26 purchased aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—10. Debt and Other Obligations" for further discussion.
Our interest income for the
three months ended
June 30, 2017
primarily represents interest income earned on cash, cash equivalents and short-term investments. Interest income for the
three months ended
June 30, 2016
primarily represents interest income earned on cash, cash equivalents and on funds required to be held in escrow in accordance with the terms of our EETC.
Income Taxes
Our effective tax rate for the
second
quarter of
2017
was
37.0%
compared to
36.8%
for the
second
quarter of
2016
. In arriving at these rates, we considered a variety of factors, including our forecasted full-year pre-tax results, the U.S. federal rate of 35%, expected nondeductible expenses, and estimated state income taxes. We evaluate our tax rate each quarter and make adjustments when necessary. Our final effective tax rate for the full year is dependent on the level of pre-tax income and the magnitude of any nondeductible expenses in relation to the respective pre-tax income.
Comparison of
six
months ended
June 30, 2017
to
six
months ended
June 30, 2016
Operating Revenues
Operating revenues
increase
d
$171.2 million
, or
15.3%
, to
$1,293.4 million
for the
six
months ended
June 30, 2017
, compared to the prior year period, due primarily to an
increase
in traffic of
11.4%
and an
increase
in passenger yields of
3.4%
.
TRASM for the
six
months ended
June 30, 2017
was
9.13 cent
s, an
increase
of
0.9%
compared to the same period of
2016
. This
increase
was primarily driven by a
3.4%
increase
in average yield, period over period, due to a stronger pricing environment, as compared to the prior year, offset by a decline in load factor of 2.1 points.
Total revenue per passenger flight segment
increase
d
3.7%
from
$105.93
for the
six
months ended
June 30, 2016
to
$109.84
for the
six
months ended
June 30, 2017
. Our average ticket fare per passenger flight segment
increase
d from
$53.71
to
$57.04
, or
6.2%
, compared to the prior year period, and non-ticket revenue per passenger flight segment
increase
d from
$52.22
to
$52.80
, or
1.1%
, compared to the prior year period. The slight
increase
in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fees partially offset by lower bag revenue on a per-passenger basis, year over year.
Operating Expenses
Operating expenses
increase
d for the
six
months ended
June 30, 2017
by
$202.1 million
, or
22.5%
, compared to the same period for
2016
primarily due to our
14.3%
capacity growth partially offset by a decrease in special charges of
$19.5 million
, as compared to the prior year period. Operating expenses also increased as a result of an
increase
in average economic fuel price per gallon of
26.7%
, which drove higher aircraft fuel expense year over year.
Aircraft fuel expense for the
six
months ended
June 30, 2017
increase
d
$82.9 million
, or
41.6%
, compared to the prior year period as a result of a
26.7%
increase
in economic fuel price per gallon and an
11.5%
increase
in fuel gallons consumed.
The elements of the changes in aircraft fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Fuel gallons consumed
|
164,597
|
|
|
147,563
|
|
|
11.5
|
%
|
Into-plane fuel cost per gallon
|
$
|
1.71
|
|
|
$
|
1.35
|
|
|
26.7
|
%
|
Into-plane fuel expense
|
$
|
282,076
|
|
|
$
|
199,174
|
|
|
41.6
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Aircraft fuel expense (per Statement of Operations)
|
$
|
282,076
|
|
|
$
|
199,174
|
|
|
41.6
|
%
|
The elements of the changes in economic fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Into-plane fuel expense
|
$
|
282,076
|
|
|
$
|
199,174
|
|
|
41.6
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Economic fuel expense
|
$
|
282,076
|
|
|
$
|
199,174
|
|
|
41.6
|
%
|
Fuel gallons consumed
|
164,597
|
|
|
147,563
|
|
|
11.5
|
%
|
Economic fuel cost per gallon
|
$
|
1.71
|
|
|
$
|
1.35
|
|
|
26.7
|
%
|
During the
six
months ended
June 30, 2017
and
2016
, we had no activity related to fuel derivatives and thus had no realized or unrealized losses (gains) related to fuel derivative contracts, as we have historically.
We measure our operating cost performance on a per-ASM basis, since one ASM is the unit of production of an airline’s capacity. The following table presents our cost per-ASM, or unit cost, for the
six
months ended
June 30, 2017
and
2016
, followed by explanations of the material changes on a unit cost basis and/or dollar basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Dollar Change
|
|
Percent Change
|
|
Cost per ASM
|
|
Per-ASM Change
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
|
|
|
(in cents)
|
|
|
Salaries, wages, and benefits
|
$
|
257,030
|
|
|
$
|
229,340
|
|
|
$
|
27,690
|
|
|
12.1
|
%
|
|
1.81
|
|
|
1.85
|
|
|
(0.04
|
)
|
|
(2.2
|
)%
|
Aircraft fuel
|
282,076
|
|
|
199,174
|
|
|
82,902
|
|
|
41.6
|
%
|
|
1.99
|
|
|
1.61
|
|
|
0.38
|
|
|
23.6
|
%
|
Aircraft rent
|
109,636
|
|
|
102,066
|
|
|
7,570
|
|
|
7.4
|
%
|
|
0.77
|
|
|
0.82
|
|
|
(0.05
|
)
|
|
(6.1
|
)%
|
Landing fees and other rents
|
86,040
|
|
|
74,751
|
|
|
11,289
|
|
|
15.1
|
%
|
|
0.61
|
|
|
0.60
|
|
|
0.01
|
|
|
1.7
|
%
|
Depreciation and amortization
|
66,840
|
|
|
48,066
|
|
|
18,774
|
|
|
39.1
|
%
|
|
0.47
|
|
|
0.39
|
|
|
0.08
|
|
|
20.5
|
%
|
Maintenance, materials and repairs
|
55,297
|
|
|
41,567
|
|
|
13,730
|
|
|
33.0
|
%
|
|
0.39
|
|
|
0.34
|
|
|
0.05
|
|
|
14.7
|
%
|
Distribution
|
56,406
|
|
|
47,625
|
|
|
8,781
|
|
|
18.4
|
%
|
|
0.40
|
|
|
0.38
|
|
|
0.02
|
|
|
5.3
|
%
|
Special charges (credits)
|
4,776
|
|
|
24,254
|
|
|
(19,478
|
)
|
|
NM
|
|
|
0.03
|
|
|
0.20
|
|
|
(0.17
|
)
|
|
NM
|
|
Loss on disposal of assets
|
2,598
|
|
|
743
|
|
|
1,855
|
|
|
NM
|
|
|
0.02
|
|
|
0.01
|
|
|
0.01
|
|
|
NM
|
|
Other operating
|
180,588
|
|
|
131,556
|
|
|
49,032
|
|
|
37.3
|
%
|
|
1.27
|
|
|
1.06
|
|
|
0.21
|
|
|
19.8
|
%
|
Total operating expenses
|
$
|
1,101,287
|
|
|
$
|
899,142
|
|
|
$
|
202,145
|
|
|
|
|
7.77
|
|
|
7.25
|
|
|
0.52
|
|
|
7.2
|
%
|
Adjusted CASM (1)
|
|
|
|
|
|
|
|
|
7.72
|
|
|
7.05
|
|
|
0.67
|
|
|
9.5
|
%
|
Adjusted CASM ex-fuel (2)
|
|
|
|
|
|
|
|
|
5.73
|
|
|
5.44
|
|
|
0.29
|
|
|
5.3
|
%
|
|
|
(1)
|
Reconciliation of CASM to Adjusted CASM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
(in millions)
|
|
Per ASM
|
|
(in millions)
|
|
Per ASM
|
CASM (cents)
|
|
|
7.77
|
|
|
|
|
7.25
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Loss on disposal of assets
|
2.6
|
|
|
0.02
|
|
|
0.7
|
|
|
0.01
|
|
Special charges
|
4.8
|
|
|
0.03
|
|
|
24.3
|
|
|
0.20
|
|
Adjusted CASM (cents)
|
|
|
7.72
|
|
|
|
|
7.05
|
|
|
|
(2)
|
Excludes aircraft fuel expense, loss on disposal of assets and special charges and credits.
|
Our adjusted CASM ex-fuel for the
six
months ended
June 30, 2017
increase
d by
5.3%
as compared to the same period in
2016
. The increase on a per-ASM basis was primarily due to increases in other operating expense and depreciation and amortization expense, partially offset by a decrease in special charges expense.
Labor costs for the
six
months ended
June 30, 2017
increase
d
$27.7 million
, or
12.1%
, compared to the same period in
2016
. The increase was primarily driven by a
16.6%
increase
in our pilot and flight attendant workforce resulting from the introduction of
17
new aircraft since the end of the
second
quarter of
2016
. On a per-ASM basis, labor costs
increase
d primarily due to the ratification incentive in the new flight attendant contract of $8.4 million recorded during the first quarter of 2016.
Aircraft rent expense for the
six
months ended
June 30, 2017
increase
d by
$7.6 million
, or
7.4%
, compared to the same period in
2016
. This
increase
in aircraft rent expense was primarily driven by the delivery of
seven
new aircraft, financed under operating leases, subsequent to the end of the
second
quarter of
2016
. In addition, we had an increase in estimated return costs for a leased aircraft scheduled to be returned in the third quarter of 2017. Costs associated with return conditions of leased aircraft are recorded as supplemental rent within aircraft rent expense on our statement of operations. These increases were partially offset by the purchase of
four
aircraft made since the end of the
second
quarter of
2016
, which were formerly financed under operating lease agreements. On a per-ASM basis, aircraft rent expense
decrease
d primarily due to a change in the composition of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and purchased aircraft (for which depreciation expense is recorded under depreciation and amortization). Since the prior year period, we have purchased
14
aircraft, of which 4 were previously financed under operating lease agreements. In addition, we negotiated several lease extensions over the last twelve months that have also contributed to a decrease in aircraft rent expense on both a dollar and per-ASM basis.
Landing fees and other rents for the
six
months ended
June 30, 2017
increase
d
$11.3 million
, or
15.1%
, as compared to the same period in
2016
primarily due to a
10.5%
increase
in departures as well as increased volume at higher cost airports, year over year. On a per-ASM basis, landing fees and other rents remained relatively stable period over period.
Depreciation and amortization
increase
d by
$18.8 million
compared to the prior year period. The increase on both a dollar and per-ASM basis was primarily due to increased depreciation expense resulting from the purchase of
14
aircraft made since the
second
quarter of
2016
.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of depreciation and amortization expense in the statement of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy maintenance costs was
$27.9 million
and $23.0 million for the
six
months ended
June 30, 2017
and
2016
, respectively. As our fleet continues to age, we expect that the amount of deferred heavy maintenance events will increase and will result in an increase in the amortization of those costs. If heavy maintenance events were amortized within maintenance, materials and repairs expense in the statement of operations, our maintenance, materials and repairs expense would have been
$83.2 million
and $64.5 million for the
six
months ended
June 30, 2017
and
2016
, respectively.
Maintenance, materials and repairs expense for the
six
months ended
June 30, 2017
increase
d by
$13.7 million
, or
33.0%
, compared to the prior year period. The increase in maintenance costs on a dollar basis was due to routine and ongoing maintenance on a growing fleet. On a per-unit basis, the increase in maintenance costs was primarily due to an increased number of scheduled maintenance events in the current period as compared to the prior year period. We expect maintenance
expense to increase as our fleet continues to grow and age, resulting in the need for additional or more frequent repairs over time.
Distribution costs
increase
d by
$8.8 million
, or
18.4%
, for the
six
months ended
June 30, 2017
as compared to the same period in
2016
. The
increase
on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs remained relatively stable, as compared to the prior period.
Other operating expense for the
six
months ended
June 30, 2017
increase
d by
$49.0 million
, or
37.3%
, compared to the prior year period, primarily due to an increase in overall operations and higher passenger re-accommodation expense year over year. As compared to the prior year period, we
increase
d departures by
10.5%
and had
11.1%
more passenger flight segments, which drove increases in variable operating expenses. Other operating expense per ASM increased primarily due operational disruptions during the second quarter of 2017 resulting from pilot-related cancellations which contributed to higher passenger re-accommodation expense, as compared to the prior year period.
Special charges for the
six
months ended
June 30, 2017
consisted of
$4.8 million
in lease termination charges recognized in connection with the purchase of an engine formerly financed under an operating lease agreement. For the
six
months ended
June 30, 2016
, special charges consisted of
$24.3 million
in lease termination charges recognized in connection with the purchase of 3 aircraft formerly financed under operating lease agreements. The amount recorded as lease termination charges represents the excess of the purchase price paid over the appraised fair value of the asset(s), less previously expensed supplemental rent and other non-cash items. For further discussion on this purchase, please see "Notes to Condensed Financial Statements - 3. Special Charges."
Other income (expenses)
Our interest expense and corresponding capitalized interest for the
six
months ended
June 30, 2017
and
2016
primarily represents interest related to the financing of purchased aircraft. As of
June 30, 2017
and
2016
, the Company had
36
and 26 purchased aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—10. Debt and Other Obligations" for further discussion.
Our interest income for the
six
months ended
June 30, 2017
primarily represents interest income earned on cash, cash equivalents and short-term investments. Interest income for the
six
months ended
June 30, 2016
primarily represents interest income earned on cash, cash equivalents and on funds required to be held in escrow in accordance with the terms of our EETC.
Income Taxes
Our effective tax rate for the
six
months ended
June 30, 2017
was
37.4%
compared to
36.9%
for the
six
months ended
June 30, 2016
. The increase in the effective tax rate, period over period, is primarily attributed to the adoption of ASU 2016-09, in the first quarter of 2017, which resulted in
$0.6 million
of income tax deficiency related to share-based compensation to be included within income tax expense on our statements of operations for the six months ended June 30, 2017. In arriving at these rates, we considered a variety of factors, including our forecasted full-year pre-tax results, the U.S. federal rate of 35%, expected nondeductible expenses, and estimated state income taxes. We evaluate our tax rate each quarter and make adjustments when necessary. Our final effective tax rate for the full year is dependent on the level of pre-tax income and the magnitude of any nondeductible expenses in relation to the respective pre-tax income.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash provided by operations and capital from debt financing. Primary uses of liquidity are for working capital needs, capital expenditures, aircraft and engine pre-delivery deposit payments (PDPs), debt obligations and maintenance reserves. Our total cash at
June 30, 2017
was
$869.2 million
, an increase of
$168.3 million
from
December 31, 2016
. As of
June 30, 2017
, we had
$100.5 million
in short-term available-for-sale investment securities.
Currently, one of our largest capital needs is funding the acquisition costs of our aircraft. Aircraft are acquired through debt financing, sale leaseback transactions, direct leases or cash purchases. In debt financing transactions, capital is needed to make equity investments in capital assets and payments on debt obligations (principal and interest) after the acquisition of the aircraft. During the
six
months ended
June 30, 2017
, we purchased
seven
aircraft through debt financing transactions. During the
six
months ended
June 30, 2017
, we made
$73.2 million
in debt payments (principal, interest and fees) on our outstanding debt obligations. Capital resources required under debt financing transactions will generally be higher than those involving sales leaseback transactions. In sale leaseback transactions, capital is needed to fund the initial purchase of the aircraft prior to the sale to the lessor. During the
six
months ended
June 30, 2017
, we entered into no sale leaseback transactions. During the
six
months ended
June 30, 2017
, we purchased
one
engine which was previously financed under an operating lease agreement for
$8.1 million
, comprised of a cash payment of
$3.8 million
and the application of maintenance security deposits held by the previous lessor of
$4.3 million
.
PDPs relating to future deliveries under our agreement with Airbus are required at various times prior to each delivery date. During the
six
months ended
June 30, 2017
, we paid
$79.4 million
of PDPs for future deliveries of aircraft and spare engines. As of
June 30, 2017
, we had
$317.9 million
of PDPs on our condensed balance sheet.
As of
June 30, 2017
, we had secured financing for
8
aircraft, scheduled for delivery in the remainder of 2017, and did not have financing commitments in place for the remaining
61
Airbus aircraft orders, scheduled for delivery between
2017
through
2021
. Future aircraft deliveries may be paid in cash, leased or otherwise financed based on market conditions, our prevailing level of liquidity, and capital market availability.
In addition to funding the acquisition of our fleet, we are required to make maintenance reserve payments for a portion of our current fleet. Maintenance reserves are paid to aircraft lessors and are held as collateral in advance of our performance of major maintenance activities. In the
six
months ended
June 30, 2017
, we recorded an increase of
$17.9 million
in maintenance reserves, net of reimbursements, and as of
June 30, 2017
, we had
$301.3 million
(
$155.1 million
in aircraft maintenance deposits and
$146.2 million
in long-term aircraft maintenance deposits) on our condensed balance sheet.
Net Cash Flows Provided By Operating Activities.
Operating activities in the
six
months ended
June 30, 2017
provided
$323.7 million
in cash compared to
$360.8 million
provided
in the
six
months ended
June 30, 2016
. The decrease is primarily driven by higher operating costs, specifically fuel, other operating and salaries, wages, and benefits, which were slightly offset by higher revenues, as compared to the prior period. The decrease is also attributed to an income tax refund of $65.0 million received in the prior period while no refund was received in 2017.
Net Cash Flows Used In Investing Activities.
In the
six
months ended
June 30, 2017
, investing activities
used
$355.9 million
, compared to
$368.5 million
used
in the prior year period. The decrease was mainly driven by the purchase of
seven
new aircraft and
one
previously leased engine in the
six
months ended
June 30, 2017
, as compared to the purchase of eight new aircraft, three previously leased aircraft and rotable equipment in the
six
months ended
June 30, 2016
.
Net Cash Flows Provided By Financing Activities.
During the
six
months ended
June 30, 2017
, financing activities
provided
$200.4 million
. We received
$255.8 million
in connection with the debt financing of
seven
aircraft delivered during the six months ended June 30, 2017 and paid
$50.0 million
in debt principal payment obligations.
Commitments and Contractual Obligations
We have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines, payment of debt, and lease arrangements. The following table discloses aggregate information about our contractual obligations as of
June 30, 2017
and the periods in which payments are due (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
remainder of 2017
|
|
2018 - 2019
|
|
2020 - 2021
|
|
2022 and beyond
|
|
Total
|
Long-term debt (1)
|
|
$
|
50
|
|
|
$
|
195
|
|
|
$
|
191
|
|
|
$
|
782
|
|
|
$
|
1,218
|
|
Interest commitments (2)
|
|
26
|
|
|
91
|
|
|
74
|
|
|
125
|
|
|
316
|
|
Capital and operating lease obligations
|
|
130
|
|
|
470
|
|
|
386
|
|
|
643
|
|
|
1,629
|
|
Flight equipment purchase obligations
|
|
413
|
|
|
1,293
|
|
|
1,615
|
|
|
25
|
|
|
3,346
|
|
Other (3)
|
|
5
|
|
|
6
|
|
|
1
|
|
|
—
|
|
|
12
|
|
Total future payments on contractual obligations
|
|
$
|
624
|
|
|
$
|
2,055
|
|
|
$
|
2,267
|
|
|
$
|
1,575
|
|
|
$
|
6,521
|
|
(1) Includes principal only associated with senior term loans due through 2027, junior term loans due through 2022, fixed-rate loans due through 2029, and Class A and Class B enhanced equipment trust certificates due through 2028 and 2024, respectively. Refer to "Notes to the Financial Statements - 10. Debt and Other Obligations."
(2) Related to senior and junior term loans, fixed-rate loans, and Class A and Class B enhanced equipment trust certificates only.
(3) Primarily related to our reservation system, advertising media and our A320ceos seating reconfiguration project. Refer to "Notes to the Financial Statements - 8. Commitments and Contingencies."
Some of our master lease agreements provide that we pay maintenance reserves to aircraft lessors to be held as collateral in advance of our required performance of major maintenance activities. Some maintenance reserve payments are fixed contractual amounts, while others are based on utilization. In addition to the contractual obligations disclosed in the table above, we have fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, which are
$3.9 million
for the remainder of
2017
,
$7.0 million
in
2018
,
$5.7 million
in
2019
,
$5.4 million
in
2020
,
$5.5 million
in
2021
, and
$17.7 million
in
2022 and beyond
.
As of
June 30, 2017
, principal and interest commitments related to our future secured debt financing for
8
undelivered aircraft are
$5.1 million
in
2017
,
$32.6 million
in
2018
,
$32.4 million
in
2019
,
$33.3 million
in
2020
,
$32.1 million
in
2021
, and
$256.5 million
in
2022 and beyond
.
In
September 2015
, we executed a lease agreement with Wayne County Airport Authority (the Authority), which owns and operates Detroit Metropolitan Wayne County Airport (DTW). Under the lease agreement, we lease a
10
-acre site, adjacent to the airfield at DTW, in order to construct, operate and maintain an approximately
126,000
-square-foot hangar facility. The lease agreement has a
30
-year term with
two
10
-year extension options. Upon termination of the lease, title of the project, which will be fully depreciated, will automatically pass to the Authority. We completed the project during the first quarter of 2017. Future commitment amounts for the project are included within operating lease obligations, for future rent obligations and within other, for future construction cost obligations, in the table above.
Off-Balance Sheet Arrangements
We have significant lease obligations for our aircraft and spare engines as
61
of our
104
aircraft and
10
of our
12
spare engines are financed under operating leases and are therefore not reflected on our condensed balance sheets. These leases expire between 2017 and 2029. Aircraft rent payments were
$56.8 million
and
$52.5 million
for the three months ended
June 30, 2017
and
2016
, respectively, and
$113.6 million
and
$106.8 million
for the
six
months ended
June 30, 2017
and
2016
, respectively. Our aircraft lease payments for
59
of our aircraft are fixed-rate obligations.
Two
of our aircraft leases provide for variable rent payments, which fluctuate based on changes in the London Interbank Offered Rate (LIBOR).
Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. As of
June 30, 2017
, our aircraft orders consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Airbus
|
|
|
|
|
A320ceo
|
|
A320neo
|
|
A321ceo
|
|
|
Total
|
remainder of 2017
|
|
3
|
|
|
|
7
|
|
|
10
|
2018
|
|
5
|
|
|
|
5
|
|
|
10
|
2019
|
|
1
|
|
14
|
|
|
|
|
15
|
2020
|
|
|
|
16
|
|
|
|
|
16
|
2021
|
|
|
|
18
|
|
|
|
|
18
|
|
|
9
|
|
48
|
|
12
|
|
|
69
|
We also have
six
spare engine orders for V2500 SelectTwo engines with IAE and
nine
spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from
2017
through
2023
. Committed expenditures for these aircraft and spare engines, including estimated amounts for contractual price escalations and aircraft PDPs, are expected to be
$413.2 million
for the remainder of
2017
,
$528.4 million
in
2018
,
$764.4 million
in
2019
,
$829.8 million
in
2020
,
$784.8 million
in
2021
and
$24.6 million
in
2022 and beyond
.
As of
June 30, 2017
, we had lines of credit related to corporate credit cards of
$23.6 million
from which we had drawn
$12.9 million
.
As of
June 30, 2017
, we had lines of credit with counterparties for both physical fuel delivery and derivatives in the amount of
$51.5 million
. As of
June 30, 2017
, we had drawn
$6.9 million
on these lines of credit for physical fuel delivery. We are required to post collateral for any excess above the lines of credit if the derivatives are in a net liability position and make periodic payments in order to maintain an adequate undrawn portion for physical fuel delivery. As of
June 30, 2017
, we did not hold any derivatives.
As of
June 30, 2017
, we had
$8.2 million
in uncollateralized surety bonds and a
$25.0 million
unsecured standby letter of credit facility, representing an off balance-sheet commitment, of which
$17.4 million
had been drawn upon for issued letters of credit.
GLOSSARY OF AIRLINE TERMS
Set forth below is a glossary of industry terms:
“Adjusted CASM” means operating expenses, excluding unrealized gains or losses related to fuel derivative contracts, out of period fuel federal excise tax, loss on disposal of assets, and special charges (credits), divided by ASMs.
“Adjusted CASM ex-fuel” means operating expenses excluding aircraft fuel expense, loss on disposal of assets, and special charges (credits), divided by ASMs.
“AFA-CWA” means the Association of Flight Attendants-CWA.
“Air traffic liability” or “ATL” means the value of tickets sold in advance of travel.
“ALPA” means the Air Line Pilots Association, International.
“ASIF” means an Aviation Security Infrastructure Fee assessed by the TSA on each airline.
“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown, also referred to as "capacity."
“Average aircraft” means the average number of aircraft in our fleet as calculated on a daily basis.
“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft.
“Average economic fuel cost per gallon” means total aircraft fuel expense, excluding unrealized gains or losses related to fuel derivative contracts and out of period fuel federal excise tax, divided by the total number of fuel gallons consumed.
“Average non-ticket revenue per passenger flight segment” means the total non-ticket revenue divided by passenger flight segments.
“Average ticket revenue per passenger flight segment” means total passenger revenue divided by passenger flight segments.
“Average stage length” represents the average number of miles flown per flight.
“Average yield” means average operating revenue earned per RPM, calculated as total revenue divided by RPMs.
“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.
“CASM” or “unit costs” means operating expenses divided by ASMs.
“CBA” means a collective bargaining agreement.
“CBP” means United States Customs and Border Protection.
“DOT” means the United States Department of Transportation.
“EPA” means the United States Environmental Protection Agency.
"EETC" means enhanced equipment trust certificate.
“FAA” means the United States Federal Aviation Administration.
“FCC” means the United States Federal Communications Commission.
“GDS” means Global Distribution System (e.g., Amadeus, Galileo, Sabre and Worldspan).
"IAMAW" means the International Association of Machinists and Aerospace Workers.
“Into-plane fuel cost per gallon” means into-plane fuel expense divided by number of fuel gallons consumed.
“Into-plane fuel expense” represents the cost of jet fuel and certain other charges such as fuel taxes and oil.
“Load factor” means the percentage of aircraft seats actually occupied on a flight (RPMs divided by ASMs).
“NMB” means the National Mediation Board.
“OTA” means Online Travel Agent (e.g., Orbitz and Travelocity).
“Passenger flight segments” or “PFS” means the total number of passengers flown on all flight segments.
“PDP” means pre-delivery deposit payment.
“Revenue passenger mile” or “RPM” means one revenue passenger transported one mile. RPMs equals revenue passengers multiplied by miles flown, also referred to as “traffic.”
“RLA” means the United States Railway Labor Act.
"Total operating revenue per-ASM," "TRASM" or "unit revenue" means operating revenue divided by ASMs.
“TWU” means the Transport Workers Union of America.
“TSA” means the United States Transportation Security Administration.
“ULCC” means “ultra low-cost carrier.”