ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the Company and its operations and is focused on our 2020 and 2019 financial results, including comparisons of year-over-year performance between these years. Discussion and analysis of our 2018 fiscal year, as well as the year-over-year comparison of our 2019 financial performance to 2018, is located in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 12, 2020.
This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections of future events. However, our actual results could differ materially from those discussed herein as a result of the risks that we face, including but not limited to those risks stated in the "Risk Factors" section of this report. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report.
Impact of the COVID-19 Pandemic
Due to the rapid and unprecedented spread of COVID-19, what began with our suspension of service to South Korea and Japan in late February 2020 accelerated in March 2020 when governments instituted requirements of self-isolation or quarantine for incoming travel. This was followed by the announcement in late March and early April 2020 of a 14-day mandatory quarantine for all travelers to, from and within the State of Hawai'i, respectively. On December 17, 2020, the mandatory self-quarantine period in the State of Hawai'i was reduced from 14 to 10 days. These restrictions, combined with the ongoing spread and impact of the COVID-19 pandemic globally, have continued to significantly suppress customer demand, which remains at historically low levels.
Restrictions on travel to and within the State of Hawai'i as well as travel to and from various international locations (including international locations within our network), remain in effect. Since October 15, 2020, the State of Hawai'i has allowed travelers coming to Hawai'i from the mainland U.S. to bypass the 10-day quarantine requirement with proof of a negative COVID-19 test from a state-approved testing partner (the pre-travel testing program), and the pre-travel testing program has since been expanded to include international travelers from Japan, South Korea and Canada. The State of Hawai`i and counties within the state continue to evaluate and update testing requirements for travel to and within the state, including the required timing of receipt of testing results and the expansion of the pre-travel testing program to travelers from other international locations.
Following the announcement and implementation of the pre-travel testing program, we saw an increase in bookings and have begun rebuilding our North America, Neighbor Island and International flight schedules commensurate with anticipated increases in demand. During the fourth quarter, we reinstated non-stop service from Honolulu to Las Vegas, Phoenix, San Jose, Oakland, New York and Boston, thereby restoring service to all of our pre-pandemic origin points on the U.S. mainland, as well as non-stop service from Honolulu to Tokyo-Haneda and Osaka, Japan, and Seoul, South Korea. While we doubled our capacity during the fourth quarter of 2020, as compared to the third quarter of 2020, our capacity was down approximately 72% compared to the same period in 2019. In December 2020, we announced the addition of three new U.S. mainland destinations: Austin, Texas, Orlando, Florida, and Ontario, California with service to and from Honolulu, Hawai'i beginning on April 21, March 11, and March 16, 2021, respectively. We also announced expanded service with a daily non-stop flight between Kahului, Hawai'i and Long Beach, California commencing in March 2021.
New bookings for travel from our mainland markets for January through March 2021) have moderated somewhat since the period immediately following the implementation of the State of Hawai'i's pre-travel testing program and, as of January 26, 2021, we were currently at about one-third of 2019 levels. We attribute this to recent changes in the State of Hawai'i's pre-travel testing program, the resurgence of COVID-19 infections in the United States and internationally, implementation of restrictions and quarantines in certain key origin points, and other factors affecting public sentiment.
While certain markets have reopened, others, particularly international markets, remain closed or continue to enforce extended quarantines, including as new strains of COVID-19 are identified. There can be no assurance whether, at some point, the State of Hawai'i or counties within the state may limit or suspend the pre-travel testing program should the prevalence of the COVID-19 pandemic worsen. For example, the County of Kaua'i suspended its participation in the statewide pre-travel testing program in late November and, effective January 5, 2021, resumed its participation in the pre-travel testing program for interisland travelers and instituted an Enhanced Movement Quarantine pre- and post-travel testing program for transpacific travelers. The U.S. government and international governments could also impose, extend or otherwise modify existing, travel
restrictions on international travel into the United States. For example, on January 21, 2021, President Biden issued an executive order promoting COVID-19 Safety in Domestic and International Travel that requires international travelers to produce proof of a recent negative COVID-19 test prior to entry into the United States and comply with other applicable guidelines issued by the CDC concerning international travel, including recommended periods of self-quarantine after entry into the United States. While the impact of such regulatory changes remains uncertain, pre-travel testing and quarantine requirements may decrease new bookings and increase cancellations of current bookings. As a result of all the above factors and our results to date, we expect bookings, revenue and results of operations to continue to be volatile with revenue trends experienced in the fourth quarter of 2020 to continue in the first quarter of 2021. These trends may result in decreases to existing or anticipated levels, which decreases could be material. We will continue to assess our routes and schedule in response to changes in demand, including those related to the COVID-19 pandemic.
In response to the COVID-19 pandemic, we have implemented enhanced safety protocols focusing on our employees and guests, while at the same time working to mitigate the impact of the pandemic on our financial position and operations.
Guest and Employee Experience. We have enhanced cleaning procedures and guest-facing protocols in an effort to minimize the risk of transmission of COVID-19. These procedures are in line with current recommendations from leading public health authorities and include:
•Performing enhanced aircraft cleaning between flights and during overnight parking, including recurring electrostatic spraying of all aircraft.
•Frequent cleaning and disinfecting of counters and self-service check-in kiosks in our airports.
•Ensuring hand sanitizers are readily available for guests at airports we serve.
•Requiring guests and guest facing employees to wear a face mask or covering, with guests required to keep them on from check-in to deplaning (except when eating or drinking on board).
•Modifying boarding and deplaning processes.
•Modifying in-flight service to minimize close interactions between crew members and guests.
•Eliminating change fees on all domestic and international flights in order to provide guests with travel flexibility across our network.
•Launching a program to offer guests pre-travel COVID-19 testing through mail-in kits and proprietary drive-through testing labs in an increasing number of our U.S. mainland gateways.
During the first quarter of 2021, we plan, in coordination with the State of Hawai'i, implement the Hawai'i Pre-Clear Program across our mainland network, which is intended to enhance the arrival process for our guests by validating the State's pre-travel testing requirement prior to departure.
Capacity Impacts. In response to reduced passenger demand as a result of the COVID-19 pandemic, we significantly reduced system capacity beginning late in the first quarter of 2020 to a level that maintained essential services and made adjustments to better align capacity with passenger demand throughout 2020. During the year ended December 31, 2020, we reduced capacity by 63.3% compared to the prior year. As a result of such capacity reductions, approximately 16% of our fleet was temporarily grounded as of December 31, 2020. We expect to continue to adjust capacity throughout 2021 based upon expected passenger demand.
Expense Management. In response to the reduction in revenue we experienced in 2020, we have implemented, and will continue to implement as necessary, cost savings and liquidity measures, including:
•In 2020, we commenced various initiatives to reduce labor costs as follows:
◦During the first quarter, we instituted a temporary hiring freeze, except with respect to operationally critical and essential positions.
◦During the second quarter, we operationalized various temporary voluntary leave and vacation purchase programs to balance our workforce with our reduced levels of operations.
◦During the third quarter, we announced and completed voluntary separation and temporary leave programs across each of our labor groups. Additionally, we completed the majority of our involuntary separations, most of which were effective October 1, 2020. Combined, separation and temporary leave programs resulted in an approximately 32% reduction of our total workforce. All employees who were subject to an involuntary termination or involuntary furlough between October 1, 2020 and January 15, 2021 were recalled and offered an opportunity to return to employment pursuant to the PSP Extension Agreement (as defined below).
◦Our officers reduced their base salaries between 10% and 50% through September 30, 2020, and members of our Board of Directors also reduced their compensation through September 30, 2020.
•We reduced capital expenditures for 2020 and continue to vigorously evaluate non-essential, non-aircraft capital expenditures. During the year ended December 31, 2020, capital expenditures were approximately $105.3 million, a decrease of 73.5% compared to the same period in 2019.
•On October 26, 2020, we amended our purchase agreement with Boeing to, among other things, change the delivery schedule of our 787-9 aircraft from 2021 through 2025 to 2022 through 2026, with the first delivery now scheduled in September 2022. Refer to Note 14 to the Notes to Consolidated Financial Statements for additional discussion.
We may implement further discretionary changes and other cost reduction and liquidity preservation measures as needed to address the volatile and rapidly changing dynamics of passenger demand and changes in revenue, regulatory and public health directives and prevailing government policy, and financial market conditions related to the COVID-19 pandemic. These discretionary changes may include additional work force reductions. For example, on January 28, 2021, we issued WARN notices to approximately 900 U.S.-based employees that could be affected by fluctuating employment needs beyond our PSP Extension through March 31, 2021.
Cash Flow and Liquidity Management. Our cash, cash equivalents and short-term investments as of December 31, 2020 was $864.4 million as a result of various actions taken to increase liquidity and strengthen our financial position during 2020, including, but not limited to:
•During the first quarter of 2020, we fully drew down our previously undrawn $235.0 million revolving credit facility. Refer to Note 8 to the Notes to Consolidated Financial Statements for additional discussion.On February 11, 2021, we repaid the $235.0 million outstanding amount drawn on our revolving credit facility.
•During the first quarter of 2020, we suspended our stock repurchase program and on April 22, 2020, we suspended dividend payments.
•During the second and third quarters of 2020, we received $240.6 million in grants and $60.3 million in loans pursuant to the PSP under the CARES Act as discussed further below.
•During the third quarter of 2020, we entered into a Loan Agreement with the Treasury pursuant to the ERP under the CARES Act to provide for a secured term loan that permits us to borrow up to $420.0 million. On October 23, 2020, we amended and restated our Loan Agreement (the Amended and Restated Loan Agreement) with the Treasury to increase the maximum amount available to be borrowed by us to $622 million. As of December 31, 2020, we had borrowed $45.0 million under the ERP as discussed in further detail below. As discussed in more detail below, we repaid the outstanding loan under the ERP on February 4, 2021.
•During the third quarter of 2020, we completed $376.0 million in aircraft financings, including the issuance of enhanced equipment trust certificates and two sale and lease back transactions. Refer to Note 8 and Note 9 to the Notes to Consolidated Financial Statements for more discussion of our financing activities.
•In December 2020, we entered into the Equity Distribution Agreement in connection with our ATM Program relating to the issuance and sale, from time to time, of up to five million shares of our common stock. As of December 31, 2020, we have raised approximately $41.2 million through the sale of approximately 2.1 million shares at an average price of $19.79 per share. Refer to Note 14 to the Notes to Consolidated Financial Statements for additional information on the Equity Distribution Agreement. We paused our ATM Program between December 24, 2020 and January 31, 2020 and recommenced sales under our ATM Program on February 1, 2021.
In February 2021, we issued $1.2 billion in senior secured notes as part of our Notes Offering, as discussed in further detail below. We will continue to explore and pursue options to raise additional financing as opportunities arise.
Our cash burn, which is defined as net sales, operating cash outflows, debt service, interest payments, capital expenditures, tax refunds and severance payments, for the fourth quarter of 2020, was $1.7 million per day, an approximate 35% improvement from the third quarter of 2020 of $2.6 million per day, and more favorable than our previously disclosed expectation of $2.2 million per day. We forecast our cash burn for the first quarter of 2021 to be between $2.3 million per day and $2.7 million per day. As we continue to rebuild our operations to meet expected demand, we expect to incur additional operating expenses in the first quarter of 2021 as compared to the fourth quarter of 2020. Our cash burn for the first quarter of 2021 will be highly dependent on bookings during the quarter, which may continue to be volatile and may be negatively impacted by any changes in the pre-travel testing program implemented by the State of Hawai'i, the recent resurgence of COVID-19 infections in the United States and internationally, the identification of new, more infectious strains of the COVID-19 virus, the implementation
or extension of travel-related restrictions and quarantines in some key origin points, and other factors affecting public sentiment.
Load Factor. Our flown load factor for the fourth quarter of 2020 was 40%.
CARES Act
On March 27, 2020, the CARES Act was enacted, which provided an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance included tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provided passenger air carriers with, among other things: (a) financial relief for direct payroll support, (b) financial relief in the form of loans and loan guarantees available for operations, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional corporate tax benefits that are further discussed in Note 10 to the Notes to Consolidated Financial Statements.
The CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Lastly, the CARES Act provided for the carryback of additional NOLs to 2016 and 2017, which will result in tax benefits for those years.
Payroll Support Program
On April 22, 2020, we entered into a Payroll Support Program agreement (the PSP Agreement) with the Treasury under the CARES Act. In connection with the PSP Agreement, we entered into a Warrant Agreement (the PSP Warrant Agreement) with the Treasury, and we issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury provided us with financial assistance, paid in installments, totaling approximately $300.9 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, we agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on us. Finally, we are required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT and subject to exemptions granted by the DOT to us given the absence of demand for certain of such services.
The Note was in the total principal amount of approximately $60.3 million. The Note has a 10-year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of April 22, 2020 (the PSP Closing Date), and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty, and is subject to customary change of control acceleration provisions and events of default.
As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the PSP Warrant Agreement, we issued to the Treasury a total of 509,964 warrants to purchase shares of our common stock at an exercise price of $11.82 per share (the PSP Warrants). The PSP Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. Refer to Note 8 to the Notes to Consolidated Financial Statements for additional discussion.
Economic Relief Program
On September 25, 2020 (ERP Closing Date), we entered into the Loan Agreement. The Loan Agreement provides for a secured term loan facility which permits us to borrow up to $420.0 million (the Facility). On the ERP Closing Date, we borrowed $45.0 million and may, at our option, borrow additional amounts in up to two subsequent borrowings until May 26, 2021, so long as, after giving effect to any further borrowing, the collateral coverage ratio is no less than 2.0 to 1.0. The proceeds from the Facility will be used for certain general corporate purposes and operating expenses. As a condition to the drawing under the Facility, we are required to comply with all applicable provisions of the CARES Act.
Borrowings under the Facility will initially bear interest at a variable rate per annum equal to (a) the Adjusted LIBO Rate (as defined in the Loan Agreement) plus (b) 2.50% accrued interest on the loans is payable in arrears on the first business day following the 14th day of each March, June, September and December (beginning with September 15, 2021), and on June 30, 2024. The applicable interest rate for the $45.0 million loan drawn on the ERP Closing Date under the Facility is 2.73% per annum for the period from the ERP Closing Date through September 15, 2021 at which time the interest rate will reset in
accordance with the foregoing formula. All advances under the Facility will be in the form of term loans, all of which will mature and be due and payable in a single installment on June 30, 2024.
The Facility is secured by (i) our frequent flyer loyalty program, HawaiianMiles, including but not limited to loyalty program partner participation agreements (including rights to receive cash flows thereunder), documents, deposit accounts, securities accounts, books and records and intellectual property primarily used in connection with the loyalty program and (ii) 14 Boeing 717-200 airframes and the related 28 Rolls Royce BR715-A1-30 engines, together with their related accessories, aircraft documents and parts (collectively, the Collateral). The Facility is also subject to various financial covenants, including a minimum collateral coverage ratio of 2.0 to 1.0 and a minimum debt service coverage ratio of 1.75 to 1.00.
In connection with our entry into the Loan Agreement, we also entered into a warrant agreement (the ERP Warrant Agreement), with the Treasury under the ERP. Pursuant to the ERP Warrant Agreement, we agreed to issue warrants to purchase up to an aggregate of 3,553,299 shares of our common stock (the ERP Warrants) at an exercise price of $11.82 per share (the Exercise Price). Pursuant to the ERP Warrant Agreement, (a) on the ERP Closing Date, we issued to the Treasury an ERP Warrant to purchase up to 380,711 shares of our common stock and (b) on the date of each borrowing under the Loan Agreement, we will issue to the Treasury an additional ERP Warrant for a number of shares of our common stock equal to 10% of such borrowing, divided by the Exercise Price. The ERP Warrants are non-voting, are freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.
On October 23, 2020, we entered into the Amended and Restated Loan Agreement with the Treasury providing for an increase in borrowings available under the Loan Agreement from $420 million to $622 million and correspondingly increased the aggregate number of ERP Warrants available to be issued to the Treasury up to 5,262,267.
On February 4, 2021, immediately prior to the closing of the Offering (as defined below), Hawaiian repaid in full the $45.0 million loan, and in connection with such repayment, terminated the Amended and Restated Loan Agreement. We have ongoing obligations to the Treasury under the ERP Warrants, CARES Act and the CAA 2021 (discussed below).
Consolidated Appropriations Act, 2021
On December 27, 2020, CAA 2021 was enacted, which included $900 billion for various COVID-19 relief programs, including $15.0 billion for airline workers under an extension of the CARES Act PSP.
On January 15, 2021 (the PSP Extension Closing Date), we entered into an extension to the PSP Agreement (the PSP Extension Agreement), and in connection with the PSP Extension Agreement, entered into a warrant agreement (the Warrant Extension Agreement) with the Treasury, and issued a promissory note to the Treasury (the Extension Note). Pursuant to the PSP Extension Agreement, the Treasury will provide us with financial assistance to be paid in installments expected to total in the aggregate approximately $167.5 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits, including the payment of lost wages, salaries and benefits to certain returning employees, as defined in the PSP Extension Agreement. The first installment, in the amount of $83.8 million (representing 50% of the expected total payment), was received on January 15, 2021. The remaining installments are anticipated to be paid as follows: (i) 50% of the current expected total payment, which is expected to be paid in the first quarter of 2021 and (ii) a possible final payment based on any upward adjustments by Treasury to the initial expected total payment.
Under the PSP Extension Agreement, we agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits from December 1, 2020 through March 31, 2021, (ii) recall any employees who were subject to an involuntary termination or furlough between October 1, 2020 and the date of the PSP Extension Agreement and who elected to return to employment pursuant to a recall notice and to compensate these employees for lost salary, wages and benefits, (iii) limit executive compensation through October 1, 2022, and (iv) suspend payment of dividends and stock repurchases through March 31, 2022. Finally, we are required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT.
The Extension Note will increase to a total principal sum of approximately $20.3 million as Hawaiian receives installments from the Treasury under the PSP Extension Agreement. The Extension Note has a ten year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Extension Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Extension Closing Date, which interest is payable semi-annually beginning on March 31, 2021. The Extension Note may be prepaid at any time, without penalty and is subject to customary change of control acceleration provisions and events of default.
As compensation to the U.S. government for providing financial relief under the PSP Extension Agreement, and pursuant to the Warrant Extension Agreement, we agreed to issue to the Treasury up to a total of 113,940 warrants to purchase shares of our common stock at an exercise price of $17.78 per share (the PSP Extension Warrants). The PSP Extension Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.
Loyalty Program and Intellectual Property Financing
On February 4, 2021, Hawaiian, a direct wholly owned subsidiary of the Company, completed the private offering (the Notes Offering) by Hawaiian Brand Intellectual Property, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Brand Issuer), and HawaiianMiles Loyalty, Ltd., an indirect wholly owned subsidiary of Hawaiian (the “Loyalty Issuer” and, together with the Brand Issuer, the Issuers) of an aggregate of $1.2 billion principal amount of their 5.750% senior secured notes due 2026 (the Notes).
The Notes are fully and unconditionally guaranteed, jointly and severally, by (i) Hawaiian Finance 1 Ltd., a direct wholly owned subsidiary of Hawaiian (HoldCo 1), (ii) Hawaiian Finance 2 Ltd., a direct subsidiary of HoldCo 1 and indirect wholly owned subsidiary of Hawaiian (HoldCo 2 and, together with HoldCo 1, the “Cayman Guarantors”), (iii) Hawaiian and (iv) Holdings (Holdings, together with Hawaiian, the “Parent Guarantors” and the Parent Guarantors, together with the Cayman Guarantors, the Guarantors). The Notes were issued pursuant to an Indenture, dated as of February 4, 2021 (the Indenture), among the Issuers, the Guarantors and Wilmington Trust, National Association, as trustee, collateral agent and collateral custodian. The Notes will mature on January 20, 2026 and bear interest at a rate of 5.750% per year, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, beginning on July 20, 2021.
In connection with the issuance of the Notes, Hawaiian contributed to the Brand Issuer, which is a newly-formed subsidiary structured to be bankruptcy remote, all worldwide rights, owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries, in and to all intellectual property, including all trademarks, service marks, brand names, designs, and logos that include the word “Hawaiian” or any successor brand and the “hawaiianairlines.com” domain name and similar domain names or any successor domain names (the Brand IP). The Brand Issuer indirectly granted to Hawaiian an exclusive, worldwide, perpetual and royalty-bearing sublicense to use the Brand IP (the Brand IP Sublicense). Further, Hawaiian contributed to the Loyalty Issuer its rights to certain other collateral owned by Hawaiian, including, to the extent permitted by such agreements or otherwise by operation of law, any of Hawaiian’s rights under the HawaiianMiles Agreements and the IP Agreements (each as defined in the Indenture), together with HawaiianMiles program (HawaiianMiles) customer data and certain other intellectual property owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries (including the Issuers) and required or necessary to operate HawaiianMiles (the Loyalty Program IP) (all such collateral being, the Loyalty Program Collateral). The Loyalty Issuer indirectly granted Hawaiian an exclusive, worldwide, perpetual and royalty-free sub-license to use the Loyalty Program IP (the Loyalty Program IP Sublicense).
The Notes are secured on a senior basis by first-priority security interests in substantially all of the assets of the Issuers, other than Excluded Property (as defined in the Indenture) and subject to certain permitted liens (collectively, the Issuer Collateral). The note guarantees of Hawaiian are secured by (i) a first-priority security interest in 100% of the equity (other than the special share issued to the Special Shareholder (as defined in the Indenture)) of HoldCo 1 and (ii) the Brand IP and the Loyalty Program Collateral (collectively, the Hawaiian Collateral). The note guarantees of the Cayman Guarantors are secured by first-priority security interests in substantially all of the assets of the Cayman Guarantors, including pledges of the equity of their respective subsidiaries (other than the special share issued to the Special Shareholder (as defined in the Indenture)) (collectively, the Subsidiary Collateral and, together with the Issuer Collateral and the Hawaiian Collateral, the Collateral). The note guarantee of Holdings is unsecured.
The Notes are redeemable at the option of the Issuers, in whole or in part, at any time and from time to time, after January 20, 2024 at the redemption prices set forth in the Indenture. In addition, the Notes are redeemable, at the option of the Issuers, at any time and from time to time, in whole or in part, prior to January 20, 2024 at a price equal to 100% of their principal amount plus the “make-whole” premium described in the Indenture and accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Additionally, from time to time on or prior to January 20, 2024, the Issuers may also redeem up to 40% of the original outstanding principal amount of the Notes with proceeds from any one or more equity offerings of Hawaiian at a redemption price equal to 105.75% of the principal amount of Notes to be redeemed, plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Upon the occurrence of certain mandatory prepayment events and mandatory repurchase offer events, the Issuers will be required to make a prepayment on the Notes, or offer to repurchase the Notes, pro rata, to the extent of any net cash proceeds received in connection with such events, at a price equal to 100% of the principal amount to be prepaid, plus, in some cases, an applicable premium. In addition, upon a change of control of Hawaiian, the Issuers may be required to make an offer to prepay the Notes at a price equal to 101% of the respective principal amounts thereof, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Indenture contains certain covenants that limit the ability of the Issuers, the Cayman Guarantors and, in certain circumstances, Hawaiian to, among other things: (i) make Restricted Payments (as defined in the Indenture), (ii) incur additional indebtedness, (iii) create certain liens on the Collateral, (iv) sell or otherwise dispose of the Collateral and (v) consolidate, merge, sell or otherwise dispose of all or substantially all of the Issuers’ assets. The Indenture also requires the Issuers and, in certain circumstances, Hawaiian, to comply with certain affirmative covenants, including depositing the Transaction Revenues (as defined in the Indenture) in collection accounts, with amounts to be distributed for the payment of fees, principal and interest on the Notes pursuant to a payment waterfall described in the Indenture, and certain financial reporting requirements. In addition, the Indenture requires Hawaiian to maintain minimum liquidity at the end of any business day of at least $300.0 million.
Selected Consolidated Statistical Data
Below are the operating statistics we use to measure our operating performance.
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Year ended December 31,
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2020
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2019
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2018
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(in thousands, except as otherwise indicated)
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Scheduled Operations (a) :
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Revenue passengers flown
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3,353
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11,737
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11,830
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Revenue passenger miles (RPM)
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4,558,045
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17,808,913
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17,198,985
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Available seat miles (ASM)
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7,527,383
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20,568,476
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20,158,139
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Passenger revenue per RPM (Yield)
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14.59
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¢
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14.59
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¢
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15.13
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¢
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Passenger load factor (RPM/ASM)
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60.6
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%
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86.6
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%
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85.3
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%
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Passenger revenue per ASM (PRASM)
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8.83
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¢
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12.63
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¢
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12.91
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¢
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Total Operations (a) :
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Revenue passengers flown
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3,362
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11,751
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11,840
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RPM
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4,576,623
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17,826,887
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17,206,703
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ASM
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7,560,486
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20,596,711
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20,171,911
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Operating revenue per ASM (RASM)
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11.17
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¢
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13.75
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¢
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14.07
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¢
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Operating cost per ASM (CASM)
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19.74
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¢
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12.16
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¢
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12.51
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¢
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CASM excluding aircraft fuel, gain/loss on sale of aircraft, contract terminations expense, and special items (b)
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18.35
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¢
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9.54
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¢
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9.36
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¢
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Aircraft fuel expense per ASM (c)
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2.13
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¢
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2.62
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¢
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2.97
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¢
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Revenue block hours operated
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82,711
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|
218,801
|
|
|
208,809
|
|
|
Gallons of jet fuel consumed
|
106,225
|
|
|
270,001
|
|
|
273,783
|
|
|
Average cost per gallon of jet fuel (actual) (c)
|
$
|
1.52
|
|
|
$
|
2.01
|
|
|
$
|
2.19
|
|
(a)Includes the operations of our contract carrier under a CPA. Total Operations includes both scheduled and chartered operations.
(b)Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
(c)Includes applicable taxes and fees.
Operating Revenue
Our revenue is derived primarily from transporting passengers on our aircraft. We record passenger revenue when the transportation is provided or when scheduled flight for tickets are expected to expire unused. We measure capacity in terms of available seat miles, which represent the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing passenger revenue by RPMs. Typically, we strive to increase passenger revenue primarily by increasing our yield per flight or by filling a higher proportion of available seats, which produces higher operating revenue per available seat mile; however, as a result of the COVID-19 pandemic, many of our operating measures in 2020 are not meaningful for purposes of comparative analysis against prior years. Other revenue primarily consists of cargo revenue, incidental services revenue, marketing component related to the sale of frequent flyer miles, contract services and charter services revenue.
Operating revenue was $0.84 billion, $2.83 billion and $2.84 billion for the years ended December 31, 2020, 2019 and 2018, respectively. The decrease in operating revenue in 2020 from 2019 was driven by decreased passengers and other revenue primarily related to the ongoing impacts of the COVID-19 pandemic and is discussed further below:
2020 vs. 2019
Passenger Revenue
Passenger revenue decreased by $1,933.0 million, or 74.4%, in the year ended December 31, 2020, as compared to the prior year. Details of this change are described in the table below:
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
vs. Year Ended December 31, 2019
|
|
|
Year Ended December 31, 2020
|
|
Passenger
Revenue
|
|
Yield
|
|
RPMs
|
|
ASM
|
|
PRASM
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
517.3
|
|
|
$
|
(1,403.5)
|
|
|
(3.0)
|
%
|
|
(72.2)
|
%
|
|
(57.6)
|
%
|
|
(36.5)
|
%
|
|
|
|
International
|
147.5
|
|
|
(529.4)
|
|
|
4.5
|
|
|
(79.1)
|
|
|
(75.8)
|
|
|
(9.9)
|
|
|
|
|
Total scheduled
|
$
|
664.8
|
|
|
$
|
(1,932.9)
|
|
|
—
|
%
|
|
(74.4)
|
%
|
|
(63.4)
|
%
|
|
(30.1)
|
%
|
|
|
Domestic revenue decreased $1.4 billion during the year ended December 31, 2020 largely due to a capacity reduction of 57.6%, as measured in ASM as compared to same period in 2019. The decline was driven by the ongoing impacts of the COVID-19 pandemic.
International passenger revenue decreased $529.4 million during the year ended December 31, 2020, largely due to a capacity reduction of 75.8%, as measured in ASM, as compared to the same period in 2019. In late March 2020, we suspended all international flights in response to the COVID-19 pandemic. We began recommencing scheduled international passenger flights, on a limited basis, in the fourth quarter.
Despite the evolution of travel restrictions in recent months in the United States, restrictions for travel to and within the State of Hawai'i as well as travel to and from various international locations, including those in the Hawaiian network, remain in effect. On October 15, 2020, the State of Hawai'i began its pre-travel testing program allowing travelers coming to Hawai'i from the mainland United States to bypass the quarantine requirement with proof of a negative COVID-19 test from a state-approved testing partner (the pre-travel testing program). The State of Hawai'i and counties within the state continue to evaluate and update testing requirements for travel to and within the state, including the required timing of testing results and the expansion of the pre-travel testing program to travelers from international locations, specifically travelers from Canada, Japan and Korea. Additionally, on January 21, 2021, President Biden issued an executive order that requires international travelers to produce proof of a recent negative COVID-19 test prior to entry into the United States and comply with applicable CDC guidelines concerning international travel, including recommended periods of self-quarantine after entry into the United States.
We expect this significantly lower demand environment to continue through at least the first half of 2021, with improvement in the international markets expected to lag behind domestic demand recovery, once government travel restrictions begin to lift and customer demand starts to return.
In December 2020, we announced the addition of three new U.S. mainland cities; Austin, Texas, Ontario, California, and Orlando, Florida, with service to and from Honolulu, Hawai`i, beginning in the first and second quarters of 2020. Additionally, we expanded service with daily non-stop flight between Kahului, Hawai`i and Long Beach, California commencing in March 2021.
Other Operating Revenue
Other operating revenue decreased by $54.4 million, or 23.2%, in the year ended December 31, 2020, as compared to the prior year, primarily due to reductions in cargo and loyalty program revenue as a result of the COVID-19 pandemic.
Cargo revenue decreased $20.9 million during the twelve months ended December 31, 2020 as compared to the prior year due to reduced volumes as a result of the impacts of the COVID-19 pandemic. Loyalty revenue, primarily comprised of brand and marketing performance obligations, decreased $20.1 million during the twelve months ended December 31, 2020, as compared to the prior year, as a result of reduced credit card spend and new cardholder acquisitions. Other components in Other operating revenue include, but are not limited to, ground handling and other freight services which collectively, declined during the
twelve months ended December 31, 2020 by approximately $13.3 million as compared to the prior year, as a result of our reduced operations.
Operating Expenses
During the year ended December 31, 2020, total operating expense decreased $1.0 billion or 40.4% to $1.5 billion as compared to the same period in 2019. The largest components of our operating expenses are wages and benefits provided to our employees and aircraft fuel (including taxes and delivery). Increases (decreases) in operating expenses are detailed below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes for the year ended December 31, 2020 as compared to year ended December 31, 2019
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
$
|
(381,210)
|
|
|
(70.3)
|
%
|
|
|
|
|
|
Wages and benefits
|
(335,746)
|
|
|
(46.4)
|
|
|
|
|
|
|
Aircraft rent
|
(15,014)
|
|
|
(12.6)
|
|
|
|
|
|
|
Maintenance materials and repairs
|
(128,201)
|
|
|
(51.3)
|
|
|
|
|
|
|
Aircraft and passenger servicing
|
(106,259)
|
|
|
(64.7)
|
|
|
|
|
|
|
Commissions and other selling
|
(83,919)
|
|
|
(64.4)
|
|
|
|
|
|
|
Depreciation and amortization
|
(7,241)
|
|
|
(4.6)
|
|
|
|
|
|
|
Other rentals and landing fees
|
(55,814)
|
|
|
(43.1)
|
|
|
|
|
|
|
Purchased services
|
(32,517)
|
|
|
(24.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special items
|
184,111
|
|
|
100.0
|
|
|
|
|
|
|
Other
|
(50,517)
|
|
|
(32.5)
|
|
|
|
|
|
|
Total
|
$
|
(1,012,327)
|
|
|
(40.4)
|
%
|
|
|
|
|
Aircraft fuel
The price and availability of aircraft fuel is volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. The decrease in aircraft fuel expense is illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
% Change
|
|
|
|
|
(in thousands, except per-gallon amounts)
|
|
|
|
|
|
Aircraft fuel expense, including taxes and delivery
|
$
|
161,363
|
|
|
$
|
542,573
|
|
|
|
|
(70.3)
|
%
|
|
|
|
Fuel gallons consumed
|
106,225
|
|
|
270,001
|
|
|
|
|
(60.7)
|
%
|
|
|
|
Average fuel price per gallon, including taxes and delivery
|
$
|
1.52
|
|
|
$
|
2.01
|
|
|
|
|
(24.4)
|
%
|
|
|
We believe economic fuel expense is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations and is consistent with how management manages our business and assesses our operating performance. We define economic fuel expense as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled in the period inclusive of costs related to hedging premiums.
Economic fuel expense is calculated as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
% Change
|
|
|
|
|
(in thousands, except per-gallon amounts)
|
|
|
|
|
|
Aircraft fuel expense, including taxes and delivery
|
$
|
161,363
|
|
|
$
|
542,573
|
|
|
|
|
(70.3)
|
%
|
|
|
|
Realized losses on settlement of fuel derivative instruments
|
9,035
|
|
|
12,403
|
|
|
|
|
(27.2)
|
%
|
|
|
|
Economic fuel expense
|
$
|
170,398
|
|
|
$
|
554,976
|
|
|
|
|
(69.3)
|
%
|
|
|
|
Fuel gallons consumed
|
106,225
|
|
|
270,001
|
|
|
|
|
(60.7)
|
%
|
|
|
|
Economic fuel costs per gallon
|
$
|
1.60
|
|
|
$
|
2.06
|
|
|
|
|
(22.3)
|
%
|
|
|
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for additional discussion of our jet fuel costs and related derivative program.
Wages and benefits
Wages and benefits expense decreased by $335.7 million, or 46.4%, in the year ended December 31, 2020 as compared to the same period in 2019. The decrease was primarily attributed to the recognition of $240.6 million in contra-expense related to the grant portion of PSP funding during the year ended December 31, 2020 and was recorded in proportion to estimated wage and benefits expense over the period it covered. Additionally, in March 2020, we instituted a temporary hiring freeze, reduced officer salaries between 10% and 50% through September 2020, and instituted various voluntary and involuntary leave programs.
During the third quarter of 2020, we announced and completed voluntary separation program offerings across all of our labor groups. Additionally, we announced involuntary workforce reductions, the majority of which were effective October 1, 2020. Combined with our voluntary leave programs, our separation programs together represented an approximately 32% reduction of our total workforce.
On January 15, 2021, we entered into the PSP Extension for financial assistance to be released in installments totaling approximately $167.5 million, of which $147.3 million will be in the form of a grant and will be recognized as a reduction to wages and benefits in the first quarter of 2021.
As a result of workforce reductions, continued lower levels of operations, and the recognition of PSP Extension funds, we expect salaries and related costs to decline in the first quarter of 2021 in comparison with the prior comparable period.
Aircraft rent
Aircraft rent decreased $15.0 million or 12.6%, for the year ended December 31, 2020, as compared to the same period in 2019. The decrease was primarily attributed to lease extensions entered into for certain of our A330-200 and Boeing 717-200 aircraft in the second half of 2019, resulting in more favorable lease rates extended over periods ranging between two to eight years. These decreases were partially offset by increased rent expense as generated from the completion of two sale-leaseback transactions in July 2020. The transactions qualified as a sale, generating an immaterial loss, and the associated assets were removed from our unaudited Consolidated Balance Sheets within property and equipment, net, and recorded as operating lease right-of-use assets. Refer to Note 9 in the Notes to Consolidated Financial Statements for more information on our finance and operating leases.
Maintenance materials and repairs
Maintenance materials and repairs decreased $128.2 million, or 51.3%, for the year ended December 31, 2020, as compared to the prior year. The decrease is primarily attributed to reductions in variable-related maintenance costs commensurate with capacity reductions during the periods in response to the COVID-19 pandemic. We expect maintenance, materials and repairs expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we rebuild operational capacity in 2021.
Aircraft and passenger servicing
Aircraft and passenger servicing expense decreased by $106.3 million, or 64.7%, for the year ended December 31, 2020 as compared to the prior year. The decline is primarily due to the capacity reductions discussed above. We expect aircraft and passenger servicing expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we build our operational capacity in 2021.
Commissions and other selling expenses
Commissions and other selling expenses decreased by $83.9 million, or 64.4%, for the year ended December 31, 2020 as compared to the prior year. The decrease in commissions and other selling expense was primarily related to the significant reduction in demand for travel due to the impact of the COVID-19 pandemic. We expect commissions and other selling expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we build our operational capacity in 2021.
Other rentals and landing fees
Other rentals and landing fees decreased by $55.8 million, or 43.1%, for the year ended December 31, 2020 as compared to the prior year. A portion of our other rentals and landing fees are variable in nature and are dependent on factors such as the number of departures and passengers. The decrease in landing fees and other rents is due to the reduction in capacity and number of flights operated during the year ended December 31, 2020. We expect other rentals and landing fees expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we build our operational capacity in 2021.
Purchased services
Purchased services decreased by $32.5 million, or 24.7%, for the year ended December 31, 2020 as compared to the prior year. The decrease in purchased services expense is primarily related to the significant reduction in demand for travel due to the impact of the COVID-19 pandemic. We expect purchased services expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we build our operational capacity in 2021.
Special items
During the year ended December 31, 2020, we recognized approximately $184.1 million of special items, comprised of the following:
•In March 2020, we reached an agreement in principle with our flight attendants, represented by the AFA, on a new five-year contract that runs through April 2025. On April 3, 2020, we received notification from the AFA that a collective bargaining agreement (the CBA) was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flight attendants upon retirement. During the first quarter of 2020, we recorded a $23.5 million ratification bonus, of which $20.2 million was related to service prior to January 1, 2020, and recognized this as a special item in the Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of wages and benefits in the Consolidated Statements of Operations.
•During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove our stock price to 52-week lows and significantly reduced future cash flow projections. We qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of goodwill and indefinite-lived intangible assets. We determined that the estimated fair value of our one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the Consolidated Balance Sheets, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.
•During the second quarter of 2020, we recorded special items of $34.0 million comprised of: (a) an impairment charge of $27.5 million to mark down our ATR-42 and ATR-72 fleets to fair value; (b) an impairment charge of $3.4 million to mark down our commercial real estate assets to fair value; and (c) an approximately $3.1 million write-off for discontinued software-related projects as a result of the COVID-19 pandemic.
•During the third quarter of 2020, we announced and completed voluntary separation programs across each of our labor groups providing for one-time severance payments, the establishment of health reimbursement accounts and other benefits. Additionally, we announced involuntary separation and temporary leave programs, the majority of which were effective October 1, 2020. We recorded $17.5 million in severance and benefits as an operating special item and $5.7 million related to special termination benefits and curtailment loss as a nonoperating special item in the Consolidated Statements of Operations.
•During the fourth quarter of 2020, we recorded long-lived asset impairment of approximately $5.4 million, comprised of an additional write-down of our ATR-42 and ATR-72 fleet of approximately $4.9 million as a result of ongoing market uncertainty attributed to the COVID-19 pandemic. We also wrote off of approximately $0.5 million in capitalized software projects that were permanently suspended in response to the continuing impacts of the COVID-19 pandemic. Additionally, we recorded $0.3 million in additional costs for the finalization of the voluntary and involuntary separation programs discussed above.
Other expense
The decrease in other expense is primarily driven by lower volume-related costs resulting from the decreased capacity during the year ended December 31, 2020 as compared to the same period in 2019. We expect other expense to decline in the first quarter of 2021 versus the comparable prior year period due to the capacity reductions discussed above, with incremental increases as we build our operational capacity in 2021.
Nonoperating expense, net
Net nonoperating expense increased by $30.0 million in the year ended December 31, 2020, as compared to the prior year, primarily due to the movement of realized and unrealized gains and losses associated with our fuel and foreign currency derivative instruments, which are not designated for hedge accounting under ASC 815, Derivatives and Hedging, and the movement of unrealized gains and losses on our debt instruments denominated in foreign currency.
Income Tax Expense
Our effective tax rate was 27.0% for the year ended December 31, 2020, compared with 26.6% for the prior year. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items. The effective tax rate for the twelve months ended December 31, 2020 includes the impact of a nondeductible goodwill impairment, a tax benefit resulting from the rate differential of NOL carryforwards generated in recent periods which were carried back to prior years, and a $7.1 million valuation allowance reserve recorded against state deferred tax assets. Refer to Note 10 to the Notes to Consolidated Financial Statements for additional discussion.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $864.4 million as of December 31, 2020, compared to $618.7 million as of December 31, 2019. As a result of the COVID-19 pandemic, we have taken, and are continuing to take, actions to increase liquidity and augment our financial position, which include:
•On March 16, 2020, we drew down fully from our previously undrawn $235.0 million revolving credit facility. On February 11, 2021, we repaid the $235.0 million outstanding amount drawn on our revolving credit facility. We have the ability to draw down on the revolving credit facility in the future, should the need arise.;
•We suspended dividend payments, and our stock repurchase program;
•We received $240.6 million in grants and $60.3 million in loans pursuant to the PSP under the CARES Act;
•In September 2020, we entered into the Loan Agreement with the Treasury to borrow up to $420.0 million in secured term loans pursuant to the ERP under the CARES Act. On October 23, 2020, we amended and restated our Loan Agreement with the Treasury to increase the maximum amount available to be borrowed by us to $622 million. As of December 31, 2020, we had borrowed $45.0 million under the ERP. As discussed above, we repaid the outstanding loan under the ERP on February 4, 2021;
•During the third quarter of 2020, we completed $376.0 million in financings secured by aircraft, including the issuance of enhanced equipment trust certificates and two sale-leaseback transactions. See Note 2 and Note 8 to the Notes to Consolidated Financial Statements for more information on our financing activities; and
•In December 2020, we commenced our ATM Program. During the twelve months ended December 31, 2020, 2.1 million shares were sold in the ATM Program at an average price of $19.79 per share, with net proceeds of approximately $41.2 million.
As discussed above, on February 4, 2021, we completed a our Notes Offering for an aggregate of $1.2 billion principal amount of 5.750% senior secured notes due 2026. Immediately prior to the closing of the offering, we repaid in full the $45.0 million loan from the Treasury under the ERP. We continue to explore and pursue options to raise additional financing as opportunities may arise.
We cannot assure you that the assumptions used to estimate our liquidity requirements will be correct because we have never experienced such an unprecedented event impacting global travel, and as a consequence, our ability to predict the full impact of the COVID-19 pandemic is uncertain. In addition, the magnitude and duration of the COVID-19 pandemic is uncertain. However, based on our assumptions and estimates with respect to the temporary suspension of nearly the entirety of our operations, and our financial condition, we believe that the liquidity described in the preceding paragraphs will be sufficient to fund our liquidity requirements over at least the next twelve months.
Cash Flows
Net cash used in operating activities was $310.7 million in the year ended December 31, 2020 as compared to net cash provided by operating activities of $485.1 million in the prior year. Operating cash flows are primarily derived from providing air transportation to customers. The vast majority of tickets are purchased in advance of when travel is provided, and in some cases, several months before the anticipated travel date. The significant decline in operating cash flows during the twelve months ended December 31, 2020 was largely driven by the adverse impact of the COVID-19 pandemic on our financial results.
Cash used in investing activities was $98.8 million and $405.2 million for the years ended December 31, 2020 and 2019, respectively. Investing activities included capital expenditures, primarily related to aircraft and other equipment, the sale and leaseback of two A321-200neo aircraft, and the purchases and sales of short-term investments. During the year ended December 31, 2020, capital expenditures were approximately $105.3 million, the majority of which relate to predelivery payments for our Boeing 787-9 aircraft deliveries and the purchase of our last A321neo aircraft in May 2020 as compared with $397.4 million in capital expenditures during the year ended December 31, 2019. The reduction in capital expenditures was primarily driven by the ongoing impact of the COVID-19 pandemic, which resulted in the suspension of non-essential projects as well as the deferral of Boeing 787-9 aircraft deliveries and thus, pre-delivery payments. Refer to Note 14 to the Notes to Consolidated Financial Statements for additional information on the amendment of our B787 purchase agreement. During the year ended December 31, 2020, our purchases and sales of short-term investments resulted in net cash outflow of $107.5 million as compared to net cash outflow of $11.1 million during the prior year. Additionally, during the year ended December 31, 2020, we entered into two sale and leaseback transactions generating total proceeds of $114.0 million. We did not execute any sale and leaseback transactions during the prior year. Refer to Note 9 to the Notes to Consolidated Financial Statements for additional discussion on our sale and leaseback transactions.
Net cash provided by financing activities was $546.1 million and $24.5 million for years ended December 31, 2020 and 2019, respectively. As discussed above, cash from financing activities is primarily driven from financings and equity offerings completed by us during 2020 to increase liquidity in response to the adverse financial impact of the COVID-19 pandemic. This is in comparison to $227.9 million in financings entered into in the prior year. Refer to Note 8 to the Notes to Consolidated Financial Statements for additional information on our debt obligations and Note 13 to the Notes to Consolidated Financial Statements for information on our equity offering. During the year ended December 31, 2020, and prior to the suspension of our dividend and share repurchase programs pursuant to the CARES Act and the CAA 2021, we returned $13.0 million to our shareholders through a combination of share repurchases and dividend payments, as compared to $91.5 million during the prior year.
Credit Card Holdbacks
Under our bank-issued credit card processing agreements, proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, are reported as restricted cash in our Consolidated Balance Sheets. As of December 31, 2020 and 2019, there were no holdbacks held with our credit card processors.
In the event of a material adverse change in our business, the holdback could increase to an amount up to 100% of the applicable credit card activity for all unflown tickets, which would also result in an increase in the required level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on our operations.
Pension and Other Postretirement Benefit Plan Funding
As of December 31, 2020, the excess of the projected benefit obligations over the fair value of plan assets was approximately $224.7 million. We contributed $4.1 million and $3.8 million to our disability plan in 2020 and 2019, respectively.
During the years ended December 31, 2020 and 2019, we were not required to, and did not make, contributions to our defined benefit pension plan. In 2018, we contributed $50.0 million to our defined benefit pension plans (excluding one-time settlement payments). Future funding requirements for our defined benefit and other postretirement plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements and the level and timing of asset returns. Given available funding credits in the defined benefit plan, we do not anticipate making any cash contributions to our defined benefit plan during 2021.
Stock Repurchase Program and Dividends
In November 2018, our Board of Directors approved a new stock repurchase program pursuant to which we may repurchase up to $100 million of our outstanding common stock over a two-year period through December 2020. On March 18, 2020, we indefinitely suspended all repurchases under the approved repurchase plan in connection with our receipt of financial assistance under the CARES Act and the CAA 2021, which restricts us from repurchasing shares and making dividend payments until March 31, 2022. We spent $7.5 million and $68.8 million to repurchase and retire approximately 0.3 million shares and 2.5 million shares of our common stock in open market transactions during the years ended December 31, 2020 and 2019, respectively.
The following table displays information with respect to our stock repurchase programs as of December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except repurchase price)
|
|
Share Repurchase Authorization
(in '000s)
|
|
Weighted Average Repurchase Price
|
|
Planned Completion Date
|
|
Authorization Remaining
(in '000s)
|
|
April 2015 Program
|
|
$
|
100,000
|
|
|
$
|
25.75
|
|
|
April 2017
|
|
Completed April 2017
|
|
April 2017 Program
|
|
100,000
|
|
|
39.85
|
|
|
May 2019
|
|
Completed December 2017
|
|
November 2017 Program
|
|
100,000
|
|
|
36.71
|
|
|
December 2019
|
|
Completed December 2018
|
|
November 2018 Program
|
|
100,000
|
|
|
27.47
|
|
|
Suspended
|
|
Suspended
|
We declared and paid cash dividends of $5.5 million, $22.8 million, and $24.2 million in 2020, 2019, and 2018, respectively. Our receipt of financial assistance under the CARES Act and the CAA 2021 precludes us from making any further dividend payments until March 31, 2022.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) retained a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in the first three categories that we believe may have a current or future material effect on our financial condition, liquidity or results of operations. We do have obligations arising out of variable interests in unconsolidated entities related to certain aircraft leases. To the extent our leases and related guarantees are with a separate legal entity other than a governmental entity, we are not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease, and the lease does not include a residual value guarantee, fixed price purchase option, or similar feature.
Contractual Obligations
Our estimated contractual obligations as of December 31, 2020 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
|
|
(in thousands)
|
|
Debt obligations, including principal and interest (1)
|
$
|
1,345,360
|
|
|
$
|
156,471
|
|
|
$
|
526,756
|
|
|
$
|
279,006
|
|
|
$
|
383,127
|
|
|
Finance lease obligations, including principal and interest (2)
|
167,844
|
|
|
27,130
|
|
|
55,420
|
|
|
29,159
|
|
|
56,135
|
|
|
Operating leases obligations (2)
|
782,133
|
|
|
110,921
|
|
|
196,241
|
|
|
158,539
|
|
|
316,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft purchase commitments (3)
|
1,654,955
|
|
|
8,483
|
|
|
501,173
|
|
|
913,030
|
|
|
232,269
|
|
|
Other commitments (4)
|
416,570
|
|
|
78,566
|
|
|
141,485
|
|
|
107,850
|
|
|
88,669
|
|
|
Projected employee benefit contributions (5)
|
78,600
|
|
|
—
|
|
|
25,900
|
|
|
38,000
|
|
|
14,700
|
|
|
Total contractual obligations
|
$
|
4,445,462
|
|
|
$
|
381,571
|
|
|
$
|
1,446,975
|
|
|
$
|
1,525,584
|
|
|
$
|
1,091,332
|
|
(1)Represents scheduled principal and estimated interest payments under our long-term debt based on interest rates specified in the applicable debt agreements. Principal and interest payments for debt denominated in Japanese Yen is estimated using the spot rate as of December 31, 2020.
(2)Refer to Note 9 to the Notes to Consolidated Financial Statements for additional information regarding finance and operating leases.
(3)Amounts include our firm commitments for aircraft and aircraft related equipment. On October 26, 2020, we entered into an amendment to our 787-9 purchase agreement with Boeing, providing for a change in our aircraft delivery schedule to between 2022 through 2026. The committed expenditures under the amended agreement is reflected in the table above.
(4)Amounts include commitments for services provided by third parties for aircraft maintenance, IT, capacity purchases, and reservations. Total contractual obligations do not include long-term contracts where the commitment is variable in nature (with no minimum guarantee), such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.
(5)Amounts include our estimated minimum contributions to our pension plans (based on actuarially determined estimates) and contributions to our pilots’ disability plan. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns and the impact of future legislation
Capital Commitments
As of December 31, 2020, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
Firm
Orders
|
|
Purchase
Rights
|
|
Expected Delivery Dates
|
|
A321neo aircraft
|
—
|
|
|
9
|
|
|
N/A
|
|
B787-9 aircraft
|
10
|
|
|
10
|
|
|
Between 2022 and 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Electric GEnx spare engines:
|
|
|
|
|
|
|
B787-9 spare engines
|
2
|
|
|
2
|
|
|
Between 2022 and 2025
|
Committed expenditures for these aircraft, engines, and related flight equipment are approximately $8 million in 2021, $343 million in 2022, $158 million in 2023, $505 million in 2024, $408 million in 2025, and $232 million thereafter.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure additional financing. We are also currently exploring various financing alternatives, and while we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms, or at all. The inability to secure such financing could have an impact on our ability to fulfill our existing purchase commitments and a material adverse effect on our operations.
Non-GAAP Financial Measures
We believe the disclosure of non-GAAP financial measures is useful information to readers of our financial statements because:
•We believe it is the basis by which we are evaluated by industry analysts and investors;
•These measures are often used in management and board of directors' decision making analysis;
•It improves a reader's ability to compare our results to those of other airlines; and
•It is consistent with how we present information in our quarterly earnings press releases.
See table below for reconciliation between GAAP consolidated net income to adjusted consolidated net income, including per share amounts (in thousands unless otherwise indicated). The adjustments are described below:
•During the year ended December 31, 2020, the effective tax rate included a tax benefit of $45.4 million resulting from the rate differential between the prevailing tax rate of 21% during the years that generated the NOLs and the previous tax rate of 35% that was in effect during the years to which NOLs were carried back as a result of the enactment of the CARES Act. This benefit is attributed to the enactment of the CARES Act and we believe that exclusion of this tax benefit provides investors comparability of results between periods.
•During the year ended December 31, 2020, we recognized $240.6 million in contra-expense related to grant proceeds from the PSP. The grant proceeds were recognized in proportion to estimated wages and benefits expense over the period the PSP covers. We utilized all proceeds under the PSP as of September 30, 2020.
•Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This adjustment includes the unrealized gains and losses on fuel and interest rate derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. Excluding the impact of these derivative adjustments allows investors to analyze our core operational performance and compare our results to other airlines in the periods presented below.
•Changes in fair value of foreign currency derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This adjustment includes the unrealized amounts of foreign currency derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. We believe that excluding the impact of these derivative adjustments helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
•Change in unrealized losses on foreign debt are based on fluctuations in foreign exchanges rates related to foreign-denominated debt agreements. We believe that excluding the impact of these amounts helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
•Loss (gain) on sale of aircraft is the result of adjustments to the final purchase price for three of our Boeing 767-300 aircraft included in a forward sale agreement we entered into in January 2018 and described below. During the year ended December 31, 2018, we recorded a loss of $0.3 million. During the year ended December 31, 2019, we recorded a gain on disposal of Boeing 767-300 aircraft equipment of $1.9 million in conjunction with the retirement of our Boeing 767-300 fleet.
2020 Special Items
•During the first quarter of 2020, we recognized $126.9 million of special items in the Consolidated Statements of Operation, comprised of the following:
◦On April 3, 2020, we received notification from the AFA that the CBA was ratified by its members. The ratified CBA provided for, among other things, a ratification payment, payable over twelve months. We recorded a $23.5 million ratification bonus, of which $20.2 million related to service prior to January 1, 2020, and was recorded as a special item.
◦We recognized a goodwill impairment charge of $106.7 million. Refer to Note 2 to the Notes to Consolidated Financial Statements for additional discussion.
•During the second quarter of 2020, we recognized a charge of $34.0 million associated with the impairment of certain of our long-lived assets. Refer to Note 2 to the Notes to Consolidated Financial Statements for additional discussion.
•During the third quarter of 2020, we announced and completed voluntary separation programs across each of our labor groups providing for one-time severance payments, the establishment of health reimbursement accounts and other benefits. Additionally, we announced involuntary separation programs, the majority of which were effective October 1, 2020. We recorded $17.5 million in severance and benefits as an operating special item and $5.7 million related to special termination benefits and curtailment loss as a nonoperating special item in the Consolidated Statements of Operations.
•During the fourth quarter of 2020, we recorded long-lived asset impairment of approximately $5.4 million, comprised of an additional write-down of our ATR-42 and ATR-72 fleet of approximately $4.9 million as a result of ongoing market uncertainty attributed to the COVID-19 pandemic. We also wrote off of approximately $0.5 million in capitalized software projects that were permanently suspended in response to the continuing impacts of the COVID-19 pandemic. Additionally, we recorded $0.3 million in additional costs for the finalization of the voluntary and involuntary separation programs discussed above.
2018 Contract Terminations Expense
•During the year ended December 31, 2018, we terminated two contracts which incurred a total of $35.3 million in contract terminations expense. The transactions are described below:
◦In January 2018, we entered into a transaction with our lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, we agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.
◦In February 2018, we exercised our right to terminate our aircraft purchase agreement with Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, we were obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. We recorded a contract terminations expense to reflect the termination penalty in our consolidated statements of operations.
We believe that excluding such special items helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Total
|
|
Diluted Per Share
|
|
Total
|
|
Diluted Per Share
|
|
Total
|
|
Diluted Per Share
|
|
|
(in thousands, except for per share data)
|
|
GAAP net income (loss), as reported
|
$
|
(510,935)
|
|
|
$
|
(11.08)
|
|
|
$
|
223,984
|
|
|
$
|
4.71
|
|
|
$
|
233,200
|
|
|
$
|
4.62
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act - carryback of additional NOLs
|
(45,416)
|
|
|
(0.99)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant recognition
|
(240,648)
|
|
|
(5.22)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Changes in fair value of fuel derivative contracts
|
(2,105)
|
|
|
(0.05)
|
|
|
(5,694)
|
|
|
(0.13)
|
|
|
19,973
|
|
|
0.39
|
|
|
Unrealized loss on non-designated fx positions
|
1,327
|
|
|
0.03
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Unrealized loss on foreign debt
|
14,759
|
|
|
0.32
|
|
|
696
|
|
|
0.02
|
|
|
380
|
|
|
0.01
|
|
|
Loss (gain) on sale of aircraft
|
—
|
|
|
—
|
|
|
(1,948)
|
|
|
(0.04)
|
|
|
309
|
|
|
0.01
|
|
|
Special items
|
184,111
|
|
|
3.99
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Nonoperating special items
|
5,682
|
|
|
0.12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contract terminations expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,322
|
|
|
0.70
|
|
|
Tax effect of adjustments
|
42,252
|
|
|
0.92
|
|
|
1,845
|
|
|
0.04
|
|
|
(14,365)
|
|
|
(0.29)
|
|
|
Adjusted net income
|
(550,973)
|
|
|
(11.96)
|
|
|
218,883
|
|
|
4.60
|
|
|
274,819
|
|
|
5.44
|
|
Operating Costs per Available Seat Mile (CASM)
We have separately listed in the table below our fuel costs per ASM and non-GAAP unit costs, excluding fuel and special items. These amounts are included in CASM, but for internal purposes we consistently use cost metrics that exclude fuel and special items (if applicable) to measure and monitor its costs.
CASM and CASM, excluding fuel, loss (gain) on sale of aircraft, contract terminations expense, and special items, are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands, except for CASM figures)
|
|
GAAP operating expenses
|
$
|
1,492,424
|
|
|
$
|
2,504,751
|
|
|
$
|
2,523,043
|
|
|
Adjusted for:
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
(161,363)
|
|
|
(542,573)
|
|
|
(599,544)
|
|
|
CARES Act PSP grant recognition
|
240,648
|
|
|
—
|
|
|
—
|
|
|
Special items
|
(184,111)
|
|
|
—
|
|
|
—
|
|
|
Contract terminations expense
|
—
|
|
|
—
|
|
|
(35,322)
|
|
|
Loss (gain) on sale of aircraft
|
—
|
|
|
1,948
|
|
|
(309)
|
|
|
Adjusted operating expenses
|
$
|
1,387,598
|
|
|
$
|
1,964,126
|
|
|
$
|
1,887,868
|
|
|
Available Seat Miles
|
7,560,486
|
|
|
20,596,711
|
|
|
20,171,911
|
|
|
CASM—GAAP
|
19.74
|
¢
|
|
12.16
|
¢
|
|
12.51
|
¢
|
|
Adjusted for:
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
(2.13)
|
|
|
(2.62)
|
|
|
(2.97)
|
|
|
CARES Act PSP grant recognition
|
3.18
|
|
|
—
|
|
|
—
|
|
|
Special items
|
(2.44)
|
|
|
—
|
|
|
—
|
|
|
Contract terminations expense
|
—
|
|
|
—
|
|
|
(0.18)
|
|
|
|
|
|
|
|
|
|
Adjusted CASM
|
18.35
|
¢
|
|
9.54
|
¢
|
|
9.36
|
¢
|
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties, and that potentially result in materially different results under different assumptions and conditions. Our most critical accounting policies and estimates are described below. See the summary of significant accounting policies included in Note 1 to the Notes to Consolidated Financial Statements for additional discussion of the application of these estimates and other accounting policies.
Revenue Recognition
Passenger revenue. We record direct passenger ticket sales and tickets sold by other airlines for use on Hawaiian as passenger revenue when the transportation is provided or when scheduled flights for tickets are expected to expire unused. The value of unused passenger tickets is included in current liabilities as Air traffic liability. Prior to the second quarter of 2020, non-refundable tickets sold and credits issued generally expired 13 months from the date of issuance or flight, as applicable. In April 2020, we announced the waiver of certain change fees and extended ticket validity for up to 24 months. We assessed the impact of this change and believe that the classification of Air Traffic Liability as a current liability continues to remain appropriate. We record an estimate of breakage revenue on the scheduled flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. Given the impact of the COVID-19 pandemic on actual results and its continued impact on demand, we have monitored, and will continue to monitor customers' travel behavior and may adjust our estimates in the future. Ticket change fees are recorded in Air traffic liability and recognized when the related transportation is provided.
Frequent flyer revenue. HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. ASC 606 requires us to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel or other award is used by the passenger, at which time it is included in passenger revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. The equivalent ticket value (ETV) includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. On a quarterly basis, we calculate the ETV by analyzing the fares of similar tickets for the prior 12 months, considering cabin class and geographic region.
We also sell mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities.
During the first quarter of 2018, we amended our partnership with Barclaycard US, Hawaiian's co-branded credit card partner. Management determined that the amendment should be accounted for as a termination of the existing contract and the creation of a new contract under ASC 606 and the relative selling price was determined for each performance obligation of the new agreement. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for our Barclay's co-branded cardholders. The amended agreement did not change, and includes the following performance obligations; (i) transportation that will ultimately be provided when mileage credits are redeemed (transportation), (ii) the Hawaiian Airlines brand and access to its members lists (collectively, brand performance), (iii) marketing, and (iv) airline benefits to cardholders, including discounts and anniversary travel benefits, baggage waivers and inflight purchase credits. We determined the relative fair value of each performance obligation by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the performance obligations based on their relative selling prices.
The transportation performance obligation is deferred and recognized as passenger revenue when the transportation is provided. The value to the financial institution is provided each time a new cardholder chooses the Hawaiian branded credit card and each
time a cardholder chooses to use the co-branded credit card. Therefore, we recognize revenue for the brand performance obligation as members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with our performance toward satisfying the obligation.
Accounting for frequent flyer revenue involves the use of various techniques to estimate revenue. To determine the total estimated transaction price, we forecast future credit card activity based on historical data. The relative selling price is determined using management’s estimated standalone selling price of each performance obligation. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a standalone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, number of miles awarded and number of miles redeemed. We estimate the selling price of miles using an ETV adjusted for a fulfillment discount as described above.
Miles expire after 18 months of member account inactivity. We review our breakage estimates annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). Our estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile. Due to the effects of the COVID-19 pandemic, including changes to our ticket validity and exchange policies, management continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available.
Pension and Other Postretirement and Postemployment Benefits
The calculation of pension and other postretirement and postemployment benefit expenses and its corresponding liabilities require the use of significant assumptions, including the assumed discount rate, the expected long-term rate of return on plan assets, expected mortality rates of the plan participants, and the expected health care cost trend rate. Changes in these assumptions will impact the expense and liability amounts, and future actual experience may differ from these assumptions.
The significant assumptions as of December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension:
|
|
|
|
|
Discount rate to determine projected benefit obligation
|
2.63
|
%
|
|
|
|
Expected return on plan assets
|
6.76
|
%
|
|
^
|
|
Postretirement:
|
|
|
|
|
Discount rate to determine projected benefit obligation
|
3.38
|
%
|
|
|
|
Expected return on plan assets
|
N/A
|
|
|
|
Expected health care cost trend rate:
|
|
|
|
|
Initial
|
6.50
|
%
|
|
|
|
Ultimate
|
4.75
|
%
|
|
|
|
Years to reach ultimate trend rate
|
6
|
|
|
|
Disability:
|
|
|
|
|
Discount rate to determine projected benefit obligation
|
3.40
|
%
|
|
|
|
Expected return on plan assets
|
4.90
|
%
|
|
^
|
N/A Not Applicable
^ Expected return on plan assets used to determine the net periodic benefit expense for 2021 is 6.29% for the pension plans and 4.28% for the disability plan.
The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans' assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The Retirement Plan for Pilots of Hawaiian Airlines, Inc. and the Pilot's Voluntary Employee Beneficiary Association Disability and Survivor's Benefit Plan strive to have assets sufficiently diversified so that adverse or unexpected results from any one security class will not have an unduly detrimental impact on the entire portfolio. We believe that our long-term asset allocation on average will approximate the targeted allocation. We periodically review our actual asset allocation and rebalance the pension plan's investments to our targeted allocation when considered appropriate. Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return by 100 basis points will have the following effects on our estimated
2021 pension and disability benefit expense recorded in wages and benefits and nonoperating expense:
|
|
|
|
|
|
|
|
|
100 Basis Point Decrease
|
|
|
(in millions)
|
|
Increase in estimated 2021 pension expense
|
$
|
3.7
|
|
|
Increase in estimated 2021 disability benefit expense
|
0.4
|
|
We determine the appropriate discount rate for each of our plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The pension and other postretirement benefit liabilities and future expense both increase as the discount rate is reduced. Lowering the discount rate by 100 basis points would have the following effects:
|
|
|
|
|
|
|
|
|
100 Basis Point Decrease
|
|
|
(in millions)
|
|
Increase in pension obligation as of December 31, 2020
|
$
|
60.0
|
|
|
Increase in other postretirement benefit obligation as of December 31, 2020
|
22.7
|
|
|
Decrease in estimated 2021 pension expense (operating and nonoperating)
|
(0.9)
|
|
|
Increase in estimated 2021 other postretirement benefit expense (operating and nonoperating)
|
1.7
|
|
The health care cost trend rate is based upon an evaluation of our historical trends and experience taking into account current and expected market conditions. Changes in the assumed current health care cost trend rate by year by 100 basis points would have the following annual effects:
|
|
|
|
|
|
|
|
|
100 Basis Point Increase
|
|
|
(in millions)
|
|
Increase in other postretirement benefit obligation as of December 31, 2020
|
$
|
10.7
|
|
|
Increase in estimated 2021 other postretirement benefit expense (operating and nonoperating)
|
1.4
|
|
|
|
|
|
|
|
|
|
|
100 Basis Point Decrease
|
|
|
(in millions)
|
|
Decrease in other postretirement benefit obligation as of December 31, 2020
|
$
|
9.2
|
|
|
Increase in estimated 2021 other postretirement benefit expense (operating and nonoperating)
|
0.9
|
|
Goodwill and Indefinite-lived Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized. We assess the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. We assess the value of its goodwill and indefinite-lived assets under either a qualitative or quantitative approach. When we evaluate goodwill for impairment using a quantitative approach, we estimate the fair value of the reporting unit by considering its market capitalization. If the reporting unit's fair value exceeds its carrying value, no further testing is required. If, however, the reporting unit's carrying value exceeds its fair value, we then determine the amount of the impairment charge, if any. We recognize an impairment charge if the carrying value of the reporting unit's goodwill exceeds its estimated fair value.
During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove our stock price to 52-week lows and significantly reduced future cash flow projections. We qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of our goodwill and indefinite-lived intangible assets. We determined that the estimated fair value of our one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on our Consolidated Balance Sheets, leading to the recognition of a goodwill impairment charge of $106.7 million. Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in our determination of fair value required significant judgments by management. The principal assumptions used in our discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the industry in which we operate. Under the market approach, the principal assumption included an estimate for a control premium.
As of December 31, 2020, we had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. We determined that the fair value of our indefinite-lived intangible assets exceeded its carrying value and was not impaired.
Long-Lived Assets
Our long-lived assets used in operations, consisting principally of aircraft and other non-aircraft equipment, are classified as property and equipment, net on the Consolidated Balance Sheets, and have a carrying value of approximately $2.1 billion at December 31, 2020. We review long-lived assets used in operations for impairment when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying value. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. If, at any time, management determines the net carrying value of an asset is not recoverable, the amount is reduced to its fair value during the period in which such determination is made. Any changes in the estimated useful lives of these assets will be accounted for prospectively.
As a result of the COVID-19 pandemic, including capacity reductions, the temporary grounding of the majority of our fleet, as well as reduced future cash flow projections, we previously identified, and continue to identify, indicators of impairment of our long-lived assets. During the second quarter of 2020, it was determined that the net carrying values of our ATR-42 and ATR-72 fleets and assets held under our commercial real estate subsidiary were not recoverable through the generation of future undiscounted cash flows as of June 30, 2020. We estimated the fair value of our ATR-42 and ATR-72 fleets using a third-party valuation, which takes into consideration market pricing information, among other factors, and resulted in a $27.5 million impairment charge. We estimated the fair value of our commercial real-estate entity using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, which resulted in a $3.4 million impairment charge. The principal assumptions used in our discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to us and the industry in which we operate.
During the fourth quarter of 2020, we recorded long-lived asset impairment of approximately $5.4 million, comprised of an additional write-down of our ATR-42 and ATR-72 fleet of $4.9 million as a result of ongoing market uncertainty attributed to the COVID-19 pandemic. We also wrote off of approximately $0.5 million in capitalized software projects that were permanently suspended in response to the continuing impacts of the COVID-19 pandemic.
Given the substantial reduction in our active aircraft and diminished projections of future cash flows in the near and medium term, we evaluated the remainder of our fleet and determined that only the fleet types discussed above were impaired as the forecasted future cash flows from operation of the fleet through the respective retirement dates continue to exceed their carrying values. We will continue to monitor the duration and extent of the impact of the COVID-19 pandemic on our business and will continue to evaluate our current fleet and other long-lived assets for impairment accordingly.
Income Tax Valuation Allowance
We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets and establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our deferred tax liabilities, the overall business environment, our historical financial results, our industry's historically cyclical financial results and potential current and future tax planning strategies. We cannot presently determine when we will be able to generate sufficient taxable income to realize all of our state deferred tax assets. Accordingly, as of December 31, 2020, we recorded a valuation allowance of $9.6 million against our deferred tax assets. If we determine that it is more likely than not that we will generate sufficient taxable income to realize the remainder of our deferred income tax assets, we will reverse our valuation allowance (in full or in part), resulting in an income tax benefit in the period such a determination is made.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
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Page
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Hawaiian Holdings, Inc.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Hawaiian Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hawaiian Holdings, Inc. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the PCAOB, the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 12, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
Description of the Matter
|
|
During the year ended December 31, 2020, the Company recorded a goodwill impairment charge of $106.7 million. As discussed in Note 1 to the consolidated financial statements, the Company assesses whether goodwill is impaired on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Due to the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic, the Company determined that an impairment loss may have been incurred as of March 31, 2020 and performed an interim quantitative test of the recoverability of its goodwill balance using a combination of income and market-based approaches to estimate fair value.
Auditing the goodwill impairment test was complex and highly judgmental due to significant estimation required in estimating the fair value of the Company. The fair value estimate was sensitive to significant assumptions, specifically the revenue growth rates, cost per available seat mile, and weighted-average cost of capital.
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|
|
|
|
|
|
|
|
|
|
|
How We Addressed the Matter in Our Audit
|
|
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s determination of the fair value of the reporting unit, including the valuation model, the significant underlying assumptions selected by management, and data inputs used in the valuation model.
To test the estimated fair value of the Company, our audit procedures included, among others, evaluating the significant data and assumptions used to develop the estimate, including
comparison of such data and assumptions to current industry trends, the Company’s accounting records, and market data of peer companies. We involved our specialist to assist in evaluating the methodologies and key assumptions used to estimate the fair value, including the weighted average cost of capital. Our specialist also performed comparative calculations and sensitivity analyses over the significant assumptions used in developing the fair value estimate and to test the significant assumptions used in aggregate. In addition, we tested management’s reconciliation of the estimated fair value to the market capitalization of the Company.
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
Description of the Matter
|
|
At December 31, 2020, the Company’s long-lived assets balance was $2.1 billion. This balance consists principally of aircraft and other non-aircraft equipment. As discussed in Note 1 to the consolidated financial statements, the Company reviews long-lived assets used in operations for impairment when events and changes in circumstances indicate that the asset groups may be impaired. When an indicator of potential impairment is identified, the Company estimates its undiscounted future cash flows of the asset group. When the carrying value of the asset group is greater than its undiscounted future cash flows, the Company estimates the fair value of the asset group to calculate any impairment charges.
During 2020, the Company determined that the net carrying values of the ATR-42 fleet and ATR-72 fleet were not recoverable through the generation of undiscounted future cash flows. The Company estimated the fair value of its ATR-42 fleet and ATR-72 fleet using a third-party specialist, which resulted in a $32.4 million impairment charge.
Auditing the valuation of long-lived assets was complex and highly judgmental due to the significant estimation involved in determining the fair value of the aircraft in the current market environment. The fair value estimate was sensitive to significant assumptions, specifically published sources of independent appraisals based on the long-term use assumptions.
|
|
How We Addressed the Matter in Our Audit
|
|
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s long-lived assets impairment process. This included controls over the significant data and assumptions used in the Company’s valuation of its asset groups that were not recoverable through the generation of undiscounted future cash flows.
To test the valuation of the Company’s asset groups that were not recoverable through the generation of undiscounted future cash flows, we involved our specialist to assist in evaluating the methodologies and key assumptions used in the valuation performed by the Company’s third-party specialist. Our specialist also provided corroborative prices for each aircraft fleet.
|
We have served as the Company's auditor since 1999.
Honolulu, Hawai'i
February 12, 2021
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands, except per share data)
|
|
Operating Revenue:
|
|
|
|
|
|
|
Passenger
|
$
|
664,799
|
|
|
$
|
2,597,772
|
|
|
$
|
2,602,793
|
|
|
Other
|
180,014
|
|
|
234,456
|
|
|
234,618
|
|
|
Total
|
844,813
|
|
|
2,832,228
|
|
|
2,837,411
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
Wages and benefits
|
387,910
|
|
|
723,656
|
|
|
684,719
|
|
|
Aircraft fuel, including taxes and delivery
|
161,363
|
|
|
542,573
|
|
|
599,544
|
|
|
Aircraft rent
|
103,890
|
|
|
118,904
|
|
|
125,961
|
|
|
Maintenance materials and repairs
|
121,571
|
|
|
249,772
|
|
|
239,759
|
|
|
Aircraft and passenger servicing
|
58,016
|
|
|
164,275
|
|
|
157,796
|
|
|
Commissions and other selling
|
46,297
|
|
|
130,216
|
|
|
129,315
|
|
|
Depreciation and amortization
|
151,665
|
|
|
158,906
|
|
|
139,866
|
|
|
Other rentals and landing fees
|
73,808
|
|
|
129,622
|
|
|
126,903
|
|
|
Purchased services
|
99,050
|
|
|
131,567
|
|
|
131,651
|
|
|
Contract terminations expense
|
—
|
|
|
—
|
|
|
35,322
|
|
|
Special items
|
184,111
|
|
|
—
|
|
|
—
|
|
|
Other
|
104,743
|
|
|
155,260
|
|
|
152,207
|
|
|
Total
|
1,492,424
|
|
|
2,504,751
|
|
|
2,523,043
|
|
|
Operating Income (Loss)
|
(647,611)
|
|
|
327,477
|
|
|
314,368
|
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
Other nonoperating special items
|
(5,682)
|
|
|
—
|
|
|
—
|
|
|
Interest expense and amortization of debt discounts and issuance costs
|
(40,439)
|
|
|
(27,864)
|
|
|
(33,001)
|
|
|
Interest income
|
8,731
|
|
|
12,583
|
|
|
9,242
|
|
|
Capitalized interest
|
3,236
|
|
|
4,492
|
|
|
7,887
|
|
|
Other components of net periodic benefit cost, excluding settlements
|
1,300
|
|
|
(3,864)
|
|
|
(825)
|
|
|
Gains (losses) on fuel derivatives
|
(6,930)
|
|
|
(6,709)
|
|
|
5,590
|
|
|
|
|
|
|
|
|
|
Other, net
|
(12,657)
|
|
|
(1,119)
|
|
|
(2,103)
|
|
|
Total
|
(52,441)
|
|
|
(22,481)
|
|
|
(13,210)
|
|
|
Income (Loss) Before Income Taxes
|
(700,052)
|
|
|
304,996
|
|
|
301,158
|
|
|
Income tax expense (benefit)
|
(189,117)
|
|
|
81,012
|
|
|
67,958
|
|
|
Net Income (Loss)
|
$
|
(510,935)
|
|
|
$
|
223,984
|
|
|
$
|
233,200
|
|
|
Net Income (Loss) Per Common Stock Share:
|
|
|
|
|
|
|
Basic
|
$
|
(11.08)
|
|
|
$
|
4.72
|
|
|
$
|
4.63
|
|
|
Diluted
|
$
|
(11.08)
|
|
|
$
|
4.71
|
|
|
$
|
4.62
|
|
|
Weighted Average Number of Common Stock Shares Outstanding:
|
|
|
|
|
|
|
Basic
|
46,100
|
|
|
47,435
|
|
|
50,338
|
|
|
Diluted
|
46,100
|
|
|
47,546
|
|
|
50,488
|
|
|
Cash Dividends Declared Per Common Share
|
$
|
0.12
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
For the Years ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Net Income (Loss)
|
$
|
(510,935)
|
|
|
$
|
223,984
|
|
|
$
|
233,200
|
|
|
Other Comprehensive Loss, net:
|
|
|
|
|
|
|
Net change related to employee benefit plans, net of tax benefit of $2,315, $4,349, and $2,414 for 2020, 2019, and 2018, respectively
|
(8,153)
|
|
|
(12,173)
|
|
|
(7,243)
|
|
|
Net change in derivative instruments, net of tax benefit of $1,098 for 2020 and net of tax expense of $21 and $586 for 2019 and 2018, respectively
|
(3,341)
|
|
|
24
|
|
|
1,799
|
|
|
Net change in available-for-sale investments, net of tax expense of $273, $459 and $25 for 2020, 2019, and 2018, respectively
|
850
|
|
|
1,406
|
|
|
78
|
|
|
Total Other Comprehensive Loss
|
(10,644)
|
|
|
(10,743)
|
|
|
(5,366)
|
|
|
Total Comprehensive Income (Loss)
|
$
|
(521,579)
|
|
|
$
|
213,241
|
|
|
$
|
227,834
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(in thousands, except share data)
|
|
ASSETS
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
509,639
|
|
|
$
|
373,056
|
|
|
|
|
|
|
|
Short-term investments
|
354,782
|
|
|
245,599
|
|
|
Accounts receivable, net
|
67,527
|
|
|
97,380
|
|
|
Income taxes receivable
|
95,002
|
|
|
64,192
|
|
|
Spare parts and supplies, net
|
35,442
|
|
|
37,630
|
|
|
Prepaid expenses and other
|
56,086
|
|
|
56,849
|
|
|
Total
|
1,118,478
|
|
|
874,706
|
|
|
Property and equipment, net
|
2,085,030
|
|
|
2,316,772
|
|
|
Other Assets:
|
|
|
|
|
Operating lease right-of-use assets
|
627,359
|
|
|
632,545
|
|
|
Long-term prepayments and other
|
133,663
|
|
|
182,438
|
|
|
|
|
|
|
|
Intangible assets, net
|
13,500
|
|
|
13,500
|
|
|
Goodwill
|
—
|
|
|
106,663
|
|
|
Total Assets
|
$
|
3,978,030
|
|
|
$
|
4,126,624
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts payable
|
$
|
112,002
|
|
|
$
|
148,748
|
|
|
Air traffic liability and current frequent flyer deferred revenue
|
533,702
|
|
|
606,684
|
|
|
|
|
|
|
|
Other accrued liabilities
|
140,081
|
|
|
161,430
|
|
|
Current maturities of long-term debt, less discount
|
115,019
|
|
|
53,273
|
|
|
Current maturities of finance lease obligations
|
21,290
|
|
|
21,857
|
|
|
Current maturities of operating leases
|
82,454
|
|
|
83,224
|
|
|
Total
|
1,004,548
|
|
|
1,075,216
|
|
|
Long-Term Debt
|
1,034,805
|
|
|
547,254
|
|
|
Other Liabilities and Deferred Credits:
|
|
|
|
|
Noncurrent finance lease obligations
|
120,618
|
|
|
141,861
|
|
|
Noncurrent operating leases
|
503,376
|
|
|
514,685
|
|
|
Accumulated pension and other postretirement benefit obligations
|
217,737
|
|
|
203,596
|
|
|
Other liabilities and deferred credits
|
78,908
|
|
|
97,434
|
|
|
Noncurrent frequent flyer deferred revenue
|
201,239
|
|
|
175,218
|
|
|
Deferred tax liability, net
|
216,642
|
|
|
289,564
|
|
|
Total
|
1,338,520
|
|
|
1,422,358
|
|
|
Commitments and Contingent Liabilities
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
|
Special preferred stock, $0.01 par value per share, three shares issued and outstanding at December 31, 2020 and 2019
|
—
|
|
|
—
|
|
|
Common stock, $0.01 par value per share, 48,145,093 and 46,121,859 shares issued and outstanding as of December 31, 2020 and 2019, respectively
|
481
|
|
|
461
|
|
|
Capital in excess of par value
|
188,593
|
|
|
135,651
|
|
|
Accumulated income
|
525,610
|
|
|
1,049,567
|
|
|
Accumulated other comprehensive loss, net
|
(114,527)
|
|
|
(103,883)
|
|
|
Total
|
600,157
|
|
|
1,081,796
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
3,978,030
|
|
|
$
|
4,126,624
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock(*)
|
|
Special
Preferred
Stock(**)
|
|
Capital In Excess of Par Value
|
|
Accumulated Income
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Balance at December 31, 2017
|
$
|
512
|
|
|
$
|
—
|
|
|
$
|
126,743
|
|
|
$
|
793,134
|
|
|
$
|
(75,264)
|
|
|
$
|
845,125
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
233,200
|
|
|
—
|
|
|
233,200
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,171)
|
|
|
—
|
|
|
(24,171)
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,366)
|
|
|
(5,366)
|
|
|
Issuance of 182,843 shares of common stock, net of shares withheld for taxes
|
1
|
|
|
—
|
|
|
(3,645)
|
|
|
—
|
|
|
—
|
|
|
(3,644)
|
|
|
Repurchase and retirement of 2,816,016 shares common stock
|
(28)
|
|
|
—
|
|
|
—
|
|
|
(102,472)
|
|
|
—
|
|
|
(102,500)
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
5,350
|
|
|
—
|
|
|
—
|
|
|
5,350
|
|
|
Cumulative effect of accounting change (ASU 2018-02)
|
—
|
|
|
—
|
|
|
—
|
|
|
12,510
|
|
|
(12,510)
|
|
|
—
|
|
|
Balance at December 31, 2018
|
$
|
485
|
|
|
$
|
—
|
|
|
$
|
128,448
|
|
|
$
|
912,201
|
|
|
$
|
(93,140)
|
|
|
$
|
947,994
|
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
223,984
|
|
|
—
|
|
|
223,984
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,774)
|
|
|
—
|
|
|
(22,774)
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,743)
|
|
|
(10,743)
|
|
|
Issuance of 97,263 shares of common stock, net of shares withheld for taxes
|
1
|
|
|
—
|
|
|
(1,050)
|
|
|
—
|
|
|
—
|
|
|
(1,049)
|
|
|
Repurchase and retirement of 2,515,684 shares common stock
|
(25)
|
|
|
—
|
|
|
—
|
|
|
(68,744)
|
|
|
—
|
|
|
(68,769)
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
8,253
|
|
|
—
|
|
|
—
|
|
|
8,253
|
|
|
Cumulative effect of accounting change (ASU 2016-02), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
4,900
|
|
|
—
|
|
|
4,900
|
|
|
Balance at December 31, 2019
|
$
|
461
|
|
|
$
|
—
|
|
|
$
|
135,651
|
|
|
$
|
1,049,567
|
|
|
$
|
(103,883)
|
|
|
$
|
1,081,796
|
|
|
Net Income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(510,935)
|
|
|
—
|
|
|
(510,935)
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,514)
|
|
|
—
|
|
|
(5,514)
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,644)
|
|
|
(10,644)
|
|
|
Issuance of 143,354 shares of common stock, net of shares withheld for taxes
|
1
|
|
|
—
|
|
|
(1,374)
|
|
|
—
|
|
|
—
|
|
|
(1,373)
|
|
|
Repurchase and retirement of 259,910 shares common stock
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(7,508)
|
|
|
—
|
|
|
(7,510)
|
|
|
CARES Act warrant issuance, net of tax
|
—
|
|
|
—
|
|
|
7,409
|
|
|
—
|
|
|
—
|
|
|
7,409
|
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
4,936
|
|
|
—
|
|
|
—
|
|
|
4,936
|
|
|
Issuance of 2,139,790 shares of common stock related to At-the-market offering
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
41,971
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,992
|
|
|
Balance at December 31, 2020
|
$
|
481
|
|
|
$
|
—
|
|
|
$
|
188,593
|
|
|
$
|
525,610
|
|
|
$
|
(114,527)
|
|
|
$
|
600,157
|
|
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of December 31, 2020 and 2019.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31, 2020 and 2019.
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(510,935)
|
|
|
$
|
223,984
|
|
|
$
|
233,200
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Amortization of intangible assets
|
—
|
|
|
649
|
|
|
1,038
|
|
|
Depreciation and amortization of property and equipment
|
151,665
|
|
|
158,714
|
|
|
139,401
|
|
|
Deferred income taxes, net
|
(72,188)
|
|
|
124,068
|
|
|
35,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
106,662
|
|
|
—
|
|
|
—
|
|
|
Impairment of assets
|
38,933
|
|
|
—
|
|
|
—
|
|
|
Stock compensation
|
4,936
|
|
|
8,253
|
|
|
5,349
|
|
|
Loss on termination of lease
|
—
|
|
|
—
|
|
|
(1,201)
|
|
|
|
|
|
|
|
|
|
Amortization of debt discounts and issuance costs
|
4,012
|
|
|
2,976
|
|
|
4,482
|
|
|
Employer contributions to pension and other postretirement plans
|
(7,691)
|
|
|
(7,169)
|
|
|
(56,663)
|
|
|
Pension and postretirement benefit cost
|
8,398
|
|
|
12,120
|
|
|
9,350
|
|
|
Special termination benefits and curtailment loss
|
5,682
|
|
|
—
|
|
|
—
|
|
|
Change in unrealized (gain) loss on fuel derivative contracts
|
(2,106)
|
|
|
(5,694)
|
|
|
19,973
|
|
|
Foreign currency debt remeasurement loss
|
14,760
|
|
|
493
|
|
|
380
|
|
|
|
|
|
|
|
|
|
Other, net
|
(7,007)
|
|
|
2,564
|
|
|
8,610
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net
|
29,853
|
|
|
(24,756)
|
|
|
21,132
|
|
|
Income taxes receivable
|
(30,810)
|
|
|
19,605
|
|
|
—
|
|
|
Spare parts and supplies, net
|
(1,066)
|
|
|
(8,767)
|
|
|
(4,701)
|
|
|
Prepaid expenses and other current assets
|
24,410
|
|
|
3,662
|
|
|
(149)
|
|
|
Accounts payable
|
(49,469)
|
|
|
6,244
|
|
|
2,926
|
|
|
Air traffic liability
|
(117,279)
|
|
|
(3,071)
|
|
|
7,830
|
|
|
Other accrued liabilities
|
(18,025)
|
|
|
(43,034)
|
|
|
18,329
|
|
|
Frequent flyer deferred revenue
|
70,318
|
|
|
17,618
|
|
|
20,668
|
|
|
Other assets and liabilities, net
|
46,239
|
|
|
(3,319)
|
|
|
43,121
|
|
|
Net cash provided by (used in) operating activities
|
(310,708)
|
|
|
485,140
|
|
|
508,508
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
Additions to property and equipment, including pre-delivery deposits
|
(105,313)
|
|
|
(397,421)
|
|
|
(486,777)
|
|
|
|
|
|
|
|
|
|
Proceeds from purchase assignment and sale leaseback transactions
|
114,000
|
|
|
—
|
|
|
87,000
|
|
|
Proceeds from disposition of equipment
|
—
|
|
|
9,595
|
|
|
46,714
|
|
|
Purchases of investments
|
(395,793)
|
|
|
(312,768)
|
|
|
(210,836)
|
|
|
Sales of investments
|
288,336
|
|
|
301,662
|
|
|
247,423
|
|
|
Other
|
—
|
|
|
(6,275)
|
|
|
—
|
|
|
Net cash used in investing activities
|
(98,770)
|
|
|
(405,207)
|
|
|
(316,476)
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
Proceeds from the issuance of common stock
|
41,196
|
|
|
—
|
|
|
—
|
|
|
Long-term borrowings
|
602,264
|
|
|
227,889
|
|
|
86,500
|
|
|
Repayments of long-term debt and finance lease obligations
|
(78,824)
|
|
|
(109,128)
|
|
|
(68,245)
|
|
|
Dividend payments
|
(5,514)
|
|
|
(22,774)
|
|
|
(24,171)
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
(7,510)
|
|
|
(68,769)
|
|
|
(102,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity issuance costs
|
(4,975)
|
|
|
(1,623)
|
|
|
(3,350)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for taxes withheld for stock compensation
|
(1,372)
|
|
|
(1,049)
|
|
|
(3,642)
|
|
|
Other
|
796
|
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
546,061
|
|
|
24,546
|
|
|
(115,408)
|
|
|
Net increase (decrease) in cash and cash equivalents
|
136,583
|
|
|
104,479
|
|
|
76,624
|
|
|
Cash, cash equivalents, and restricted cash—Beginning of Year
|
373,056
|
|
|
268,577
|
|
|
191,953
|
|
|
Cash, cash equivalents, and restricted cash—End of Year
|
$
|
509,639
|
|
|
$
|
373,056
|
|
|
$
|
268,577
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
Hawaiian Holdings, Inc. (the Company, Holdings, we, us and our) and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. The Company's primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including its principal subsidiary, Hawaiian, through which the Company conducts substantially all of its operations. All significant inter-company balances and transactions have been eliminated upon consolidation.
The Company reclassified certain prior period amounts to conform to current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less at the date of purchase are classified as cash and cash equivalents.
Short Term Investments
Investments with maturities greater than three months, but not in excess of one year, when purchased, are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All short-term investments, which consists of debt securities, are classified as available-for-sale, and realized gains and losses are recorded using the specific identification method. Changes in market value, excluding those that are a result of deterioration of credit, are reflected in accumulated other comprehensive income (loss).
Spare Parts and Supplies
Spare parts and supplies are valued at average cost, and primarily consist of expendable parts for flight equipment and other supplies. An allowance for obsolescence of expendable parts is provided over the estimated useful lives of the related aircraft and engines for spare parts expected to be on hand at the date the aircraft are retired from service. These allowances are based on management's estimates and are subject to change.
Property, Equipment and Depreciation
Property and equipment are stated at cost and depreciated on a straight-line basis to their estimated residual values over the asset's estimated useful life. Depreciation begins when the asset is placed into service. Aircraft and related parts begin depreciating on the aircraft's first revenue flight.
The following table summarizes our property and equipment:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Flight equipment
|
$
|
2,526,440
|
|
|
$
|
2,622,504
|
|
|
Pre-delivery deposits on flight equipment
|
75,089
|
|
|
90,788
|
|
|
Other property and equipment
|
378,020
|
|
|
366,024
|
|
|
|
2,979,549
|
|
|
3,079,316
|
|
|
Less accumulated depreciation and amortization
|
(894,519)
|
|
|
(762,544)
|
|
|
Total property and equipment, net
|
2,085,030
|
|
|
2,316,772
|
|
Estimated useful lives and residual values of property and equipment are as follows:
|
|
|
|
|
|
|
|
Boeing 717-200 aircraft and engines
|
15-16 years, 5 - 34% residual value
|
|
|
|
|
Airbus A330-200 aircraft and engines
|
25 years, 10% residual value
|
|
Airbus A321neo aircraft and engines
|
25 years, 10% residual value
|
|
ATR turboprop aircraft and engines
|
9-14 years, no residual value
|
|
Flight and ground equipment under finance lease
|
Shorter of lease term or useful life
|
|
Major rotable parts
|
Average lease term or useful life for related aircraft, 10% - 15% residual value
|
|
Improvements to leased flight equipment and the cargo maintenance hangar
|
Shorter of lease term or useful life
|
|
Facility leasehold improvements
|
Shorter of lease term, including assumed lease renewals when renewal is economically compelled at key airports, or useful life
|
|
Furniture, fixtures and other equipment
|
3 - 7 years, no residual value
|
|
Capitalized software
|
3 - 7 years, no residual value
|
In January 2019, the Company completed the exit and retirement of its Boeing 767-300 aircraft fleet.
In 2019, the Company changed its accounting estimate for the expected useful life of its Boeing 717-200 aircraft from a range of 7 to 11 years to 15 to 16 years. The change in estimate was applied prospectively effective October 1, 2019 and does not have a material impact on current and/or future reporting periods.
In 2020, the Company revised its accounting estimate for the expected useful life of its ATR turboprop aircraft and engines from 10 years to between 9 and 14 years. Additionally, the Company revised the estimated residual value from 15% to 0%. The change in estimate was applied prospectively effective July 1, 2020 and does not have a material impact on current and/or future reporting periods.
Additions and modifications that significantly enhance the operating performance and/or extend the useful lives of property and equipment are capitalized and depreciated over the lesser of the remaining useful life of the asset or the remaining lease term, as applicable. Expenditures that do not improve or extend asset lives are charged to expense as incurred. Pre-delivery deposits are capitalized when paid.
Aircraft under finance leases are recorded at an amount equal to the present value of minimum lease payments utilizing the Company's incremental borrowing rate at lease inception and amortized on a straight-line basis over the lesser of the remaining useful life of the aircraft or the lease term. The amortization is recorded in depreciation and amortization expense on the Consolidated Statement of Operations. Accumulated amortization of aircraft and other finance leases was $124.3 million and $103.7 million as of December 31, 2020 and 2019, respectively.
The Company capitalizes certain costs related to the acquisition and development of computer software and amortizes these costs using the straight-line method over the estimated useful life of the software. The net book value of computer software, which is included in Other property and equipment on the consolidated balance sheets, was $29.2 million and $33.9 million at December 31, 2020 and 2019, respectively. The value of construction in progress, primarily consisting of aircraft in 2020 and 2019, which is included in property and equipment on the consolidated balance sheets, was $27.5 million and $26.5 million as of December 31, 2020 and 2019, respectively. Amortization expense related to computer software was $15.7 million, $17.5 million and $14.6 million for the years ended December 31, 2020, 2019, and 2018 respectively.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Aircraft Maintenance and Repair Costs
Maintenance and repair costs for owned and leased flight equipment, including the overhaul of aircraft components, are charged to operating expenses as incurred. Engine overhaul costs covered by power-by-the-hour arrangements are paid and expensed as incurred or expensed on a straight-line basis and are based on the amount of hours flown per contract. Under the terms of these power-by-the-hour agreements, the Company pays a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost, subject to certain specified exclusions. As of December 31, 2020 and 2019, the Company had approximately $56.3 million and $100.7 million, respectively in prepayments to one of its power-by-the-hour vendors, which is recoverable over the next three years.
Additionally, although the Company's aircraft lease agreements specifically provide that it is responsible for maintenance of the leased aircraft, the Company pays maintenance reserves to the aircraft lessors that are applied toward the cost of future maintenance events. These reserves are calculated based on a performance measure, such as flight hours, and are available for reimbursement to the Company upon the completion of the maintenance of the leased aircraft. However, reimbursements are limited to the available reserves associated with the specific maintenance activity for which the Company requests reimbursement.
Under certain aircraft lease agreements, the lessor is entitled to retain excess amounts on deposit at the expiration of the lease, if any; whereas at the expiration of certain other existing aircraft lease agreements any such excess amounts are returned to the Company, provided that it has fulfilled all of its obligations under the lease agreements. The maintenance reserves paid under the lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor. In addition, the Company maintains the right to select any third-party maintenance provider.
Maintenance reserve payments that are expected to be recovered from lessors are recorded as deposits in the Consolidated Balance Sheets as an asset until it is less than probable that any portion of the deposit is recoverable. In addition, payments of maintenance reserves that are not substantially and contractually related to the maintenance of the leased assets are accounted for as lease payments. In order to properly account for the costs that are related to the maintenance of the leased asset, the Company bifurcates its maintenance reserves between deposits and lease payments.
Goodwill and Intangible Assets
The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets with indefinite lives are not amortized and the Company assesses the carrying value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The Company assesses the value of its goodwill and indefinite-lived assets under either a qualitative or quantitative approach.
When the Company evaluates goodwill for impairment using a quantitative approach, it estimates the fair value of the reporting unit by considering the market capitalization. If the reporting unit's fair value exceeds its carrying value, no further testing is required. If, however, the reporting unit's carrying value exceeds its fair value, the Company then determines the amount of the impairment charge, if any. The Company recognizes an impairment charge if the carrying value of the reporting unit's goodwill exceeds its estimated fair value.
During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove the Company's stock price to 52-week lows and significantly reduced future cash flow projections. The Company qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of its goodwill and indefinite-lived intangible assets. The Company determined that the estimated fair value of the Company's one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the Company's Consolidated Balance Sheets, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020. Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in the Company's determination of fair value required significant judgments by management. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate for a control premium.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2020, the Company had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. The Company determined that the fair value of its indefinite-lived intangible assets exceeded its carrying value and was not impaired.
The following tables summarize the gross carrying values of intangible assets less accumulated amortization, and the useful lives assigned to each asset.
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As of December 31, 2020
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As of December 31, 2019
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Gross carrying
value
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|
Accumulated
amortization
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|
Gross carrying
value
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|
Accumulated
amortization
|
|
Approximate
useful life (years)
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|
(in thousands)
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|
|
|
|
Trade name
|
$
|
13,500
|
|
|
—
|
|
|
|
|
$
|
13,500
|
|
|
$
|
—
|
|
|
Indefinite
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
|
|
1,388
|
|
|
(1,388)
|
|
|
3
|
|
|
|
Total intangible assets
|
$
|
13,500
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|
|
$
|
—
|
|
|
|
|
$
|
14,888
|
|
|
$
|
(1,388)
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|
|
|
|
|
Amortization expense related to the above intangible assets was $0.0 million, $0.6 million, and $1.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. Amortization of the favorable aircraft maintenance contracts are included in maintenance materials and repairs in the accompanying Consolidated Statements of Operations. As of December 31, 2020, the Company has no intangible assets subject to amortization.
Impairment of Long-Lived Assets
Long-lived assets used in operations, consist principally of property and equipment and have a carrying value of approximately $2.1 billion at December 31, 2020. Long-lived assets are tested for impairment when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. If, at any time, management determines the net carrying value of an asset is not recoverable, the amount is reduced to its fair value during the period in which such determination is made. Any changes in the estimated useful lives of these assets will be accounted for prospectively.
As a result of the COVID-19 pandemic, including capacity reductions, the temporary grounding of the majority of its fleet, as well as reduced future cash flow projections, the Company previously identified, and continues to identify, indicators of impairment of its long-lived assets. In the second quarter of 2020, the Company recorded an impairment charge of $34.0 million related to its ATR-42 and ATR-72 fleets, assets held under its commercial real estate subsidiary, and software-related projects that were discontinued as a result of the COVID-19 pandemic. The Company estimated the fair value of its ATR-42 and ATR-72 fleets using a third-party valuation and estimated the fair value of the assets held in its commercial real-estate subsidiary using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates.
During the fourth quarter of 2020, the Company recorded an impairment of approximately $5.4 million, comprised of an additional write-down of our ATR-42 and ATR-72 fleet of approximately $4.9 million as a result of ongoing market uncertainty attributed to the COVID-19 pandemic. The Company also wrote off approximately $0.5 million in capitalized software projects that were permanently suspended in response to the continuing impacts of the COVID-19 pandemic.
Given the substantial reduction in the Company's active aircraft and diminished projections of future cash flows in the near term, the Company evaluated the remainder of its fleet and determined that only the fleet types discussed above were impaired as the future cash flows from operation of the fleet through the respective retirement dates continue to exceed their carrying values. The Company will continue to monitor the duration and extent of the impact of the COVID-19 pandemic on its business and will continue to evaluate its current fleet and other long-lived assets for impairment accordingly.
Revenue Recognition
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company records direct passenger ticket sales and tickets sold by other airlines for use on Hawaiian as passenger revenue when the transportation is provided or upon scheduled flight for tickets expected to expire unused. The value of unused passenger tickets is included in current liabilities as Air Traffic Liability. Passenger revenue associated with unused tickets, which represent unexercised passenger rights, is recognized in proportion to the pattern of rights exercised by related passengers (e.g. scheduled departure dates). Prior to the second quarter of 2020, non-refundable tickets sold and credits issued generally expired 13 months from the date of issuance or flight, as applicable. In April 2020, the Company announced the waiver of certain change fees and extended ticket validity for up to 24 months. The Company assessed the impact of these changes and believes that the classification of Air traffic liability as a current liability continues to remain appropriate. The Company records an estimate of breakage revenue on the scheduled flight date for tickets that will expire unused. To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information and applies the trend rate to the current Air traffic liability balances for that specific period. Given the impact of the COVID-19 pandemic on actual results along with reductions in operational capacity, the Company has monitored, and will continue, to monitor customers' travel behavior and may adjust its estimates in the future.
Ticket change fees are recorded in Air traffic liability and recognized when the related transportation is provided.
Certain governmental taxes are imposed on the Company's ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. Management has elected (via a practical expedient election) to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer, e.g., sales, use, value added, and certain excise taxes. These fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted.
Frequent Flyer Program
HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. ASC 606 requires the Company to account for miles earned by passengers in the HawaiianMiles program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel is used by the passenger, at which time it is included in revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. The equivalent ticket value (ETV) includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. Our estimate of ETV takes into consideration quantitative and qualitative factors, such as program changes and fares of similar tickets, and consideration of cabin class and geographic region.
The Company also sells mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities. The marketing and brand performance obligations are effectively provided each time a HawaiianMiles members uses the co-branded credit card and monthly access to customers lists and marketing is provided, which corresponds to the timing of when the Company issues or is obligated to issue the mileage credits to the HawaiianMiles member. Therefore, the Company recognize revenue for the marketing and brand performance obligation when HawaiianMiles members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with our performance in satisfying the obligation.
In 2018, the Company amended its partnership with Barclaycard US, Hawaiian's co-branded credit card partner. Management determined that the amendment should be accounted for as a termination of the existing contract and the creation of a new contract under ASC 606 and the relative selling price was determined for each performance obligation of the new agreement. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for our Barclay's co-branded cardholders. The amended agreement did not change, and includes the following performance obligations; (i) transportation that will ultimately be provided when mileage credits are redeemed (transportation), (ii) the Hawaiian Airlines brand and access to its members lists (collectively, brand performance), (iii) marketing, and (iv) airline benefits to cardholders, including discounts and anniversary travel benefits, baggage waivers and inflight purchase credits. The Company determined the relative fair value of each performance obligation by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the performance obligations based on their relative selling prices.
Accounting for frequent flyer revenue involves the use of various techniques to estimate revenue. To determine the total estimated transaction price, the Company forecasts future credit card activity based on historical data. The relative selling price is determined using management’s estimated standalone selling price of each performance obligation. The objective of using the estimated selling price based methodology is to determine the price at which the Company would transact a sale if the product or service were sold on a standalone basis. Accordingly, the Company determines our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, number of miles awarded and number of miles redeemed. The Company estimates the selling price of miles using an ETV adjusted for a fulfillment discount as described above.
Miles expire after 18 months of member account inactivity. The Company reviews its breakage estimates, which impacts ETV and loyalty recognition patterns, annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). The Company's estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile. Due to the effects of the COVID-19 pandemic, including changes to the Company's ticket validity and exchange policies, management continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available.
Accounts Receivable
Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. The Company provides an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.
Costs to Obtain or Fulfill a Contract
In order for the Company to provide transportation to its customers, the Company incurs fulfillment costs (booking fees, credit card fees, and commission/selling costs), which are deferred until the period in which the flight occurs. As of December 31, 2020 and 2019, the Company's asset balance associated with these costs were $9.1 million and $15.7 million, respectively. During the twelve months ended December 31, 2020, 2019, and 2018, expenses related to these costs totaled to $24.6 million, $91.0 million, and $96.0 million, respectively. To determine the amount to capitalize and expense at the end of each period, the Company uses historical sales data and estimates the amount associated with unflown tickets.
Pension and Postretirement and Postemployment Benefits
The Company accounts for its defined benefit pension and other postretirement and postemployment plans in accordance with ASC 715, Compensation—Retirement Benefits (ASC 715), which requires companies to measure their plans' assets and obligations to determine the funded status at fiscal year-end, reflect the funded status in the statement of financial position as an asset or liability, and recognize changes in the funded status of the plans in comprehensive income during the year in which the changes occur. Pension and other postretirement and postemployment benefit expenses are recognized on an accrual basis over each employee's service periods. Pension expense is generally independent of funding decisions or requirements.
The Company uses the corridor approach in the valuation of its defined benefit pension and other postretirement and postemployment plans. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. These unrecognized actuarial gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the expected average remaining service period of active plan participants for the open plans and is amortized over the expected average remaining lifetime of inactive participants for plans whose population is “all or almost all” inactive.
Advertising Costs
Advertising costs are expensed when incurred. Advertising expense was $15.3 million, $22.3 million and $19.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Capitalized Interest
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Interest is capitalized upon the payment of predelivery deposits for aircraft and engines, and is depreciated over the estimated useful life of the asset from service inception date.
Share-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair value of the awards is estimated using the following: (1) option-pricing models for grants of stock options or (2) fair value at the measurement date (usually the grant date) for awards of stock subject to service and / or performance-based vesting. The resulting cost is recognized as compensation expense over the period of time during which an employee is required to provide services to the Company (the service period) in exchange for the award, the service period generally being the vesting period of the award. The Company's policy is to recognize forfeitures as they occur.
Financial Derivative Instruments
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global aircraft fuel prices, interest rates and foreign currency exchange rates.
The following table summarizes the accounting treatment of the Company's derivative contracts:
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Derivative Type
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Accounting Designation
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Classification of Realized
Gains and Losses
|
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Classification of Unrealized
Gains (Losses)
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Foreign currency exchange contracts
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Designated as cash flow hedges
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Passenger revenue
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AOCI
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Fuel hedge contracts
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Not designated as hedges
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Gains (losses) on fuel derivatives
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|
Change in fair value is recorded in nonoperating income (expense)
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Foreign currency exchange contracts
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Not designated as hedges
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|
Nonoperating income (expense), Other
|
|
Change in fair value is recorded in nonoperating income (expense)
|
If the Company terminates a derivative designated for hedge accounting under ASC 815, prior to its contractual settlement date, then the cumulative gain or loss recognized in AOCI at the termination date remains in AOCI until the forecasted transaction occurs. In a situation where it becomes probable that a hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings. All cash flows associated with purchasing and settling derivatives are classified as operating cash flows in the Consolidated Statements of Cash Flows.
Uncertain Income Tax Positions
The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company's uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitation, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative tax guidance affecting its estimates of tax liabilities, or the rendering of relevant court decisions. The Company records penalties and interest relating to uncertain tax positions as part of income tax expense in its consolidated statements of operations.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (ASU 2016-13), which requires the use of an "expected loss" model on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates over the lifetime of the asset. The Company adopted ASU 2016-13 effective January 1, 2020 and did not have a material impact on its financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (ASU 2017-04), which simplifies the measurement of goodwill, eliminating Step 2 of the goodwill impairment test. ASU 2017-04 replaces the implied fair value of goodwill method with a methodology that compares the fair value of a reporting unit with its carrying amount. The Company adopted ASU 2017-04 effective January 1, 2020. Refer to discussion above for the goodwill impairment recorded during the first quarter of 2020.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. The Company plans to adopt ASU 2019-12 in the first quarter of 2021 and its adoption is not expected to have a material effect on the Company's consolidated financial statements.
2. Impact of the COVID-19 Pandemic
Due to the rapid and unprecedented spread of COVID-19, what began with the Company's suspension of service to South Korea and Japan in late February 2020 accelerated in March 2020 when governments instituted requirements of self-isolation or quarantine for incoming travel. This was followed by the announcement in late March and early April 2020 of a 14-day mandatory quarantine for all travelers to, from and within the State of Hawai'i, respectively. On December 17, 2020, the mandatory self-quarantine period was reduced from 14 to 10 days. These restrictions, combined with the ongoing spread and impact of the COVID-19 pandemic globally, have continued to significantly suppress customer demand, which remains at historically low levels.
Restrictions for travel to and within the State of Hawai'i as well as travel to and from various international locations, including those in the Hawaiian network, remain in effect. Since October 15, 2020, the State of Hawai'i has allowed travelers coming to Hawai'i from the mainland United States to bypass the 10-day quarantine requirement with proof of a negative COVID-19 test from a state-approved testing partner (the pre-travel testing program), and the pre-travel testing program has since been expanded to include international travelers from Japan, South Korea and Canada. The State of Hawai'i and counties within the state continue to evaluate and update testing requirements for travel to and within the state, including the required timing of receipt of testing results and the expansion of the pre-travel testing program to travelers from other international locations. In addition to restrictions mandated by the State of Hawai'i, on January 21, 2021, President Biden issued an executive order promoting COVID-19 Safety in Domestic and International Travel, that which will requires international travelers to produce proof of a recent negative COVID-19 test prior to entry into the United States and comply with other applicable guidelines issued by the CDC concerning international travel, including recommended periods of self-quarantine after entry into the United States.
During the fourth quarter, the Company reinstated non-stop service from Honolulu to Las Vegas, Phoenix, San Jose, Oakland, New York and Boston, thereby restoring service to all of its pre-pandemic origin points on the U.S. mainland, as well as non-stop service from Honolulu to Tokyo-Haneda, Japan, Osaka, Japan, and Seoul, South Korea. While the Company doubled its capacity during the fourth quarter of 2020, as compared to the third quarter of 2020, capacity was down approximately 72% compared to the same period in 2019. In December 2020, the Company announced the addition of three new U.S. mainland destinations: Austin, Texas, Orlando, Florida, and Ontario, California with service to and from Honolulu, Hawai'i beginning on April 21, March 11, and March 16, 2021, respectively. The Company also announced expanded service with a daily non-stop flight between Kahului, Hawai'i and Long Beach, California commencing in March 2021.
In response to the COVID-19 pandemic, the Company implemented enhanced safety protocols focusing on its staff and guests, while at the same time working to mitigate the impact of the pandemic on the Company's financial position and operations.
Guest and Employee Experience. The Company enhanced cleaning procedures and guest-facing protocols in an effort to minimize the risk of transmission of COVID-19. These procedures are in line with current recommendations from leading public health authorities and include:
•Performing enhanced aircraft cleaning between flights and during overnight parking, including recurring electrostatic spraying of all aircraft.
•Frequent cleaning and disinfecting of counters and self-service check-in kiosks in airports serviced by Hawaiian.
•Ensuring hand sanitizers are readily available for guests at airports served by the Company.
•Requiring guests and guest facing employees to wear a face mask or covering, with guests required to keep them on from check-in to deplaning (except when eating or drinking on board).
•Modifying boarding and deplaning processes.
•Modifying in-flight service to minimize close interactions between crew members and guests.
•Eliminating change fees on all domestic and international flights in order to provide guests with travel flexibility across the Company's network.
•Launching a program to offer guests pre-travel COVID-19 testing through mail-in kits and proprietary drive-through testing labs in an increasing number of its U.S. mainland gateways.
During the first quarter of 2021, the Company plans, in coordination with the State of Hawai'i, to implement the Hawai'i Pre-Clear Program across our mainland network, which is intended to enhance the arrival process for our guests by validating the State's pre-travel testing requirement prior to departure.
Capacity Impacts. In response to the reduced passenger demand as a result of the COVID-19 pandemic, the Company significantly reduced system capacity late in the first quarter of 2020 to a level that maintained essential services. Since that time, the Company has continued to make adjustments to better align capacity with expected passenger demand. During the twelve months ended December 31, 2020, the Company reduced capacity by 63.3% as compared to the same period in 2019. As a result of capacity reductions, the Company temporarily parked approximately 16% of its fleet as of December 31, 2020.
Expense Management. In response to the reduction in revenue experienced in 2020, the Company has implemented, and will continue to implement as necessary, cost savings and liquidity measures, including:
•In 2020, the Company commenced various initiatives to reduce labor costs as follows:
◦During the first quarter, the Company instituted a temporary hiring freeze, except with respect to operationally critical and essential positions.
◦During the second quarter, the Company operationalized various temporary voluntary leave and vacation purchase programs to balance its workforce with its reduced levels of operations.
◦During the third quarter, the Company announced and completed voluntary separation and temporary leave programs across each of its labor groups. Additionally, the Company completed the majority of its involuntary separations, most of which were effective October 1, 2020. Combined, separation and temporary leave programs resulted in an approximately 32% reduction of its total workforce. All employees who were subject to an involuntary furlough between October 1, 2020 and January 15, 2021 were recalled and offered an opportunity to return to employment pursuant to the PSP Extension Agreement (as define
◦The Company's officers reduced their base salaries between 10% and 50% through September 30, 2020, and the Company's Board of Directors also reduced their compensation through September 30, 2020.
•The Company reduced capital expenditures for 2020 and continue to vigorously evaluate non-essential, non-aircraft capital expenditures. During the twelve months ended December 31, 2020, capital expenditures were approximately $105.3 million, a decrease of 73.5% compared to the same period in 2019.
•On October 26, 2020, the Company amended its purchase agreement with Boeing to, among other things, change the delivery schedule of its 787-9 aircraft from 2021 through 2025 to 2022 through 2026, with the first delivery now scheduled in September 2022. Refer to Note 14 for additional discussion, including the impact of the Amendment on the Company's future financial commitments.
The Company may implement further discretionary changes and other cost reduction and liquidity preservation measures as needed to address the volatile and rapidly changing dynamics of passenger demand and changes in revenue, regulatory and public health directives and prevailing government policy and financial market conditions. These discretionary changes may include additional work force reductions, including related to Worker Adjustment and Retraining Notification and California Worker Adjustment Retraining Notification Act notices that we have issued to employees that could be affected by fluctuating employment needs related to the impacts of the COVID-19 pandemic on our business.
Cash Flow and Liquidity Management. The Company's cash, cash equivalents and short-term investments as of December 31, 2020 was $864.4 million as a result of various actions taken to increase liquidity and strengthen the Company's financial position during 2020, including, but not limited to:
•During the first quarter of 2020, the Company fully drew down its previously undrawn $235.0 million revolving credit facility. Refer to Note 8 for additional discussion.
•During the first quarter of 2020, the Company suspended its stock repurchase program and on April 22, 2020, the Company suspended dividend payments.
•During the second and third quarters of 2020, the Company received $240.6 million in grants and $60.3 million in loans pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) Payroll Support Program (the PSP) as discussed further below.
•During the third quarter of 2020, the Company entered into a Loan and Guarantee Agreement (the Loan Agreement) with the U.S. Department of the Treasury (the Treasury) pursuant to the Economic Relief Program (the ERP) under the CARES Act to provide for a secured term loan that permits us to borrow up to $420.0 million. On October 23, 2020, the Company amended and restated its Loan Agreement (the Amended and Restated Loan Agreement) with the Treasury to increase the maximum amount available to be borrowed by the Company to $622 million. As of December 31, 2020, the Company had borrowed $45.0 million under the ERP as discussed in further detail below.
•During the third quarter of 2020, the Company completed $376.0 million in aircraft financings, including the issuance of enhanced equipment trust certificates and two sale and lease back transactions. Refer to Note 8 and Note 9 for more discussion on the Company's financing activities.
•During the fourth quarter of 2020, the Company entered into an equity distribution agreement in connection with an "at-the-market" offering relating to the issuance and sale, from time to time, of up to five million shares of the Company's common stock. As of December 31, 2020, the Company had approximately 2.9 million shares available for issuance under the program. Refer to Note 4 for additional information on the equity distribution agreement.
During the first quarter of 2021, the Company issued $1.2 billion in senior secured notes as discussed in further detail below. The Company continues to explore and pursue options to raise additional financing as opportunities arise.
Based on these actions, including revenue recovery assumptions made for the impact of COVID-19, the Company has concluded that it will be able to generate sufficient liquidity to satisfy its obligations and remain in compliance with existing covenants in the Company's financing agreements for more than the next twelve months, prior to giving effect to any additional financing that may occur. The Company's assumptions about future conditions used to estimate liquidity requirements, including the impact of the COVID-19 pandemic and other ongoing impacts to the business, are subject to uncertainty, and actual results could differ from these estimates. The Company will continue to monitor these conditions as new information becomes available and will update its analyses accordingly.
CARES Act
On March 27, 2020, President Trump signed into law the CARES Act, which provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides for, among other things: (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of loans and loan guarantees available for operations under the ERP, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional corporate tax benefits that are further discussed in Note 10.
Payroll Support Program
On April 22, 2020, the Company entered into a Payroll Support Program agreement (the PSP Agreement) with the Treasury under the CARES Act. In connection with the PSP Agreement, the Company entered into a Warrant Agreement (the PSP Warrant Agreement) with the Treasury, and the Company issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury provided the Company with financial assistance, paid in installments, totaling approximately $300.9 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, the Company agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on the Company. Finally, the Company is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the U.S. Department of Transportation (DOT) and subject to exemptions granted by the DOT to the Company given the absence of demand for certain of such services.
The Note issued by Hawaiian to the Treasury was in the total principal amount of approximately $60.3 million. The Note has a 10-year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of April 22, 2020 (the PSP Closing Date), and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary
of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.
As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the PSP Warrant Agreement, the Company issued to the Treasury a total of 509,964 warrants to purchase shares of the Company’s common stock at an exercise price of $11.82 per share (the PSP Warrants). The PSP Warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company’s option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. Refer to Note 8 for additional discussion.
Economic Relief Program
On September 25, 2020 (the ERP Closing Date), the Company entered into the Loan Agreement. The Loan Agreement provides for a secured term loan facility which permits the Company to borrow up to $420.0 million (the Facility). On the ERP Closing Date, the Company borrowed $45.0 million and may, at its option, borrow additional amounts in up to two subsequent borrowings until May 21, 2021, so long as, after giving effect to any further borrowing, the collateral coverage ratio is no less than 2.0 to 1.0. The proceeds from the Facility will be used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the Loan Agreement. As a condition to the drawing under the Facility, we are required to comply with all applicable provisions of the CARES Act.
Borrowings under the Facility will initially bear interest at a variable rate per annum equal to (a) the Adjusted LIBO Rate (as defined in the Loan Agreement) plus (b) 2.50% accrued interest on the loans is payable in arrears on the first business day following the 14th day of each March, June, September and December (beginning with September 15, 2021), and on June 30, 2024. The applicable interest rate for the $45.0 million loan drawn on the ERP Closing Date under the Facility is 2.73% per annum for the period from the ERP Closing Date through September 15, 2021 at which time the interest rate will reset in accordance with the foregoing formula. All advances under the Facility will be in the form of term loans, all of which will mature and be due and payable in a single installment on June 30, 2024.
The Facility is secured by (i) the Company's frequent flyer loyalty program, HawaiianMiles, including but not limited to loyalty program partner participation agreements (including rights to receive cash flows thereunder), documents, deposit accounts, securities accounts, books and records and intellectual property primarily used in connection with the loyalty program and (ii) 14 Boeing 717-200 airframes and the related 28 Rolls Royce BR715-A1-30 engines, together with their related accessories, aircraft documents and parts (collectively, the Collateral). The Facility is also subject to various financial covenants, including a minimum collateral coverage ratio of 2.0 to 1.0 and a minimum debt service coverage ratio of 1.75 to 1.00.
In connection with its entry into the Loan Agreement, the Company also entered into a warrant agreement (the ERP Warrant Agreement), with the Treasury under the ERP. Pursuant to the ERP Warrant Agreement, the Company agreed to issue warrants to purchase up to an aggregate of 3,553,299 shares of the Company's common stock (the ERP Warrants) at an exercise price of $11.82 per share (the Exercise Price). Pursuant to the ERP Warrant Agreement, (a) on the ERP Closing Date, the Company issued to the Treasury an ERP Warrant to purchase up to 380,711 shares of the Company's common stock and (b) on the date of each borrowing under the Loan Agreement, the Company will issue to the Treasury an additional ERP Warrant for a number of shares of the Company's common stock equal to 10% of such borrowing, divided by the Exercise Price. The ERP Warrants are non-voting, are freely transferable, may be settled as net shares or in cash at the Company's option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.
On October 23, 2020, the Company entered into the Amended and Restated Loan Agreement with the Treasury, providing for an increase to the Loan Agreement from $420 million to $622 million and correspondingly increased the aggregate number of ERP Warrants available to be issued up to 5,262,267.
On February 4, 2021, immediately prior to the closing of the Notes Offering (as defined below), the Company repaid in full the $45.0 million, and in connection with such repayment, terminated the Amended and Restated Loan Agreement. The Company has ongoing obligations to the Treasury under the ERP warrants, CARES Act and CAA 2021 (discussed below).
Consolidated Appropriations Act, 2021
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021), which includes $900 billion for various COVID-19 relief program, including $15.0 billion for airline workers under an extension of the CARES Act PSP.
On January 15, 2021 (the PSP Extension Closing Date), the Company entered into an extension to the PSP Agreement (the PSP Extension Agreement), and in connection with the PSP Extension Agreement, entered into a warrant agreement (the Warrant Extension Agreement) with the Treasury, and issued a promissory note to the Treasury (the Extension Note). Pursuant to the PSP Extension Agreement, the Treasury will provide the Company with financial assistance to be paid in installments expected to total in the aggregate approximately $167.5 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits, including the payment of lost wages, salaries and benefits to certain returning employees as defined in the Agreement. The first installment, in the amount of $83.8 million (representing 50% of the expected total payment), was received by the Company on January 15, 2021. The remaining installments are anticipated to be paid as follows: (i) 50% of the current expected total payment anticipated in the first quarter of 2021 and (ii) a possible final payment based on any adjustments by Treasury to the initial expected total payment.
Under the PSP Extension Agreement, the Company agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through March 31, 2021, (ii) recall any employees who were subject to an involuntary termination or furlough between October 1, 2020 and the date of the PSP Extension Agreement and who elected to return to employment pursuant to a recall notice and compensate these employees for lost salary, wages and benefits, (iii) limit executive compensation through October 1, 2022, and (iv) suspend payment of dividends and stock repurchases through March 31, 2022. Finally, the Company is required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the U.S. DOT.
The Extension Note issued by Hawaiian to the Treasury will increase to a total principal sum of approximately $20.3 million as Hawaiian receives installments from the Treasury under the PSP Extension Agreement. The Extension Note has a ten year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Extension Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Extension Closing Date, which interest is payable semi-annually beginning on March 31, 2021. The Extension Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.
As compensation to the U.S. government for providing financial relief under the PSP Extension Agreement, and pursuant to the PSP Extension Warrant Agreement, we agreed to issue to the Treasury up to a total of 113,940 warrants to purchase shares of the Company’s common stock at an exercise price of $17.78 per share (the PSP Extension Warrants). The PSP Extension Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.
Loyalty Program and Intellectual Property Financing
On February 4, 2021, Hawaiian completed the private offering (the Notes Offering) by Hawaiian Brand Intellectual Property, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Brand Issuer), and HawaiianMiles Loyalty, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Loyalty Issuer and, together with the Brand Issuer, the Issuers) of an aggregate of $1.2 billion principal amount of their 5.750% senior secured notes due 2026 (the “Notes”).
The Notes are fully and unconditionally guaranteed, jointly and severally, by (i) Hawaiian Finance 1 Ltd., a direct wholly owned subsidiary of Hawaiian (HoldCo 1), (ii) Hawaiian Finance 2 Ltd., a direct subsidiary of HoldCo 1 and indirect wholly owned subsidiary of Hawaiian (HoldCo 2 and, together with HoldCo 1, the Cayman Guarantors), (iii) Hawaiian and (iv) Holdings (Holdings, together with Hawaiian, the Parent Guarantors and the Parent Guarantors, together with the Cayman Guarantors, the “Guarantors”). The Notes were issued pursuant to an Indenture, dated as of Feburary 4, 2021 (the Indenture), among the Issuers, the Guarantors and Wilmington Trust, National Association, as trustee, collateral custodian. The Notes will mature on January 20, 2026 and bear interest at a rate of 5.750% per year, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, beginning on July 20, 2021.
In connection with the issuance of the Notes, Hawaiian contributed to the Brand Issuer, which is a newly-formed subsidiary structured to be bankruptcy remote, all worldwide rights, owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries, in and to all intellectual property, including all trademarks, service marks, brand names, designs, and logos that include the word “Hawaiian” or any successor brand and the “hawaiianairlines.com” domain name and similar domain names or any successor domain names (the Brand IP). The Brand
Issuer will indirectly grant to Hawaiian an exclusive, worldwide, perpetual and royalty-bearing sublicense to use the Brand IP (the Brand IP Sublicense). Further, Hawaiian contributed to the Loyalty Issuer its rights to certain other collateral owned by Hawaiian, including, to the extent permitted by such agreements or otherwise by operation of law, any of Hawaiian’s rights under the HawaiianMiles Agreements and the IP Agreements (each as defined in the Indenture), together with HawaiianMiles program (HawaiianMiles) customer data and certain other intellectual property owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries (including the Issuers) and required or necessary to operate HawaiianMiles (the Loyalty Program IP) (all such collateral being, the Loyalty Program Collateral). The Loyalty Issuer will indirectly grant Hawaiian an exclusive, worldwide, perpetual and royalty-free sub-license to use the Loyalty Program IP (the Loyalty Program IP Sublicense).
The Notes are secured on a senior basis by first-priority security interests in substantially all of the assets of the Issuers, other than Excluded Property (as defined in the Indenture) and subject to certain permitted liens (collectively, the Issuer Collateral). The note guarantees of Hawaiian are secured by (i) a first-priority security interest in 100% of the equity (other than the special share issued to the Special Shareholder (as defined in the Indenture)) of HoldCo 1 and (ii) the Brand IP and the Loyalty Program Collateral (collectively, the Hawaiian Collateral). The note guarantees of the Cayman Guarantors are secured by first-priority security interests in substantially all of the assets of the Cayman Guarantors, including pledges of the equity of their respective subsidiaries (other than the special share issued to the Special Shareholder (as defined in the Indenture)) (collectively, the Subsidiary Collateral and, together with the Issuer Collateral and the Hawaiian Collateral, the Collateral). The note guarantee of Holdings is unsecured.
The Notes are redeemable at the option of the Issuers, in whole or in part, at any time and from time to time, after January 20, 2024 at the redemption prices set forth in the Indenture. In addition, the Notes are redeemable, at the option of the Issuers, at any time and from time to time, in whole or in part, prior to January 20, 2024 at a price equal to 100% of their principal amount plus the “make-whole” premium described in the Indenture and accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Additionally, from time to time on or prior to January 20, 2024, the Issuers may also redeem up to 40% of the original outstanding principal amount of the Notes with proceeds from any one or more equity offerings of Hawaiian at a redemption price equal to 105.75% of the principal amount of Notes to be redeemed, plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Upon the occurrence of certain mandatory prepayment events and mandatory repurchase offer events, the Issuers will be required to make a prepayment on the Notes, or offer to repurchase the Notes, pro rata to the extent of any net cash proceeds received in connection with such events, at a price equal to 100% of the principal amount to be prepaid, plus, in some cases, an applicable premium. In addition, upon a change of control of Hawaiian, the Issuers may be required to make an offer to prepay the Notes at a price equal to 101% of the respective principal amounts thereof, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Indenture contains certain covenants that limit the ability of the Issuers, the Cayman Guarantors and, in certain circumstances, Hawaiian to, among other things: (i) make Restricted Payments (as defined in the Indenture), (ii) incur additional indebtedness, (iii) create certain liens on the Collateral, (iv) sell or otherwise dispose of the Collateral and (v) consolidate, merge, sell or otherwise dispose of all or substantially all of the Issuers’ assets. The Indenture also requires the Issuers and, in certain circumstances, Hawaiian, to comply with certain affirmative covenants, including depositing the Transaction Revenues (as defined in the Indenture) in collection accounts, with amounts to be distributed for the payment of fees, principal and interest on the Notes pursuant to a payment waterfall described in the Indenture, and certain financial reporting requirements. In addition, the Indenture requires Hawaiian to maintain minimum liquidity at the end of any business day of at least $300 million.
3. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss by component is as follows:
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|
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|
|
|
|
|
|
Year ended December 31,
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|
|
Details about accumulated other comprehensive loss components
|
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2020
|
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2019
|
|
2018
|
|
Affected line items in the statement where net income is presented
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(in thousands)
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|
|
Derivatives designated as hedging instruments under ASC 815
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative gains
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|
$
|
(3,075)
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|
|
$
|
(5,307)
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|
$
|
(1,380)
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|
|
Passenger revenue
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|
Foreign currency derivative gains
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|
(3,945)
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|
|
—
|
|
|
—
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|
|
Nonoperating Income (Expense), Other, net
|
|
Total before tax
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|
(7,020)
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|
|
(5,307)
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|
|
(1,380)
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|
|
Tax expense
|
|
1,737
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|
|
2,616
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|
|
339
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|
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|
Total, net of tax
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|
$
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(5,283)
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|
$
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(2,691)
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$
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(1,041)
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|
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Amortization of defined benefit pension items
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Actuarial loss
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$
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4,048
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|
|
$
|
3,201
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|
|
$
|
2,708
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|
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Nonoperating Income (Expense), Other, net
|
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Prior service cost
|
|
712
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|
|
225
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|
|
225
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|
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Nonoperating Income (Expense), Other, net
|
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Special termination benefits
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|
5,258
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|
|
—
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|
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—
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Other nonoperating special items
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Curtailment loss
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|
424
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|
|
—
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|
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—
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Other nonoperating special items
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Total before tax
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10,442
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3,426
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|
|
2,933
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Tax benefit
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(2,309)
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(902)
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(671)
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Total, net of tax
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|
$
|
8,133
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|
|
$
|
2,524
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|
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$
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2,262
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|
|
|
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Short-term investments
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|
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|
|
|
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|
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Realized (gain) loss on sales of investments, net
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(689)
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|
(192)
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|
|
107
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|
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Nonoperating Income (Expense), Other, net
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Total before tax
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|
(689)
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(192)
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|
|
107
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|
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|
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Tax expense
|
|
168
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|
|
47
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|
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(26)
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Total, net of tax
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(521)
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(145)
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|
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81
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Total reclassifications for the period
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$
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2,329
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|
|
$
|
(312)
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|
|
$
|
1,302
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|
|
|
A rollforward of the amounts included in accumulated other comprehensive loss, net of taxes, is as follows:
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|
|
|
|
|
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|
|
Year ended December 31, 2020
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|
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Foreign
Currency
Derivatives
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|
Defined
Benefit
Pension Items
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Short-Term Investments
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Total
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|
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|
|
(in thousands)
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|
Beginning balance
|
|
|
$
|
3,341
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|
|
$
|
(108,028)
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|
|
$
|
804
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|
|
$
|
(103,883)
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|
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Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
1,942
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|
|
(16,286)
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|
|
1,371
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|
|
(12,973)
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|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
|
(5,283)
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|
|
8,133
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|
|
(521)
|
|
|
2,329
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|
|
Net current-period other comprehensive income (loss), net of tax
|
|
|
(3,341)
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|
|
(8,153)
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|
|
850
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|
|
(10,644)
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|
|
Ending balance
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|
|
$
|
—
|
|
|
$
|
(116,181)
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|
|
$
|
1,654
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|
|
$
|
(114,527)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
Foreign
Currency
Derivatives
|
|
Defined
Benefit
Pension Items
|
|
Short-Term Investments
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Total
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
|
$
|
3,317
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|
|
$
|
(95,855)
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|
|
$
|
(602)
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|
|
$
|
(93,140)
|
|
|
Other comprehensive income (loss) before reclassifications, net of tax
|
|
|
2,715
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|
|
(14,697)
|
|
|
1,551
|
|
|
(10,431)
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|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
|
(2,691)
|
|
|
2,524
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|
|
(145)
|
|
|
(312)
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|
|
Net current-period other comprehensive income (loss), net of tax
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|
|
24
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|
|
(12,173)
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|
|
1,406
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|
|
(10,743)
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|
|
Ending balance
|
|
|
$
|
3,341
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|
|
$
|
(108,028)
|
|
|
$
|
804
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|
|
$
|
(103,883)
|
|
4. Earnings Per Share
Basic earnings per share, which excludes dilution, is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the twelve months ended December 31, 2020, there were 227,545 potentially dilutive shares that were excluded from the computation of diluted weighted average common stock shares outstanding because their effect would have been antidilutive given the Company's net loss. The following table shows the Company's computation of basic and diluted earnings per share:
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|
|
Year Ended December 31,
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|
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2020
|
|
2019
|
|
2018
|
|
|
(in thousands, except for per share data)
|
|
Numerator:
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(510,935)
|
|
|
$
|
223,984
|
|
|
$
|
233,200
|
|
|
Denominator:
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|
|
|
|
|
|
Weighted average common shares outstanding—Basic
|
46,100
|
|
|
47,435
|
|
|
50,338
|
|
|
Dilutive effect of share-based awards and warrants
|
—
|
|
|
111
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—Diluted
|
46,100
|
|
|
47,546
|
|
|
50,488
|
|
|
Net Income (Loss) Per Common Stock Share:
|
|
|
|
|
|
|
Basic
|
$
|
(11.08)
|
|
|
$
|
4.72
|
|
|
$
|
4.63
|
|
|
Diluted
|
$
|
(11.08)
|
|
|
$
|
4.71
|
|
|
$
|
4.62
|
|
5. Revenue Recognition
Passenger & Other revenue - The Company’s contracts with customers have two principal performance obligations, which are the promise to provide transportation to the passenger and the frequent flyer miles earned on the flight. In addition, the Company often charges additional fees for items such as baggage and other miscellaneous ancillary services. Such items are not capable of being distinct from the transportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of HawaiianMiles awards for flights, is satisfied, and revenue is recognized, as transportation is provided. In some instances, tickets sold by the Company can include a flight segment on another carrier which is referred to as an interline segment. In this situation, the Company acts as an agent for the other carrier and revenue is recognized net of cost in other revenue. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.
The majority of the Company's revenue is derived from transporting passengers on its aircraft. The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in the State of Hawai'i. The management of such operations is based on a system-wide approach due to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian offers only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's operating revenues by geographic
region (as defined by the Department of Transportation, DOT) are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Domestic
|
$
|
640,153
|
|
|
$
|
2,057,650
|
|
|
$
|
2,071,861
|
|
|
Pacific
|
204,660
|
|
|
774,578
|
|
|
765,550
|
|
|
Total operating revenue
|
$
|
844,813
|
|
|
$
|
2,832,228
|
|
|
$
|
2,837,411
|
|
Hawaiian attributes operating revenue by geographic region based on the destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which are mobile across geographic markets, and, therefore, have not been allocated to specific geographic regions. Domestic revenue includes the company's North America and Interisland operations. During the years ended December 31, 2020, 2019, and 2018, North America routes accounted for approximately 78%, 74% and 71% of domestic revenue, respectively.
Other operating revenue consists of cargo revenue, ground handling fees, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Passenger Revenue by Type
|
|
(in thousands)
|
|
Passenger revenue, excluding frequent flyer
|
|
$
|
616,214
|
|
|
$
|
2,440,909
|
|
|
$
|
2,454,811
|
|
|
Frequent flyer revenue, transportation component
|
|
48,585
|
|
|
156,863
|
|
|
147,982
|
|
|
Passenger Revenue
|
|
$
|
664,799
|
|
|
$
|
2,597,772
|
|
|
$
|
2,602,793
|
|
|
|
|
|
|
|
|
|
|
Other revenue (e.g. cargo and other miscellaneous)
|
|
$
|
94,187
|
|
|
$
|
147,237
|
|
|
$
|
163,140
|
|
|
Frequent flyer revenue, marketing and brand component
|
|
85,827
|
|
|
87,219
|
|
|
71,478
|
|
|
Other Revenue
|
|
$
|
180,014
|
|
|
$
|
234,456
|
|
|
$
|
234,618
|
|
For the twelve months ended December 31, 2020, 2019, and 2018, the Company's total revenue was $0.8 billion, $2.8 billion, and $2.8 billion, respectively. As of December 31, 2020 and 2019, the Company's Air traffic liability balance as it relates to passenger tickets (excluding frequent flyer) was $308.2 million and $425.1 million, respectively, which represents future revenue that is expected to be realized.
During the twelve months ended December 31, 2020, 2019, and 2018, the amount of revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $254.8 million, $424.2 million, and $421.0 million, respectively.
Passenger revenue associated with unused tickets, which represents unexercised passenger rights, is recognized in proportion to the pattern of rights exercised by related passengers (e.g. scheduled departure dates). To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information to estimate breakage and applies the trend rate to the current Air traffic liability balances for that specific period. Management continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available.
Frequent Flyer Accounting
The Company's frequent flyer liability is recorded in Air traffic liability (short-term) and Noncurrent frequent flyer deferred revenue in the Company's consolidated balance sheet based on estimated and expected redemption patterns using historical data and analysis. As of December 31, 2020 and 2019, the balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Air traffic liability (current portion of frequent flyer deferred revenue)
|
$
|
218,886
|
|
|
$
|
174,588
|
|
|
Noncurrent frequent flyer deferred revenue
|
201,239
|
|
|
175,218
|
|
|
Total frequent flyer liability
|
$
|
420,125
|
|
|
$
|
349,806
|
|
The table below presents a roll forward of Frequent flyer deferred revenue for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Total Frequent flyer liability - beginning balance
|
$
|
349,806
|
|
|
$
|
332,189
|
|
|
Miles awarded
|
120,345
|
|
|
178,664
|
|
|
Travel miles redeemed (Passenger Revenue)
|
(48,585)
|
|
|
(156,863)
|
|
|
Non-travel miles redeemed (Other Revenue)
|
(1,441)
|
|
|
(4,184)
|
|
|
Total Frequent flyer liability - ending balance
|
$
|
420,125
|
|
|
$
|
349,806
|
|
6. Fair Value Measurements
ASC 820 defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as 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 for the assets or liabilities; and
Level 3 - Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities.
The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2020
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(in thousands)
|
|
Cash equivalents
|
$
|
345,766
|
|
|
$
|
297,698
|
|
|
$
|
48,068
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Corporate debt
|
198,355
|
|
|
—
|
|
|
198,355
|
|
|
—
|
|
|
U.S. government and agency securities
|
156,427
|
|
|
—
|
|
|
156,427
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
354,782
|
|
|
—
|
|
|
354,782
|
|
|
—
|
|
|
Fuel derivative contracts
|
43
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
700,622
|
|
|
$
|
297,698
|
|
|
$
|
402,924
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
1,382
|
|
|
—
|
|
|
1,382
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
1,382
|
|
|
$
|
—
|
|
|
$
|
1,382
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2019
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(in thousands)
|
|
Cash equivalents
|
$
|
216,491
|
|
|
$
|
205,943
|
|
|
$
|
10,548
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Corporate debt
|
100,713
|
|
|
—
|
|
|
100,713
|
|
|
—
|
|
|
U.S. government and agency securities
|
75,481
|
|
|
—
|
|
|
75,481
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed income securities
|
69,405
|
|
|
—
|
|
|
69,405
|
|
|
—
|
|
|
Total short-term investments
|
245,599
|
|
|
—
|
|
|
245,599
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivative contracts
|
5,878
|
|
|
—
|
|
|
5,878
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
4,424
|
|
|
—
|
|
|
4,424
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
472,392
|
|
|
$
|
205,943
|
|
|
$
|
266,449
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
593
|
|
|
—
|
|
|
593
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
593
|
|
|
$
|
—
|
|
|
$
|
593
|
|
|
$
|
—
|
|
Cash equivalents. The Company’s Level 1 cash equivalents consist of money market securities. The carrying amounts approximate fair value because of the short-term maturity of these assets. Level 2 cash equivalents consist primarily of debt securities. The fair value of these instruments is based on a market approach using prices generated by market transactions involving identical or comparable assets.
Short-term investments. Short-term investments are valued based on a market approach using industry standard valuation techniques that incorporate inputs such as quoted prices for similar assets, interest rates, benchmark curves, credit ratings, and other observable inputs. As of December 31, 2020, corporate debt securities have remaining maturities of five years or less and U.S. government and agency securities have maturities of approximately three years or less.
Fuel derivative contracts. Fuel derivative contracts, which are not traded on a public exchange, are valued based on inputs available or derived from public markets including contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others.
Foreign currency derivatives. Foreign currency derivatives are valued based primarily on data readily observable in public markets.
The table below presents the Company's debt measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Debt
|
|
December 31, 2020
|
|
December 31, 2019
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(in thousands)
|
|
(in thousands)
|
|
$
|
1,171,349
|
|
|
$
|
1,054,410
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,054,410
|
|
|
$
|
610,397
|
|
|
$
|
605,286
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
605,286
|
|
The fair value estimates of the Company's debt were based on the discounted amount of future cash flows using the Company's current incremental rate of borrowing for similar obligations.
The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.
As discussed in Note 1 above, during the twelve months ended December 31, 2020, the Company recognized an impairment charge of approximately $35.8 million related to its ATR fleet. The impairment charge was calculated using Level 3 fair value inputs based primarily upon forecasted future cash flows, recent market transactions, published pricing guides and its assessment of existing market conditions based on industry knowledge.
As discussed in Note 1 above, the Company recognized an impairment charge on its Goodwill assets of approximately $106.7 million during the twelve months ended December 31, 2020. Fair value was determined using level 3 fair value inputs based primarily upon forecasted future cash flows, the weighted average cost of capital of market participants for the risk attributed to the Company and the industry in which it operates, and a market control premium.
7. Financial Derivative Instruments
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices, interest rates and foreign currencies.
Fuel Risk Management
The Company's operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. The Company uses a combination of derivative contracts to hedge its aircraft fuel expense. As of December 31, 2020, the Company's portfolio comprised of crude oil call options, which were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.
The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Gains (losses) realized at settlement
|
$
|
(9,035)
|
|
|
$
|
(12,403)
|
|
|
$
|
25,563
|
|
|
Prior period unrealized amounts
|
2,487
|
|
|
8,181
|
|
|
(11,792)
|
|
|
Unrealized losses on contracts that will settle in future periods
|
(382)
|
|
|
(2,487)
|
|
|
(8,181)
|
|
|
Gains (losses) on fuel derivatives recorded as nonoperating income (expense)
|
$
|
(6,930)
|
|
|
$
|
(6,709)
|
|
|
$
|
5,590
|
|
Foreign Currency Exchange Rate Risk Management
The Company is subject to foreign currency exchange rate risk due to revenues and expenses denominated in foreign currencies, with the primary exposures being the Japanese Yen and Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable.
The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The gain or loss is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and therefore any changes in fair value are recognized as other nonoperating income (expense) in the period of change.
During the twelve months ended December 31, 2020, the Company de-designated certain hedged transactions with maturity dates through February 2022 as the Company concluded that the cash flows attributable to the hedged risk were no longer probable of occurring. As a result, the Company reclassified approximately $3.9 million from AOCI to nonoperating income in the period during the twelve months ended December 31, 2020. Future gains and losses related to these instruments will continue to be recorded in nonoperating expense. As of December 31, 2020, the Company did not have any remaining derivative instruments designated for hedge accounting.
The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Consolidated Balance Sheets.
Derivative positions as of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Notional Amount
|
|
Final
Maturity
Date
|
|
Gross fair
value of
assets
|
|
Gross fair
value of
(liabilities)
|
|
Net
derivative
position
|
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Other accrued liabilities
|
|
4,062,950 Japanese Yen
2,852 Australian Dollars
|
|
December 2021
|
|
31
|
|
|
(1,156)
|
|
|
(1,125)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and deferred credits
|
|
789,000 Japanese Yen
|
|
February 2022
|
|
—
|
|
|
(226)
|
|
|
(226)
|
|
|
Fuel derivative contracts
|
Prepaid expenses and other
|
|
8,652 gallons
|
|
March 2021
|
|
43
|
|
|
—
|
|
|
43
|
|
Derivative positions as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Notional Amount
|
|
Final
Maturity
Date
|
|
Gross fair
value of
assets
|
|
Gross fair
value of
(liabilities)
|
|
Net
derivative
position
|
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Prepaid expenses and other
|
|
19,270,650 Japanese Yen
44,468 Australian Dollars
|
|
December 2020
|
|
$
|
3,787
|
|
|
$
|
(358)
|
|
|
$
|
3,429
|
|
|
|
Long-term prepayments and other
|
|
5,487,250 Japanese Yen
8,429Australian Dollars
|
|
December 2021
|
|
618
|
|
|
(193)
|
|
|
425
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Other accrued liabilities
|
|
694,050 Japanese Yen
2,438 Australian Dollars
|
|
March 2020
|
|
19
|
|
|
(42)
|
|
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivative contracts
|
Prepaid expenses and other
|
|
97,986 gallons
|
|
December 2020
|
|
5,878
|
|
|
—
|
|
|
5,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Consolidated Statements of Comprehensive Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss recognized in AOCI on derivatives
|
|
(Gain) Loss reclassified from AOCI into income
|
|
|
|
|
Year ended December 31,
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Foreign currency derivatives
|
$
|
3,131
|
|
|
$
|
(5,349)
|
|
|
$
|
(3,766)
|
|
|
$
|
(7,020)
|
|
|
$
|
(5,307)
|
|
|
$
|
(1,380)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk and Collateral
The financial derivative instruments expose the Company to possible credit loss in the event the counterparties to the agreements fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings, (2) limits its exposure to any single counterparty, and (3) periodically monitors the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments as cash collateral would be provided to or by the counterparties based on the current market exposure of the derivative.
The Company's agreements with its counterparties also require the posting of cash collateral in the event the aggregate value of the Company's positions exceeds certain exposure thresholds. The aggregate fair value of the Company's derivative instruments that contain credit-risk related contingent features was in a net liability position of $1.3 million and net asset position of $9.7 million as of December 31, 2020 and December 31, 2019, respectively.
ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement, or present such amounts on a gross basis. The Company's accounting policy is to present its derivative assets and liabilities on a
net basis, including any collateral posted with the counterparty. The Company had $0.4 million in collateral posted with its counterparties as of December 31, 2020 and no collateral posted with its counterparties as of December 31, 2019.
The Company is also subject to market risk in the event these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company's overall exposure.
8. Debt
Long-term debt, net of unamortized discounts and issuance costs, is outlined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Class A EETC-13, fixed interest rate of 3.9%, semiannual principal and interest payments, remaining balance due at maturity in January 2026(1)
|
$
|
214,923
|
|
|
$
|
229,866
|
|
|
Class B EETC-13, fixed interest rate of 4.95%, semiannual principal and interest payments, remaining balance of due at maturity in January 2022(1)
|
75,565
|
|
|
82,036
|
|
|
Japanese Yen denominated financing, fixed interest rate of 1.05%, quarterly principal and interest payments, remaining balance due at maturity in May 2030
|
37,526
|
|
|
39,170
|
|
|
Japanese Yen denominated financing, fixed interest rate of 1.01%, semiannual principal and interest payments, remaining balance due at maturity in June 2030
|
33,573
|
|
|
36,616
|
|
|
Japanese Yen denominated financing, fixed interest rate of 0.65%, quarterly principal and interest payments, remaining balance due at maturity in March 2025
|
121,480
|
|
|
133,970
|
|
|
Japanese Yen denominated financing, fixed interest rate of 0.76%, semiannual principal and interest payments, remaining balance due at maturity in September 2031
|
86,018
|
|
|
88,739
|
|
|
Revolving credit facility, variable interest rate of LIBOR plus a margin of 2.25%, monthly interest payments, principal balance due at maturity in December 2022
|
235,000
|
|
|
—
|
|
|
Class A EETC-20, fixed interest rate of 7.375%, semiannual principal and interest payments, remaining balance due at maturity in September 2027
|
216,976
|
|
|
—
|
|
|
Class B EETC-20, fixed interest rate of 11.25%, semiannual principal and interest payments, remaining balance due at maturity in September 2025
|
45,010
|
|
|
—
|
|
|
CARES Act Payroll Support Program, fixed interest rate of 1.0% for the first through fifth years and variable interest of SOFR plus a margin of 2.0% for the sixth year through maturity, semiannual interest payments, principal balance due at maturity in April 2030 through September 2030
|
60,278
|
|
|
—
|
|
|
CARES Act Economic Relief Program, variable interest rate of LIBOR plus a margin of 2.5%, quarterly interest payments, principal balance due at maturity in June 2024
|
45,000
|
|
|
—
|
|
|
Unamortized debt discount and issuance costs
|
(21,525)
|
|
|
(9,870)
|
|
|
Total debt
|
$
|
1,149,824
|
|
|
$
|
600,527
|
|
|
Less: Current maturities of long-term debt
|
(115,019)
|
|
|
(53,273)
|
|
|
Long-Term Debt, less discount
|
$
|
1,034,805
|
|
|
$
|
547,254
|
|
_______________________________________________________________________________
(1) The equipment notes underlying these EETCs are the direct obligations of Hawaiian.
Enhanced Equipment Trust Certificates (EETC)
In 2013, Hawaiian consummated an EETC financing, whereby it created two pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates were used to purchase equipment notes issued by the Company to fund a portion of the purchase price for six Airbus aircraft, all of which were delivered in 2013 and 2014. The equipment notes are secured by a lien on the aircraft, and the payment obligations of Hawaiian under the equipment notes will be fully and unconditionally guaranteed by the Company. The Company issued the equipment notes to the trusts as aircraft were delivered to Hawaiian. Hawaiian received all proceeds from the pass-through trusts by 2014 and recorded the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates.
In August 2020, the Company completed a $262.0 million offering of Class A and B pass-through certificates, Series 2020-1 utilizing a pass through trust (the 2020-1 EETC). The 2020-1 EETC is secured by two A330-200 aircraft and six A321-200neo aircraft. Details of the 2020-1 EETC is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total Principal
|
|
Fixed Interest Rate
|
|
Issuance Date
|
|
Final Maturity Date
|
|
2020-1 Class A Certificates
|
|
$
|
216,976
|
|
|
7.375
|
%
|
|
August 2020
|
|
September 2027
|
|
2020-1 Class B Certificates
|
|
45,010
|
|
|
11.250
|
%
|
|
August 2020
|
|
September 2025
|
|
Total
|
|
$
|
261,986
|
|
|
|
|
|
|
|
The Company evaluated whether the pass-through trusts formed are variable interest entities (VIEs) required to be consolidated by the Company under applicable accounting guidance, and determined that the pass-through trusts are VIEs. The Company determined that it does not have a variable interest in the pass-through trusts. Neither the Company nor Hawaiian invested in or obtained a financial interest in the pass-through trusts. Rather, Hawaiian has an obligation to make interest and principal payments on the equipment notes held by the pass-through trusts, which are fully and unconditionally guaranteed by the Company. Neither the Company nor Hawaiian intends to have any voting or non-voting equity interest in the pass-through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the pass-through trusts.
Foreign Denominated Financing
In 2019, the Company entered into two Japanese Yen denominated agreements totaling $227.9 million (¥24.7 billion), which were collateralized through a combination of two A321neo and four A330-200 aircraft with a net book value of approximately $382.7 million. The terms of the loans are 12 years and 5.5 years, at fixed installment coupon rates of 0.76% and 0.65%, respectively.
In 2018, the Company entered into two Japanese Yen denominated financings with a total value of approximately $86.5 million (¥9.6 billion), collateralized by the aircraft financed with a net book value of $106.1 million. Each financing is for a term of 12 years with quarterly or semiannual principal and interest payments, respectively, at fixed installment coupon rates of 1.01% and 1.05%, respectively.
At each balance sheet date, the Company remeasures the outstanding principal balance at the spot rate for the respective period and records any gain or loss at the current rate within the other nonoperating income (expense) line item in the Consolidated Statements of Operations. During 2020 and 2019, the Company recorded foreign currency unrealized losses of $14.8 million and $0.5 million, respectively.
Revolving Credit Facility
In March 2020, the Company drew down $235 million in revolving loans pursuant to its Amended and Restated Credit and Guaranty Agreement (the Credit Agreement) dated December 11, 2018. The Credit Agreement terminates, and all outstanding revolving loans thereunder will be due and payable, on December 11, 2022, unless otherwise extended by the parties. The revolving loans bear a variable interest rate equal to the London interbank offer rate plus a margin of 2.25%. The Credit Agreement requires that the Company maintain $300.0 million in liquidity, as defined under the Credit Agreement. In the event that the requirement is not met, or other customary conditions are not satisfied, the due date of the revolving loans may be accelerated.
On February 11, 2021, the Company repaid the $235.0 million outstanding amount drawn on its revolving credit facility.
Payroll Support Program Note
In September 2020, the Company entered into the Note for approximately $60.3 million and agreed to issue to the Treasury a total of 509,964 PSP Warrants to purchase shares of the Company's common stock pursuant to the PSP Agreement. The proceeds under the Note and issuance of the PSP Warrants occurred over multiple tranches between April and September 2020. The Company recorded the value of the Note and the PSP Warrants on a relative fair value basis as $53.6 million in noncurrent debt and $6.7 million in additional paid in capital, respectively. See Note 2 for further discussion of the terms of the Note.
On January 15, 2021, the Company entered into the PSP Extension Note for up to approximately $20.3 million and agreed to issue a total of 113,940 PSP Extension Warrants to purchase shares of the Company's common stock pursuant to the PSP Extension Agreement. The proceeds under the Extension Note and issuance of the PSP Extension Warrants will occur over multiple tranches between February and March 2021. See Note 2 for additional discussion.
Economic Relief Program
In 2020, the Company entered into and subsequently amended and restated its Loan Agreement with the Treasury, which increased the maximum facility available to be borrowed by the Company to $622.0 million. As of September 30, 2020, the Company borrowed $45.0 million under the ERP and may, at its option, borrow additional amounts in up to two subsequent borrowings until March 26, 2021. The Company recorded the value of the loan and the ERP Warrants on a relative fair value basis as $41.9 million in noncurrent debt and $3.1 million in additional paid in capital, respectively. Refer to Note 2 above for further discussion of the terms of the Loan Agreement.
As discussed in Note 2, on February 4, 2021, the Company repaid in full the $45.0 million loan under the ERP, and in connection with this repayment, terminated the Amended and Restated Loan Agreement.
Schedule of Maturities of Long-Term Debt
As of December 31, 2020, the scheduled maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
117,717
|
|
|
2022
|
359,967
|
|
|
2023
|
89,960
|
|
|
2024
|
132,869
|
|
|
2025
|
108,969
|
|
|
Thereafter
|
361,867
|
|
|
|
$
|
1,171,349
|
|
Covenants
The Company's debt agreements contain various affirmative, negative and financial covenants as discussed above within this Note and further in Note 2. We were in compliance with the covenants in these debt agreements as of December 31, 2020.
9. Leases
The Company leases aircraft, engines, airport terminal facilities, maintenance hangars, commercial real estate, and other property and equipment, among other items. The Company combines lease and nonlease components in calculating the ROU asset and lease liabilities for the aforementioned asset groups. Certain leases include escalation clauses, renewal options, and/or termination options. When lease renewals or termination options are considered to be reasonably certain, such periods are included in the lease term and fixed payments are included in the calculation of the lease liability and ROU asset.
The Company's leases do not provide a readily determinable implicit rate; therefore, the Company utilizes an incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.
Sale-Leaseback Transactions
During the twelve months ended December 31, 2020, the Company entered into sale-leaseback transactions for two A321-200 aircraft. The transactions qualified as a sale, generating an immaterial loss, and the associated assets were removed from property and equipment, net and recorded as operating lease right-of-use assets on the Company's Consolidated Balance Sheets. The liabilities are recorded within current and noncurrent operating lease liabilities on the Company's Consolidated Balance Sheets.
Aircraft and Engines
As of December 31, 2020, the Company leased 21 of its 69 aircraft. Of the 21 lease contracts, 4 aircraft lease contracts were accounted for as finance leases, with the remaining 17 lease contracts accounted for as operating leases. These aircraft leases have remaining lease terms ranging from 2 years to 11 years.
The Company also had 5 engines under operating leases with remaining lease terms ranging from less than 1 year to 7 years. Aircraft and engine finance leases continue to be reported on its consolidated balance sheet, while operating leases were added to the balance sheet with the adoption of the new standard in 2019.
Airport Terminal Facilities
The Company's facility leases are primarily for terminal space at airports that it serves, most notably, its operations in the State of Hawai'i. These leases are classified as operating leases and reflect the Company's use of airport terminals, office space, cargo and maintenance facilities. The Company leases space from government agencies that control the use of the airport. The remaining lease terms vary from 1 month to 30 years. At the majority of U.S. airports, the lease rates depend on airport operating costs or the use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on the Company's balance sheet as a ROU asset and lease liability.
Other Commercial Real Estate
The Company leases non-airport facility office space supporting its operations, including its headquarters in Honolulu, Hawai'i. These leases are classified as operating and have remaining lease terms ranging between 1 to 7 years.
Maintenance Hangar
The Company leases a cargo and maintenance hangar at the Daniel K. Inouye International Airport. The lease is accounted for as an operating lease and has a remaining lease term of 31 years as of December 31, 2020. In July 2019, the Company entered into an amendment to the lease agreement with the Department of Transportation of the State of Hawai'i. The amendment resulted in the adjustment of lease rates and was accounted for as a modification under ASC 842. The modification did not result in a change in lease classification. The impact to both the ROU asset and lease liability is reflected in the Lease Position Table below.
Other Property and Equipment
The Company leases certain IT assets (including data center access, equipment, etc.) and various other non-aircraft equipment. The remaining lease terms range from 1 to 3 years. Certain lease IT assets are embedded within service agreements. The combined lease and nonlease components of those agreements are included in the ROU asset and lease liability.
Lease Position as of December 31, 2020
The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
Classification on the Balance Sheet
|
|
2020
|
|
2019
|
|
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease right-of use assets
|
|
$
|
627,359
|
|
|
$
|
632,545
|
|
|
Finance lease assets
|
|
Property and equipment, net
|
|
129,969
|
|
|
153,102
|
|
|
Total lease assets
|
|
|
|
$
|
757,328
|
|
|
$
|
785,647
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Operating
|
|
Current maturities of operating leases
|
|
$
|
82,454
|
|
|
$
|
83,224
|
|
|
Finance
|
|
Current maturities of finance lease obligations
|
|
21,290
|
|
|
21,857
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
Operating
|
|
Noncurrent operating leases
|
|
503,376
|
|
|
514,685
|
|
|
Finance
|
|
Finance lease obligations
|
|
120,618
|
|
|
141,861
|
|
|
Total lease liabilities
|
|
|
|
$
|
727,738
|
|
|
$
|
761,627
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
10.6 years
|
|
10.7 years
|
|
Finance leases
|
|
|
|
7.9 years
|
|
8.6 years
|
|
Weighted-average discount rate
|
|
|
|
|
|
|
|
Operating leases (1)
|
|
|
|
5.45
|
%
|
|
4.67
|
%
|
|
Finance leases
|
|
|
|
4.42
|
%
|
|
4.45
|
%
|
(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Lease Costs
During the twelve months ended December 31, 2020, the total lease costs for finance and operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
(in thousands)
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
23,197
|
|
|
$
|
25,319
|
|
|
|
|
Interest of lease liabilities
|
|
6,887
|
|
|
8,249
|
|
|
|
|
Operating lease cost (1)
|
|
108,505
|
|
|
116,866
|
|
|
|
|
Short-term lease cost (1)
|
|
981
|
|
|
4,671
|
|
|
|
|
Variable lease cost (1)
|
|
68,212
|
|
|
126,989
|
|
|
|
|
Total lease cost
|
|
$
|
207,782
|
|
|
$
|
282,094
|
|
|
|
(1) Expenses are classified within aircraft rent and other rentals and landing fees in the consolidated statements of operations.
During the twelve months ended December 31, 2020, the cash paid for amounts included in the measurement of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
(in thousands)
|
|
Operating cash flows for operating leases
|
|
113,585
|
|
|
116,485
|
|
|
|
|
Operating cash flows for finance leases
|
|
6,887
|
|
|
8,223
|
|
|
|
|
Financing cash flows for finance lease
|
|
22,295
|
|
|
23,384
|
|
|
|
Undiscounted Cash Flows
As of December 31, 2020, the scheduled future minimum rental payments under finance leases and operating leases with non-cancellable basic terms of more than one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
|
Aircraft
|
|
Other
|
|
Aircraft
|
|
Other
|
|
|
(in thousands)
|
|
2021
|
$
|
23,042
|
|
|
$
|
4,088
|
|
|
$
|
99,213
|
|
|
$
|
11,708
|
|
|
2022
|
23,472
|
|
|
3,898
|
|
|
89,887
|
|
|
11,928
|
|
|
2023
|
23,012
|
|
|
5,038
|
|
|
82,369
|
|
|
12,057
|
|
|
2024
|
16,709
|
|
|
236
|
|
|
76,518
|
|
|
12,288
|
|
|
2025
|
11,978
|
|
|
236
|
|
|
58,018
|
|
|
11,715
|
|
|
Thereafter
|
49,495
|
|
|
6,640
|
|
|
151,467
|
|
|
164,965
|
|
|
Total minimum lease payments
|
147,708
|
|
|
20,136
|
|
|
$
|
557,472
|
|
|
$
|
224,661
|
|
|
Less: amounts representing interest
|
(21,733)
|
|
|
(4,203)
|
|
|
(100,644)
|
|
|
(95,659)
|
|
|
Present value of future minimum lease payments
|
$
|
125,975
|
|
|
$
|
15,933
|
|
|
$
|
456,828
|
|
|
$
|
129,002
|
|
|
Less: current maturities of lease obligations
|
(17,853)
|
|
|
(3,437)
|
|
|
(76,581)
|
|
|
(5,873)
|
|
|
Long-term lease obligations
|
$
|
108,122
|
|
|
$
|
12,496
|
|
|
$
|
380,247
|
|
|
$
|
123,129
|
|
10. Income Taxes
The significant components of income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Current
|
|
|
|
|
|
|
Federal
|
$
|
(113,010)
|
|
|
$
|
(46,764)
|
|
|
$
|
23,438
|
|
|
State
|
(3,919)
|
|
|
3,708
|
|
|
9,087
|
|
|
|
$
|
(116,929)
|
|
|
$
|
(43,056)
|
|
|
$
|
32,525
|
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
$
|
(52,824)
|
|
|
$
|
109,489
|
|
|
$
|
29,782
|
|
|
State
|
(19,364)
|
|
|
14,579
|
|
|
5,651
|
|
|
|
|
|
|
|
|
|
|
$
|
(72,188)
|
|
|
$
|
124,068
|
|
|
$
|
35,433
|
|
|
Income tax expense (benefit)
|
$
|
(189,117)
|
|
|
$
|
81,012
|
|
|
$
|
67,958
|
|
As of December 31, 2019, the tax benefit of $43.1 million was primarily driven by federal bonus depreciation rules of the Tax Cuts and Jobs Act of 2017 (the Tax Act), which were further clarified by final and proposed regulations issued during 2019.
The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Income tax expense computed at the statutory federal rate
|
$
|
(147,012)
|
|
|
$
|
64,049
|
|
|
$
|
63,243
|
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
State income taxes, net of federal tax effect
|
(22,508)
|
|
|
14,446
|
|
|
11,643
|
|
|
Nondeductible meals
|
271
|
|
|
756
|
|
|
797
|
|
|
Goodwill impairment
|
22,399
|
|
|
—
|
|
|
—
|
|
|
Change in valuation allowance
|
7,070
|
|
|
—
|
|
|
—
|
|
|
CARES Act (NOL carryback)
|
(45,417)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Tax Cuts and Jobs Act impact
|
—
|
|
|
—
|
|
|
(9,333)
|
|
|
Excess tax benefits from stock issuance
|
473
|
|
|
—
|
|
|
(188)
|
|
|
Other
|
(4,393)
|
|
|
1,761
|
|
|
1,796
|
|
|
Income tax expense (benefit)
|
$
|
(189,117)
|
|
|
$
|
81,012
|
|
|
$
|
67,958
|
|
During the year ended December 31, 2018, the Company completed its accounting for the effects of the Tax Act, and recorded an additional tax benefit of $9.3 million, primarily related to deductions for additional pension contributions made in 2018 for the 2017 Plan year.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic as further discussed in Note 2. The CARES Act, among other things, allows for net operating losses (NOLs) incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes and eliminates the 80 percent limitation on carried back NOLs. During the year ended December 31, 2020, the carryback of NOLs to preceeding tax years resulted in the recognition of a tax benefit of approximately $45.4 million.
The components of the Company's deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
Accumulated pension and other postretirement benefits
|
$
|
55,137
|
|
|
$
|
51,416
|
|
|
Operating leases liabilities
|
143,768
|
|
|
147,929
|
|
|
Finance leases
|
2,984
|
|
|
2,909
|
|
|
Air traffic liability and frequent flyer liability
|
90,047
|
|
|
57,240
|
|
|
|
|
|
|
|
Partnership deferred revenue
|
8,250
|
|
|
9,086
|
|
|
Federal and state net operating loss carryforwards
|
29,560
|
|
|
11,540
|
|
|
Accrued compensation
|
9,694
|
|
|
16,430
|
|
|
Other accrued assets
|
13,350
|
|
|
12,609
|
|
|
|
|
|
|
|
Other assets
|
18,972
|
|
|
10,124
|
|
|
Total gross deferred tax assets
|
371,762
|
|
|
319,283
|
|
|
Less: Valuation allowance
|
(9,617)
|
|
|
(2,547)
|
|
|
Net deferred tax assets
|
$
|
362,145
|
|
|
$
|
316,736
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Intangible assets
|
$
|
(3,190)
|
|
|
$
|
(3,216)
|
|
|
Property and equipment, principally accelerated depreciation
|
(405,583)
|
|
|
(433,395)
|
|
|
Finance leases
|
(6,369)
|
|
|
—
|
|
|
Operating lease right-of-use assets
|
(156,155)
|
|
|
(159,601)
|
|
|
Other liabilities
|
(7,490)
|
|
|
(10,088)
|
|
|
Total deferred tax liabilities
|
(578,787)
|
|
|
(606,300)
|
|
|
Net deferred tax liability
|
$
|
(216,642)
|
|
|
$
|
(289,564)
|
|
As of December 31, 2020 and 2019, the Company had federal NOL carryforwards of $40.4 million and $42.4 million, respectively and the Company had state NOL carryforwards of $424.9 million and $74.3 million, respectively. The Company’s federal NOLs have indefinite carryover period and state net operating losses will begin to expire in 2024, if not utilized. Utilization of the Company's NOL carryforwards may be subject to annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The Company's NOL carryforwards could expire before utilization if subject to annual limitations.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversal of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company assesses the realizability of its deferred tax assets and records a valuation allowance when it is more likely than not, that a portion, or all, of the deferred tax assets will not be realized.
The tax benefit of the state NOL carryforwards as of December 31, 2020 was $21.1 million, of which $9.6 million has a valuation allowance. The tax benefit of the state NOL carryforwards as of December 31, 2019 was $2.5 million, substantially all of which has a valuation allowance.
In accordance with ASC 740, the Company reviews its uncertain tax positions on an ongoing basis. The Company may be required to adjust its liability as these matters are finalized, which could increase or decrease its income tax expense and effective income tax rates or result in an adjustment to the valuation allowance. The Company records the uncertain tax position liability in Other accrued liabilities (current) and Other liabilities and deferred credits (non-current) in the consolidated balance sheet, based on the period in which the Company expects the unrecognized tax benefits will be resolved. The Company did not have any uncertain tax positions as of December 31, 2020 for which it was reasonably possible that the positions will increase or decrease within the next twelve months.
The table below reconciles beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Balance at January 1
|
$
|
6,263
|
|
|
$
|
5,086
|
|
|
$
|
4,081
|
|
|
Increases related to prior year tax positions
|
104
|
|
|
118
|
|
|
336
|
|
|
Increases related to current year tax positions
|
562
|
|
|
1,059
|
|
|
669
|
|
|
Settlements with taxing authority
|
(1,063)
|
|
|
—
|
|
|
—
|
|
|
Effect of the expiration of statutes of limitation
|
(2,417)
|
|
|
—
|
|
|
—
|
|
|
Balance at December 31
|
$
|
3,449
|
|
|
$
|
6,263
|
|
|
$
|
5,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's policy is to recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. In 2020, 2019, and 2018, the Company recognized expense (benefit) of $(0.7) million, $0.9 million, and $0.0 million, respectively, for interest and penalties on uncertain tax positions. As of December 31, 2020 and 2019, the Company accrued approximately $0.2 million and $0.9 million, respectively, for the payment of interest and penalties related to uncertain tax positions.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal and state income tax returns for tax years 2016 and beyond remain subject to examination by the Internal Revenue Service and state taxing authorities.
11. Contract Terminations Expense and Special Items
Contract terminations expense and special items in the statements of consolidated operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Operating
|
|
|
|
|
|
|
Contract terminations expense (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,322
|
|
|
Operating special items:
|
|
|
|
|
|
|
Collective bargaining agreement payment (2)
|
20,242
|
|
|
—
|
|
|
—
|
|
|
Goodwill impairment (3)
|
106,662
|
|
|
—
|
|
|
—
|
|
|
Long-lived asset impairment (4)
|
38,933
|
|
|
—
|
|
|
—
|
|
|
Capitalized software projects (4)
|
509
|
|
|
—
|
|
|
—
|
|
|
Severance and benefit costs (5)
|
17,765
|
|
|
—
|
|
|
—
|
|
|
Total Contract terminations expense and Operating special items
|
$
|
184,111
|
|
|
$
|
—
|
|
|
$
|
35,322
|
|
|
Nonoperating
|
|
|
|
|
|
|
Other nonoperating special items:
|
|
|
|
|
|
|
Special termination benefits (6)
|
$
|
5,258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Curtailment loss (6)
|
424
|
|
|
—
|
|
|
—
|
|
|
Partial settlement and curtailment loss (7)
|
—
|
|
|
—
|
|
|
10,384
|
|
|
Loss on plan termination (7)
|
—
|
|
|
—
|
|
|
35,201
|
|
|
Total Other nonoperating special items
|
$
|
5,682
|
|
|
$
|
—
|
|
|
$
|
45,585
|
|
Contract terminations expense
(1)During the twelve months ended December 31, 2018, the Company terminated two contracts which incurred a total of $35.3 million in contract terminations expense. The transactions are described below:
In February 2018, the Company exercised its right to terminate the aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, the Company was obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. The Company recorded a contract terminations expense to reflect a portion of the termination penalty within the Consolidated Statements of Operations.
In January 2018, the Company entered into a transaction with its lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.
Special items
(2)In March 2020, the Company reached an agreement in principle with the flight attendants of Hawaiian, represented by the Association of Flight Attendants (the AFA) on a new five-year contract that runs through April 2025. On April 3, 2020, the Company received notice from the AFA that the collective bargaining agreement (the CBA) was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flights attendants upon retirement. During the twelve months ended December 31, 2020, the Company recorded a $23.5 million ratification bonus, of which $20.2 million was related to service prior to January 1, 2020, and was recorded as a Special item in the Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of Wages and benefits in the Consolidated Statements of Operations.
(3)As discussed in Note 1, the Company recognized a goodwill impairment charge of $106.7 million during the twelve months ended December 31, 2020.
(4)As discussed in Note 1, the Company recognized an impairment of long-lived assets of $38.9 million during the twelve months ended December 31, 2020.
(5)During the third quarter of 2020, the Company announced and completed voluntary separation program offerings across each of its labor groups. In addition to separation payments, the Company offered its employees, based on labor group, age, and years of service, special termination benefits in the form of retiree healthcare benefits as discussed below. The election and revocation windows for these programs closed during the quarter. Additionally, the Company announced involuntary separations and temporary leave programs, the majority of which were effective October 1, 2020. Combined, the separation and temporary leave programs represented a reduction of approximately 32% of the Company's workforce. The Company recorded $17.8 million during the twelve months ended December 31, 2020 related to the workforce reduction and separation programs.
(6)During the twelve months ended December 31, 2020, the Company recorded $5.7 million in special termination benefits and curtailment losses related to the Company's pension and other postretirement benefit plans in connection with its voluntary separation programs. See Note 12 for additional information.
(7)In August 2017, the Company terminated the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portion of its pilots' other post-retirement medical plan liability. In connection with the reduction of these liabilities in 2018, the Company recorded one-time Other nonoperating special charges of $35.2 million related to the Merged Plan termination and $10.4 million related to the other post-retirement (OPEB) medical plan partial settlement.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
12. Employee Benefit Plans
Defined Benefit Plans
Hawaiian sponsors a defined benefit pension plan covering the ALPA and prior to August 2017, sponsored the defined benefit pension plans for the International Association of Machinists and Aerospace Workers (AFL-CIO) (IAM) and other personnel (salaried, Transport Workers Union, Network Engineering Group). The plans for the IAM and other employees were frozen in September 1993. Effective January 1, 2008, benefit accruals for pilots under age 50 as of July 1, 2005 were frozen (with the exception of certain pilots who were both age 50 and older and participants of the plan on July 1, 2005) and Hawaiian began making contributions to an alternate defined contribution retirement program for its pilots. All of the pilots' accrued benefits under their defined benefit plan at the date of the freeze were preserved. In addition, Hawaiian sponsors four unfunded defined benefit postretirement medical and life insurance plans and a separate plan to administer the pilots' disability benefits.
In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Merged Plan. At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In 2017, the Company completed the termination of the plan by transferring the assets and liabilities to a third-party insurance company. The Company no longer has any expected contributions to the Merged Plan due to the final settlement.
The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
|
(in thousands)
|
|
Change in projected benefit obligations
|
|
|
|
|
|
|
|
|
Benefit obligations, beginning of year
|
$
|
(444,896)
|
|
|
$
|
(147,286)
|
|
|
$
|
(398,087)
|
|
|
$
|
(122,648)
|
|
|
Service cost
|
(12)
|
|
|
(10,791)
|
|
|
(175)
|
|
|
(8,255)
|
|
|
Interest cost
|
(14,639)
|
|
|
(5,167)
|
|
|
(16,910)
|
|
|
(5,472)
|
|
|
Actuarial gains (losses)
|
(39,039)
|
|
|
(4,608)
|
|
|
(52,208)
|
|
|
(16,113)
|
|
|
Benefits paid
|
23,836
|
|
|
5,785
|
|
|
22,484
|
|
|
5,250
|
|
|
Less: federal subsidy on benefits paid
|
N/A
|
|
—
|
|
|
N/A
|
|
(48)
|
|
|
Plan amendments
|
—
|
|
|
(3,260)
|
|
|
—
|
|
|
—
|
|
|
Special/contractual termination benefits
|
—
|
|
|
(5,258)
|
|
|
—
|
|
|
—
|
|
|
Curtailments
|
—
|
|
|
(895)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year (a)
|
$
|
(474,750)
|
|
|
$
|
(171,480)
|
|
|
$
|
(444,896)
|
|
|
$
|
(147,286)
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of assets, beginning of year
|
$
|
351,821
|
|
|
$
|
32,545
|
|
|
$
|
308,024
|
|
|
$
|
26,363
|
|
|
Actual return on plan assets
|
54,081
|
|
|
3,870
|
|
|
65,820
|
|
|
4,532
|
|
|
Employer contribution
|
780
|
|
|
8,080
|
|
|
461
|
|
|
6,900
|
|
|
Benefits paid
|
(23,836)
|
|
|
(5,785)
|
|
|
(22,484)
|
|
|
(5,250)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year
|
$
|
382,846
|
|
|
$
|
38,710
|
|
|
$
|
351,821
|
|
|
$
|
32,545
|
|
|
Unfunded status at December 31
|
$
|
(91,904)
|
|
|
$
|
(132,770)
|
|
|
$
|
(93,075)
|
|
|
$
|
(114,741)
|
|
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Current benefit liability
|
$
|
(793)
|
|
|
$
|
(6,144)
|
|
|
$
|
(667)
|
|
|
$
|
(3,553)
|
|
|
Noncurrent benefit liability
|
(91,111)
|
|
|
(126,626)
|
|
|
(92,408)
|
|
|
(111,188)
|
|
|
|
$
|
(91,904)
|
|
|
$
|
(132,770)
|
|
|
$
|
(93,075)
|
|
|
$
|
(114,741)
|
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Unamortized actuarial loss (gain)
|
$
|
131,653
|
|
|
$
|
1,790
|
|
|
$
|
127,367
|
|
|
$
|
(1,662)
|
|
|
Prior service cost (credit)
|
—
|
|
|
4,060
|
|
|
—
|
|
|
1,512
|
|
|
|
$
|
131,653
|
|
|
$
|
5,850
|
|
|
$
|
127,367
|
|
|
$
|
(150)
|
|
_______________________________________________________________________________
(a)The accumulated pension benefit obligation as of December 31, 2020 and 2019 was $474.8 million and $444.9 million, respectively.
The following table sets forth the net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
|
(in thousands)
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
12
|
|
|
$
|
10,791
|
|
|
$
|
175
|
|
|
$
|
8,255
|
|
|
$
|
352
|
|
|
$
|
8,119
|
|
|
Other cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
14,639
|
|
|
5,167
|
|
|
16,910
|
|
|
5,472
|
|
|
15,599
|
|
|
4,708
|
|
|
Expected return on plan assets
|
(23,418)
|
|
|
(1,746)
|
|
|
(20,519)
|
|
|
(1,421)
|
|
|
(20,948)
|
|
|
(1,413)
|
|
|
Recognized net actuarial loss (gain)
|
4,091
|
|
|
(43)
|
|
|
4,103
|
|
|
(902)
|
|
|
3,482
|
|
|
(774)
|
|
|
Prior service cost (credit)
|
—
|
|
|
288
|
|
|
—
|
|
|
225
|
|
|
—
|
|
|
225
|
|
|
Total other components of the net periodic benefit cost
|
$
|
(4,688)
|
|
|
$
|
3,666
|
|
|
$
|
494
|
|
|
$
|
3,374
|
|
|
$
|
(1,867)
|
|
|
$
|
2,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special/contractual termination benefits
|
$
|
—
|
|
|
$
|
5,258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Curtailment loss
|
$
|
—
|
|
|
$
|
424
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net periodic benefit cost
|
$
|
(4,676)
|
|
|
$
|
20,139
|
|
|
$
|
669
|
|
|
$
|
11,629
|
|
|
$
|
(1,515)
|
|
|
$
|
10,865
|
|
|
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial (gain) loss
|
$
|
8,376
|
|
|
$
|
3,409
|
|
|
$
|
6,907
|
|
|
$
|
13,041
|
|
|
$
|
15,625
|
|
|
$
|
(2,858)
|
|
|
Current year prior service cost
|
—
|
|
|
3,260
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of actuarial gain (loss)
|
(4,091)
|
|
|
43
|
|
|
(4,103)
|
|
|
902
|
|
|
(3,482)
|
|
|
774
|
|
|
Amortization of prior service credit (cost)
|
—
|
|
|
(712)
|
|
|
—
|
|
|
(225)
|
|
|
—
|
|
|
(225)
|
|
|
Settlement and curtailment loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total recognized in other comprehensive loss
|
$
|
4,285
|
|
|
$
|
6,000
|
|
|
$
|
2,804
|
|
|
$
|
13,718
|
|
|
$
|
12,143
|
|
|
$
|
(2,309)
|
|
|
Total recognized in net periodic benefit cost and other comprehensive loss
|
$
|
(391)
|
|
|
$
|
26,139
|
|
|
$
|
3,473
|
|
|
$
|
25,347
|
|
|
$
|
10,628
|
|
|
$
|
8,556
|
|
Service costs are recorded within Wages and benefits in the Consolidated Statements of Operations. Total other components of the net periodic benefit cost are recorded within the Nonoperating income (expense), other line item in the Consolidated Statements of Operations. During the twelve months ended December 31, 2020, the Company was not required to, and did not make cash contributions to its defined benefit and other post-retirement plans.
During the twelve months ended December 31, 2020, the Company remeasured its postretirement healthcare obligation to account for retiree healthcare benefits provided to eligible participants under the Company's voluntary separation programs. As a result, the Company recorded $5.3 million in special termination benefits during the twelve months ended December 31, 2020. The Company also recorded $0.4 million in curtailment loss during the twelve months ended December 31, 2020.
The weighted average actuarial assumptions used to determine the net periodic benefit expense and the projected benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
Disability
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
Discount rate to determine net periodic benefit expense
|
3.38
|
%
|
|
4.35
|
%
|
|
2.89
|
%
|
|
4.36
|
%
|
|
3.18
|
%
|
|
4.39
|
%
|
|
|
Discount rate to determine projected benefit obligation
|
2.63
|
%
|
|
3.38
|
%
|
|
3.38
|
%
|
|
3.38
|
%
|
|
3.40
|
%
|
|
3.40
|
%
|
|
|
Expected return on plan assets
|
6.76
|
%
|
**
|
6.91
|
%
|
|
N/A
|
|
N/A
|
|
4.90
|
%
|
**
|
4.90
|
%
|
|
|
Rate of compensation increase
|
Various
|
*
|
Various
|
*
|
N/A
|
|
N/A
|
|
Various
|
*
|
Various
|
*
|
|
Health care trend rate to determine net periodic benefit expense
|
N/A
|
|
N/A
|
|
6.50
|
%
|
|
6.75
|
%
|
|
N/A
|
|
N/A
|
|
|
Ultimate trend rate
|
N/A
|
|
N/A
|
|
4.75
|
%
|
|
4.75
|
%
|
|
N/A
|
|
N/A
|
|
|
Years to reach ultimate trend rate
|
N/A
|
|
N/A
|
|
7
|
|
4
|
|
N/A
|
|
N/A
|
|
|
Health care trend rate to determine projected benefit obligation
|
N/A
|
|
N/A
|
|
6.50
|
%
|
|
6.50
|
%
|
|
N/A
|
|
N/A
|
|
|
Ultimate trend rate
|
N/A
|
|
N/A
|
|
4.75
|
%
|
|
4.75
|
%
|
|
N/A
|
|
N/A
|
|
|
Years to reach ultimate trend rate
|
N/A
|
|
N/A
|
|
6
|
|
7
|
|
N/A
|
|
N/A
|
|
_______________________________________________________________________________
* Differs for each pilot based on current fleet and seat position on the aircraft and seniority service. Negotiated salary increases and expected changes in fleet and seat positions on the aircraft are included in the assumed rate of compensation increase, which ranged from 2.0% to 7.3% in both 2020 and 2019).
** Expected return on plan assets used to determine the net periodic benefit expense for 2021 is 6.29% for Pension and 4.28% for Disability.
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other
|
|
|
(in thousands)
|
|
Actuarial (gain) loss
|
$
|
4,293
|
|
|
$
|
(349)
|
|
|
Amortization of prior service cost
|
—
|
|
|
370
|
|
|
To be recognized in net periodic benefit cost from accumulated other comprehensive (gain) loss
|
$
|
4,293
|
|
|
$
|
21
|
|
Plan Assets
The Company develops the expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plan's assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. The Company's expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk at acceptable levels. The Retirement Plan for Pilots of Hawaiian Airlines, Inc. and the Pilot's Voluntary Employee Beneficiary Association Disability and Survivor's Benefit Plan (VEBA) strive to have assets sufficiently diversified so that adverse or unexpected results from any one security class will not have an unduly detrimental impact on the entire portfolio. Prior to termination, the Merged Plan targeted to have its assets align with the potential liability as of the expected settlement date. The actual allocation of the Company's pension and disability plan assets and the target allocation of assets by
category at December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Allocation for Pilots pension and VEBA Plans
|
|
|
2020
|
|
Target
|
|
Equity securities
|
59
|
%
|
|
60
|
%
|
|
Fixed income securities
|
36
|
%
|
|
35
|
%
|
|
Real estate investment trusts
|
5
|
%
|
|
5
|
%
|
|
|
100
|
%
|
|
100
|
%
|
The table below presents the fair value of the Company's pension plan and other postretirement plan investments (excluding cash and receivables):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
(in thousands)
|
|
Pension Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity index funds
|
|
$
|
227,357
|
|
|
$
|
214,319
|
|
|
Fixed income funds
|
|
134,074
|
|
|
118,321
|
|
|
Real estate investment fund
|
|
19,286
|
|
|
16,778
|
|
|
Insurance company pooled separate account
|
|
2,132
|
|
|
2,407
|
|
|
Total
|
|
$
|
382,849
|
|
|
$
|
351,825
|
|
|
Postretirement Assets:
|
|
|
|
|
|
Common collective trust fund
|
|
$
|
38,579
|
|
|
$
|
32,366
|
|
The fair value of the investments in the table above have been estimated using the net asset value per share, and in accordance with subtopic ASC 820-10, Fair Value Measurement and Disclosures, are not required to be presented in the fair value hierarchy.
Equity index funds. The investment objective of these funds is to obtain a reasonable rate of return while investing principally or entirely in foreign or domestic equity securities. There are currently no redemption restrictions on these investments.
Fixed income funds. The investment objective of these funds is to obtain a reasonable rate of return while principally investing in foreign and domestic bonds, mortgage-backed securities, and asset-backed securities. There are currently no redemption restrictions on these investments.
Real estate investment fund. The investment objective of this fund is to obtain a reasonable rate of return while principally investing in real estate investment trusts. There are currently no redemption restrictions on these investments.
Insurance Company Pooled Separate Account. The investment objective of the Insurance Company Pooled Separate Account is to invest in short-term cash equivalent securities to provide a high current income consistent with the preservation of principal and liquidity.
Common collective trust (CCT). The postretirement plan's CCT investment consists of a balanced profile fund and a conservative profile fund. These funds primarily invest in mutual funds and exchange-traded funds. The balanced profile fund is designed for participating trusts that seek substantial capital growth, place modest emphasis on short-term stability, have long-term investment objectives, and accept short-term volatility in the value of the fund's portfolio. The conservative profile fund is designed for participating trusts that place modest emphasis on capital growth, place moderate emphasis on short-term stability, have intermediate-to-long-term investment objectives, and accept moderate short-term volatility in the value of the fund's portfolio. There are currently no redemption restrictions on these investments.
Based on current legislation and assumptions, the Company expects to have a minimum contribution requirement of $7.5 million for 2021. The Company projects that Hawaiian's pension plans and other postretirement benefit plans will make the following benefit payments, which reflect expected future service, during the years ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
|
Pension
Benefits
|
|
Gross
|
|
Expected
Federal Subsidy
|
|
|
|
(in thousands)
|
|
2021
|
|
$
|
25,530
|
|
|
$
|
7,850
|
|
|
$
|
—
|
|
|
2022
|
|
26,264
|
|
|
8,536
|
|
|
—
|
|
|
2023
|
|
26,908
|
|
|
9,045
|
|
|
—
|
|
|
2024
|
|
27,267
|
|
|
9,524
|
|
|
—
|
|
|
2025
|
|
27,427
|
|
|
9,907
|
|
|
—
|
|
|
2026 - 2030
|
|
135,652
|
|
|
53,776
|
|
|
—
|
|
|
|
|
$
|
269,048
|
|
|
$
|
98,638
|
|
|
$
|
—
|
|
Defined Contribution Plans
The Company also sponsors separate defined contribution plans for its pilots, flight attendants and ground, and salaried personnel. Contributions to the Company's defined contribution plans were $43.6 million, $46.7 million and $42.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
13. Capital Stock and Share-based Compensation
Common Stock
The Company has one class of common stock issued and outstanding. Each share of common stock is entitled to one vote per share.
Special Preferred Stock
The IAM, Association of Flight Attendants (AFA), and ALPA each hold one share of Special Preferred Stock, which entitles each union to nominate one director to the Company's Board of Directors. In addition, each series of the Special Preferred Stock, unless otherwise specified: (i) ranks senior to the Company's common stock and ranks pari passu with each other series of Special Preferred Stock with respect to liquidation, dissolution and winding up of the Company and will be entitled to receive $0.01 per share before any payments are made, or assets distributed to holders of any stock ranking junior to the Special Preferred Stock; (ii) has no dividend rights unless a dividend is declared and paid on the Company's common stock, in which case the Special Preferred Stock would be entitled to receive a dividend in an amount per share equal to two times the dividend per share paid on the common stock; (iii) is entitled to one vote per share of such series and votes with the common stock as a single class on all matters submitted to holders of the Company's common stock; and (iv) automatically converts into the Company's common stock on a 1:1 basis, at such time as such shares are transferred or such holders are no longer entitled to nominate a representative to the Company's Board of Directors pursuant to their respective collective bargaining agreements.
Dividends
The Company paid cash dividends of $5.5 million, $22.8 million, and $24.2 million during the years ended December 31, 2020, 2019, and 2018, respectively. The Company’s receipt of financial assistance under the CARES Act and the CAA 2021 precludes the Company from making any further dividend payments until March 31, 2022.
Stock Repurchase Program
In November 2018, the Company's Board of Directors approved the repurchase of up to $100 million of its outstanding common stock over a two-year period through December 2020. On March 18, 2020, the Company announced the suspension of its stock repurchase program and pursuant to its receipt of financial assistance under the CARES Act and the CAA 2021, it is restricted from making any stock repurchases until March 31, 2022.
The Company spent $7.5 million, $68.8 million, and $102.5 million to repurchase approximately 260 thousand shares, 2.5 million shares, and 2.8 million shares of the Company's common stock in open market transactions for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company had no stock repurchase activity during the three months ended December 31, 2020.
At-the-Market Offering Program
On December 1, 2020, the Company entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with Morgan Stanley & Co. LLC, BNP Paribas Securities Corp. and Goldman Sachs & Co. LLC (the Managers) relating to the issuance and sale from time to time by the Company through the Managers, of up to 5,000,000 shares of the Company's common stock, par value $0.01 per share. Sales of the shares, if any, under the Equity Distribution Agreement may be made in any transactions that are deemed to be "at-the-market" offerings as defined in Rule 415 under the Securities Act of 1933, as amended. Under the terms of the Equity Distribution Agreement, the Company will set the parameters for the sale of the shares, including the number of the shares to be issued, the time period during which sales are requested to be made, limitation on the number of the shares that may be sold in any one trading day and any minimum price below which sales may not be made. During the twelve months ended December 31, 2020, 2.1 million shares were sold pursuant to the Equity Distribution Agreement at an average price of $19.79 per share, with net proceeds to the Company totaling approximately $41.2 million.
Share-Based Compensation
Total share-based compensation expense recognized by the Company under ASC 718 was $4.9 million, $8.3 million and $5.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, $6.3 million of share-based compensation expense related to unvested stock options and other stock awards (inclusive of $0.4 million for stock awards granted to non-employee directors) attributable to future performance and has not yet been recognized. The related expense will be recognized over a weighted average period of approximately 1.3 years.
Performance-Based Stock Awards
During 2020, the Company granted performance-based stock awards covering 204,589 shares of common stock (the Target Award) with a maximum payout of 406,916 shares of common stock (the Maximum Award) to employees pursuant to the Company's 2015 Stock Incentive Plan. These awards vest over a three year period. The Company valued the performance-based stock awards using grant date fair values equal to the Company's share price on the measurement date.
The following table summarizes information about performance-based stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units
|
|
Weighted
average
grant date
fair value
|
|
Non-vested at January 1, 2018
|
381,956
|
|
|
$
|
28.03
|
|
|
Granted
|
160,348
|
|
|
39.09
|
|
|
Vested
|
(211,053)
|
|
|
26.28
|
|
|
Forfeited
|
(69,399)
|
|
|
39.42
|
|
|
Non-vested at December 31, 2018
|
261,852
|
|
|
$
|
33.01
|
|
|
Granted
|
114,858
|
|
|
31.74
|
|
|
Vested
|
(56,641)
|
|
|
36.45
|
|
|
Forfeited
|
(18,486)
|
|
|
34.32
|
|
|
Non-vested at December 31, 2019
|
301,583
|
|
|
$
|
33.40
|
|
|
Granted
|
216,369
|
|
|
25.71
|
|
|
Vested
|
(61,073)
|
|
|
43.62
|
|
|
Forfeited
|
(14,926)
|
|
|
33.00
|
|
|
Non-vested at December 31, 2020
|
441,953
|
|
|
$
|
30.98
|
|
The fair value of performance-based stock awards vested in the years ended December 31, 2020, 2019 and 2018 was $1.7 million, $1.7 million and $8.2 million, respectively. Fair value of the awards is based on the stock price on date of vest.
Service-Based Stock Awards
During 2020, the Company awarded 353,538 service-based restricted stock awards to employees and non-employee directors, pursuant to the Company's 2015 Stock Incentive Plan. These stock awards vest over one, two, or three year periods and have a grant date fair value equal to the Company's share price on the measurement date.
The following table summarizes information about outstanding service-based stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units
|
|
Weighted
average
grant date
fair value
|
|
Non-vested at January 1, 2018
|
91,378
|
|
|
$
|
28.12
|
|
|
Granted
|
128,617
|
|
|
38.71
|
|
|
Vested
|
(68,803)
|
|
|
38.98
|
|
|
Forfeited
|
(8,241)
|
|
|
38.03
|
|
|
Non-vested at December 31, 2018
|
142,951
|
|
|
$
|
38.77
|
|
|
Granted
|
176,326
|
|
|
29.01
|
|
|
Vested
|
(75,638)
|
|
|
38.39
|
|
|
Forfeited
|
(10,357)
|
|
|
31.00
|
|
|
Non-vested at December 31, 2019
|
233,282
|
|
|
$
|
31.80
|
|
|
Granted
|
353,538
|
|
|
19.71
|
|
|
Vested
|
(129,297)
|
|
|
29.20
|
|
|
Forfeited
|
(9,692)
|
|
|
27.18
|
|
|
Non-vested at December 31, 2020
|
447,831
|
|
|
$
|
23.09
|
|
The fair value of service-based stock awards vested in 2020, 2019, and 2018 was $2.8 million, $2.2 million and $2.7 million, respectively. Fair value of the awards is based on the stock price on date of vest.
14. Commitments and Contingent Liabilities
Commitments
The Company has commitments with a third-party to provide aircraft maintenance services which include fixed payments as well as variable payments based on flight hours for the Company's Airbus fleet through 2027. The Company also has commitments with third-party service providers for reservations, IT, and accounting services through 2025. Committed capital and other expenditures include escalation and variable amounts based on estimated forecasts.
The gross committed expenditures for upcoming aircraft deliveries and other commitments for the next five years and thereafter are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and aircraft related
|
|
Other
|
|
Total Committed
Expenditures
|
|
|
(in thousands)
|
|
2021
|
$
|
8,483
|
|
|
$
|
78,566
|
|
|
$
|
87,049
|
|
|
2022
|
342,793
|
|
|
73,451
|
|
|
416,244
|
|
|
2023
|
158,380
|
|
|
68,034
|
|
|
226,414
|
|
|
2024
|
504,573
|
|
|
59,992
|
|
|
564,565
|
|
|
2025
|
408,457
|
|
|
47,858
|
|
|
456,315
|
|
|
Thereafter
|
232,268
|
|
|
88,668
|
|
|
320,936
|
|
|
|
$
|
1,654,954
|
|
|
$
|
416,569
|
|
|
$
|
2,071,523
|
|
As of December 31, 2020, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Type
|
Firm
Orders
|
|
Purchase
Rights
|
|
Expected Delivery Dates
|
|
A321neo aircraft
|
—
|
|
|
9
|
|
|
N/A
|
|
B787-9 aircraft
|
10
|
|
|
10
|
|
|
Between 2022 and 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Electric GEnx spare engines:
|
|
|
|
|
|
|
B787-9 spare engines
|
2
|
|
|
2
|
|
|
Between 2022 and 2025
|
In February 2018, the Company exercised its right to terminate its aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. Refer to Note 11 for discussion on the contract termination charge.
Boeing 787-9 Purchase Agreement
In July 2018, the Company entered into a purchase agreement for the purchase of ten Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft with scheduled delivery from 2021 to 2025. In October 2018, the Company entered into a definitive agreement for the selection of GEnx engines to power its Boeing 787-9 fleet. The agreement provides for the purchase of 20 GEnx engines, the right to purchase an additional 20 GEnx engines and the purchase of up to four spare engines.
In October 2020, the Company entered into an amendment related to its Boeing 787-9 purchase agreement referenced above, which, amongst other things, provides for a change in the Company's aircraft delivery schedule to between 2022 and 2026, with the first delivery scheduled in September 2022. The committed expenditures under the amended agreement is reflected in the table above.
In order to complete the purchase of these aircraft and fund related costs, the Company may need to secure acceptable financing. The Company has backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy the Company's capital commitments for firm order aircraft and other related capital expenditures. The Company can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.
Litigation and Contingencies
The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of any currently pending proceeding will have a material effect on the Company's operations, business or financial condition.
General Guarantees and Indemnifications
In the normal course of business, the Company enters into numerous aircraft financing and real estate leasing arrangements that have various guarantees included in such contracts. It is common in such lease transactions for the lessee to agree to indemnify the lessor and other related third-parties for tort liabilities that arise out of, or relate to, the lessee’s use of the leased aircraft or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by such parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to the lessee's use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most of the tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot reasonably estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.
Credit Card Holdback
Under the Company's bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. As of December 31, 2020 and 2019, there were no holdbacks held with the Company's credit card processors.
In the event of a material adverse change in the Company's business, the credit card processor could increase holdbacks to up to 100% of the amount of outstanding credit card tickets that are unflown (e.g., Air traffic liability, excluding frequent flyer deferred revenue), which would result in a restriction of cash. If the Company were unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material impact on the Company's operations, business or financial condition.
Labor Negotiations
As of December 31, 2020, approximately 79.0% of employees were represented by unions. Additionally, the collective bargaining agreement for the IAM-M and IAM-C, which represents 37.6% of employees became amendable on January 1, 2021. The Company is currently in negotiations with the IAM-M and IAM-C.
15. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information and non-cash investing and financing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Cash payments for interest (net of amounts capitalized)
|
$
|
23,951
|
|
|
$
|
20,346
|
|
|
$
|
24,343
|
|
|
Cash payments (refunds) for income taxes
|
(81,372)
|
|
|
25,809
|
|
|
16,063
|
|
|
Investing and Financing Activities Not Affecting Cash:
|
|
|
|
|
|
|
Property and equipment acquired through a finance lease
|
939
|
|
|
6,567
|
|
|
119,530
|
|
|
Right-of-use assets acquired under operating leases
|
75,667
|
|
|
74,529
|
|
|
—
|
|
|
|
|
|
|
|
|
16. Condensed Consolidating Financial Information
The following condensed consolidating financial information is presented in accordance with Regulation S-X paragraph 210.3-10 because, in connection with the issuance by two pass-through trusts formed by Hawaiian (which is also referred to in this Note 16 as Subsidiary Issuer / Guarantor) of pass-through certificates, as discussed in Note 8, the Company
(which is also referred to in this Note 16 as Parent Issuer / Guarantor), is fully and unconditionally guaranteeing the payment obligations of Hawaiian, which is a 100% owned subsidiary of the Company, under equipment notes to be issued by Hawaiian to purchase new aircraft.
Condensed consolidating financial statements are presented in the following tables:
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Operating Revenue
|
$
|
—
|
|
|
$
|
843,197
|
|
|
$
|
14,268
|
|
|
$
|
(12,652)
|
|
|
$
|
844,813
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
161,363
|
|
|
—
|
|
|
—
|
|
|
161,363
|
|
|
Wages and benefits
|
—
|
|
|
387,910
|
|
|
—
|
|
|
—
|
|
|
387,910
|
|
|
Aircraft rent
|
—
|
|
|
103,898
|
|
|
(8)
|
|
|
—
|
|
|
103,890
|
|
|
Maintenance materials and repairs
|
—
|
|
|
117,210
|
|
|
5,638
|
|
|
(1,277)
|
|
|
121,571
|
|
|
Aircraft and passenger servicing
|
—
|
|
|
58,016
|
|
|
—
|
|
|
—
|
|
|
58,016
|
|
|
Commissions and other selling
|
(6)
|
|
|
46,262
|
|
|
97
|
|
|
(56)
|
|
|
46,297
|
|
|
Depreciation and amortization
|
—
|
|
|
145,712
|
|
|
5,953
|
|
|
—
|
|
|
151,665
|
|
|
Other rentals and landing fees
|
—
|
|
|
73,894
|
|
|
27
|
|
|
(113)
|
|
|
73,808
|
|
|
Purchased services
|
1,361
|
|
|
107,776
|
|
|
1,102
|
|
|
(11,189)
|
|
|
99,050
|
|
|
Special items
|
—
|
|
|
148,355
|
|
|
35,756
|
|
|
—
|
|
|
184,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
6,007
|
|
|
96,844
|
|
|
1,909
|
|
|
(17)
|
|
|
104,743
|
|
|
Total
|
7,362
|
|
|
1,447,240
|
|
|
50,474
|
|
|
(12,652)
|
|
|
1,492,424
|
|
|
Operating Loss
|
(7,362)
|
|
|
(604,043)
|
|
|
(36,206)
|
|
|
—
|
|
|
(647,611)
|
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Undistributed net loss of subsidiaries
|
(505,131)
|
|
|
—
|
|
|
—
|
|
|
505,131
|
|
|
—
|
|
|
Other nonoperating special items
|
—
|
|
|
(5,682)
|
|
|
—
|
|
|
—
|
|
|
(5,682)
|
|
|
Interest expense and amortization of debt discounts and issuance costs
|
—
|
|
|
(40,439)
|
|
|
—
|
|
|
—
|
|
|
(40,439)
|
|
|
Interest income
|
15
|
|
|
8,716
|
|
|
—
|
|
|
—
|
|
|
8,731
|
|
|
Capitalized interest
|
—
|
|
|
3,236
|
|
|
—
|
|
|
—
|
|
|
3,236
|
|
|
Other components of net periodic benefit cost
|
—
|
|
|
1,300
|
|
|
—
|
|
|
—
|
|
|
1,300
|
|
|
Losses on fuel derivatives
|
—
|
|
|
(6,930)
|
|
|
—
|
|
|
—
|
|
|
(6,930)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
—
|
|
|
(12,652)
|
|
|
(5)
|
|
|
—
|
|
|
(12,657)
|
|
|
Total
|
(505,116)
|
|
|
(52,451)
|
|
|
(5)
|
|
|
505,131
|
|
|
(52,441)
|
|
|
Loss Before Income Taxes
|
(512,478)
|
|
|
(656,494)
|
|
|
(36,211)
|
|
|
505,131
|
|
|
(700,052)
|
|
|
Income tax benefit
|
(1,543)
|
|
|
(179,970)
|
|
|
(7,604)
|
|
|
—
|
|
|
(189,117)
|
|
|
Net Loss
|
$
|
(510,935)
|
|
|
$
|
(476,524)
|
|
|
$
|
(28,607)
|
|
|
$
|
505,131
|
|
|
$
|
(510,935)
|
|
|
Comprehensive Income (Loss)
|
$
|
521,579
|
|
|
$
|
(487,168)
|
|
|
$
|
(28,607)
|
|
|
$
|
(527,383)
|
|
|
$
|
(521,579)
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Operating Revenue
|
$
|
—
|
|
|
$
|
2,830,133
|
|
|
$
|
12,202
|
|
|
$
|
(10,107)
|
|
|
$
|
2,832,228
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
542,573
|
|
|
—
|
|
|
—
|
|
|
542,573
|
|
|
Wages and benefits
|
—
|
|
|
723,656
|
|
|
—
|
|
|
—
|
|
|
723,656
|
|
|
Aircraft rent
|
—
|
|
|
118,380
|
|
|
524
|
|
|
—
|
|
|
118,904
|
|
|
Maintenance materials and repairs
|
—
|
|
|
238,198
|
|
|
12,207
|
|
|
(633)
|
|
|
249,772
|
|
|
Aircraft and passenger servicing
|
—
|
|
|
164,275
|
|
|
—
|
|
|
—
|
|
|
164,275
|
|
|
Commissions and other selling
|
11
|
|
|
130,226
|
|
|
138
|
|
|
(159)
|
|
|
130,216
|
|
|
Depreciation and amortization
|
—
|
|
|
151,337
|
|
|
7,569
|
|
|
—
|
|
|
158,906
|
|
|
Other rentals and landing fees
|
—
|
|
|
129,642
|
|
|
27
|
|
|
(47)
|
|
|
129,622
|
|
|
Purchased services
|
284
|
|
|
139,145
|
|
|
1,201
|
|
|
(9,063)
|
|
|
131,567
|
|
|
Contract terminations expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
5,991
|
|
|
147,378
|
|
|
2,096
|
|
|
(205)
|
|
|
155,260
|
|
|
Total
|
6,286
|
|
|
2,484,810
|
|
|
23,762
|
|
|
(10,107)
|
|
|
2,504,751
|
|
|
Operating Income (Loss)
|
(6,286)
|
|
|
345,323
|
|
|
(11,560)
|
|
|
—
|
|
|
327,477
|
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
228,934
|
|
|
—
|
|
|
—
|
|
|
(228,934)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of debt discounts and issuance costs
|
—
|
|
|
(27,848)
|
|
|
(16)
|
|
|
—
|
|
|
(27,864)
|
|
|
Interest income
|
28
|
|
|
12,555
|
|
|
—
|
|
|
—
|
|
|
12,583
|
|
|
Capitalized interest
|
—
|
|
|
4,492
|
|
|
—
|
|
|
—
|
|
|
4,492
|
|
|
Other components of net periodic benefit cost
|
—
|
|
|
(3,864)
|
|
|
—
|
|
|
—
|
|
|
(3,864)
|
|
|
Losses on fuel derivatives
|
—
|
|
|
(6,709)
|
|
|
—
|
|
|
—
|
|
|
(6,709)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
(8)
|
|
|
(1,104)
|
|
|
(7)
|
|
|
—
|
|
|
(1,119)
|
|
|
Total
|
228,954
|
|
|
(22,478)
|
|
|
(23)
|
|
|
(228,934)
|
|
|
(22,481)
|
|
|
Income (Loss) Before Income Taxes
|
222,668
|
|
|
322,845
|
|
|
(11,583)
|
|
|
(228,934)
|
|
|
304,996
|
|
|
Income tax expense (benefit)
|
(1,316)
|
|
|
84,760
|
|
|
(2,432)
|
|
|
—
|
|
|
81,012
|
|
|
Net Income (Loss)
|
$
|
223,984
|
|
|
$
|
238,085
|
|
|
$
|
(9,151)
|
|
|
$
|
(228,934)
|
|
|
$
|
223,984
|
|
|
Comprehensive Income (Loss)
|
$
|
213,241
|
|
|
$
|
227,342
|
|
|
$
|
(9,151)
|
|
|
$
|
(218,191)
|
|
|
$
|
213,241
|
|
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Operating Revenue
|
$
|
—
|
|
|
$
|
2,827,215
|
|
|
$
|
10,601
|
|
|
$
|
(405)
|
|
|
$
|
2,837,411
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
599,544
|
|
|
—
|
|
|
—
|
|
|
599,544
|
|
|
Wages and benefits
|
—
|
|
|
684,719
|
|
|
—
|
|
|
—
|
|
|
684,719
|
|
|
Aircraft rent
|
—
|
|
|
125,883
|
|
|
78
|
|
|
—
|
|
|
125,961
|
|
|
Maintenance materials and repairs
|
—
|
|
|
233,503
|
|
|
6,256
|
|
|
—
|
|
|
239,759
|
|
|
Aircraft and passenger servicing
|
—
|
|
|
157,796
|
|
|
—
|
|
|
—
|
|
|
157,796
|
|
|
Commissions and other selling
|
(5)
|
|
|
129,332
|
|
|
128
|
|
|
(140)
|
|
|
129,315
|
|
|
Depreciation and amortization
|
—
|
|
|
134,651
|
|
|
5,215
|
|
|
—
|
|
|
139,866
|
|
|
Other rentals and landing fees
|
—
|
|
|
126,509
|
|
|
394
|
|
|
—
|
|
|
126,903
|
|
|
Purchased services
|
195
|
|
|
130,665
|
|
|
852
|
|
|
(61)
|
|
|
131,651
|
|
|
Contract terminations expense
|
—
|
|
|
35,322
|
|
|
—
|
|
|
—
|
|
|
35,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
6,527
|
|
|
142,125
|
|
|
3,759
|
|
|
(204)
|
|
|
152,207
|
|
|
Total
|
6,717
|
|
|
2,500,049
|
|
|
16,682
|
|
|
(405)
|
|
|
2,523,043
|
|
|
Operating Income (Loss)
|
(6,717)
|
|
|
327,166
|
|
|
(6,081)
|
|
|
—
|
|
|
314,368
|
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
238,365
|
|
|
—
|
|
|
—
|
|
|
(238,365)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of debt discounts and issuance costs
|
(3)
|
|
|
(32,861)
|
|
|
(137)
|
|
|
—
|
|
|
(33,001)
|
|
|
Interest income
|
185
|
|
|
9,057
|
|
|
—
|
|
|
—
|
|
|
9,242
|
|
|
Capitalized interest
|
—
|
|
|
7,887
|
|
|
—
|
|
|
—
|
|
|
7,887
|
|
|
Other components of net periodic benefit cost
|
—
|
|
|
(825)
|
|
|
—
|
|
|
—
|
|
|
(825)
|
|
|
Gains on fuel derivatives
|
—
|
|
|
5,590
|
|
|
—
|
|
|
—
|
|
|
5,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
(4)
|
|
|
(2,117)
|
|
|
18
|
|
|
—
|
|
|
(2,103)
|
|
|
Total
|
238,543
|
|
|
(13,269)
|
|
|
(119)
|
|
|
(238,365)
|
|
|
(13,210)
|
|
|
Income (Loss) Before Income Taxes
|
231,826
|
|
|
313,897
|
|
|
(6,200)
|
|
|
(238,365)
|
|
|
301,158
|
|
|
Income tax expense (benefit)
|
(1,374)
|
|
|
70,634
|
|
|
(1,302)
|
|
|
—
|
|
|
67,958
|
|
|
Net Income (Loss)
|
$
|
233,200
|
|
|
$
|
243,263
|
|
|
$
|
(4,898)
|
|
|
$
|
(238,365)
|
|
|
$
|
233,200
|
|
|
Comprehensive Income (Loss)
|
$
|
227,834
|
|
|
$
|
237,897
|
|
|
$
|
(4,898)
|
|
|
$
|
(232,999)
|
|
|
$
|
227,834
|
|
Condensed Consolidating Balance Sheets
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
(in thousands)
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
24,088
|
|
|
$
|
476,409
|
|
|
$
|
9,142
|
|
|
$
|
—
|
|
|
$
|
509,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
—
|
|
|
354,782
|
|
|
—
|
|
|
—
|
|
|
354,782
|
|
|
Accounts receivable, net
|
—
|
|
|
67,831
|
|
|
424
|
|
|
(728)
|
|
|
67,527
|
|
|
Income taxes receivable
|
—
|
|
|
95,002
|
|
|
—
|
|
|
—
|
|
|
95,002
|
|
|
Spare parts and supplies, net
|
—
|
|
|
35,442
|
|
|
—
|
|
|
—
|
|
|
35,442
|
|
|
Prepaid expenses and other
|
21
|
|
|
56,046
|
|
|
19
|
|
|
—
|
|
|
56,086
|
|
|
Total
|
24,109
|
|
|
1,085,512
|
|
|
9,585
|
|
|
(728)
|
|
|
1,118,478
|
|
|
Property and equipment at cost
|
—
|
|
|
2,916,850
|
|
|
62,699
|
|
|
—
|
|
|
2,979,549
|
|
|
Less accumulated depreciation and amortization
|
—
|
|
|
(865,952)
|
|
|
(28,567)
|
|
|
—
|
|
|
(894,519)
|
|
|
Property and equipment, net
|
—
|
|
|
2,050,898
|
|
|
34,132
|
|
|
—
|
|
|
2,085,030
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
627,359
|
|
|
—
|
|
|
—
|
|
|
627,359
|
|
|
Long-term prepayments and other
|
50
|
|
|
133,143
|
|
|
470
|
|
|
—
|
|
|
133,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
13,000
|
|
|
500
|
|
|
—
|
|
|
13,500
|
|
|
Intercompany receivable
|
—
|
|
|
540,491
|
|
|
—
|
|
|
(540,491)
|
|
|
—
|
|
|
Investment in consolidated subsidiaries
|
1,106,627
|
|
|
—
|
|
|
503
|
|
|
(1,107,130)
|
|
|
—
|
|
|
TOTAL ASSETS
|
$
|
1,130,786
|
|
|
$
|
4,450,403
|
|
|
$
|
45,190
|
|
|
$
|
(1,648,349)
|
|
|
$
|
3,978,030
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
720
|
|
|
$
|
110,070
|
|
|
$
|
1,940
|
|
|
$
|
(728)
|
|
|
$
|
112,002
|
|
|
Air traffic liability and current frequent flyer deferred revenue
|
—
|
|
|
527,440
|
|
|
6,262
|
|
|
—
|
|
|
533,702
|
|
|
Other accrued liabilities
|
—
|
|
|
139,878
|
|
|
203
|
|
|
—
|
|
|
140,081
|
|
|
Current maturities of long-term debt, less discount
|
—
|
|
|
115,019
|
|
|
—
|
|
|
—
|
|
|
115,019
|
|
|
Current maturities of finance lease obligations
|
—
|
|
|
21,290
|
|
|
—
|
|
|
—
|
|
|
21,290
|
|
|
Current maturities of operating leases
|
—
|
|
|
82,454
|
|
|
—
|
|
|
—
|
|
|
82,454
|
|
|
Total
|
720
|
|
|
996,151
|
|
|
8,405
|
|
|
(728)
|
|
|
1,004,548
|
|
|
Long-term debt
|
—
|
|
|
1,034,805
|
|
|
—
|
|
|
—
|
|
|
1,034,805
|
|
|
Intercompany payable
|
529,909
|
|
|
—
|
|
|
10,582
|
|
|
(540,491)
|
|
|
—
|
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
|
|
Noncurrent finance lease obligations
|
—
|
|
|
120,618
|
|
|
—
|
|
|
—
|
|
|
120,618
|
|
|
Noncurrent operating leases
|
—
|
|
|
503,376
|
|
|
—
|
|
|
—
|
|
|
503,376
|
|
|
Accumulated pension and other postretirement benefit obligations.
|
—
|
|
|
217,737
|
|
|
—
|
|
|
—
|
|
|
217,737
|
|
|
Other liabilities and deferred credits
|
—
|
|
|
77,803
|
|
|
1,105
|
|
|
—
|
|
|
78,908
|
|
|
Noncurrent frequent flyer deferred revenue
|
—
|
|
|
201,239
|
|
|
—
|
|
|
—
|
|
|
201,239
|
|
|
Deferred tax liabilities, net
|
—
|
|
|
216,642
|
|
|
—
|
|
|
—
|
|
|
216,642
|
|
|
Total
|
—
|
|
|
1,337,415
|
|
|
1,105
|
|
|
—
|
|
|
1,338,520
|
|
|
Shareholders' equity
|
600,157
|
|
|
1,082,032
|
|
|
25,098
|
|
|
(1,107,130)
|
|
|
600,157
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,130,786
|
|
|
$
|
4,450,403
|
|
|
$
|
45,190
|
|
|
$
|
(1,648,349)
|
|
|
$
|
3,978,030
|
|
Condensed Consolidating Balance Sheets
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
ASSETS
|
(in thousands)
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,228
|
|
|
$
|
362,933
|
|
|
$
|
8,895
|
|
|
$
|
—
|
|
|
$
|
373,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
—
|
|
|
245,599
|
|
|
—
|
|
|
—
|
|
|
245,599
|
|
|
Accounts receivable, net
|
—
|
|
|
95,141
|
|
|
3,188
|
|
|
(949)
|
|
|
97,380
|
|
|
Income taxes receivable
|
—
|
|
|
64,192
|
|
|
—
|
|
|
—
|
|
|
64,192
|
|
|
Spare parts and supplies, net
|
—
|
|
|
37,630
|
|
|
—
|
|
|
—
|
|
|
37,630
|
|
|
Prepaid expenses and other
|
90
|
|
|
56,743
|
|
|
16
|
|
|
—
|
|
|
56,849
|
|
|
Total
|
1,318
|
|
|
862,238
|
|
|
12,099
|
|
|
(949)
|
|
|
874,706
|
|
|
Property and equipment at cost
|
—
|
|
|
2,987,222
|
|
|
92,094
|
|
|
—
|
|
|
3,079,316
|
|
|
Less accumulated depreciation and amortization
|
—
|
|
|
(739,930)
|
|
|
(22,614)
|
|
|
—
|
|
|
(762,544)
|
|
|
Property and equipment, net
|
—
|
|
|
2,247,292
|
|
|
69,480
|
|
|
—
|
|
|
2,316,772
|
|
|
Operating lease right-of-use assets
|
—
|
|
|
632,545
|
|
|
—
|
|
|
—
|
|
|
632,545
|
|
|
Long-term prepayments and other
|
—
|
|
|
182,051
|
|
|
387
|
|
|
—
|
|
|
182,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
119,663
|
|
|
500
|
|
|
—
|
|
|
120,163
|
|
|
Intercompany receivable
|
—
|
|
|
550,075
|
|
|
—
|
|
|
(550,075)
|
|
|
—
|
|
|
Investment in consolidated subsidiaries
|
1,619,949
|
|
|
—
|
|
|
504
|
|
|
(1,620,453)
|
|
|
—
|
|
|
TOTAL ASSETS
|
$
|
1,621,267
|
|
|
$
|
4,593,864
|
|
|
$
|
82,970
|
|
|
$
|
(2,171,477)
|
|
|
$
|
4,126,624
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
529
|
|
|
$
|
139,764
|
|
|
$
|
9,404
|
|
|
$
|
(949)
|
|
|
$
|
148,748
|
|
|
Air traffic liability and current frequent flyer deferred revenue
|
—
|
|
|
600,851
|
|
|
5,833
|
|
|
—
|
|
|
606,684
|
|
|
Other accrued liabilities
|
—
|
|
|
161,125
|
|
|
305
|
|
|
—
|
|
|
161,430
|
|
|
Current maturities of long-term debt, less discount
|
—
|
|
|
53,273
|
|
|
—
|
|
|
—
|
|
|
53,273
|
|
|
Current maturities of finance lease obligations
|
—
|
|
|
21,857
|
|
|
—
|
|
|
—
|
|
|
21,857
|
|
|
Current maturities of operating leases
|
—
|
|
|
83,224
|
|
|
—
|
|
|
—
|
|
|
83,224
|
|
|
Total
|
529
|
|
|
1,060,094
|
|
|
15,542
|
|
|
(949)
|
|
|
1,075,216
|
|
|
Long-term debt
|
—
|
|
|
547,254
|
|
|
—
|
|
|
—
|
|
|
547,254
|
|
|
Intercompany payable
|
538,942
|
|
|
—
|
|
|
11,133
|
|
|
(550,075)
|
|
|
—
|
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
|
|
Noncurrent finance lease obligations
|
—
|
|
|
141,861
|
|
|
—
|
|
|
—
|
|
|
141,861
|
|
|
Noncurrent operating leases
|
—
|
|
|
514,685
|
|
|
—
|
|
|
—
|
|
|
514,685
|
|
|
Accumulated pension and other postretirement benefit obligations.
|
—
|
|
|
203,596
|
|
|
—
|
|
|
—
|
|
|
203,596
|
|
|
Other liabilities and deferred credits
|
—
|
|
|
96,338
|
|
|
1,096
|
|
|
—
|
|
|
97,434
|
|
|
Noncurrent frequent flyer deferred revenue
|
—
|
|
|
175,218
|
|
|
—
|
|
|
—
|
|
|
175,218
|
|
|
Deferred tax liabilities, net
|
—
|
|
|
289,564
|
|
|
—
|
|
|
—
|
|
|
289,564
|
|
|
Total
|
—
|
|
|
1,421,262
|
|
|
1,096
|
|
|
—
|
|
|
1,422,358
|
|
|
Shareholders' equity
|
1,081,796
|
|
|
1,565,254
|
|
|
55,199
|
|
|
(1,620,453)
|
|
|
1,081,796
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,621,267
|
|
|
$
|
4,593,864
|
|
|
$
|
82,970
|
|
|
$
|
(2,171,477)
|
|
|
$
|
4,126,624
|
|
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
2,722
|
|
|
$
|
(315,245)
|
|
|
$
|
1,815
|
|
|
$
|
—
|
|
|
$
|
(310,708)
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
(5,900)
|
|
|
3,696
|
|
|
(766)
|
|
|
2,970
|
|
|
—
|
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(98,611)
|
|
|
(6,702)
|
|
|
—
|
|
|
(105,313)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from purchase assignment and sale leaseback transactions
|
—
|
|
|
114,000
|
|
|
—
|
|
|
—
|
|
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
—
|
|
|
(395,793)
|
|
|
—
|
|
|
—
|
|
|
(395,793)
|
|
|
Sales of investments
|
—
|
|
|
288,336
|
|
|
—
|
|
|
—
|
|
|
288,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(5,900)
|
|
|
(88,372)
|
|
|
(7,468)
|
|
|
2,970
|
|
|
(98,770)
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock
|
41,196
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,196
|
|
|
Long-term borrowings
|
—
|
|
|
602,264
|
|
|
—
|
|
|
—
|
|
|
602,264
|
|
|
Repayments of long-term debt and finance lease obligations
|
—
|
|
|
(78,824)
|
|
|
—
|
|
|
—
|
|
|
(78,824)
|
|
|
Dividend payments
|
(5,514)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,514)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
(7,510)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,510)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
—
|
|
|
(4,975)
|
|
|
—
|
|
|
—
|
|
|
(4,975)
|
|
|
Net payments from affiliates
|
(2,930)
|
|
|
—
|
|
|
5,900
|
|
|
(2,970)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for taxes withheld for stock compensation
|
—
|
|
|
(1,372)
|
|
|
—
|
|
|
—
|
|
|
(1,372)
|
|
|
Other
|
796
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
796
|
|
|
Net cash provided by financing activities
|
26,038
|
|
|
517,093
|
|
|
5,900
|
|
|
(2,970)
|
|
|
546,061
|
|
|
Net increase in cash and cash equivalents
|
22,860
|
|
|
113,476
|
|
|
247
|
|
|
—
|
|
|
136,583
|
|
|
Cash and cash equivalents—Beginning of Period
|
1,228
|
|
|
362,933
|
|
|
8,895
|
|
|
—
|
|
|
373,056
|
|
|
Cash and cash equivalents—End of Period
|
$
|
24,088
|
|
|
$
|
476,409
|
|
|
$
|
9,142
|
|
|
$
|
—
|
|
|
$
|
509,639
|
|
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
(1,635)
|
|
|
$
|
484,602
|
|
|
$
|
2,173
|
|
|
$
|
—
|
|
|
$
|
485,140
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
(3,611)
|
|
|
(92,562)
|
|
|
—
|
|
|
96,173
|
|
|
—
|
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(392,695)
|
|
|
(4,726)
|
|
|
—
|
|
|
(397,421)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from purchase assignment and leaseback transactions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Proceeds from disposition of property and equipment
|
—
|
|
|
9,595
|
|
|
—
|
|
|
—
|
|
|
9,595
|
|
|
Purchases of investments
|
—
|
|
|
(312,768)
|
|
|
—
|
|
|
—
|
|
|
(312,768)
|
|
|
Sales of investments
|
—
|
|
|
301,662
|
|
|
—
|
|
|
—
|
|
|
301,662
|
|
|
Other
|
—
|
|
|
(6,275)
|
|
|
—
|
|
|
—
|
|
|
(6,275)
|
|
|
Net cash used in investing activities
|
(3,611)
|
|
|
(493,043)
|
|
|
(4,726)
|
|
|
96,173
|
|
|
(405,207)
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
—
|
|
|
227,889
|
|
|
—
|
|
|
—
|
|
|
227,889
|
|
|
Repayments of long-term debt and finance lease obligations
|
—
|
|
|
(109,122)
|
|
|
(6)
|
|
|
—
|
|
|
(109,128)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments
|
(22,774)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,774)
|
|
|
Repurchases of common stock
|
(68,769)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(68,769)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
—
|
|
|
(1,623)
|
|
|
—
|
|
|
—
|
|
|
(1,623)
|
|
|
Net payments from affiliates
|
92,863
|
|
|
—
|
|
|
3,310
|
|
|
(96,173)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for taxes withheld for stock compensation
|
—
|
|
|
(1,049)
|
|
|
—
|
|
|
—
|
|
|
(1,049)
|
|
|
Net cash provided by financing activities
|
1,320
|
|
|
116,095
|
|
|
3,304
|
|
|
(96,173)
|
|
|
24,546
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(3,926)
|
|
|
107,654
|
|
|
751
|
|
|
—
|
|
|
104,479
|
|
|
Cash, cash equivalents, and restricted cash—Beginning of Period
|
5,154
|
|
|
255,279
|
|
|
8,144
|
|
|
—
|
|
|
268,577
|
|
|
Cash and cash equivalents—End of Period
|
$
|
1,228
|
|
|
$
|
362,933
|
|
|
$
|
8,895
|
|
|
$
|
—
|
|
|
$
|
373,056
|
|
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
(in thousands)
|
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
(2,773)
|
|
|
$
|
509,405
|
|
|
$
|
1,876
|
|
|
$
|
—
|
|
|
$
|
508,508
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
(14,400)
|
|
|
(91,515)
|
|
|
—
|
|
|
105,915
|
|
|
—
|
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(470,970)
|
|
|
(15,807)
|
|
|
—
|
|
|
(486,777)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from purchase assignment and leaseback transactions
|
—
|
|
|
87,000
|
|
|
—
|
|
|
—
|
|
|
87,000
|
|
|
Net proceeds from disposition of equipment
|
—
|
|
|
46,714
|
|
|
—
|
|
|
—
|
|
|
46,714
|
|
|
Purchases of investments
|
—
|
|
|
(210,836)
|
|
|
—
|
|
|
—
|
|
|
(210,836)
|
|
|
Sales of investments
|
—
|
|
|
247,423
|
|
|
—
|
|
|
—
|
|
|
247,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(14,400)
|
|
|
(392,184)
|
|
|
(15,807)
|
|
|
105,915
|
|
|
(316,476)
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
—
|
|
|
86,500
|
|
|
—
|
|
|
—
|
|
|
86,500
|
|
|
Repayments of long-term debt and finance lease obligations
|
—
|
|
|
(68,233)
|
|
|
(12)
|
|
|
—
|
|
|
(68,245)
|
|
|
Dividend payments
|
(24,171)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,171)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
(102,500)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(102,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
—
|
|
|
(3,350)
|
|
|
—
|
|
|
—
|
|
|
(3,350)
|
|
|
Net payments from affiliates
|
91,515
|
|
|
—
|
|
|
14,400
|
|
|
(105,915)
|
|
|
—
|
|
|
Payment for taxes withheld for stock compensation
|
78
|
|
|
(3,720)
|
|
|
—
|
|
|
—
|
|
|
(3,642)
|
|
|
Net cash provided by (used in) financing activities
|
(35,078)
|
|
|
11,197
|
|
|
14,388
|
|
|
(105,915)
|
|
|
(115,408)
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(52,251)
|
|
|
128,418
|
|
|
457
|
|
|
—
|
|
|
76,624
|
|
|
Cash, cash equivalents, and restricted cash—Beginning of Period
|
57,405
|
|
|
126,861
|
|
|
7,687
|
|
|
—
|
|
|
191,953
|
|
|
Cash, cash equivalents, and restricted cash—End of Period
|
$
|
5,154
|
|
|
$
|
255,279
|
|
|
$
|
8,144
|
|
|
$
|
—
|
|
|
$
|
268,577
|
|
Income Taxes
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.