SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One) | | |
x | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017 |
or |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to . |
Commission file number 1-31443
HAWAIIAN HOLDINGS INC.INC
(Exact name of registrant as specified in its charter)
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Delaware | | 71-0879698 |
(State or other jurisdictionOther Jurisdiction ofincorporation or organization)
| | 71-0879698
(I.R.S. employer identification no.)
Employer |
3375 Koapaka Street, Suite G-350
Honolulu, Hawai'i
(Address of principal executive offices)
Incorporation or Organization) | | 96819
(Zip code)
Identification No.) |
Registrant's telephone number, including area code: (808) 835-3700
Securities registered pursuant to Section 12(b) of the Act: |
| | | | | | | | | | |
| 3375 Koapaka Street, | Suite G-350 | | |
| Honolulu, | HI | | 96819 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
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| Securities registered pursuant to Section 12(b) of the Act: | | |
| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| Common Stock ($0.01 par value) | | HA | | NASDAQ Stock Market, LLC |
| | | | (NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act: None | | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x ☒No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No x☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filerx | ☒ |
| Accelerated filer o | ☐ | |
| Non-accelerated filer o(Do not check if a
smaller reporting company)
| ☐ |
| Smaller reporting company o | ☐ | |
| | | | Emerging growth company o
| ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Rule Act 12b-2). Yes o☐ No x☒
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $2.5$1.2 billion, computed by reference to the closing sale price of the Common Stock on the NASDAQ Global Select Market, on June 30, 2017,2021, the last business day of the registrant's most recently completed second fiscal quarter.
As of February 8, 2018, 51,309,7174, 2022, 51,233,641 shares of Common Stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2018 will beare incorporated by reference into Part III of this Annual Report on Form 10-K.
Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2021. |
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___________________________________________________________________________________________ |
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual reportAnnual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. Such forward-looking statements include, without limitation, statements related to our financial statements and results of operations; any expectations of operating expenses, deferred revenue, interest rates, tax rates, income taxes, deferred tax assets, valuation allowances or other financial items; the severity, magnitude, duration and effects of the COVID-19 pandemic; the extent to which the COVID-19 pandemic and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position or achievement of strategic objectives; the duration and scope of government mandates or other limitations of or restrictions on travel; implementation of programs and enhancements in light of COVID-19; the demand for air travel in the markets in which we operate; anticipated levels of demand and bookings; additional route service; the compounding effect of the COVID-19 pandemic on competitive pressures in the markets in which we operate; our dependence on tourism; the impact of the COVID-19 pandemic on our suppliers; the effect of the economic downturn and the COVID-19 pandemic on our aircraft contracts and commitments; the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; the terms and effectiveness of cost reduction and liquidity preservation measures taken by us; our ability to continue to generate sufficient cash to operate; changes in our future capital needs; estimations related to our liquidity requirements; our participation under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Consolidated Appropriations Act, 2021 (CAA 2021) and the American Rescue Plan Act of 2021 (ARP 2021) and the terms of relief thereunder; future borrowings and obligations under CARES Act, CAA 2021 and ARP 2021 programs; the availability of aircraft fuel, aircraft parts and personnel; expectations regarding industry capacity, our capacity, our operating performance, available seat miles, operating revenue per available seat mile and operating cost per available seat mile for the first quarter and full year of 2018; statements regarding factors that may affect2022; expected salary and related costs; estimates for daily cash burn; our operating results; statements regarding our goals, mission and areasexpected fleet as of focus; statements regarding our working capital, and capital expenditures; statements related to funding our aircraft orders, growth strategy and market opportunities; statements regarding the effect of fleet changes on our business, operations and cost structure; statements regarding our ability to pay taxes with working capital; estimates of fair value measurements; statements related to aircraft maintenance and repair; statements related to cash flow from operations and seasonality; statements regarding our intention to pay quarterly dividends and the amounts thereof, if any; statements regarding our ability and intention to repurchase our shares; estimates of required funding of and contributions to our defined benefit pension and disability plans;December 31, 2022; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; statements regardingthe impact of inflation on our wagesbusiness; the availability of, and benefitsefforts seeking, future financing; changes in our fleet plan and labor costsrelated cash outlays; committed capital expenditures; expected cash payments related to our post-retirement plan obligations; estimated financial charges; expected delivery or deferment of new aircraft and agreements; statements regardingengines; the funding of our aircraft orders; the impact of accounting standards on our financial statements; the effects of any litigation on our operations or business; the effects of our fuel and currency risk hedging policies; the fair value and expected maturity of our debt obligations; our estimated contractual obligations; the effect of fleet changes on our business, operations and cost structure; estimates of fair value measurements; estimates of required funding of and contributions to our defined benefit pension and disability plans; the status and effects of federal and state legislation and regulations promulgated by the FAA, DOTFederal Aviation Administration (FAA), U.S. Department of Transportation (DOT) and other regulatory agencies; statements related to airport rent rates and landing fees; statements related to our lease of the cargo and maintenance hangar at the Daniel K. Inouye International Airport; statements regarding a joint venture with Japan Airlines; statements regarding aircraft rent expense; statements regarding our total capacity and yields on routes; statements regarding potential dilution of our securities; statements related to our frequent flyer program; statements related to our hedging program; statements concerning accounting principles, policies, standards, estimates, and the effect of the adoption thereof; statements regarding our net operating loss carryforwards; statements regarding our credit card holdback; statements regarding our debt or lease obligations and financing arrangements; statements regarding our financing needs; statements related to risk management, credit risks, and air traffic liability; statements related to future U.S. and global economic conditions or performance; statements related to changes in our fleet plan and related cash outlays; statements related to expected delivery of new aircraft and associated costs; statements related to the effects of any litigation on our operations or business; statements related to competition on our routes; statements related to continuous investments in technology and systems; and statements as to other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Words such as "expects," "anticipates," "projects," "intends," "plans," "believes," "estimates," "could," "would," "will," "might," "may," variations of such words, and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties, and assumptions relating to our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.
Factors that could affect such forward-looking statements include, but are not limited to: the continuing and developing effects of the spread of COVID-19 on our business operations and financial condition; whether our cost-cutting efforts related to the COVID-19 pandemic will be effective or sufficient; the duration of government-mandated and other restrictions on travel; the full effect that the quarantine, restrictions on travel and other measures to limit the spread of COVID-19 will have on demand for air travel in the markets in which we operate; fluctuations and the extent of declining demand for air transportation in the markets in which we operate; our dependence on the tourist industry; our ability to generate sufficient cash and manage the cash available to us; our ability to accurately forecast quarterly and annual results; global economic volatility; macroeconomic developments; political and regulatory developments; our dependence on the tourism industry; the price and availability of fuel;fuel, aircraft parts and personnel; foreign currency exchange rate fluctuations; our competitive environment,pressures, including the potential impact of risingincreasing industry capacity between North America and Hawai'i; fluctuations in demand for transportation in the markets in which we operate; maintenance of privacy and security of customer-related information and compliance with applicable federal and foreign privacy or data security regulations or standards; our dependence on technology and automated systems; our reliance on third-party contractors; satisfactory labor relations; our ability to attract and retain qualified personnel and key executives; successful implementation of our growth strategy and cost reduction goals; adverse publicity; risks related to the airline industry; our ability to obtain and maintain adequate facilities and infrastructure; seasonal and cyclical volatility; the effect of applicable state, federal and foreign laws and regulations; increases in insurance costs or reductions in coverage; the limited number of suppliers for aircraft, aircraft engines and parts; our existing aircraft purchase agreements; delays in aircraft or engine deliveries or other loss of fleet capacity; changes in our future capital needs;
fluctuations in our share price; and our financial liquidity. The risks, uncertainties, and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements also include thosethe risks, uncertainties, and assumptions discussed under the heading "Risk Factors" in Item 1A in this Annual Report on Form 10-K and the risks, uncertainties and assumptions discussed from time to time in our public filings and public announcements. All forward-looking statements included in this report are based on information available to us as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof.of this annual report.
PART I
ITEM 1. BUSINESS.
Overview
Hawaiian Holdings, Inc. (the Company, Holdings, we, us, and our) is a holding company incorporated in the State of Delaware. The Company's primary asset is sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawai'i and became our indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002. Hawaiian became a Delaware corporation and the Company's direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005.
Our Business
We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the Neighbor Island routes) and, between the Hawaiian Islands and certain cities in the United States (the North America routes, and together with the Neighbor Island routes, the Domestic routes), and between the Hawaiian Islands and the South Pacific, Australia, New Zealand and Asia (the International routes), collectively referred to as our Scheduled Operations. We offer non-stop service to Hawai'i from 16 cities, which is more U.S. gateway cities (11) than any other airline, and also provide approximately 180144 daily flights between the Hawaiian Islands. In addition, we operate various charter flights.
We are the longest serving airline, as well as the largest airline headquartered, in the Statestate of Hawai'i, and the 10th12th largest domestic airline in the United States based on revenue passenger miles (RPMs) reported by the Research and Innovative Technology Administration Bureau of Transportation Services as of October 2017,2021, the latest data available.
At December 31, 2017,2021, our fleet consisted of 2019 Boeing 717-200 aircraft for the Neighbor Island routes eight Boeing 767-300 aircraft,and 24 Airbus A330-200 aircraft and two18 Airbus A321-200 for theA321neo aircraft utilized primarily on our North America and International and charter routes. We alsoAdditionally, we own three ATR42 and four ATR72 aircraft, for the "Ohanawhich were previously utilized in our "'Ohana by Hawaiian" Neighbor Island serviceoperations that we terminated during 2021. Following termination of operations, we committed to a plan of sale and three ATR71reclassified the ATR aircraft and related asset group as assets held for sale on the Consolidated Balance Sheets. We expect to complete our cargo operations.disposition of the asset group in the first half of 2022. Refer to Note 11 of the Notes to Consolidated Financial Statements for additional discussion.
Our goal is to be the number one destination carrier serving Hawai'i. We are devoted to the travel needs of the residents of and visitors to Hawai'i and we offer a unique travel experience. We are strongly rooted in the culture and people of Hawai'i and we seek to provide high quality service to our customers that exemplifies the spirit of Aloha.
OutlookPurpose and Values
Our purpose is to connect people with Aloha. It captures how we bring people closer together, and how we share the Aloha spirit with the people and places we serve. It is core to who we are, how we see the world and how we engage with the people and places around us. Aloha is a way of life, but also a choice each of our employees makes every day, constantly striving to be the very best we can be. With Aloha in everything we do, we share moments and our spirit with guests and each other.
Our mission every year isvalues, reflected below, guide how we act, lead, and make decisions:
•Mālama (Care): We care about the people and places we serve, and personally commit to growtheir well-being
•Ho‘okipa (Hospitality): We are genuine hosts, welcoming people into our home with warmth, gratitude and full hearts
•Lōkahi (Collaboration): We come together in harmony, always seeking better ways to succeed as a profitable airline with a passionteam
•Po‘okela (Excellence): We strive for excellence, our customers, our peoplecompeting to thrive
Impacts of the COVID-19 pandemic
The widespread and unprecedented impact of the COVID-19 pandemic, along with the resulting restrictions on travel and every day activities by local, state, federal, and international governments, significantly reduced air travel demand beginning in the first quarter of 2020 and through 2021.
In June 2021, the State of Hawai'i Safe Travels Program was updated to remove restrictions on travel within the state of Hawai'i, and to permit travelers who were fully vaccinated in the state of Hawai'i to bypass testing or quarantine requirements with proof of vaccination when traveling into the state.In July 2021, all U.S. domestic travelers who were fully vaccinated in the United States also were permitted to bypass pre-travel testing or quarantine requirements with proof of vaccination when entering the state starting the 15th day following completion of their vaccination. In September 2021, both the City and County
of Honolulu and the spiritCounty of Hawai'i.Maui enacted programs that impose certain vaccination and testing requirements on employees and customers of restaurants, bars, gyms and other similar establishments, with limited exceptions.
The rollout of COVID-19 vaccinations, along with the easing of restrictions in various locations, led to improved travel demand during 2021; however, our passenger revenue was down approximately 47.2% during the twelve months ended December 31, 2021, as compared to 2019. Restrictions on travel to and from various international locations (including those within our network) remain in effect, continuing to suppress international travel demand, with revenue down 89.6% for the twelve months ended December 31, 2021 as compared to 2019. We have continued to evolve throughout the COVID-19 pandemic, building back our network where demand allowed, predominantly within our domestic network, while preparing for the return of other markets as restrictions ease. During 2021, we increased capacity (as measured in available seat miles, or ASMs) by approximately 91.5% as compared to 2020; however, capacity in 2021 was down approximately 57.6% as compared to 2019.
During 2021, our domestic network accounted for approximately 94% of total passenger revenue. We continue to monitor developments relating to restrictions on international travel by both the U.S. and international governments, including by the government of Japan, which represents a large percentage of our international revenue. The emergence of new variants of the COVID-19 virus, including the Delta and Omicron variants, continues to impact the rules and regulations governing international travel. In 2018,December 2021, President Biden announced that all international travelers aged two and older, regardless of nationality or vaccination status, are required to show documentation of a negative viral test result taken within one day of the flight's departure to the United States.
Despite the easing of restrictions on travel to and within Hawai'i, uncertainties remain regarding the impact of vaccination-related travel requirements and increased vaccination availability and uptake on the demand for air travel, including the availability, reliability and effectiveness of vaccines domestically and worldwide, particularly as new variants of the COVID-19 virus have emerged and spread. There can be no assurance whether, at some point, the State of Hawai'i or counties within the state may limit or suspend the ability for travelers to bypass quarantine requirements should the prevalence of the COVID-19 pandemic worsen. The U.S. government and international governments could also impose, extend or otherwise modify existing travel restrictions on international travel. Additionally, ongoing restrictions or shortages in other sectors of the travel industry, such as hotel or transportation availability, including as a result of vaccination requirements and any associated labor shortages, could negatively impact our operations and affect our ability to satisfy any increased demand we experience. As a result of the above factors and our results to date, we expect bookings, revenue and results of operations in 2022 to continue to be below pre-COVID-19 pandemic levels. Unpredictability in the demand for air travel as a result of the ongoing COVID-19 pandemic may result in decreases to existing or anticipated levels of demand, and such decreases could be material to our business. We will continue to focus on strengtheningassess our competitive positionroutes and schedule in response to changes in demand, including those related to the markets that we serve primarily by continuing to mature the routes we launched over the past several years, improving our long term competitive cost structure, and growing our offering of value-added products and services.COVID-19 pandemic.
Flight Operations
Our flight operations are based in Honolulu, Hawai'i. AtAs a result of the COVID-19 pandemic, we significantly reduced system capacity in early 2020 to a level that maintained essential services to align capacity with expected demand. As we have evolved through the pandemic, we have increased domestic capacity to match improved demand, predominantly within our North America network. During this time, and primarily as a result of continued restrictions on international travel, we operated a minimal International network well below pre-COVID-19 pandemic levels. As of December 31, 2017,2021, we operated 233216 scheduled flights with:
•Daily service on our North America routes between the Statestate of Hawai'i and Long Beach, Los Angeles, Oakland, Ontario, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Portland, Oregon; Seattle, Washington; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington;New York City, New York; and scheduled service between the Statestate of Hawai'i and New York City, New York.Austin, Texas; Boston, Massachusetts; Orlando, Florida; and Pago Pago, American Samoa.
•Daily service on our Neighbor Island routes among the sixfour major islands of the Statestate of Hawai'i.
Daily•Scheduled service on our International routes between the Statestate of Hawai'i and Tokyo (Narita), Japan and Osaka, Japan, Sydney, Australia; Papeete, Tahiti; and Tokyo (HanedaSeoul, South Korea.
•In addition, we operate various ad hoc charters.
As of December 31, 2021, the following international destinations remain suspended and Narita); and Osaka, Japan; and scheduled servicehave not resumed service:
•Service between the Statestate of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia;Sapporo, Japan, Fukuoka, Japan, Tokyo (Haneda), Japan; and Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea;Zealand.
In January 2022, we announced the indefinite suspension of our service to Brisbane, Australia. However, we continue to operate our five-times-weekly service to Sydney, Australia and Beijing, China.maintain our code-share partnership with Virgin Australia.
Fuel
Our results of operations and financial results are significantly affectedimpacted by changes in the price and availability and price of jetaircraft fuel. The following table sets forth statistics aboutshows our aircraft fuel consumption and cost. |
| | | | | | | | | | | | | |
| Year | Gallons
consumed | | Total cost,
including taxes | | Average cost
per gallon | | Percent of
operating expenses |
| | (in thousands) | | | | |
| 2017 | 259,915 |
| | $ | 440,383 |
| | $ | 1.69 |
| | 19.9 | % |
| 2016 | 244,118 |
| | $ | 344,322 |
| | $ | 1.41 |
| | 16.9 | % |
| 2015 | 234,183 |
| | $ | 417,728 |
| | $ | 1.78 |
| | 22.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year | Gallons
consumed | | Total cost,
including taxes | | Average cost
per gallon | | Percent of
operating expenses |
| | (in thousands) | | | | |
| 2021 | 179,494 | | | $ | 363,003 | | | $ | 2.02 | | | 21.6 | % |
| 2020 | 106,225 | | | $ | 161,363 | | | $ | 1.52 | | | 10.8 | % |
| 2019 | 270,001 | | | $ | 542,573 | | | $ | 2.01 | | | 21.7 | % |
As illustrated by the table above, fuel costs constitute a significant portion of our operating expenses. We purchase aircraft fuel at prevailing market prices and seek to manage economic risks associated with fluctuations in aircraft fuel prices by entering into various derivative financial instruments such as heating oil swaps and crude oil call options.instruments.
Aircraft Maintenance
Our aircraft maintenance programs consist of a series of phased or continuous checks for each aircraft type. These checks are performed at specified intervals measured by calendar months, time flown, and by the number of takeoffs and landings, or cycles operated. In addition, we perform inspections, repairs, and modifications of our aircraft in response to Federal Aviation Administration (FAA)FAA directives. We perform checks ranging from "walk around" inspections by our pilots before each flight's departure to major overhauls of the airframes which can take several weeks to complete. Aircraft engines are subject to phased maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certainCertain airframe and engine parts and components, whichwhose service lives are time or cycle controlled, are replaced or refurbished prior to the expiration of their time or cycle limits. We have contracts with third parties to provide certain maintenance on our aircraft and aircraft engines.
Marketing and Ticket Distribution
We utilize various distribution channels for marketing and ticket distribution including our website www.hawaiianairlines.com, primarily(primarily for our North America and Neighbor Island routes,routes) and travel agencies and wholesale distributors (primarily for our International routes.routes).
Our website is available in English, Japanese, Korean, and Chinese and offers our customers information on our flight schedules and status, information on our HawaiianMiles frequent flyer program, the ability to book reservations on our flights or connecting flights with any of our code-share partners, the status of our flights as well asand the ability to purchase hotels, carshotel, car and vacation packages. We also distribute our fares through online travel agencies.
Frequent Flyer Program
The HawaiianMiles frequent flyer program was initiatedfounded in 1983 predominantly serving the intra-Hawai'i markets. The HawaiianMiles program has continued to encouragegrow over the years, with approximately 10 million total members across Hawai'i, North America and developthe Pacific Rim as of December 2021. Approximately 62% of frequent flyer program members reside in the U.S. mainland, approximately 24% of loyalty members reside in Hawai'i, and the remainder reside within our international markets.
The HawaiianMiles program awards miles based on customer loyalty. HawaiianMiles allows passengersflight miles, providing more generous earning potential on competitive longer haul routes between the U.S. mainland and international cities and Hawai'i. Our members generate approximately 42% of all passenger revenue. Our Pualani Gold and Platinum status levels recognize our top fliers with additional benefits such as priority airport experiences, Premier Club access, seat upgrades and enhanced baggage allowances. Our Platinum members both fly more frequently and generate a revenue premium of approximately 55% as compared to non-members on our North American and International routes.
With a large Hawai'i-based route network, our program has developed an extensive network of partnerships with leading local companies that allow members to earn mileage credits by flyingmiles beyond their flight activity. Partnerships in key spend categories such as grocery, retail, dining, banking and home improvement provide opportunities for member engagement and third-party revenues.
Hawaiian's partnerships with usBarclays, Bank of Hawaii and our partner carriers. In addition,Mastercard to deliver key products are drivers of engagement and revenues. The HawaiianMiles program has over a half-million cardholders between the Barclays' issued World Elite Mastercard and the Bank of Hawaii VISA debit card. These products allow members earn mileage creditsto accumulate more miles between their trips on Hawaiian and are critical engagement tools for patronage with our othernot only the loyalty program, partners, including credit card issuers, hotels, car rental firms, and general merchants pursuant to our exchange partnership agreements. Webut also sell mileage credits to other companies participating in the program.airline.
HawaiianMiles members have a choice
HawaiianMiles accounts with no activity (frequent flyer miles earned or redeemed) for 18 months automatically expire. The number of free travel awards used for travel on Hawaiian was approximately 612,000496,000 in 2017.2021. The number of free travel awards as a percentage of total revenue passengers was approximately 8% and 5% in 2017.2021 and 2020, respectively. We believe displacement of revenue passengers by passengers using free travel awards is minimal due to our ability to manage frequent flyer seat inventory, and the relatively low ratio of free award usage to total revenue passengers.
Enhancing our loyalty offering, for HawaiianMiles members who do not reach Pualani elite status, we offer our Premier Club subscription program. Launched over 30 years ago, our subscription service allows members to enjoy free baggage, access to airport clubs, priority check-in and other value adds. With an annual rate currently between $249 to $299, Hawaiian is able to generate ancillary revenues while helping to keep future customer purchases on Hawaiian flights.
In April 2021, the Company announced the termination of its HawaiianMiles expiration policy, effective April 1, 2021. Prior to April 1, 2021, accounts with no activity (miles earned or redeemed) for 18 months automatically expired.
Code-Share and Other Alliances
In September 2017, we announced our partnership with Japan Airlines, including our intention to establish a joint venture upon anti-trust immunity approval. The first phase of the agreement is expected to be implemented in March 2018, subject to government approval, and would provide passengers convenience and connectivity between Hawai'i and Japan through extensive code sharing, lounge access, and frequent flyer reciprocity. We expect to submit an application for antitrust immunity as the second step towards a formal joint venture early in the second quarter of 2018.
We also have marketing alliances with other airlines to offer connecting services, as well as frequent flier program relationships that provide reciprocal frequent flyer mileage accrual and redemption privileges, and code-shares on certain flights (one carrier placing its name and flight numbers, or code, on flights operated by the other carrier).flights. These programs enhance our revenue opportunities by:
•increasing value to our customers by providing easier access to more travel destinations and better mileage accrual/redemption opportunities;
gaining•giving customers access to more connecting trafficflights from other airlines; and
•providing our members and members of our alliance partners' frequent flyer programs an opportunity to travel on our system while earning mileage credit in the alliance partners' programs.
Our marketing alliances with other airlines as of December 31, 20172021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Hawaiian Miles
Frequent Flyer
Agreement | | Other Airline
Frequent Flyer
Agreement | | Code-share—Hawaiian
Flight # on Flights
Operated by Other
Airline | | Code-share—Other
Airline Flight # on
Flights Operated by
Hawaiian |
| | | | | | | |
| American Airlines | Hawaiian Miles
Frequent Flyer
Agreement
No | | Other Airline
Frequent Flyer
Agreement
Yes | | Code-share—Hawaiian
Flight # on Flights
Operated by Other
Airline
No | | Code-share—Other
Airline Flight # on
Flights Operated by
Hawaiian
Yes |
Air China Airlines | NoYes | | NoYes | | Yes | | Yes |
All Nippon Airways | Yes | | Yes | | Yes | | Yes |
American Airlines | No | | Yes | | No | | Yes |
China Airlines | Yes | | Yes | | Yes | | Yes |
| Delta Air Lines | No | | Yes | | No | | Yes |
JetBlueJapan Airlines | Yes | | Yes | | Yes | | Yes |
Korean AirJetBlue | Yes | | Yes | | Yes | | Yes |
Philippine AirlinesKorean Air | NoYes | | NoYes | | NoYes | | Yes |
TurkishPhilippine Airlines | No | | No | | No | | Yes |
UnitedTurkish Airlines | No | | YesNo | | No | | Yes |
Virgin America *United Airlines | YesNo | | Yes | | YesNo | | NoYes |
| Virgin Atlantic Airways | Yes | | Yes | | No | | No |
| Virgin Australia | Yes | | Yes | | NoYes | | YesNo |
* The code-share and frequent flyer agreement with Virgin America terminated as of December 31, 2017.
Although these programs and services increase our ability to be more competitive, they also increase our reliance on third parties.
Competition
The airline industry is extremelyhighly competitive. We believe that the principal competitive factors in the airline industry are:
Price;•Fares;
•Flight frequency and schedule;
•Customer service;
•On-time performance and reliability;
•Name recognition;
•Marketing affiliations;
•Frequent flyer benefits;
Customer service;
•Aircraft type;
•Change fee waivers;
•Safety record; and
•In-flight services.
Domestic—We face multiple competitors on our North America routes including major network carriers such as Alaska (AS), American Airlines (AA), United Airlines (UA), and Delta Airlines (DL). In addition,, and Southwest Airlines (WN) announced their intent to launch service to and from (and possibly within the islands of) Hawai'i in 2018.. Various charter companies
also provide non-scheduled service to Hawai'i, mostly under public charter arrangements. Our Neighbor Island competitors consist of regionalinterisland carriers, which include Mokulele Airlines, Southwest Airlines, and a number of other "air taxi" companies.
International—Currently,Although certain of these routes were temporarily suspended as of December 31, 2021 as a result of the COVID-19 pandemic, we are the only provider of direct service between Honolulu and each of Sapporo, Japan; Fukuoka, Japan; Pago Pago, American Samoa; and Papeete, Tahiti. However, we face multiple competitors from both domestic and foreign carriers on our other international routes.
Employees and Human Capital Management
Our workforce drives our success.
As of December 31, 2017,2021, we had 6,6606,674 active employees, of whichwhom approximately 83% of our employees82.3% were covered by labor agreements with the following organized labor groups: |
| | | | | | | | | | | | | | | | | | | |
| Employee Group | | Represented by | | Number of Employees | | Agreement amendable on (*) | |
| Flight deck crew members | | Air Line Pilots Association (ALPA) | | 752841 |
| | July 1, 2022 | |
| Cabin crew members | | Association of Flight Attendants (AFA) | | 1,9172,070 |
| | January 1, 2017 | **April 2, 2025 |
| Maintenance and engineering personnel | | International Association of Machinists and Aerospace Workers (IAM-M) | | 1,042965 |
| | January 1, 2021 | |
| Clerical | | IAM-CInternational Association of Machinists and Aerospace Workers - Clerical Division (IAM-C) | | 1,8031,563 |
| | January 1, 2021 | |
| Flight dispatch personnel | | Transport Workers Union (TWU) | | 4456 |
| | August 1,July 22, 2021 | |
(*)* Our relations with labor unions representing our labor organizationsairline employees are governed by Title II of the Railway Labor Act of 1926 pursuant to which(the Railway Labor Act). Under the Railway Labor Act, a collective bargaining agreementsagreement between us and these organizations dothe labor unions does not expire, but instead becomebecomes amendable as of a certainstated date if either party wishes to modify the terms of the agreement.
(**) As
In January 2022, we reached a tentative agreement on terms of December 31, 2017, contract negotiationsa new collective bargaining agreement with representatives of our IAM-M and IAM-C employees, which will be submitted for a ratification vote in February 2022. Additionally, we are ongoingin discussions with representatives of our TWU employees regarding the terms of their collective bargaining agreement.
Engagement, Community and Culture
We recognize the importance of having an engaged workforce and seek to retain our employees through competitive compensation and benefits packages and by investing in training, mentoring, and career development.
We engage with our employees through various channels and initiatives, including via our Nā Leo (Our Voice) survey, a regular confidential employee survey that helps measure employee engagement. We review survey feedback with our management, Board of Directors, and company-wide, and we use our findings to help inform decision-making and drive improvements within the company.
We also understand that our commitment to our workforce extends to the communities of which both we and they are a part. We have several internship programs in which we train and recruit local candidates who are interested in pursuing a career with us. For those interested in working as an aviation mechanic, we partner with Honolulu Community College and the International Association of Machinists and Aerospace Workers union. For those interested in working in information technology or another of our corporate workgroups, we offer paid summer internships at our Honolulu headquarters and Phoenix, AZ office.
Health, Wellness and COVID-19 Support
We offer our employees a variety of comprehensive medical plans and options, including dental, vision, long-term disability and life insurance, and healthcare and dependent care flexible spending accounts. During the COVID-19 pandemic, we adopted a comprehensive COVID-19 Safety Policy for our workplaces and employees that includes a vaccination requirement for U.S. employees. We have adopted flexible work options for our management employees, such as the ability to work remotely from anywhere for up to two weeks per year to help them better manage their work and personal lives. To help our employees
manage personal and financial challenges that may have arisen during the COVID-19 pandemic, we offered counseling services and special loan and 401(k) programs.
Diversity and Inclusion
Our diversity efforts include participation in career events and conferences for veterans, people with disabilities, women, and underrepresented groups. In 2021, we were proud to lead the U.S. industry with the AFA.highest percentage of women pilots at more than 9%; well above the 2020 global average of 5.1%. We have implemented and maintain an affirmative action program and employ evidence-based processes that inform our effort to minimize gender, ethnic/racial, and other bias in hiring and promotional practices. We are committed to creating an inclusive environment where our applicants and employees feel comfortable self-identifying their gender, race, and veteran and disability status. More than 75% of our active workforce identify as diverse based on ethnicity and more than 45% based on gender. We have policies that support inclusion of everyone in our workforce, including all sexual orientations and gender identities or expressions, and we provide inclusive benefits for same- and different-sex spouses. We also support the diversity and interests of our workforce through the following employee resource groups: ASCEND (A Support Community for Employees Nurturing Diverse Abilities), LGBTQA, Network for Black Employees and Allies, Sustainability, Wahine (Women) in Aviation and Veterans.
We take pride in and value the traditional culture of Hawai'i. In 2019, we expanded our 'ōlelo Hawai'i (Hawaiian language) certification program for crewmembers and made it available for all employees. The certification, which is offered at no cost to our employees, demonstrates our commitment to honor and perpetuate Hawai'i’s rich culture by incentivizing our team members to share Hawai'i’s native language with our guests and each other. The 'ōlelo Hawai'i program complements our Ke Kumu project, which consists of employee-led hula and Hawaiian language classes.
Seasonality
Hawai'i is a popular vacation destination for travelers. For that reason, our operations and financial results are subject to substantial seasonal and cyclical volatility, primarily due to leisure and holiday travel patterns. Demand levels are typically weaker in the first quarter of the year with stronger demand periods occurring during the months of June, July, August, and December. We may adjust our pricing or the availability of particular fares to obtain an optimal passenger load factor depending on seasonal demand differences.
Customers
Our business is not dependent upon any single type of customer or a few customers. Thegroups of customers and the loss of any one type of customer would not have a material adverse effect on our business.
We have entered into agreements with our co-brand, payment, and loyalty partners that may contain exclusivity aspects which restrict us and our subsidiaries from entering into certain arrangements with other payment and loyalty partners. These arrangements generally extend for the terms of the agreements. We believe the financial benefits generated by the exclusivity aspects of these arrangements outweigh the limitations imposed under such agreements.
Regulation
Our business is subject to extensive and evolving international, federal, state and local laws and regulations. Many governmental agencies regularly examine our operations to monitor compliance with applicable laws and regulations. Governmental authorities can enforce compliance with applicable laws and regulations and obtain injunctions or impose civil or criminal penalties or modify, suspend, or revoke our operating certificates in case of violations.
Industry Regulations
We are subject to the regulatory jurisdiction of the U.S. Department of Transportation (DOT)DOT and the Federal Aviation Administration (FAA).FAA. The DOT has jurisdiction over international routes and fares for some countries (based upon treaty relations with those countries), consumer protection policies including baggage liability, denied boarding compensation, and unfair competitive practices as set forth in the Airline Deregulation Act of 1978. The FAA has regulatory jurisdiction over flight operations, including equipment, ground facilities, security systems, maintenance, and other safety matters. Pursuant to these regulations, we have established, and the FAA has approved, a maintenance program for each type of aircraft we operate that provides for the ongoing maintenance of our aircraft, ranging from frequent routine inspections to major overhauls.
Maintenance Directives
The FAA approves all airline maintenance programs includingand modifications to thesuch programs. In addition, the FAA certifies and licenses the air carrier, mechanics, inspectors, and repair stations and mechanics that perform inspections, repairs and overhauls, as well as the inspectors who monitor the work.overhauls.
The FAA frequently issues airworthiness directives in response to specific incidents or reports by operators or manufacturers, requiringmandating operators of specified equipment types to perform prescribed inspections, repairs or modifications within stated time periods and/or numbers ofaircraft hours and cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, wiring requirements for aging aircraft, fuel tank flammability, cargo compartment fire detection/suppression systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement, and increased inspection requirements.
Airport Security
The Aviation and Transportation Security Act (ATSA) mandates that the Transportation Security Administration (TSA) provide screening of all passengers and property, including mail, cargo, carry-on and checked baggage, and other articles that will be carried aboard a passenger aircraft. Under the ATSA, substantially all security screeners at airports are federal employees and airline and airport security is overseen and performed by federal employees, including security managers, law enforcement officers, and Federal Air Marshals. The ATSA also provides for increased security on flight decks of aircraft (and requires Federal Air Marshals to be present on certain flights), improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, provision of passenger data to U.S. Customs and Border Protection and enhanced background checks.
The TSA also has the authority to impose additional fees on air carriers, if necessary, to cover additional federal aviation security costs.
Environmental and Employee Safety and Health
We are subject to various laws and regulations concerning environmental matters and employee safety and health in the U.S. and other countries in which we do business. Many aspects of airlines' operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation, and Liability Act. Certain of our operations are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The U.S. Environmental Protection Agency (EPA), OSHA, and other federal agencies have been authorized to promulgate regulations that affect our operations. In addition to these federal activities, states have been delegated certain authority under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to or stricter than federal requirements, such as California.
The EPA is authorized to regulate aircraft emissions and has historically implemented emissions control standards previously adopted by the International Civil Aviation Organization. Our aircraft comply with the existing EPA standards, as applicable, by engine design date.
We seek to minimize the impact of carbon emissions from our operations through reductions in our fuel consumption and other efforts. We have reduced the fuel needs of our aircraft fleet through the retirement and replacement of certain elements ofaircraft in our fleet with newer, more fuel efficientfuel-efficient aircraft. In addition, we have implemented fuel saving procedures in our flight and ground support operations that further reduce carbon emissions. In 2012, we earned the first-ever aviation based carbon credits through the reduction of carbon dioxide emissions with the use of an eco-friendly engine washing technology. We are also supporting initiatives to develop alternative fuels and efforts to modernize the air traffic control system in the U.S. as part of our efforts to reduce our emissions and minimize our impact on the environment.
Noise Abatement
Under the Airport Noise and Capacity Act, the DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate and foreign commerce, or the national transportation system. Certain airports, including the major airports at Los Angeles, San Diego, San Francisco, and San Jose, California; Sydney, Australia; and Tokyo, Japan, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. Local authorities at other airports could consider adopting similar noise restrictions. In some instances, these restrictions have caused curtailments in services or increases in operating costs, and such restrictions could limit our ability to expand our operations.operations and reduce our profitability.
Civil Reserve Air Fleet Program
The U.S. Department of Defense regulates the Civil Reserve Air Fleet (CRAF) and government charters. We have elected to participate in the CRAF program by agreeing to make aircraft available to the federal government for use by the U.S. military under certain stages of readiness related to national emergencies. The program is a standby arrangement that allows the U.S. Department of Defense U.S. Transportation Command to call on as many as 12 contractually committed Hawaiian aircraft and crews to supplement military airlift capabilities. NoneIn August 2021, we were called upon and activated two aircraft under the
CRAF program for Stage 1 activation as defined under the program, which was completed in September 2021. As of December 31, 2021, none of our aircraft are presently mobilized under this program.
Other Regulations
The Statestate of Hawai'i is uniquely dependent upon air transportation. The Hawai'i state legislature has enacted legislation that reflects and attempts to address its concerns. For example, House Bill 2250 HD1, Act 1 of the 2008 Special Session, establishesaddresses this concern.
a statutory scheme for the regulation of Hawai'i neighbor island air carriers, provided that federal legislation is enacted to permit its implementation. The U.S. Congress has yet to enact legislation that would allow this proposed legislation to go into effect.
Additionally, severalOther aspects of airline operations are subject to regulation or oversight by federal agencies other than the FAA and the DOT. Federal antitrust laws are enforced by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by our cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. We and other airlines certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Airline Deregulation Act to certain airline employees who have been furloughed or terminated (other than for cause). The Federal Communications Commission issues licenses and regulates the use of all communications frequencies assigned to us and other airlines. There is increased focus on consumer protection both on the federal and state level. We cannot always accurately predict the cost of such requirements on our operations.
Additional laws and regulations are proposed from time to time, which could significantly increase the cost of airline operations by imposing additional requirements or restrictions. U.S. law restricts the ownership of U.S. airlines to corporations where no more than 25% of the voting stock may be held by non-U.S. citizens and the airline must be under the actual control of U.S. citizens. The President and two thirds of the Board of Directors and other managing officers must also be U.S. citizens. Regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots and authorizations. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. We cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be adopted, if any, or how we will be affected by those changes.
Business Segment Data
We operate in a single industry segment. All required financial segment information can be found in our consolidated financial statements.
Information about Geographic Revenue and Foreign Operations
Information concerning revenues by geographic area is set forth in Note 15 to our consolidated financial statements.
Available Information
General information about us, including the charters for the committees of our Board of Directors, can be found at https://www.hawaiianairlines.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments and exhibits to those reports that we file with the Securities and Exchange Commission (SEC) are available for download, free of charge, throughon our website. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
We also use the investor relations section of our website https://newsroom.hawaiianairlines.com/investor-relations and our website (https://www.hawaiianairlines.com), as a means of disclosing material information and for complying with our disclosure obligations under Regulation FD.
Information on our website is not incorporated into this Annual Report on Form 10-K or our other securities filings and is not a part of such filings.
ITEM 1A. RISK FACTORS.
In addition toInvesting in our common stock involves a high degree of risk. You should carefully consider the risks identified elsewhereand uncertainties described below, together with all of the other information in this report,Annual Report on Form 10-K, including the following risk factors applysection titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
RISK FACTOR SUMMARY
Our business operations are subject to numerous risks and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following:
Business Risks
•the material adverse impact of the global COVID-19 pandemic on our operations and financial conditions.performance
Economic Risks
•global economic volatility
•our dependence on tourism to, from, and amongst the Hawaiian Islands
•our dependence on the price and availability of fuel
•our exposure to foreign currency exchange rate fluctuations
Liquidity Risks
•credit market conditions
•our debt, including covenants that restrict our financial and business operations
•certain operating and other restrictions under our agreements with the U.S. Department of the Treasury (the Treasury)
•requirements for us to maintain reserves under our credit card processing agreements
Competitive Environment Risks
•the extremely competitive environment in which we operate
•inflation may reduce our profit margins
•the concentration of our business
•the competitive advantages held by network carriers in the North America market
•our reliance on commercial relationships with other airlines to provide access to Domestic and International routes
•the effect of increased capacity provided by our competitors on our Neighbor Island routes
•the effect of competition from domestic and foreign carriers on our International routes
Information Technology and Third-Party Risks
•compliance with U.S. and foreign laws and regulations relating to privacy, data protection, and data security and security standards imposed by our commercial partners
•actual or perceived failure to protect customer or other personal or confidential information
•our increasing dependence on technology and automated systems to operate our business
•our reliance on third-party contractors to provide certain facilities and services
Labor Relations and Related Costs Risks
•our dependence on satisfactory labor relations
•our ability to attract and retain qualified personnel and key executives
Strategy and Brand Risks
•our ability to successfully implement our route and network strategy
•damage to our reputation or brand image
•adverse publicity
Airline Industry, Regulation and Related Costs Risks
•the substantial operating leverage of the airline industry and other conditions beyond its control
•any inability to maintain adequate facilities and infrastructure at airports within the state of Hawai'i
•substantial seasonal and cyclical volatility of our business
•terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities
•extensive government regulation, new regulations and taxes impacting the airline industry
•climate change, including increased regulation and the impact of severe weather events
•federal budget constraints
•compliance with various environmental laws and regulations required of the airline industry
•our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject
•litigation or regulatory action in the normal course of business or otherwise
•changes in tax laws or regulations and our ability to use our net operating loss carryforwards
•increases in our insurance costs or reductions in coverage
•extended interruptions or disruptions in service
Fleet and Fleet-Related Risks
•our dependence on a limited number of suppliers for aircraft, aircraft engines and parts
•significant future financial commitments and operating costs related to our agreements to purchase Boeing 787-9 aircraft
•delays in scheduled aircraft deliveries or other loss of fleet capacity
•any impairment and other related charges related to the value of our long-lived assets
Common Stock Risks
•fluctuations in our share price
•our inability to repurchase our common stock or pay dividends on our common stock under the terms of our federal payroll support program (PSP) agreements
•limitations on voting and ownership by non-U.S. citizens in our certificate of incorporation and exclusive forum provisions in our bylaws
•provisions of our certificate of incorporation and bylaws that may delay or prevent a change of control
Risks Related to Securities Offerings
•the publication of research about us by analysts
•the effect of our indebtedness and liabilities related to our debt offerings on the cash flow available for our operations and to satisfy our obligations related such debt
BUSINESS RISKS
The global COVID-19 pandemic has had and is expected to continue to have a material adverse impact on our operations and financial performance. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely affect our business operations, liquidity, financial performance, results of operations, financial position or the achievement of our strategic objectives.
Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused the global slowdown of economic activity (including the decrease in demand for goods and services), and significant volatility in and disruption to financial markets. While we have experienced a recent increase in demand for travel to and within the state of Hawai'i, we cannot predict developments from the COVID-19 pandemic and responses thereto, including the emergence of new variants of the virus, vaccine mandates or recommendations related to travel to and within the state of Hawai'i. As such, the economic consequences of future developments are uncertain, rapidly changing and difficult to predict. The pandemic's impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals' actions that have been and continue to be taken in response to the pandemic (including restrictions on and requirements related to travel, transport and our workforce); the pace, effectiveness and utilization of vaccinations, including state or federal vaccine mandates placed on travelers or our employees; the impact of the pandemic and actions taken in response to it on global and regional economies and travel; the availability of federal, state, or local funding programs; general economic uncertainty in global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.
The COVID-19 pandemic has subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:
•Financial risks: In response to the COVID-19 pandemic, we have experienced a significant decrease in demand for air travel and reduced load factor on flights currently operated. For the twelve months ended December 31, 2021, our revenue was $1.6 billion, up approximately $0.8 billion compared to 2020, but down approximately $1.2 billion compared to 2019. We cannot guarantee that we will continue to see an increase in revenue as circumstances related to the COVID-19 pandemic continue to develop.
•Operations- and customer-related risks: Across our business, we faced operational challenges, including reduced demand for air travel, significant reductions in our flight schedule, decreased passenger traffic on our current routes, the need to protect employee and customer health and safety, the impacts on our business of vaccination mandates, workplace and staffing disruptions, supply chain disruptions, the need for contract modifications and cancellations, and other restrictions on business operations and the movement of people, including State of Hawai'i and county quarantine, testing and vaccination requirements, federal requirements for international travelers, and restrictions imposed on travel by other governments. We are also dependent on third party vendors and service providers, including a limited number of suppliers for aircraft and aircraft parts and services, and delays, disruptions, or issues with their performance due to COVID-19 could have a material adverse effect on our operations. Although some of
these operational challenges have lessened as demand for air travel has increased, we are unable to predict future demand, including related to the emergence of new strains of the virus. Unpredictability in the demand for air travel as a result of the ongoing COVID-19 pandemic may result in material decreases to anticipated levels of demand for air travel. We expect levels of passenger traffic and revenue, as compared to pre-COVID-19 pandemic levels, to remain depressed, particularly with respect to international markets due to delays in resumption of international travel. We expect to incur additional costs if we continue to increase the number of flights offered as passenger traffic to the Hawaiian Islands increases, which we will incur before the anticipated additional revenue is earned. While the rollout of COVID-19 vaccinations during 2021 may have caused an increase in demand for air travel, the further uptake and effectiveness of vaccines as well as potential modifications to vaccination-related travel requirements, particularly in light of emerging strains of the COVID-19 virus, remains unknown and may impact customer demand for air travel negatively. Additionally, our workforce, and that of other sectors in the travel industry, has been and may continue to be significantly impacted by vaccination policies and requirements, which could have a negative impact on our operations. We have implemented enhanced measures to protect the health and safety of our passengers and employees and may be required or determine to take additional safety measures to minimize the transmission of COVID-19 that may further impact our operations and results of operations.
•Legal and regulatory risks: While we are endeavoring to take all reasonable precautions and have instituted numerous health and safety measures to protect our guests and our employees, there can be no assurance that guests will not be exposed to COVID-19 while traveling, or that our employees will not be exposed to COVID-19 while working. Should such exposure be determined to have been caused while traveling or working, notwithstanding the steps we take to protect our guests and employees, we may be subject to civil lawsuits or employee grievances that give rise to legal liability. We also receive requests for, and provide, workplace reasonable accommodation, including with respect to our employee vaccination requirements, pursuant to federal and state law. While we carry employment practices liability insurance, we may become subject to claims related to such reasonable accommodation requests, which may result in litigation. Furthermore, while the airline industry is committed to the safety of our guests and employees and has taken and will continue to take all necessary precautions, there can be no assurance that federal legislation or federal regulation will not be enacted that increase our costs, our ongoing compliance burdens, and our exposure to claims of non-compliance. For example, the U.S. federal government has established vaccination requirements for federal employees, as well as for federal contractors like us and our subcontractors. If sufficient numbers of our employees or federal employees supporting our operations do not get vaccinated or qualify for accommodation, or otherwise fail to comply with applicable health and safety measures, our operations and results of operations may be materially adversely affected.
At this time, we are also not able to predict whether the COVID-19 pandemic will result in permanent changes to our customers' behavior, including but not limited to such changes as a lasting or permanent reduction in leisure travel and more broadly a general reluctance to travel by consumers, each of which could have a material impact on our business. To date, the COVID-19 pandemic has produced the following trends, each possibly having an effect on future operations:
•Travelers have indicated they are wary of airports and commercial aircraft, where they may view the risk of contagion as increased; and
•Travelers may be dissuaded from flying due to restrictions on movement and possible enhanced COVID-19-related screening measures which have been or may be implemented across multiple markets we serve.
The COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect. The COVID-19 pandemic may also exacerbate other risks described in this "Risk Factors" section, including, but not limited to, our dependence on leisure travel to Hawai'i, our competitiveness, demand for air travel generally and our services specifically, shifting consumer preferences and our substantial outstanding indebtedness.
ECONOMIC RISKS
Our business is affected by global economic volatility.volatility, including the current economic downturn precipitated by the COVID-19 pandemic.
Our business and results of operations are significantly impacted by general world-wide economic conditions. Demandconditions, including the current economic downturn related to the COVID-19 pandemic. Our business depends on the demand for travel to, from and within the Hawaiian Islands and such demand for discretionary purchases including air travel has declined and vacations to Hawai'i remains unpredictable. Deteriorationunpredictable, which has negatively impacted our results of operations and financial condition. Further deterioration or instability in demand resulting from travel restrictions or recommendations or vaccine mandates, ongoing economic uncertainty or anotherfurther recession may result in asustained reduction in our passenger traffic and/or increased competitive
pressure on fares in the markets we serve, which would
could continue to negatively impact our results of operations and financial condition. We cannot assureThere can be no assurance that we wouldwill be able to offset such revenue reductions by reducing our costs.costs or seeking additional federal payroll support relief or other potential financing arrangements or other programs or opportunities, or that we will have sufficient cash flows to support our debt obligations.
Our business is highly dependent on tourism to, from, and amongst the Hawaiian Islands and our financial results could suffer if there is ahave been impacted and may continue to be impacted by the current and any future downturn in tourism levels.
Our principal base of operations is in Hawai'i and our revenue is linked primarily to the number of travelers (mainly tourists) to, from and amongst the Hawaiian Islands. As a result of the COVID-19 pandemic and government mandates related to travel and business operations, we experienced a significant decline in the demand for travel to, from and amongst the Hawaiian Islands. The State of Hawai'i continues to impose quarantine, testing and vaccination requirements, federal requirements and foreign governments restrictions remain in effect for international travelers. There can be no assurance whether, at some point, the State of Hawai'i may limit or suspend the Safe Travels Program or vaccination exemptions from pre-travel testing and quarantine requirements, or whether federal quarantine requirements could be modified or expanded should the prevalence of the COVID-19 pandemic worsen. While travel restrictions have eased somewhat with the use of COVID-19 testing and the rollout of COVID-19 vaccinations, certain restrictions, including with respect to the use of COVID-19 testing and vaccination exemptions, may be reinstated, or altered, or the State of Hawai'i may recommend that visitors avoid air travel to Hawai'i, as the infection rates of COVID-19 change, which may have a significant impact on our business operations. Furthermore, statements by public officials urging residents and travelers to reduce or limit travel to Hawai'i or other markets to which we fly could have a significant impact on tourism and our business operations. Additionally, even with the lifting of certain restrictions associated with travel to and between the Hawaiian Islands, we expect to continue to experience depressed levels of passenger traffic and revenue, as compared to pre-COVID-19 pandemic levels, particularly with respect to international markets due to delays in resumption of international travel. We will need to incur costs as we begin to increase our number of flights as passenger traffic to and within the Hawaiian Islands increases, which we will incur before the anticipated additional revenue is earned.
Hawai'i tourism levels are generally affected by the economic and political and economic climate in Hawai'i's mainimpacting air travel and tourism markets generally, including the availability of hotel accommodations, the popularity of Hawai'i as a tourist destinationdestinations relative to other vacation destinations, and other global factors including health crises, natural disasters, safety, and security. FromAs a result of the COVID-19 pandemic, there has been a significant decline in air travel due to government mandates and general public health concerns. Additionally, tourism has declined as various public events, attractions and venues have been closed or cancelled. While we have seen some increased tourism activity in the state of Hawai'i, we cannot predict if and when tourism levels will recover to levels prior to the COVID-19 pandemic. Additionally, from time to time, various events and industry specificindustry-specific problems such as labor strikes have had a negative impact on tourism generally or in Hawai'i.Hawai'i specifically. The occurrence of natural disasters, such as hurricanes, earthquakes, volcanic eruptions, and tsunamis, in Hawai'i or other parts of the world, could also have a materialan adverse effect or compound the existing adverse effect of the COVID-19 pandemic on Hawai'i tourism. In addition, the potential or actual occurrence of terrorist attacks, wars, andand/or the threat of other negative world events have had, and may in the future have, a material adverse effect on Hawai'ior compound the current effect of the COVID-19 pandemic on tourism. A decline in the level of Hawai'i passenger traffic could have a material adverse effect on our results of operations and financial condition.
Our business is highly dependent on the price and availability of fuel.
Our results and operations are heavily impacted by the price and availability of jet fuel. While we have benefited in the past from lower fuel costs, fuel costs began to increase in 2017 and we cannot assure that fuel costs will not increase further in the future. The cost and availability of jet fuel remains volatile and is subject to political, economic, and market factors that are generally outside of our control. Prices may be affected by many factors including, without limitation, the impact of political instability, crude oil production and refining capacity, unexpected changes in the availability of petroleum products due to disruptions to distribution systems or refineries, unpredicted increases in demand due to weather or the pace of global economic growth, inventory reserve levels of crude oil and other petroleum products, the relative fluctuation between the U.S. dollar and other major currencies, and the actions of speculators in commodity markets. The cost of jet fuel has been especially volatile recently due to the negative impact of the COVID-19 pandemic on the demand for oil. Because of the effects of these factors on the price and availability of jet fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. Also, due to the competitive nature of the airline industry, there can be no assurance that we will be able to increase our fares or other fees to sufficiently offset any increase in fuel prices.
We
While we may enter into derivative agreements to protect against the volatility of fuel costs. Therecosts, there is no assurance that such agreements will protect us during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements.
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for further information regarding our exposure to the price of fuel.
Our business is exposed to foreign currency exchange rate fluctuations.
Prior to the COVID-19 pandemic, our business ishad been expanding internationally with an increasing percentage of our passenger revenue generated from our International routes. The fluctuation of the U.S. dollar relative to foreign currencies can significantly affect our results of operations and financial condition. To manage the effects of fluctuating exchange rates, we periodically enter into foreign currency forward contracts. Therecontracts and execute payment of expenditures in those locations in local currency. As of December 31, 2021, we have Japanese Yen denominated debt totaling$217.8 million. If our business continues to expand internationally, there is no assurance that suchthese agreements will protect us against foreign currency exchange rate fluctuations during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements.
See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for further information regarding our exposure to foreign currency exchange rates.
LIQUIDITY RISKS
Our financial liquidity could be adversely affected by credit market conditions.
Our business requires access to capital markets to finance equipment purchases, including aircraft, and to provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with Boeing to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions, including related to the current COVID-19 pandemic, may adversely affect the availability of financing or may result in unfavorable terms and conditions.
Our current unencumbered aircraft can be financed to increase our liquidity, but such financings may be subject to unfavorable terms. In light of current market conditions, any such financings are likely to reflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our recent aircraft financings.
Additionally, our credit rating was recently downgraded by ratings agencies and there can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.
We can offer no assurance that financing we may need in the future will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition may be adversely affected.
Our debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.
As of December 31, 2021, we had approximately $1.7 billionin outstanding commercial debt, excluding funds borrowed under federal PSP. Our debt and related covenants could:
•require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
•place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
•adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general corporate purpose needs.
These agreements require us to meet certain covenants. If we breach any of these covenants we could be in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under other credit facilities.
Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.
We have entered into loan agreements with the Treasury pursuant to the CARES Act, the CAA 2021, and the ARP 2021 that have certain operating and other restrictions.
As a condition of receiving grants and loans under the Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), we agreed to, among other things: refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through the later of September 30, 2021 or the date on which we have expended all PSP funds; limit executive compensation through April 2023; suspend payment of dividends and stock repurchases through September 30, 2022; and comply with certain reporting requirements. We are also 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 to us by the DOT given the absence of demand for such services.
The restrictions placed on us as part of our participation in the PSP and subsequent extensions thereof, including restrictions on use of funds, staffing, pay reduction, stock buy-backs, dividends, certain transactions, and service requirements may negatively affect our financial and business operations.
We are required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.
Under our 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, 2021 and 2020, there were no holdbacks held by our credit card processors.
In the event of a material adverse change in our business, the holdback could incrementally increase to an amount up to 100% of the applicable credit card activity for all unflown flights, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.
COMPETITIVE ENVIRONMENT RISKS
We operate in an extremely competitive environment.
The airline industry is characterized by low profit margins, high fixed costs, and significant price competition. We compete with other airlines on all of our Domestic and International routes. The commencement of, or increase in, service on our routes by existing or new carriers at aggressive prices could negatively impact our operating results. Manyresults, including as demand for air travel rebuilds as COVID-19 infection rates decline. Most of our competitors on our North America and International routes are much larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare warcompetition initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Additionally, our competitors have been and may continue to be more successful in navigating the challenges related to COVID-19, including having easier access to additional capital and more favorable lending terms, which could impact our ability to compete successfully in the future. Since airline markets have few natural barriers to entry, we also face the constant threat of new entrants in all of our markets.
Additional capacity to or within Hawai'i, whether from network carriers or LCCs,low-cost carriers, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, including in light of industry-wide reductions in air travel due to the COVID-19 pandemic, which could have a material adverse effect on our results of operations and financial condition.
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Recently, inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of labor, fuel and other costs as well as by reducing demand for air travel. In addition, inflation is often accompanied by higher interest rates, which could reduce the fair value of our outstanding debt obligations. In an inflationary environment, depending on airline industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation,
which would reduce our profit margins. We have experienced, and continue to experience, increases in the prices of labor, fuel and other costs of providing service. Continued inflationary pressures could impact our profitability.
The concentration of our business in Hawai'i,within Hawai'i, and between Hawai'iHawai'i and the U.S. mainland, provides little diversification of our revenue.revenue and could be exacerbated by the effects of the COVID-19 pandemic.
During 2017,2021, approximately 75% 94%of our passenger revenue was generated from our Domestic routes. ManyMost of our competitors, particularly major network carriers with whom we compete on our North AmericaAmerican routes, enjoy greater geographical diversification of their passenger revenue. A reduction in the level of demand for travel within Hawai'i, or to Hawai'i from the U.S. mainland, or an increase in the level of industry capacity on these routes may reduce the revenue we are able to generate and adversely affect our financial results. As theseDomestic routes account for a significantly higher proportion of our revenue than they do for manymost of our competitors, such a reduction wouldproportionately higher decline in demand for our domestic routes generally due to the COVID-19 pandemic is likely to have a relatively greater adverse effect on our financial results than on those of our competitors. Additionally, reductions in the level of demand for travel to, from, and within Hawai'i, such as those caused by government restrictions on travel to and business operations within Hawai'i, have reduced the revenue we are able to generate from our routes and adversely affected our financial results. Sustained reduction in our Domestic routes and continued industry capacity of major network carriers on routes to, from and within Hawai'i is likely to continue to adversely affect our financial results.
Our business is affected by the competitive advantages held by network carriers in the North America market.
During 2017,2021, approximately 53%78% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska Airlines, American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, all of whom have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enableenables them to attract higher customer traffic levels as compared to us. Also, there have been recent announcements by other carriers, such as Southwest Airlines, to increase capacity to and from Hawai'i, and possibly amongst the Hawaiian Islands.
In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (e.g. with JetBlue) to provide customers access to and from North American destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers depending on the economic strength of the hub city and the size of the customer group that frequentfrequents the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a significant built-in market. Passengers in the North American market, for the most part, do not originate in Honolulu, but on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.
Our Neighbor Island routes are affected by increased capacity provided by our competitors.
During 2017,2021, approximately 22%16% of our passenger revenue was generated from our Neighbor Island routes. Although we enjoy a strong competitive position onPrior to the COVID-19 pandemic, certain of our Neighbor Island routes, our competitors have increased capacity to and within Hawai'i either by introducing new routes orand increasing the frequency of existing routes from North America to Hawai'i and by the Neighbor Islands. Thisintroduction of additional flights within the neighbor islands. We are unable to predict competitor capacity provided by our competitors hasrelated to air travel to Hawai'i or between the effect of decreasingneighbor islands, including any impact that the COVID-19 pandemic may have on such capacity. Any increased competitor capacity that decreases our share of traffic on our Neighbor Island routes, whichto Hawai'i or between the neighbor islands could ultimately have a material adverse effect on our results of operations and financial condition.
Our International routes are affected by competition from domestic and foreign carriers.
During 2017,2021, approximately 25%6% of our passenger revenue was generated from our International routes. OurWhen our operations are not constrained by restrictions related to the COVID-19 pandemic, our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.
Many of our domestic competitors have joinedare members of airline alliances, which provide customers access to each participating airline's international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances, our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. To mitigate this risk, we rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.
Many of our foreign competitors are network carriers that benefit from network feed to support Internationalinternational routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our Internationalinternational flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai'i, but rather internationally, in these foreign carriers' home bases. We also rely on our code-share agreements
and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.
INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS
If we do not maintain the privacy and security of customer-relatedpersonal information or other information relating to our customers or others, or fail to comply with applicable U.S. and foreign privacy, data protection, or data security regulationslaws or security standards imposed by our commercial partners, our reputation could be damaged, we could incur substantial additional costs, and we could become subject to litigation or regulatory penalties.
We receive, retain, transmit and transmitotherwise process personal information and other information about our customers and other individuals, including our employees and contractors, and we are subject to increasing legislative, regulatory and customer focus on privacy, data protection, and data security. security both domestically and internationally. Numerous laws and regulations in the U.S. and in various other jurisdictions in which we operate relate to privacy, data protection, and security, including laws and regulations regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers and other individuals. The scope of these laws and regulations is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other obligations of ours.
A number of our commercial partners, including creditpayment card companies, have imposed data security standards or other obligations relating to privacy, data protection, or data security upon us. We strive to comply with applicable laws, regulations, policies, and contractual and other legal obligations relating to privacy, data protection, and data security. However, these legal, contractual, and other obligations may be interpreted and applied in new ways and/or in manners that are inconsistent, and may conflict with other rules or practices. Data privacy, data protection, and data security are active areas, with laws and regulations in these areas being frequently proposed, enacted, and amended, and existing laws and regulations subject to differing and evolving interpretations. New laws and regulations in these areas likely will continue to be enacted.
Any failure or perceived failure by us to comply with laws or regulations, our privacy or data protection policies, or other privacy-, data protection-, or information security-related obligations to customers, or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in governmental investigations and enforcement actions, governmental or private litigation, other liability, our loss of the ability to process payment card transactions, or us becoming subject to higher costs for such transactions, or public statements critical of us by consumer advocacy groups, competitors, the media or others that could cause our current or prospective customers to lose trust in us, any of which could have an adverse effect on our business. Additionally, if third-party business partners that we are obligated to meetwork with, such as vendors, violate applicable laws, applicable policies or other privacy-, data protection-, or security-related obligations, such violations may also put our customers' or others' information at risk and these standards continue to evolve. could in turn have an adverse effect on our business. Governmental agencies may also request or take customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.
We will continue our efforts to meetcomply with new and increasing privacy, data protection, and information security standards;obligations; however, it is possible that such new standardsobligations may prove difficult to meet, require us to expend additional resources, and result inmay be difficult or impossible for us being unable to process credit card transactions if determined to be non-compliant. Additionally, any compromise of our technology systems could result in the loss, disclosure, misappropriation of or access to our customers’, employees’ or business partners’ information.meet. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information. Any significant data breach or our failure to comply with applicable U.S. andor foreign privacy, data protection, or data security laws or regulations, any privacy or security standards imposed by our commercial partners, or any other obligations we are or may become subject to relating to privacy, data protection, or information security, or any allegation or assertion relating to any of the foregoing may result in claims, regulatory investigations and proceedings, private litigation and proceedings, and other liability, all of which may adversely affect our reputation, business, results of operations and financial condition,condition.
Our actual or perceived failure to protect customer information or other personal information or confidential information could result in harm to our business.
Our business and operations involve the storage, transmission and processing of information about our customers, our employees and contractors, our business partners, and others, as well as our own confidential information. We may become the target of cyber-attacks by third parties seeking unauthorized access to any of these types of information or to disrupt our
business or operations. Computer malware, viruses, fraudulent sales of frequent flier miles, and general hacking have become more prevalent in our industry. While we have taken steps to protect customer information and other confidential information to which we have access, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We and our third-party service providers may be unable to anticipate attempted security breaches and to implement adequate preventative measures, and our security measures or those of our third-party service providers could be breached, we could suffer data loss, unauthorized access to or use of the systems or networks used in our business and operations, and unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information. We may also experience security breaches or other incidents that may remain undetected for an extended period. Further, third parties may also conduct attacks designed to disrupt or deny access to the systems and networks used in our business and operations.
Actual or perceived security breaches or other security incidents could result in unauthorized use of or access to systems and networks, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information, and may requirelead to litigation, claims, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, and may adversely affect our revenues and operating results. Additionally, our service providers may suffer security breaches or other incidents that we expend significant additional resources relatedmay result in unauthorized access or otherwise compromise data stored or processed for us that may give rise to any of the foregoing.
Any such actual or perceived security breach or other incident may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and eliminate vulnerabilities, and to prevent future security breaches or incidents, as well as significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, costs in connection with payment card replacement, and other liabilities. Certain breaches affecting payment card information systems.or the environment in which such information is processed may also result in a loss of our ability to process credit cards or increased costs associated with doing so. We have incurred and expect to incur ongoing expenditures in an effort to prevent information security breaches and other security incidents.
We cannot be certain that our insurance coverage will be adequate for information security liabilities actually incurred or to cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
We are increasingly dependent on technology and automated systems to operate our business.
We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com,, and other IT systems, allmany of which must be able to accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial related transactions. Any substantial, extended, or repeated failures of these systems could negatively affect our customer service, compromise the security of customer information or other information stored on, transmitted by, or otherwise processed by these systems, result in the loss of or damage to important data, loss of revenue and increased costs, and generally harm our business. Additionally, loss of key talent required to maintain and advance these systems could have a material impact on our operations. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity threats,incursions, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems.systems or prevent or mitigate all attacks. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, including our transition to the Amadeus Altéa Passenger Service System announced in December 2021, our business could be adversely impacted. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition that may result from system interruptions or system failures.
We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.
WeThere are a limited number of qualified employees and personnel in the airline and information technology industry, especially within the Hawai'i market. Due to these limitations, we have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, and the distribution and sale of airline seats. As part of our cost-control efforts, ourOur reliance on outside vendors has increased and may continue to do soincrease in the future.
The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, mayincluding those related to the impacts of the COVID-19 pandemic on their businesses, are likely to reduce our revenues, increase expenses, and/or prevent us from operating our flights and providing other services to our customers. OurAdditionally, our business and financial performance would be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
LABOR RELATIONS AND RELATED COSTS RISKS
We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline's results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that may require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.
In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, and dispatchers. We cannot ensure that future agreements with our employees' labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. We are currentlyFor example, in labor negotiations with ourApril 2020, the flight attendants' union, AFA, whose contract became amendable on January 1, 2017. If we are unableattendants of Hawaiian, represented by the Association of Flight Attendants, ratified an amended collective bargaining agreement, which among other things, includes a ratification payment, pay scale increases, and a one-time medical savings account contribution to reach an agreement with any unionized work group, we may be subject to future work interruptions and/or stoppages, which may hamper or halt operations. In addition, the threat of future work interruptions and/or stoppages may cause a decline in our passenger traffic, negatively impacting our results of operations and financial condition.eligible flights attendants upon retirement.
Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.
We believe that our future success is dependent on the knowledge and expertise of our key executives and highly qualified management, technical, and other personnel. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future.future, including in light of the restrictions on executive compensation imposed on us under the PSP and subsequent extensions thereof. Any inability to retain our key executives, or other senior technical personnel, or attract and retain additional qualified executives, could have a negative impact on our operations.
In addition, as we continue torebuild our operations as passenger demand recovers, and expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract a sufficient number of qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel, we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.
STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network strategy could harm our business.
Our route and network strategy (how we determine to deploy our fleet) includes initiatives to increase revenue, decrease costs, mature our network, and improve distribution of our sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. If we are unable to utilize and fill increased capacity provided by additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-effective manner, including as a result of the COVID-19 pandemic, we may be
unable to successfully develop and grow our new and existing markets, which may adversely affect our business and operations.
We continue to strive toward aggressive cost-containment goals which are an important part of our business strategy to offer the best value to passengers through competitive fares while maintaining acceptable profit margins and return on capital. We believe a lower cost structure will better position us to fund our strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.
Any damage to our reputation or brand image could adversely affect our business or financial results.
Maintaining a good reputation globally is critical to our business. Our reputation or brand image could be adversely impacted by, among other things, any failure to maintain our safety record, our high ethical, social and environmental sustainability practices for all of our operations and activities, our impact on the environment, public pressure from investors or policy groups to change our policies, such as initiatives to address climate change, customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.
Moreover, the outbreak and spread of COVID-19 have adversely impacted consumer perceptions of the health and safety of travel, and in particular airline travel, and these negative perceptions could continue even after the COVID-19 pandemic subsides. Actual or perceived risk of infection while traveling could have a material adverse effect on the public's perception of us, which could harm our reputation and business. We have taken various measures to reassure our team members and the traveling public of the safety of air travel, including those related to State of Hawai'i and county quarantine and testing requirements, and other measures, such as airport health screening measures, requiring that passengers wear face coverings, the provision of protective equipment for team members and enhanced cleaning procedures onboard aircraft and in airports. We expect that we will continue to incur costs related to the COVID-19 pandemic as we sanitize aircraft, implement additional hygiene-related protocols and take other actions to limit the threat of infection among our employees and passengers. However, we cannot assure that these or any other actions we might take in response to the COVID-19 pandemic will be sufficient to restore the confidence of consumers in the safety of air travel.
Our reputation and financial results could be harmed in the event of adverse publicity, including in the event of an aircraft accident or incident.
Our customer base is broad and our business activities have significant prominence, particularly in Hawai'i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, third-party aircraft components or other events or circumstances affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.
Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft or aircraft parts, and its consequential temporary or permanent loss of revenue, but also significant claims of injured passengers and others. We are required by the U.S. Department of Transportation (DOT)DOT to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with an accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.
AIRLINE INDUSTRY, REGULATION AND RELATED COSTS RISKS
The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, which could harm our financial condition and results of operations.
The airline industry has historically operated on low gross profit margins. Due to the substantial fixed costs associated with operating an airline, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried, would causeand when applicable, the aggregate effect of decreasing flights scheduled, causes a corresponding decrease in revenue (if not offset by higher fares), and it maythat is likely to result in a disproportionately greater decrease in profits. Therefore, any generalthe reduction in airline
passenger traffic as a result of the COVID-19 pandemic and any future reductions as a result of the following or other factors, which are largely outside of our control, couldwill likely harm our business, financial condition, and results of operations:
•decline in general economic conditions;
continued•the threat of terrorist attacks and conflicts overseas;
•actual or threatened war and political instability;
•increased security measures or breaches in security;
•adverse weather and natural disasters;
•changes in consumer preferences, perceptions, or spending patterns;
•increased costs related to security and safety measures;measures,
•increased fares as a result of increases in fuel costs;
•outbreaks of contagious diseases or fear of contagion; and
•congestion or major construction at airports and actual or potential disruptions in the air traffic control system.
Our results of operations are and may continue to be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of the COVID-19 pandemic or any of these unexpected factors should they occur.events, including those identified above.
Our financial results and operations may be negatively affected by the State of Hawai'i's airport modernization plan.
The State of Hawai'i has begun to implement a modernization plan encompassing the airports we serve within the State. Our landing fees and airport rent rates have increased to fund the modernization program. Additionally, we expect the costs for our Neighbor Island operations to increase more than the costs related to our North America and International operations due to phased adjustments of the airports' funding mechanism. Therefore, costs related to the modernization program will have a greater impact on our operations as compared to our competitors, who do not have significant Neighbor Island operations. We can offer no assurance that we will be successful in offsetting these cost increases through other cost reductions or increases in our revenue and, therefore, can offer no assurance that our future financial results will not be negatively affected by them.
Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the Statestate of Hawai'i.Hawai'i.
We must be able to maintain and/or obtain adequate gates, maintenance capacity, office space, operations areas, and ticketing facilities, especially at the airports within the Statestate of Hawai'i, to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial performance.
Our business is subject to substantial seasonal and cyclical volatility.
Our results of operations reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. Moreover, due to the widespread impact of the COVID-19 pandemic on the demand for air travel generally and travel to and within Hawai'i specifically, we have seen a significant decline in demand for air travel in 2020 and 2021 as compared to prior years. As Hawai'i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during the months of June, July, August, and December and considerably weaker at other times of the year. Because of fluctuations in our
results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.
Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, financial condition and results of operations, and on the airline industry in general.
The airline industry is subject to extensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.
Airlines are subject to extensive regulatory requirements that result in significant costs. New, and modifications to existing, laws, regulations, taxes and airport rates, and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations, restrict operations or reduce revenue. The FAAFederal Aviation Administration (FAA) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, aircraft landing safety measures, including with respect to the interaction of aircraft systems
with new technologies such as 5G C-band service, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections, and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates, would have a material adverse impact on our operations.
We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further, we cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.
In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, CBP, TSA, etc.U.S. Customs and Border Protection (CBP) and the Transportation Security Administration (TSA)). Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may continue to do so again in the future.
We are subject to risks associated with climate change, including increased regulation of our CO2 emissions and the potential increased impacts of severe weather events on our operations and infrastructure.
There is increasing global regulatory focus on climate change and emissions of greenhouse gases, including CO2. In particular, the International Civil Aviation Organization (ICAO) is in the process of adopting rules, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), of which the U.S. federal government has opted to participate in the voluntary phases from 2021-2026. As part of the CORSIA program, we are currently monitoring our international emissions for reporting purposes, and such data will be used in calculations to determine subsequent carbon offsetting requirements under the CORSIA program. Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could increase operating costs in the airline industry and, as a result, adversely affect our operations.
In the event that CORSIA does not come into force as expected, we and other airlines could become subject to an unpredictable and inconsistent array of national or regional emissions restrictions, creating a patchwork of complex regulatory requirements that may affect global competitors differently. Concerns over climate change may result in the adoption of municipal, state, regional, and federal requirements or in changing business environments that may result in increased costs to the airline industry and us. In addition, several countries and U.S. states have adopted or are considering adopting programs to regulate greenhouse gas emissions. On January 20, 2021, the United States rejoined the Paris Climate Accord. Further, the current Presidential administration has made climate change mitigation an important policy priority, and may adopt additional regulatory changes that could impact the airline industry and our business. Certain airports have adopted, and others could in the future adopt, greenhouse gas emission or climate-neutral goals that could impact our operations or require us to make changes or additional investments in our infrastructure.
All such climate change-related regulatory activity and developments may adversely affect our business and financial results by requiring us to reduce our emissions, make capital investments to modernize aspects of our operations, purchase carbon offset credits, or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs. We may not be able to increase revenue in proportion with such additional costs.
We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.
Federal budget constraints may adversely affect our industry, business, results of operations and financial position.
Many of our airline operations are regulated by governmental agencies, including the FAA, the DOT, the CBP, the TSA, and others. If the federal government were to experience issues in reaching budgetary consensus in the future resulting in mandatory furloughs and/or other budget constraints, our business and results of operations could be materially negatively impacted, including as a result of actual or potential disruption in the air traffic control system, actual or perceived delays at various airports, and delays in deliveries of new aircraft, which may materially adversely impact our industry, our business, results of operations and financial positions.
The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.
Many aspects of airlines' operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.
Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. We are monitoring and evaluating the potential impact of such legislative and regulatory developments.
In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the atmosphere or have a greater impact on climate change than other industries.
Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject.
The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws and regulations to which we are subject, both domestically and internationally. Compliance with the laws and regulations of foreign jurisdictions and the restrictions on operations that these laws, regulations or other government actions may impose could significantly increase the cost of airline operations or reduce revenue. For example, various jurisdictions have imposed or are currently imposing restrictions that impede or restrict travel in response to the COVID-19 pandemic and a number of our destinations in Asia have been revising their privacy and consumer laws and regulations. FailureLimitations placed on our business as a result of these or other laws and regulations or failure to comply with these evolving laws or regulations could result in significant penalties, criminal charges, costs to defend ourselves in a foreign jurisdiction, restrictions on operations and reputational damage. In addition, we operate flights on international routes regulated by treaties and related agreements between the U.S. and foreign governments, which are subject to change as they may be amended from time to time. Modifications of these arrangements could result in an inability to obtain or retain take-off or landing slots for our routes, route authorization and necessary facilities. Any limitations, additions or modifications to government treaties, agreements, regulations, laws or policies related to our internationalInternational routes could have a material adverse impact on our financial position and results of operations.
We may be party to litigation or regulatory action in the normal course of business or otherwise, which could have an adverse effect on our operations and financial results.
From time to time, we are a party to or otherwise involved in legal or regulatory proceedings, claims, government inspections, investigations or other legal matters, both domestically and in foreign jurisdictions.jurisdictions, including proceedings related to the COVID-19 pandemic. For example, due to cancelled or rescheduled flights in connection with the COVID-19 pandemic, several U.S. airlines, including us, have been subject to class action complaints citing violation of state consumer statutes for allegedly failing or refusing to refund passenger tickets on cancelled flights. We believe we have meritorious defenses and intend to vigorously contest the claims. Resolving or defending legal matters, however, can take months or years. The duration of such matters can be unpredictable with many variables that we do not control including adverse party or government responses. Litigation and regulatory proceedings are subject to significant uncertainty and may be expensive, time-consuming and disruptive to our operations. In addition, an adverse resolution of a lawsuit, regulatory matter, investigation or other proceeding could have a material adverse effect on our financial condition and results of operations. We may be required to change or restrict our operations or be subject to injunctive relief, significant compensatory damages, punitive damages, penalties, fines or disgorgement of profits, none of which may be covered by insurance. We may have to pay out settlements that also may not be covered by insurance. There can be no assurance that any of these payments or actions will not be material. In addition, publicity of ongoing legal and regulatory matters may adversely affect our reputation.
Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the Treasury and state and local tax authorities. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially adversely impacting our business, financial position and results of operations.
As we continue to grow internationally, we may also be subject to taxation in jurisdictions around the world with increasingly complex tax laws, the application of which may be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, potentially adversely affecting our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the relevant authorities could claim that various withholding requirements apply to us or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could adversely impact us and our results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had net operating loss carryforwards (NOLs) available to reduce future taxable income of approximately $5.4 million for regular federal income tax purposes that have indefinite carryover and approximately $502.0 million for state income tax purposes that will expire, if unused, beginning in 2024. The majority of our state NOLs relate to the state of Hawai'i, most of which have indefinite carryover, but are limited to 80% utilization.
Our ability to use our NOLs will depend on the amount of taxable income generated in future periods. If our financial results continue to be adversely impacted by the COVID-19 pandemic, there can be no assurance that an increase in the valuation allowance on our net deferred tax assets will not be required in the future. Such valuation allowance could be material. Additionally, due to the COVID-19 pandemic and other economic factors, the NOLs may expire before we can generate sufficient taxable income to use them.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change," the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an "ownership change" will occur if there is a cumulative change in our ownership by "5-percent shareholders" that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our ability to use NOLs to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future.
Our insurance costs are susceptible to significant increases, and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.
We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers' compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or that we will not bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition. As a result of the COVID-19 pandemic, we have experienced, and may continue to experience, increases in our policy premiums as our policies become eligible for renewal.
Extended interruptions or disruptions in service have and could continue to have a material adverse impact on our operations.
Our financial results have been and may continue to be adversely affected by factors outside our control, including, but not limited to, flight cancellations, significant delays in operations, and facility disruptions, such as those caused by the current COVID-19 pandemic. Our principal base of operations is in Hawai'i and a significant interruption or disruption in service has had and may continue to have a serious impact on our business and results of operations. In addition to international health
crises, such as the COVID-19 pandemic, natural disasters, such as hurricanes, earthquakes and tsunamis, may impact the demand for transportation in the markets in which we operate.
FLEET AND FLEET-RELATEDLIQUIDITY RISKS
We are dependent on a limited number of suppliers for aircraft, aircraft engines and parts.
We are dependent on a limited number of suppliers (e.g. Airbus, Boeing, Rolls Royce, etc.) for aircraft, aircraft engines, and aircraft-related items. As a result, we are vulnerableOur financial liquidity could be adversely affected by credit market conditions.
Our business requires access to any problems associated with the supply of thosecapital markets to finance equipment purchases, including aircraft, and parts which couldto provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with Boeing to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions, including related to the current COVID-19 pandemic, may adversely affect the availability of financing or may result in increased partsunfavorable terms and maintenance costs in future years.conditions.
Our agreements to purchase Airbus A321neocurrent unencumbered aircraft and A330-800neo aircraft represent significant future financial commitments and operating costs.
As of December 31, 2017, we had the following firm order commitments and purchase rights for aircraft: |
| | | | | | | |
| Aircraft Type | Firm Orders | | Purchase Rights | | Expected Delivery Dates |
| A321neo aircraft | 14 |
| | 9 |
| | Between 2018 and 2020 |
| A330-800neo aircraft | 6 |
| | 6 |
| | Between 2019 and 2021 |
We have made substantial pre-delivery payments for Airbus aircraft under existing purchase agreements and are required to continue these pre-delivery payments as well as make payments for the balance of the purchase price through delivery of each aircraft. These commitments substantially increase our future capital spending requirements and may require uscan be financed to increase our levelliquidity, but such financings may be subject to unfavorable terms. In light of debt in future years. In 2018, we have significant obligations in ordercurrent market conditions, any such financings are likely to fundreflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our currentrecent aircraft ordersfinancings.
Additionally, our credit rating was recently downgraded by ratings agencies and we are currently evaluating our options to finance these orders via our operating cash flows coupled with debt financing. Therethere can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.
We can offer no assurance that financing we may need in the future will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition may be adversely affected.
Our debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.
As of December 31, 2021, we had approximately $1.7 billionin outstanding commercial debt, excluding funds borrowed under federal PSP. Our debt and related covenants could:
•require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
•place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
•adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general corporate purpose needs.
These agreements require us to meet certain covenants. If we breach any of these covenants we could be in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under other credit facilities.
Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.
We have entered into loan agreements with the Treasury pursuant to the CARES Act, the CAA 2021, and the ARP 2021 that have certain operating and other restrictions.
As a condition of receiving grants and loans under the Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), we agreed to, among other things: refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through the later of September 30, 2021 or the date on which we have expended all PSP funds; limit executive compensation through April 2023; suspend payment of dividends and stock repurchases through September 30, 2022; and comply with certain reporting requirements. We are also 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 to us by the DOT given the absence of demand for such services.
The restrictions placed on us as part of our participation in the PSP and subsequent extensions thereof, including restrictions on use of funds, staffing, pay reduction, stock buy-backs, dividends, certain transactions, and service requirements may negatively affect our financial and business operations.
We are required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.
Under our 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, 2021 and 2020, there were no holdbacks held by our credit card processors.
In the event of a material adverse change in our business, the holdback could incrementally increase to an amount up to 100% of the applicable credit card activity for all unflown flights, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.
COMPETITIVE ENVIRONMENT RISKS
We operate in an extremely competitive environment.
The airline industry is characterized by low profit margins, high fixed costs, and significant price competition. We compete with other airlines on all of our Domestic and International routes. The commencement of, or increase in, service on our routes by existing or new carriers at aggressive prices could negatively impact our operating results, including as demand for air travel rebuilds as COVID-19 infection rates decline. Most of our competitors are much larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare competition initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Additionally, our competitors have been and may continue to be more successful in navigating the challenges related to COVID-19, including having easier access to additional capital and more favorable lending terms, which could impact our ability to compete successfully in the future. Since airline markets have few natural barriers to entry, we also face the constant threat of new entrants in all of our markets.
Additional capacity to or within Hawai'i, whether from network carriers or low-cost carriers, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, including in light of industry-wide reductions in air travel due to the COVID-19 pandemic, which could have a material adverse effect on our results of operations and financial condition.
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Recently, inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of labor, fuel and other costs as well as by reducing demand for air travel. In addition, inflation is often accompanied by higher interest rates, which could reduce the fair value of our outstanding debt obligations. In an inflationary environment, depending on airline industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation,
which would reduce our profit margins. We have experienced, and continue to experience, increases in the prices of labor, fuel and other costs of providing service. Continued inflationary pressures could impact our profitability.
The concentration of our business within Hawai'i, and between Hawai'i and the U.S. mainland, provides little diversification of our revenue and could be exacerbated by the effects of the COVID-19 pandemic.
During 2021, approximately94%of our passenger revenue was generated from our Domestic routes. Most of our competitors, particularly major network carriers with whom we compete on North American routes, enjoy greater geographical diversification of their passenger revenue. As Domestic routes account for a significantly higher proportion of our revenue than they do for most of our competitors, a proportionately higher decline in demand for our domestic routes generally due to the COVID-19 pandemic is likely to have a relatively greater adverse effect on our financial results than on those of our competitors. Additionally, reductions in the level of demand for travel to, from, and within Hawai'i, such as those caused by government restrictions on travel to and business operations within Hawai'i, have reduced the revenue we are able to generate from our routes and adversely affected our financial results. Sustained reduction in our Domestic routes and continued industry capacity of major network carriers on routes to, from and within Hawai'i is likely to continue to adversely affect our financial results.
Our business is affected by the competitive advantages held by network carriers in the North America market.
During 2021, approximately78% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska Airlines, American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, all of whom have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enables them to attract higher customer traffic levels as compared to us.
In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (e.g. with JetBlue) to provide customers access to and from North American destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers depending on the economic strength of the hub city and the size of the customer group that frequents the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a significant built-in market. Passengers in the North American market, for the most part, do not originate in Honolulu, but on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.
Our Neighbor Island routes are affected by increased capacity provided by our competitors.
During 2021, approximately16% of our passenger revenue was generated from our Neighbor Island routes. Prior to the COVID-19 pandemic, certain of our competitors increased capacity to and within Hawai'i by introducing new routes and increasing the frequency of existing routes from North America to Hawai'i and by the introduction of additional flights within the neighbor islands. We are unable to predict competitor capacity related to air travel to Hawai'i or between the neighbor islands, including any impact that the COVID-19 pandemic may have on such capacity. Any increased competitor capacity that decreases our share of traffic to Hawai'i or between the neighbor islands could ultimately have a material adverse effect on our results of operations and financial condition.
Our International routes are affected by competition from domestic and foreign carriers.
During 2021, approximately 6% of our passenger revenue was generated from our International routes. When our operations are not constrained by restrictions related to the COVID-19 pandemic, our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.
Many of our domestic competitors are members of airline alliances, which provide customers access to each participating airline's international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances, our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. To mitigate this risk, we rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.
Many of our foreign competitors are network carriers that benefit from network feed to support international routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our international flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai'i, but rather internationally, in these foreign carriers' home bases. We also rely on our code-share agreements and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.
INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS
If we do not maintain the privacy and security of personal information or other information relating to our customers or others, or fail to comply with applicable U.S. and foreign privacy, data protection, or data security laws or security standards imposed by our commercial partners, our reputation could be damaged, we could incur substantial additional costs, and we could become subject to litigation or regulatory penalties.
We receive, retain, transmit and otherwise process personal information and other information about our customers and other individuals, including our employees and contractors, and we are subject to increasing legislative, regulatory and customer focus on privacy, data protection, and data security both domestically and internationally. Numerous laws and regulations in the U.S. and in various other jurisdictions in which we operate relate to privacy, data protection, and security, including laws and regulations regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers and other individuals. The scope of these laws and regulations is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other obligations of ours.
A number of our commercial partners, including payment card companies, have imposed data security standards or other obligations relating to privacy, data protection, or data security upon us. We strive to comply with applicable laws, regulations, policies, and contractual and other legal obligations relating to privacy, data protection, and data security. However, these legal, contractual, and other obligations may be interpreted and applied in new ways and/or in manners that are inconsistent, and may conflict with other rules or practices. Data privacy, data protection, and data security are active areas, with laws and regulations in these areas being frequently proposed, enacted, and amended, and existing laws and regulations subject to differing and evolving interpretations. New laws and regulations in these areas likely will continue to be enacted.
Any failure or perceived failure by us to comply with laws or regulations, our privacy or data protection policies, or other privacy-, data protection-, or information security-related obligations to customers, or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in governmental investigations and enforcement actions, governmental or private litigation, other liability, our loss of the ability to process payment card transactions, or us becoming subject to higher costs for such transactions, or public statements critical of us by consumer advocacy groups, competitors, the media or others that could cause our current or prospective customers to lose trust in us, any of which could have an adverse effect on our business. Additionally, if third-party business partners that we work with, such as vendors, violate applicable laws, applicable policies or other privacy-, data protection-, or security-related obligations, such violations may also put our customers' or others' information at risk and could in turn have an adverse effect on our business. Governmental agencies may also request or take customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.
We will continue our efforts to comply with new and increasing privacy, data protection, and information security obligations; however, it is possible that such obligations may require us to expend additional resources, and may be difficult or impossible for us to meet. Any failure to comply with applicable U.S. or foreign privacy, data protection, or data security laws or regulations, any privacy or security standards imposed by our commercial partners, or any other obligations we are or may become subject to relating to privacy, data protection, or information security, or any allegation or assertion relating to any of the foregoing may result in claims, regulatory investigations and proceedings, private litigation and proceedings, and other liability, all of which may adversely affect our reputation, business, results of operations and financial condition.
Our actual or perceived failure to protect customer information or other personal information or confidential information could result in harm to our business.
Our business and operations involve the storage, transmission and processing of information about our customers, our employees and contractors, our business partners, and others, as well as our own confidential information. We may become the target of cyber-attacks by third parties seeking unauthorized access to any of these types of information or to disrupt our
business or operations. Computer malware, viruses, fraudulent sales of frequent flier miles, and general hacking have become more prevalent in our industry. While we have taken steps to protect customer information and other confidential information to which we have access, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We and our third-party service providers may be unable to anticipate attempted security breaches and to implement adequate preventative measures, and our security measures or those of our third-party service providers could be breached, we could suffer data loss, unauthorized access to or use of the systems or networks used in our business and operations, and unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information. We may also experience security breaches or other incidents that may remain undetected for an extended period. Further, third parties may also conduct attacks designed to disrupt or deny access to the systems and networks used in our business and operations.
Actual or perceived security breaches or other security incidents could result in unauthorized use of or access to systems and networks, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information, and may lead to litigation, claims, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, and may adversely affect our revenues and operating results. Additionally, our service providers may suffer security breaches or other incidents that may result in unauthorized access or otherwise compromise data stored or processed for us that may give rise to any of the foregoing.
Any such actual or perceived security breach or other incident may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and eliminate vulnerabilities, and to prevent future security breaches or incidents, as well as significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, costs in connection with payment card replacement, and other liabilities. Certain breaches affecting payment card information or the environment in which such information is processed may also result in a loss of our ability to process credit cards or increased costs associated with doing so. We have incurred and expect to incur ongoing expenditures in an effort to prevent information security breaches and other security incidents.
We cannot be certain that our insurance coverage will be adequate for information security liabilities actually incurred or to cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
We are increasingly dependent on technology and automated systems to operate our business.
We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com, and other IT systems, many of which must be able to obtain such financing on favorable terms,accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial transactions. Any substantial, extended, or at all.
Delays in scheduled aircraft deliveriesrepeated failures of these systems could negatively affect our customer service, compromise the security of customer information or other information stored on, transmitted by, or otherwise processed by these systems, result in the loss of or damage to important data, loss of revenue and increased costs, and generally harm our business. Additionally, loss of key talent required to maintain and advance these systems could have a material impact on our operations. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity incursions, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems or prevent or mitigate all attacks. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, including our transition to the Amadeus Altéa Passenger Service System announced in December 2021, our business could be adversely impacted. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition that may result from system interruptions or system failures.
We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.
There are a limited number of qualified employees and personnel in the airline and information technology industry, especially within the Hawai'i market. Due to these limitations, we have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, and the distribution and sale of airline seats. Our reliance on outside vendors may continue to increase in the future.
The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, including those related to the impacts of the COVID-19 pandemic on their businesses, are likely to reduce our revenues, increase expenses, and/or prevent us from operating our flights and providing other services to our customers. Additionally, our business and financial performance would be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
LABOR RELATIONS AND RELATED COSTS RISKS
We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline's results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that may require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.
In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, and dispatchers. We cannot ensure that future agreements with our employees' labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. For example, in April 2020, the flight attendants of Hawaiian, represented by the Association of Flight Attendants, ratified an amended collective bargaining agreement, which among other things, includes a ratification payment, pay scale increases, and a one-time medical savings account contribution to eligible flights attendants upon retirement.
Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.
We believe that our future success is dependent on the knowledge and expertise of our key executives and highly qualified management, technical, and other personnel. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future, including in light of the restrictions on executive compensation imposed on us under the PSP and subsequent extensions thereof. Any inability to retain our key executives, or other senior technical personnel, or attract and retain additional qualified executives, could have a negative impact on our operations.
In addition, as we rebuild our operations as passenger demand recovers, and expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract a sufficient number of qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel, we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.
STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network strategy could harm our business.
Our route and network strategy (how we determine to deploy our fleet) includes initiatives to increase revenue, decrease costs, mature our network, and improve distribution of our sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. If we are unable to utilize and fill increased capacity provided by additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-effective manner, including as a result of the COVID-19 pandemic, we may be
unable to successfully develop and grow our new and existing markets, which may adversely affect our business and operations.
We continue to strive toward aggressive cost-containment goals which are an important part of our business strategy to offer the best value to passengers through competitive fares while maintaining acceptable profit margins and return on capital. We believe a lower cost structure will better position us to fund our strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.
Any damage to our reputation or brand image could adversely affect our business or financial results.
Maintaining a good reputation globally is critical to our business. Our reputation or brand image could be adversely impacted by, among other things, any failure to maintain our safety record, our high ethical, social and environmental sustainability practices for all of our operations and activities, our impact on the environment, public pressure from investors or policy groups to change our policies, such as initiatives to address climate change, customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.
Moreover, the outbreak and spread of COVID-19 have adversely impacted consumer perceptions of the health and safety of travel, and in particular airline travel, and these negative perceptions could continue even after the COVID-19 pandemic subsides. Actual or perceived risk of infection while traveling could have a material adverse effect on the public's perception of us, which could harm our reputation and business. We have taken various measures to reassure our team members and the traveling public of the safety of air travel, including those related to State of Hawai'i and county quarantine and testing requirements, and other measures, such as airport health screening measures, requiring that passengers wear face coverings, the provision of protective equipment for team members and enhanced cleaning procedures onboard aircraft and in airports. We expect that we will continue to incur costs related to the COVID-19 pandemic as we sanitize aircraft, implement additional hygiene-related protocols and take other actions to limit the threat of infection among our employees and passengers. However, we cannot assure that these or any other actions we might take in response to the COVID-19 pandemic will be sufficient to restore the confidence of consumers in the safety of air travel.
Our reputation and financial results could be harmed in the event of adverse publicity, including in the event of an aircraft accident or incident.
Our customer base is broad and our business activities have significant prominence, particularly in Hawai'i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, third-party aircraft components or other events or circumstances affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.
Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft or aircraft parts, and its consequential temporary or permanent loss of revenue, but also significant claims of injured passengers and others. We are required by the DOT to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with an accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.
AIRLINE INDUSTRY, REGULATION AND RELATED COSTS RISKS
The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, which could harm our financial condition and results of operations.
Due to the substantial fixed costs associated with operating an airline, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried, and when applicable, the aggregate effect of decreasing flights scheduled, causes a corresponding decrease in revenue that is likely to result in a disproportionately greater decrease in profits. Therefore, the reduction in airline
passenger traffic as a result of the COVID-19 pandemic and any future reductions as a result of the following or other factors, which are largely outside of our control, will likely harm our business, financial condition, and results of operations:
•decline in general economic conditions;
•the threat of terrorist attacks and conflicts overseas;
•actual or threatened war and political instability;
•increased security measures or breaches in security;
•adverse weather and natural disasters;
•changes in consumer preferences, perceptions, or spending patterns;
•increased costs related to security and safety measures,
•increased fares as a result of increases in fuel costs;
•outbreaks of contagious diseases or fear of contagion; and
•congestion or major construction at airports and actual or potential disruptions in the air traffic control system.
Our results of operations are and may continue to be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of the COVID-19 pandemic or any unexpected events, including those identified above.
Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the state of Hawai'i.
We must be able to maintain and/or obtain adequate gates, maintenance capacity, office space, operations areas, and ticketing facilities, especially at airports within the state of Hawai'i, to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial results.performance.
The successOur business is subject to substantial seasonal and cyclical volatility.
Our results of operations reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. Moreover, due to the widespread impact of the COVID-19 pandemic on the demand for air travel generally and travel to and within Hawai'i specifically, we have seen a significant decline in demand for air travel in 2020 and 2021 as compared to prior years. As Hawai'i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during the months of June, July, August, and December and considerably weaker at other times of the year. Because of fluctuations in our results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.
Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, depends on, among other things, the ability to effectively operate a certain numberfinancial condition and type of aircraft. As noted above, we have contractual commitments to purchase and integrate additional Airbus aircraft into our fleet. If for any reason we are unable to secure deliveries of the Airbus aircraft on the contractually scheduled delivery dates and successfully introduce these aircraft into our fleet, then our business, operations, and financial performance could be negatively impacted. For example, we experienced delays of three to four months for the initial three A321neo deliveries, which were initially scheduled to be delivered in the third quarter of 2017. Delays in scheduled aircraft deliveries or our failure to integrate newly purchased Airbus aircraft into our fleet as planned may require us to utilize our existing fleet longer than expected. Such extensions may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs.
We may never realize the full value of our long-lived assets, resulting in impairment and other related charges that may negatively impact our financial position and results of operations.
Economic and intrinsic triggers, which include extreme fuel price volatility, an uncertain economic and credit environment, unfavorable trends in historical or forecasted results of operations, and cash flows, as well as other uncertainties, may cause us to record material impairments of our long-lived assets. We could beon the airline industry in general.
The airline industry is subject to impairment charges in the future thatextensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.
Airlines are subject to extensive regulatory requirements that result in significant costs. New, and modifications to existing, laws, regulations, taxes and airport rates, and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations, restrict operations or reduce revenue. The Federal Aviation Administration (FAA) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, aircraft landing safety measures, including with respect to the interaction of aircraft systems
with new technologies such as 5G C-band service, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections, and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates, would have a material adverse impact on our operations.
We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further, we cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.
In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, U.S. Customs and Border Protection (CBP) and the Transportation Security Administration (TSA)). Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may continue to do so in the future.
We are subject to risks associated with climate change, including increased regulation of our CO2 emissions and the potential increased impacts of severe weather events on our operations and infrastructure.
There is increasing global regulatory focus on climate change and emissions of greenhouse gases, including CO2. In particular, the International Civil Aviation Organization (ICAO) is in the process of adopting rules, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), of which the U.S. federal government has opted to participate in the voluntary phases from 2021-2026. As part of the CORSIA program, we are currently monitoring our international emissions for reporting purposes, and such data will be used in calculations to determine subsequent carbon offsetting requirements under the CORSIA program. Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could increase operating costs in the airline industry and, as a result, adversely affect our operations.
In the event that CORSIA does not come into force as expected, we and other airlines could become subject to an unpredictable and inconsistent array of national or regional emissions restrictions, creating a patchwork of complex regulatory requirements that may affect global competitors differently. Concerns over climate change may result in the adoption of municipal, state, regional, and federal requirements or in changing business environments that may result in increased costs to the airline industry and us. In addition, several countries and U.S. states have adopted or are considering adopting programs to regulate greenhouse gas emissions. On January 20, 2021, the United States rejoined the Paris Climate Accord. Further, the current Presidential administration has made climate change mitigation an important policy priority, and may adopt additional regulatory changes that could impact the airline industry and our business. Certain airports have adopted, and others could in the future adopt, greenhouse gas emission or climate-neutral goals that could impact our operations or require us to make changes or additional investments in our infrastructure.
All such climate change-related regulatory activity and developments may adversely affect our business and financial results by requiring us to reduce our emissions, make capital investments to modernize aspects of our operations, purchase carbon offset credits, or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs. We may not be able to increase revenue in proportion with such additional costs.
We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.
Federal budget constraints may adversely affect our industry, business, results of operations and financial position.
Many of our airline operations are regulated by governmental agencies, including the FAA, the DOT, the CBP, the TSA, and others. If the federal government were to experience issues in reaching budgetary consensus in the future resulting in mandatory furloughs and/or other budget constraints, our business and results of operations could be materially negatively impacted, including as a result of actual or potential disruption in the air traffic control system, actual or perceived delays at various airports, and delays in deliveries of new aircraft, which may materially adversely impact our industry, our business, results of operations and financial positions.
The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.
Many aspects of airlines' operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.
Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. We are monitoring and evaluating the potential impact of such legislative and regulatory developments. In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the atmosphere or have a greater impact on climate change than other industries.
Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject.
The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws and regulations to which we are subject, both domestically and internationally. Compliance with the laws and regulations of foreign jurisdictions and the restrictions on operations that these laws, regulations or other government actions may impose could significantly increase the cost of airline operations or reduce revenue. For example, various jurisdictions have imposed or are currently imposing restrictions that impede or restrict travel in response to the COVID-19 pandemic and a number of our destinations in Asia have been revising their privacy and consumer laws and regulations. Limitations placed on our business as a result of these or other laws and regulations or failure to comply with evolving laws or regulations could result in significant penalties, criminal charges, costs to defend ourselves in a foreign jurisdiction, restrictions on operations and reputational damage. In addition, we operate flights on international routes regulated by treaties and related agreements between the U.S. and foreign governments, which are subject to change as they may be amended from time to time. Modifications of these arrangements could result in an inability to obtain or retain take-off or landing slots for our routes, route authorization and necessary facilities. Any limitations, additions or modifications to government treaties, agreements, regulations, laws or policies related to our International routes could have a material adverse impact on our financial position and results of operations in future periods.operations.
COMMON STOCK RISKS
Our share price is subjectWe may be party to fluctuations and stockholders could have difficulty trading shares.
The market price of our stock is influenced by many factors, many of which are outside of our control, and include the following:
operating results and financial condition;
changeslitigation or regulatory action in the competitive environment innormal course of business or otherwise, which we operate;
fuel price volatility including the availability of fuel;
announcements concerning our competitors including bankruptcy filings, mergers, restructurings or acquisitions by other airlines;
increases or changes in government regulation;
general and industry specific market conditions;
changes in financial estimates or recommendations by securities analysts; and
sales of our common stock or other actions by investors with significant shareholdings.
In recent years the stock market has experienced volatile price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may affect the price of our common stock.
In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company's stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing
stockholders may have an adverse impacteffect on our operations and financial results.
From time to time, we are a party to or otherwise involved in legal or regulatory proceedings, claims, government inspections, investigations or other legal matters, both domestically and in foreign jurisdictions, including proceedings related to the market priceCOVID-19 pandemic. For example, due to cancelled or rescheduled flights in connection with the COVID-19 pandemic, several U.S. airlines, including us, have been subject to class action complaints citing violation of state consumer statutes for allegedly failing or refusing to refund passenger tickets on cancelled flights. We believe we have meritorious defenses and intend to vigorously contest the claims. Resolving or defending legal matters, however, can take months or years. The duration of such matters can be unpredictable with many variables that we do not control including adverse party or government responses. Litigation and regulatory proceedings are subject to significant uncertainty and may be expensive, time-consuming and disruptive to our common stock.operations. In addition, an adverse resolution of a lawsuit, regulatory matter, investigation or other proceeding could have a material adverse effect on our financial condition and results of operations. We may be required to change or restrict our operations or be subject to injunctive relief, significant compensatory damages, punitive damages, penalties, fines or disgorgement of profits, none of which may be covered by insurance. We may have to pay out settlements that also may not be covered by insurance. There can be no assurance that any of these payments or actions will not be material. In addition, publicity of ongoing legal and regulatory matters may adversely affect our reputation.
Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the trading pricelegislative process and by the Internal Revenue Service, the Treasury and state and local tax authorities. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the amount of taxes we owe, thereby negatively impacting our common stock will remain atresults of operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially adversely impacting our business, financial position and results of operations.
As we continue to grow internationally, we may also be subject to taxation in jurisdictions around the world with increasingly complex tax laws, the application of which may be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or near its current level.
Certain provisionsrevised interpretations of existing tax laws and precedents, potentially adversely affecting our certificateliquidity and results of incorporationoperations. In addition, the authorities in these jurisdictions could review our tax returns and bylaws may delayimpose additional tax, interest and penalties, and the relevant authorities could claim that various withholding requirements apply to us or prevent a changeassert that benefits of control,tax treaties are not available to us or our subsidiaries, any of which could materially adversely affect the price of our common stock.
Our certificate of incorporation and bylaws contain provisions that may make it difficult to remove our Board of Directors and management, and may discourage or delay a change of control, which could materially and adversely affect the price of our common stock. These provisions include, among others:
the ability of our Board of Directors to issue, without further action by the stockholders, series of undesignated preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control;
advance notice procedures for stockholder proposals to be considered at stockholders’ meetings and for nominations of candidates for election to our Board of Directors;
the ability of our Board of Directors to fill vacancies on the board;
a prohibition against stockholders taking action by written consent;
a prohibition against stockholders calling special meetings of stockholders; and
super-majority voting requirements to modify or amend specified provisions of our certificate of incorporation.
Our certificate of incorporation includes a provision limiting voting and ownership by non-U.S. citizensimpact us and our bylaws include a provision specifying an exclusive forum for stockholder disputes.results of operations.
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines,
Our ability to use our certificate of incorporation restricts voting of shares of our common stock by non-U.S. citizens. Our certificate of incorporation provides that the failure of non-U.S. citizens to register their shares on a separate stock record, which we refer to as the “foreign stock record,” would result in a suspension of their voting rights in the event that the aggregate foreign ownership of the outstanding common stock exceeds the foreign ownership restrictions imposed by federal law.net operating loss carryforwards and certain other tax attributes may be limited.
Our certificate of incorporation further provides that no shares of our common stock will be registered on the foreign stock record if the amount so registered would exceed the foreign ownership restrictions imposed by federal law. If it is determined that the amount registered in the foreign stock record exceeds the foreign ownership restrictions imposed by federal law, shares will be removed from the foreign stock record in reverse chronological order based on the date of registration therein, until the number of shares registered therein does not exceed the foreign ownership restrictions imposed by federal law. As of December 31, 2017,2021, we believe we werehad net operating loss carryforwards (NOLs) available to reduce future taxable income of approximately $5.4 million for regular federal income tax purposes that have indefinite carryover and approximately $502.0 million for state income tax purposes that will expire, if unused, beginning in compliance with2024. The majority of our state NOLs relate to the foreign ownership rules.state of Hawai'i, most of which have indefinite carryover, but are limited to 80% utilization.
Our bylaws provideability to use our NOLs will depend on the amount of taxable income generated in future periods. If our financial results continue to be adversely impacted by the COVID-19 pandemic, there can be no assurance that unlessan increase in the valuation allowance on our net deferred tax assets will not be required in the future. Such valuation allowance could be material. Additionally, due to the COVID-19 pandemic and other economic factors, the NOLs may expire before we consent in writingcan generate sufficient taxable income to an alternative forum, the Court of Chanceryuse them.
Under Section 382 of the StateInternal Revenue Code of Delaware or,1986, as amended, if such court lacks jurisdiction, any othera corporation undergoes an "ownership change," the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an "ownership change" will occur if there is a cumulative change in our ownership by "5-percent shareholders" that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state or federal court locatedtax laws. Our ability to use NOLs to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the Statefuture.
Our insurance costs are susceptible to significant increases, and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.
We carry types and amounts of Delaware will beinsurance customary in the soleairline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and exclusive forum for (i) any derivative action or proceeding broughtcargo liability, and workers' compensation. We are required by the DOT to carry liability insurance on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by anyeach of our currentaircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or former directors, officersdamage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or other employees to us or our stockholders; (iii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws (as each may be amended or restated from time to time); or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine. Accordingly, stockholders may be limited in the forum in which they are able to pursue legal actions against us.
We cannot guarantee that we will repurchasenot bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our common stock pursuant to our share repurchase program orresults of operations and financial condition. As a result of the COVID-19 pandemic, we have experienced, and may continue to pay dividendsexperience, increases in our policy premiums as our policies become eligible for renewal.
Extended interruptions or disruptions in service have and could continue to have a material adverse impact on our common stock.operations.
Our intent tofinancial results have been and may continue to repurchasebe adversely affected by factors outside our shares pursuantcontrol, including, but not limited to, our stock repurchase programflight cancellations, significant delays in operations, and tofacility disruptions, such as those caused by the current COVID-19 pandemic. Our principal base of operations is in Hawai'i and a significant interruption or disruption in service has had and may continue to pay quarterly dividends is subject to capital availability, market and economic conditions, applicable legal requirements, and other relevant factors. The stock repurchase program may be limited, suspended, or discontinued at any time without prior notice.
In October 2017, our Board of Directors commenced our quarterly cash dividend program. In February 2018, we announced that our Board of Directors declaredhave a quarterly cash dividend of $0.12 per share payable on February 28, 2018, to stockholders of record as of February 14, 2018. We cannot provide any assurance that we will continue to declare dividends for any fixed period, and the payment of dividends may be suspended or adjusted at any time at our discretion. We will evaluate, on a quarterly basis, the amount and timing of future dividends basedserious impact on our operatingbusiness and results financial condition, capital requirements,of operations. In addition to international health
crises, such as the COVID-19 pandemic, natural disasters, such as hurricanes, earthquakes and general business conditions.tsunamis, may impact the demand for transportation in the markets in which we operate.
LIQUIDITY RISKS
See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding our liquidity.
Our financial liquidity could be adversely affected by credit market conditions.
Our business requires access to capital markets to finance equipment purchases, including aircraft, and to provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with AirbusBoeing to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions, including related to the current COVID-19 pandemic, may adversely affect the availability of financing or may result in unfavorable terms and conditions.
Our current unencumbered aircraft can be financed to increase our liquidity, but such financings may be subject to unfavorable terms. In light of current market conditions, any such financings are likely to reflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our recent aircraft financings.
Additionally, our credit rating was recently downgraded by ratings agencies and there can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.
We can offer no assurance that the financing we may need in the future will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition may be adversely affected.
Our debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.
As of December 31, 2017,2021, we had $433 million approximately $1.7 billionin outstanding debt.commercial debt, excluding funds borrowed under federal PSP. Our debt and related covenants could:
•require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
•place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
•adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general corporate purpose needs.
These agreements require us to meet certain covenants. If we breach any of these covenants we could be in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under ourother credit facilities.
Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.
We have entered into loan agreements with the Treasury pursuant to the CARES Act, the CAA 2021, and the ARP 2021 that have certain operating and other restrictions.
As a condition of receiving grants and loans under the Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), we agreed to, among other things: refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through the later of September 30, 2021 or the date on which we have expended all PSP funds; limit executive compensation through April 2023; suspend payment of dividends and stock repurchases through September 30, 2022; and comply with certain reporting requirements. We are also 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 to us by the DOT given the absence of demand for such services.
The restrictions placed on us as part of our participation in the PSP and subsequent extensions thereof, including restrictions on use of funds, staffing, pay reduction, stock buy-backs, dividends, certain transactions, and service requirements may negatively affect our financial and business operations.
We are required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales ismay be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks totaled $1.0 million asAs of December 31, 2017. 2021 and 2020, there were no holdbacks held by our credit card processors.
In the event of a material adverse change in our business, the holdback could incrementally increase to
an amount up to 100% of the applicable credit card activity for all unflown flights, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.
COMPETITIVE ENVIRONMENT RISKS
We operate in an extremely competitive environment.
The airline industry is characterized by low profit margins, high fixed costs, and significant price competition. We compete with other airlines on all of our Domestic and International routes. The commencement of, or increase in, service on our routes by existing or new carriers at aggressive prices could negatively impact our operating results, including as demand for air travel rebuilds as COVID-19 infection rates decline. Most of our competitors are much larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare competition initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Additionally, our competitors have been and may continue to be more successful in navigating the challenges related to COVID-19, including having easier access to additional capital and more favorable lending terms, which could impact our ability to compete successfully in the future. Since airline markets have few natural barriers to entry, we also face the constant threat of new entrants in all of our markets.
Additional capacity to or within Hawai'i, whether from network carriers or low-cost carriers, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, including in light of industry-wide reductions in air travel due to the COVID-19 pandemic, which could have a material adverse effect on our results of operations and financial condition.
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Recently, inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of labor, fuel and other costs as well as by reducing demand for air travel. In addition, inflation is often accompanied by higher interest rates, which could reduce the fair value of our outstanding debt obligations. In an inflationary environment, depending on airline industry and other economic conditions, we may be unable to raise prices enough to keep up with the rate of inflation,
which would reduce our profit margins. We have experienced, and continue to experience, increases in the prices of labor, fuel and other costs of providing service. Continued inflationary pressures could impact our profitability.
The concentration of our business within Hawai'i, and between Hawai'i and the U.S. mainland, provides little diversification of our revenue and could be exacerbated by the effects of the COVID-19 pandemic.
During 2021, approximately94%of our passenger revenue was generated from our Domestic routes. Most of our competitors, particularly major network carriers with whom we compete on North American routes, enjoy greater geographical diversification of their passenger revenue. As Domestic routes account for a significantly higher proportion of our revenue than they do for most of our competitors, a proportionately higher decline in demand for our domestic routes generally due to the COVID-19 pandemic is likely to have a relatively greater adverse effect on our financial results than on those of our competitors. Additionally, reductions in the level of demand for travel to, from, and within Hawai'i, such as those caused by government restrictions on travel to and business operations within Hawai'i, have reduced the revenue we are able to generate from our routes and adversely affected our financial results. Sustained reduction in our Domestic routes and continued industry capacity of major network carriers on routes to, from and within Hawai'i is likely to continue to adversely affect our financial results.
Our business is affected by the competitive advantages held by network carriers in the North America market.
During 2021, approximately78% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska Airlines, American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, all of whom have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enables them to attract higher customer traffic levels as compared to us.
In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (e.g. with JetBlue) to provide customers access to and from North American destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers depending on the economic strength of the hub city and the size of the customer group that frequents the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a significant built-in market. Passengers in the North American market, for the most part, do not originate in Honolulu, but on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.
Our Neighbor Island routes are affected by increased capacity provided by our competitors.
During 2021, approximately16% of our passenger revenue was generated from our Neighbor Island routes. Prior to the COVID-19 pandemic, certain of our competitors increased capacity to and within Hawai'i by introducing new routes and increasing the frequency of existing routes from North America to Hawai'i and by the introduction of additional flights within the neighbor islands. We are unable to predict competitor capacity related to air travel to Hawai'i or between the neighbor islands, including any impact that the COVID-19 pandemic may have on such capacity. Any increased competitor capacity that decreases our share of traffic to Hawai'i or between the neighbor islands could ultimately have a material adverse effect on our results of operations and financial condition.
Our International routes are affected by competition from domestic and foreign carriers.
During 2021, approximately 6% of our passenger revenue was generated from our International routes. When our operations are not constrained by restrictions related to the COVID-19 pandemic, our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.
Many of our domestic competitors are members of airline alliances, which provide customers access to each participating airline's international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances, our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. To mitigate this risk, we rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.
Many of our foreign competitors are network carriers that benefit from network feed to support international routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our international flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai'i, but rather internationally, in these foreign carriers' home bases. We also rely on our code-share agreements and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.
INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS
If we do not maintain the privacy and security of personal information or other information relating to our customers or others, or fail to comply with applicable U.S. and foreign privacy, data protection, or data security laws or security standards imposed by our commercial partners, our reputation could be damaged, we could incur substantial additional costs, and we could become subject to litigation or regulatory penalties.
We receive, retain, transmit and otherwise process personal information and other information about our customers and other individuals, including our employees and contractors, and we are subject to increasing legislative, regulatory and customer focus on privacy, data protection, and data security both domestically and internationally. Numerous laws and regulations in the U.S. and in various other jurisdictions in which we operate relate to privacy, data protection, and security, including laws and regulations regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers and other individuals. The scope of these laws and regulations is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other obligations of ours.
A number of our commercial partners, including payment card companies, have imposed data security standards or other obligations relating to privacy, data protection, or data security upon us. We strive to comply with applicable laws, regulations, policies, and contractual and other legal obligations relating to privacy, data protection, and data security. However, these legal, contractual, and other obligations may be interpreted and applied in new ways and/or in manners that are inconsistent, and may conflict with other rules or practices. Data privacy, data protection, and data security are active areas, with laws and regulations in these areas being frequently proposed, enacted, and amended, and existing laws and regulations subject to differing and evolving interpretations. New laws and regulations in these areas likely will continue to be enacted.
Any failure or perceived failure by us to comply with laws or regulations, our privacy or data protection policies, or other privacy-, data protection-, or information security-related obligations to customers, or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in governmental investigations and enforcement actions, governmental or private litigation, other liability, our loss of the ability to process payment card transactions, or us becoming subject to higher costs for such transactions, or public statements critical of us by consumer advocacy groups, competitors, the media or others that could cause our current or prospective customers to lose trust in us, any of which could have an adverse effect on our business. Additionally, if third-party business partners that we work with, such as vendors, violate applicable laws, applicable policies or other privacy-, data protection-, or security-related obligations, such violations may also put our customers' or others' information at risk and could in turn have an adverse effect on our business. Governmental agencies may also request or take customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.
We will continue our efforts to comply with new and increasing privacy, data protection, and information security obligations; however, it is possible that such obligations may require us to expend additional resources, and may be difficult or impossible for us to meet. Any failure to comply with applicable U.S. or foreign privacy, data protection, or data security laws or regulations, any privacy or security standards imposed by our commercial partners, or any other obligations we are or may become subject to relating to privacy, data protection, or information security, or any allegation or assertion relating to any of the foregoing may result in claims, regulatory investigations and proceedings, private litigation and proceedings, and other liability, all of which may adversely affect our reputation, business, results of operations and financial condition.
Our actual or perceived failure to protect customer information or other personal information or confidential information could result in harm to our business.
Our business and operations involve the storage, transmission and processing of information about our customers, our employees and contractors, our business partners, and others, as well as our own confidential information. We may become the target of cyber-attacks by third parties seeking unauthorized access to any of these types of information or to disrupt our
business or operations. Computer malware, viruses, fraudulent sales of frequent flier miles, and general hacking have become more prevalent in our industry. While we have taken steps to protect customer information and other confidential information to which we have access, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We and our third-party service providers may be unable to anticipate attempted security breaches and to implement adequate preventative measures, and our security measures or those of our third-party service providers could be breached, we could suffer data loss, unauthorized access to or use of the systems or networks used in our business and operations, and unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information. We may also experience security breaches or other incidents that may remain undetected for an extended period. Further, third parties may also conduct attacks designed to disrupt or deny access to the systems and networks used in our business and operations.
Actual or perceived security breaches or other security incidents could result in unauthorized use of or access to systems and networks, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers' information, and may lead to litigation, claims, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, and may adversely affect our revenues and operating results. Additionally, our service providers may suffer security breaches or other incidents that may result in unauthorized access or otherwise compromise data stored or processed for us that may give rise to any of the foregoing.
Any such actual or perceived security breach or other incident may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and eliminate vulnerabilities, and to prevent future security breaches or incidents, as well as significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, costs in connection with payment card replacement, and other liabilities. Certain breaches affecting payment card information or the environment in which such information is processed may also result in a loss of our ability to process credit cards or increased costs associated with doing so. We have incurred and expect to incur ongoing expenditures in an effort to prevent information security breaches and other security incidents.
We cannot be certain that our insurance coverage will be adequate for information security liabilities actually incurred or to cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
We are increasingly dependent on technology and automated systems to operate our business.
We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com, and other IT systems, many of which must be able to accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial transactions. Any substantial, extended, or repeated failures of these systems could negatively affect our customer service, compromise the security of customer information or other information stored on, transmitted by, or otherwise processed by these systems, result in the loss of or damage to important data, loss of revenue and increased costs, and generally harm our business. Additionally, loss of key talent required to maintain and advance these systems could have a material impact on our operations. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity incursions, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems or prevent or mitigate all attacks. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, including our transition to the Amadeus Altéa Passenger Service System announced in December 2021, our business could be adversely impacted. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition that may result from system interruptions or system failures.
We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.
There are a limited number of qualified employees and personnel in the airline and information technology industry, especially within the Hawai'i market. Due to these limitations, we have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, and the distribution and sale of airline seats. Our reliance on outside vendors may continue to increase in the future.
The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, including those related to the impacts of the COVID-19 pandemic on their businesses, are likely to reduce our revenues, increase expenses, and/or prevent us from operating our flights and providing other services to our customers. Additionally, our business and financial performance would be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
LABOR RELATIONS AND RELATED COSTS RISKS
We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline's results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that may require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.
In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, and dispatchers. We cannot ensure that future agreements with our employees' labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. For example, in April 2020, the flight attendants of Hawaiian, represented by the Association of Flight Attendants, ratified an amended collective bargaining agreement, which among other things, includes a ratification payment, pay scale increases, and a one-time medical savings account contribution to eligible flights attendants upon retirement.
Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.
We believe that our future success is dependent on the knowledge and expertise of our key executives and highly qualified management, technical, and other personnel. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future, including in light of the restrictions on executive compensation imposed on us under the PSP and subsequent extensions thereof. Any inability to retain our key executives, or other senior technical personnel, or attract and retain additional qualified executives, could have a negative impact on our operations.
In addition, as we rebuild our operations as passenger demand recovers, and expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract a sufficient number of qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel, we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.
STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network strategy could harm our business.
Our route and network strategy (how we determine to deploy our fleet) includes initiatives to increase revenue, decrease costs, mature our network, and improve distribution of our sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. If we are unable to utilize and fill increased capacity provided by additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-effective manner, including as a result of the COVID-19 pandemic, we may be
unable to successfully develop and grow our new and existing markets, which may adversely affect our business and operations.
We continue to strive toward aggressive cost-containment goals which are an important part of our business strategy to offer the best value to passengers through competitive fares while maintaining acceptable profit margins and return on capital. We believe a lower cost structure will better position us to fund our strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.
Any damage to our reputation or brand image could adversely affect our business or financial results.
Maintaining a good reputation globally is critical to our business. Our reputation or brand image could be adversely impacted by, among other things, any failure to maintain our safety record, our high ethical, social and environmental sustainability practices for all of our operations and activities, our impact on the environment, public pressure from investors or policy groups to change our policies, such as initiatives to address climate change, customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.
Moreover, the outbreak and spread of COVID-19 have adversely impacted consumer perceptions of the health and safety of travel, and in particular airline travel, and these negative perceptions could continue even after the COVID-19 pandemic subsides. Actual or perceived risk of infection while traveling could have a material adverse effect on the public's perception of us, which could harm our reputation and business. We have taken various measures to reassure our team members and the traveling public of the safety of air travel, including those related to State of Hawai'i and county quarantine and testing requirements, and other measures, such as airport health screening measures, requiring that passengers wear face coverings, the provision of protective equipment for team members and enhanced cleaning procedures onboard aircraft and in airports. We expect that we will continue to incur costs related to the COVID-19 pandemic as we sanitize aircraft, implement additional hygiene-related protocols and take other actions to limit the threat of infection among our employees and passengers. However, we cannot assure that these or any other actions we might take in response to the COVID-19 pandemic will be sufficient to restore the confidence of consumers in the safety of air travel.
Our reputation and financial results could be harmed in the event of adverse publicity, including in the event of an aircraft accident or incident.
Our customer base is broad and our business activities have significant prominence, particularly in Hawai'i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, third-party aircraft components or other events or circumstances affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.
Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft or aircraft parts, and its consequential temporary or permanent loss of revenue, but also significant claims of injured passengers and others. We are required by the DOT to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with an accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.
AIRLINE INDUSTRY, REGULATION AND RELATED COSTS RISKS
The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, which could harm our financial condition and results of operations.
Due to the substantial fixed costs associated with operating an airline, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried, and when applicable, the aggregate effect of decreasing flights scheduled, causes a corresponding decrease in revenue that is likely to result in a disproportionately greater decrease in profits. Therefore, the reduction in airline
passenger traffic as a result of the COVID-19 pandemic and any future reductions as a result of the following or other factors, which are largely outside of our control, will likely harm our business, financial condition, and results of operations:
•decline in general economic conditions;
•the threat of terrorist attacks and conflicts overseas;
•actual or threatened war and political instability;
•increased security measures or breaches in security;
•adverse weather and natural disasters;
•changes in consumer preferences, perceptions, or spending patterns;
•increased costs related to security and safety measures,
•increased fares as a result of increases in fuel costs;
•outbreaks of contagious diseases or fear of contagion; and
•congestion or major construction at airports and actual or potential disruptions in the air traffic control system.
Our results of operations are and may continue to be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of the COVID-19 pandemic or any unexpected events, including those identified above.
Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the state of Hawai'i.
We must be able to maintain and/or obtain adequate gates, maintenance capacity, office space, operations areas, and ticketing facilities, especially at airports within the state of Hawai'i, to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial performance.
Our business is subject to substantial seasonal and cyclical volatility.
Our results of operations reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. Moreover, due to the widespread impact of the COVID-19 pandemic on the demand for air travel generally and travel to and within Hawai'i specifically, we have seen a significant decline in demand for air travel in 2020 and 2021 as compared to prior years. As Hawai'i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during the months of June, July, August, and December and considerably weaker at other times of the year. Because of fluctuations in our results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.
Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.
Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, financial condition and results of operations, and on the airline industry in general.
The airline industry is subject to extensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.
Airlines are subject to extensive regulatory requirements that result in significant costs. New, and modifications to existing, laws, regulations, taxes and airport rates, and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations, restrict operations or reduce revenue. The Federal Aviation Administration (FAA) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, aircraft landing safety measures, including with respect to the interaction of aircraft systems
with new technologies such as 5G C-band service, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections, and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates, would have a material adverse impact on our operations.
We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further, we cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.
In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, U.S. Customs and Border Protection (CBP) and the Transportation Security Administration (TSA)). Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may continue to do so in the future.
We are subject to risks associated with climate change, including increased regulation of our CO2 emissions and the potential increased impacts of severe weather events on our operations and infrastructure.
There is increasing global regulatory focus on climate change and emissions of greenhouse gases, including CO2. In particular, the International Civil Aviation Organization (ICAO) is in the process of adopting rules, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), of which the U.S. federal government has opted to participate in the voluntary phases from 2021-2026. As part of the CORSIA program, we are currently monitoring our international emissions for reporting purposes, and such data will be used in calculations to determine subsequent carbon offsetting requirements under the CORSIA program. Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could increase operating costs in the airline industry and, as a result, adversely affect our operations.
In the event that CORSIA does not come into force as expected, we and other airlines could become subject to an unpredictable and inconsistent array of national or regional emissions restrictions, creating a patchwork of complex regulatory requirements that may affect global competitors differently. Concerns over climate change may result in the adoption of municipal, state, regional, and federal requirements or in changing business environments that may result in increased costs to the airline industry and us. In addition, several countries and U.S. states have adopted or are considering adopting programs to regulate greenhouse gas emissions. On January 20, 2021, the United States rejoined the Paris Climate Accord. Further, the current Presidential administration has made climate change mitigation an important policy priority, and may adopt additional regulatory changes that could impact the airline industry and our business. Certain airports have adopted, and others could in the future adopt, greenhouse gas emission or climate-neutral goals that could impact our operations or require us to make changes or additional investments in our infrastructure.
All such climate change-related regulatory activity and developments may adversely affect our business and financial results by requiring us to reduce our emissions, make capital investments to modernize aspects of our operations, purchase carbon offset credits, or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs. We may not be able to increase revenue in proportion with such additional costs.
We could incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.
Federal budget constraints may adversely affect our industry, business, results of operations and financial position.
Many of our airline operations are regulated by governmental agencies, including the FAA, the DOT, the CBP, the TSA, and others. If the federal government were to experience issues in reaching budgetary consensus in the future resulting in mandatory furloughs and/or other budget constraints, our business and results of operations could be materially negatively impacted, including as a result of actual or potential disruption in the air traffic control system, actual or perceived delays at various airports, and delays in deliveries of new aircraft, which may materially adversely impact our industry, our business, results of operations and financial positions.
The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.
Many aspects of airlines' operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.
Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. We are monitoring and evaluating the potential impact of such legislative and regulatory developments. In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs. The impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the atmosphere or have a greater impact on climate change than other industries.
Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject.
The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws and regulations to which we are subject, both domestically and internationally. Compliance with the laws and regulations of foreign jurisdictions and the restrictions on operations that these laws, regulations or other government actions may impose could significantly increase the cost of airline operations or reduce revenue. For example, various jurisdictions have imposed or are currently imposing restrictions that impede or restrict travel in response to the COVID-19 pandemic and a number of our destinations in Asia have been revising their privacy and consumer laws and regulations. Limitations placed on our business as a result of these or other laws and regulations or failure to comply with evolving laws or regulations could result in significant penalties, criminal charges, costs to defend ourselves in a foreign jurisdiction, restrictions on operations and reputational damage. In addition, we operate flights on international routes regulated by treaties and related agreements between the U.S. and foreign governments, which are subject to change as they may be amended from time to time. Modifications of these arrangements could result in an inability to obtain or retain take-off or landing slots for our routes, route authorization and necessary facilities. Any limitations, additions or modifications to government treaties, agreements, regulations, laws or policies related to our International routes could have a material adverse impact on our financial position and results of operations.
We may be party to litigation or regulatory action in the normal course of business or otherwise, which could have an adverse effect on our operations and financial results.
From time to time, we are a party to or otherwise involved in legal or regulatory proceedings, claims, government inspections, investigations or other legal matters, both domestically and in foreign jurisdictions, including proceedings related to the COVID-19 pandemic. For example, due to cancelled or rescheduled flights in connection with the COVID-19 pandemic, several U.S. airlines, including us, have been subject to class action complaints citing violation of state consumer statutes for allegedly failing or refusing to refund passenger tickets on cancelled flights. We believe we have meritorious defenses and intend to vigorously contest the claims. Resolving or defending legal matters, however, can take months or years. The duration of such matters can be unpredictable with many variables that we do not control including adverse party or government responses. Litigation and regulatory proceedings are subject to significant uncertainty and may be expensive, time-consuming and disruptive to our operations. In addition, an adverse resolution of a lawsuit, regulatory matter, investigation or other proceeding could have a material adverse effect on our financial condition and results of operations. We may be required to change or restrict our operations or be subject to injunctive relief, significant compensatory damages, punitive damages, penalties, fines or disgorgement of profits, none of which may be covered by insurance. We may have to pay out settlements that also may not be covered by insurance. There can be no assurance that any of these payments or actions will not be material. In addition, publicity of ongoing legal and regulatory matters may adversely affect our reputation.
Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the Treasury and state and local tax authorities. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially adversely impacting our business, financial position and results of operations.
As we continue to grow internationally, we may also be subject to taxation in jurisdictions around the world with increasingly complex tax laws, the application of which may be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, potentially adversely affecting our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the relevant authorities could claim that various withholding requirements apply to us or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could adversely impact us and our results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had net operating loss carryforwards (NOLs) available to reduce future taxable income of approximately $5.4 million for regular federal income tax purposes that have indefinite carryover and approximately $502.0 million for state income tax purposes that will expire, if unused, beginning in 2024. The majority of our state NOLs relate to the state of Hawai'i, most of which have indefinite carryover, but are limited to 80% utilization.
Our ability to use our NOLs will depend on the amount of taxable income generated in future periods. If our financial results continue to be adversely impacted by the COVID-19 pandemic, there can be no assurance that an increase in the valuation allowance on our net deferred tax assets will not be required in the future. Such valuation allowance could be material. Additionally, due to the COVID-19 pandemic and other economic factors, the NOLs may expire before we can generate sufficient taxable income to use them.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change," the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an "ownership change" will occur if there is a cumulative change in our ownership by "5-percent shareholders" that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our ability to use NOLs to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future.
Our insurance costs are susceptible to significant increases, and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.
We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers' compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or that we will not bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition. As a result of the COVID-19 pandemic, we have experienced, and may continue to experience, increases in our policy premiums as our policies become eligible for renewal.
Extended interruptions or disruptions in service have and could continue to have a material adverse impact on our operations.
Our financial results have been and may continue to be adversely affected by factors outside our control, including, but not limited to, flight cancellations, significant delays in operations, and facility disruptions, such as those caused by the current COVID-19 pandemic. Our principal base of operations is in Hawai'i and a significant interruption or disruption in service has had and may continue to have a serious impact on our business and results of operations. In addition to international health
crises, such as the COVID-19 pandemic, natural disasters, such as hurricanes, earthquakes and tsunamis, may impact the demand for transportation in the markets in which we operate.
FLEET AND FLEET-RELATED RISKS
We are dependent on our limited number of suppliers for aircraft, aircraft engines and parts.
We are dependent on a limited number of suppliers (e.g. Airbus, Boeing, Rolls Royce, Pratt & Whitney) for aircraft, aircraft engines, and aircraft-related items. We are vulnerable to malfunction, failure or other problems associated with the supply and performance of these aircraft and parts and/or related operational disruptions, such as those caused by the COVID-19 pandemic. We do not yet know the full impact of operational disruptions of our suppliers and believe that such disruptions could result in reputational harm, increased parts and maintenance costs, and adverse effects on our financial position and results of operations.
Our agreements to purchase Boeing 787-9 aircraft represent significant future financial commitments and operating costs.
As of December 31, 2021, we had the following firm order commitments and purchase rights for additional aircraft: | | | | | | | | | | | | | | | | | |
| Aircraft Type | Firm
Orders | | Purchase
Rights | | Expected Delivery Dates |
| A321neo aircraft | — | | | 9 | | | N/A |
| B787-9 aircraft | 10 | | | 10 | | | Between 2023 and 2026 |
We have made substantial pre-delivery payments for aircraft under existing purchase agreements and are required to continue these pre-delivery payments as well as make payments for the balance of the purchase price through delivery of each aircraft. Due to the impact of the COVID-19 pandemic, we entered into an amendment to the Boeing 787-9 purchase agreement on October 26, 2020, which provides for, amongst other things, a change in the aircraft delivery schedule from 2021 through 2025 to 2022 through 2026, with the first delivery scheduled in September 2022. In December 2021, we received notification of further delivery delays and we have agreed to defer delivery of our first two aircraft from the scheduled delivery date at the end of 2022 to the first half of 2023. The remainder of the B787-9 delivery schedule remains unchanged.
These commitments substantially increase our future capital spending requirements and may require us to increase our level of debt in future years. We are continuing to evaluate our options to finance these commitments. There can be no assurance that we will be able to obtain such financing on favorable terms, or at all.
Delays in scheduled aircraft deliveries or other loss of fleet capacity may adversely impact our operations and financial results.
The success of our business depends on, among other things, the ability to effectively operate a certain number and type of aircraft. As noted above, we are uncertain about the future of our contractual commitments to purchase additional aircraft for our fleet. Our inability to purchase and introduce new aircraft into our fleet could negatively impact our business, operations and financial performance. Even if we proceed with some or all of our contractual commitments to purchase additional aircraft, delays in scheduled aircraft, due to the COVID-19 pandemic or other circumstances, or our failure to integrate newly purchased aircraft into our fleet as planned may require us to utilize our existing fleet longer than expected. Such extensions may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs.
We may never realize the full value of our long-lived assets such as aircraft and non-aircraft equipment, resulting in impairment and other related charges that may negatively impact our financial position and results of operations.
Economic and intrinsic triggers, which include the effects of the COVID-19 pandemic, extreme fuel price volatility, an uncertain economic and credit environment, unfavorable trends in historical or forecasted results of operations and cash flows, as well as other uncertainties, may cause us to record material impairments of our long-lived assets. Additionally, we could be subject to impairment charges in the future that could have an adverse effect on our financial position and results of operations in future periods. The risk of future material impairments has grown significantly as result of the effects of the COVID-19 pandemic on our business.
During the fiscal quarter ended March 31, 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove down our stock price to 52-week lows and significantly reduced our cash flows. We determined that the estimated fair value of our business was less than its carrying value. The deficit between the fair value and the carrying
value of the assets exceeded the amount of goodwill on our financial statements and, therefore, we recognized a goodwill impairment charge of $106.7 million during the three months ended March 31, 2020.
As part of our response to COVID-19, discussed above, including substantial capacity reductions and the temporary grounding of the majority of our fleet, as well as reduced cash flow projections, we identified indicators of impairment of our long-lived assets. 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.
As of December 31, 2021, we had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. We continue to assess our indefinite-lived assets under a qualitative approach. We analyze market factors to determine if events and circumstances have affected the fair value of the indefinite-lived intangible assets.
Given the ongoing impact of the COVID-19 pandemic, we continue to evaluate our current fleet and other long-lived assets for impairment accordingly. As of December 31, 2021, our remaining long-lived assets continued to generate future cash flows from operation of the fleet through the respective retirement dates in excess of their respective carrying values.
COMMON STOCK RISKS
Our share price is subject to fluctuations.
The market price of our stock is influenced by many factors, many of which are outside of our control, and include other factors discussed in the Risk Factors section, as well as the following:
•our operating results and financial condition
•how our operating results and financial condition compare to securities analyst expectations, particularly with respect to metrics for which we do not give guidance, including whether those results significantly fail to meet or exceed securities analyst expectations
•changes in the competitive environment in which we operate
•fuel price volatility including the availability of fuel
•announcements concerning our competitors including bankruptcy filings, mergers, restructurings or acquisitions by other airlines
•increases or changes in government regulation
•general and industry specific market conditions
•changes in financial estimates or recommendations by securities analysts
•sales of our common stock or other actions by investors with significant shareholdings
In recent years the stock market has experienced volatile price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may affect the price of our common stock.
In the past, securities class action litigation has often been instituted against a company following periods of volatility in its stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of our common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.
We cannot repurchase our common stock pursuant to our share repurchase program or pay dividends on our common stock for the foreseeable future.
Under the terms of our PSP3 Agreement, we are required to suspend payment of dividends and refrain from engaging in stock repurchases through September 20, 2022. We announced on March 18, 2020 that we suspended stock repurchases under our previously announced repurchase program, which expired on December 31, 2020. As such, we do not anticipate any future repurchases under our currently approved repurchase program and we cannot provide any assurance that we will initiate any repurchase program again in the future. Additionally, although we have historically issued quarterly dividends, we cannot provide any assurance that we will declare dividends in the future, even after the PSP restrictions are no longer applicable, based on our operating results, financial condition, capital requirements, and general business conditions.
Our certificate of incorporation includes a provision limiting voting and ownership by non-U.S. citizens and our bylaws include a provision specifying an exclusive forum for stockholder disputes.
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our certificate of incorporation restricts voting of shares of our common stock by non-U.S. citizens. Our certificate of incorporation provides that the failure of non-U.S. citizens to register their shares on a separate stock record, which we refer to as the "foreign stock record," would result in a suspension of their voting rights in the event that the aggregate foreign ownership of the outstanding common stock exceeds the foreign ownership restrictions imposed by federal law.
Our certificate of incorporation further provides that no shares of our common stock will be registered on the foreign stock record if the amount so registered would exceed the foreign ownership restrictions imposed by federal law. If it is determined that the amount registered in the foreign stock record exceeds the foreign ownership restrictions imposed by federal law, shares will be removed from the foreign stock record in reverse chronological order based on the date of registration therein, until the number of shares registered therein does not exceed the foreign ownership restrictions imposed by federal law. As of December 31, 2021, we believe we were in compliance with the foreign ownership rules.
Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, any other state or federal court located in the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws (as each may be amended or restated from time to time); or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Accordingly, stockholders may be limited in the forum in which they are able to pursue legal actions against us.
Certain provisions of our certificate of incorporation and bylaws may delay or prevent a change of control, which could materially adversely affect the price of our common stock.
Our certificate of incorporation and bylaws contain provisions that may make it difficult to remove our Board of Directors and management, and may discourage or delay a change of control, which could materially and adversely affect the price of our common stock. These provisions include, among others:
•the ability of our Board of Directors to issue, without further action by the stockholders, series of undesignated preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control;
•advance notice procedures for stockholder proposals to be considered at stockholders' meetings and for nominations of candidates for election to our Board of Directors;
•the ability of our Board of Directors to fill vacancies on the board;
•a prohibition against stockholders taking action by written consent;
•a prohibition against stockholders calling special meetings of stockholders; and
•super-majority voting requirements to modify or amend specified provisions of our certificate of incorporation.
RISKS RELATING TO SECURITIES OFFERINGS
If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade the outlook of our common stock, the market price of our common stock could decline.
The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade the outlook for our common stock or issue other negative commentary about us or our industry. Furthermore, if one or more of these analysts cease coverage of us, we could lose visibility in the market. In addition, analysts and other market observers assessing our performance and prospects will take into account our existing and future amounts of debt, securities offerings, and any offers by us to repurchase our securities. As a
result of one or more of these factors, the market price of our common stock could decline and cause you to lose all or a portion of your investment.
In connection with the issuance of Hawaiian's enhanced equipment trust certificates, our indebtedness and liabilities could limit the cash flow available for our operations, and consequently expose us to risks that could materially adversely affect the resources available to us and Hawaiian to satisfy our obligations under such certificates.
In July 2020, we offered enhanced equipment trust certificates (the Certificates) issued by pass-through trusts (the EETC Offering) and, the equipment notes held in each trust and passed through to the certificate holders of such trust are senior secured obligations of ours. As of December 31, 2021, the outstanding principal balance of our EETC issuances was $309.2 million. Offerings of structured finance securities, such as the EETC Offering may present risks similar to those of the other types of debt obligations in which we or Hawaiian may invest and, in fact, such risks may be of greater significance in the case of such structured finance securities. In addition, the performance of the Certificates will be affected by a variety of factors, including its priority in the capital structure of the issuer thereof, and the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets. If we or Hawaiian fail to comply with these covenants or to make payments under such indebtedness when due, then we or Hawaiian would be in default under that indebtedness, which could, in turn, result in ours or Hawaiian's other indebtedness becoming immediately payable in full.
In connection with the issuance of the senior secured notes due 2026, our indebtedness and liabilities could limit the cash flow available for Hawaiian's operations, and consequently expose us to risks that could materially adversely affect the resources available to us to satisfy our obligations under the Notes.
In February 2021, we conducted a private offering of 5.75% senior secured notes due 2026 (the Notes) collateralized by certain loyalty and brand assets (Notes Offering). The indebtedness of Hawaiian and its subsidiaries increased significantly as a result of the Notes Offering. As of December 31, 2021, Hawaiian had $1.8 billion of total indebtedness (excluding finance lease obligations of approximately $125.1 million and operating lease obligations of $502.5 million). We incurred $1.2 billion principal amount of indebtedness as a result of the Notes Offering. We may also incur additional indebtedness to meet future financing needs. The indebtedness of Hawaiian and its subsidiaries could have significant negative consequences for our security holders and the resources available to satisfy our obligations under the Notes, including the following:
•greater difficulty satisfying our obligations with respect to the Notes;
•increasing Hawaiian's vulnerability to adverse economic and industry conditions;
•limiting Hawaiian's ability to obtain additional financing;
•requiring the dedication of a substantial portion of Hawaiian's cash flow from operations to service Hawaiian's indebtedness, which will reduce the amount of cash available for other purposes;
•limiting Hawaiian's flexibility to plan for, or react to, changes in its business;
•placing Hawaiian at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital; and
•potentially causing Hawaiian's credit ratings to be reduced and causing our and Hawaiian's debt and equity securities to significantly decrease in value.
Hawaiian's business, including the HawaiianMiles Program, may not generate sufficient funds, and we and Hawaiian may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our and Hawaiian's indebtedness, including the Notes, and our and Hawaiian's cash needs may increase in the future. In addition, future indebtedness that we or Hawaiian may incur may contain financial and other restrictive covenants that limit our ability to operate our business, including with respect to the HawaiianMiles Program, raise capital or make payments under our or Hawaiian's indebtedness. If we or Hawaiian fail to comply with these covenants or to make payments under ours or Hawaiian's indebtedness when due, then we or Hawaiian would be in default under that indebtedness, which could, in turn, result in ours and Hawaiian's other indebtedness becoming immediately payable in full.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Aircraft
The table below summarizes our total fleet as of December 31, 2016, 20172020 and 2021, and anticipated in 2018fleet as of December 31, 2022 (based on existing agreements):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2021 | | December 31, 2022 | | Seating Capacity (Per Aircraft) | | Simple Average Age (In Years) |
| Aircraft Type | Leased (3) | | Owned | | Total | | Leased (3) | | Owned | | Total | | Leased (3) | | Owned | | Total | | |
| A330-200 | 12 | | | 12 | | | 24 | | | 12 | | | 12 | | | 24 | | | 12 | | | 12 | | | 24 | | | 278 | | 8.5 |
| A321neo(1) | 4 | | | 14 | | | 18 | | | 4 | | | 14 | | | 18 | | | 4 | | | 14 | | | 18 | | | 189 | | 3 |
| 717-200 | 5 | | | 14 | | | 19 | | | 5 | | | 14 | | | 19 | | | 5 | | | 14 | | | 19 | | | 128 | | 19.7 |
| ATR 42-500(2) | — | | | 4 | | | 4 | | | — | | | 3 | | | 3 | | | — | | | 3 | | | 3 | | | 48 | | 19.2 |
| ATR 72-200(2) | — | | | 4 | | | 4 | | | — | | | 4 | | | 4 | | | — | | | 4 | | | 4 | | | — | | 28.3 |
| Total | 21 | | | 48 | | | 69 | | | 21 | | | 47 | | | 68 | | | 21 | | | 47 | | | 68 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2017 | | December 31, 2018 | | Seating Capacity (Per Aircraft) | | Simple Average Age (In Years) |
| Aircraft Type | Leased (6) | | Owned | | Total | | Leased (6) | | Owned | | Total | | Leased (6) | | Owned | | Total | | |
| A330-200(1) | 11 |
| | 12 |
| | 23 |
| | 11 |
| | 13 |
| | 24 |
| | 11 |
| | 13 |
| | 24 |
| | 278 - 294 | | 4.5 |
| 767-300(2) | 4 |
| | 4 |
| | 8 |
| | 7 |
| | 1 |
| | 8 |
| | 2 |
| | — |
| | 2 |
| | 252 - 264 | | 18.8 |
| 717-200 | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 5 |
| | 15 |
| | 20 |
| | 128 | | 15.7 |
| ATR 42-500(3) | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 4 |
| | 4 |
| | 48 | | 13.5 |
| ATR 72-200(4) | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
| | 3 |
| | — | | 24.4 |
| A321-200(5) | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | 2 |
| | 9 |
| | 11 |
| | 189 | | 0.1 |
| Total | 20 |
| | 37 |
| | 57 |
| | 23 |
| | 37 |
| | 60 |
| | 20 |
| | 44 |
| | 64 |
| | | | |
(1)In 2020, we took delivery of our final Airbus A321-200 aircraft in the second quarter of 2020.
| |
(1) | During 2017, we took delivery of and placed into service one Airbus A330-200 aircraft for service on our North America and International routes. |
(2)The ATR 42-500 turboprop and ATR 72-200 turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly-owned subsidiary of the Company. In the second quarter of 2021, we announced the termination of our 'Ohana by Hawaiian operations, which operated under a Capacity Purchase Agreement (CPA) with a third-party provider, and committed to a plan to dispose of the aircraft and related asset group. As of December 31, 2021, the asset group has been classified as assets held for sale on the Consolidated Balance Sheets. We expect to complete disposition of the asset group during 2022.
| |
(2) | The decrease in the number of owned and leased Boeing 767-300 from 2017 to 2018 is due to the planned retirement of six aircraft. |
(3)Leased aircraft include aircraft under finance and operating leases. See Note 9 to the Notes to Consolidated Financial Statements for further discussion regarding our aircraft leases.
| |
(3) | The ATR 42-500 turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly-owned subsidiary of the Company. In 2018, we expect to take delivery of one ATR 42-500. |
| |
(4) | The ATR 72-200 turboprop aircraft are used for our cargo operations. |
| |
(5) | In the fourth quarter of 2017, we took delivery of two Airbus A321-200 aircraft (one of which is in revenue service and one of which was received and available for use, but not in revenue service as of December 31, 2017). In 2018, we expect to take delivery of nine Airbus A321-200 (A321neo) aircraft. |
| |
(6) | Leased aircraft include both aircraft under capital and operating leases. See Note 9 to the consolidated financial statements for further discussion regarding our aircraft leases. |
At December 31, 2017,2021, we had firm10 aircraft orders as detailed below:on order scheduled for delivery through 2026:
| | | | | | | | | | | | | | |
| Delivery Year | | | | B787-9 Aircraft (1) | | | | |
| 2022 | | | | — | | | | | |
| 2023 | | | | 2 | | | | | |
| 2024 | | | | 3 | | | | | |
| 2025 | | | | 3 | | | | | |
| 2026 | | | | 2 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | 10 | | | | | |
|
| | | | | | | | |
| Delivery Year | A321neo Aircraft(1) | | A330-800neo Aircraft(2) | | Total |
| 2018 | 7 |
| | — |
| | 7 |
|
| 2019 | 6 |
| | 2 |
| | 8 |
|
| 2020 | 1 |
| | 2 |
| | 3 |
|
| 2021 | — |
| | 2 |
| | 2 |
|
| | 14 |
| | 6 |
| | 20 |
|
| |
(1) | In 2013, we executed(1)In July 2018, we entered into a purchase agreement for the purchase of 16 new Airbus A321neo aircraft scheduled for delivery between 2017 and 2020. In 2017, we took delivery of two of the 16 aircraft orders. The Airbus A321neo narrow-body |
aircraft will be used to complement Hawaiian's existing fleet of wide-body aircraft for travel to and from the West Coast on its North America routes.
| |
(2) | In 2014, we entered into an amendment (the Purchase Agreement Amendment) to the Airbus A330/A350XWB Purchase Agreement to convert our order for six firm A350XWB-80010 Boeing 787-9 "Dreamliner" aircraft with an additional six purchase rights into an order for six firm A330-800neo aircraft with an additional six purchase rights. The Purchase Agreement Amendment provides for delivery, subject to certain flexibility rights, of six Airbus A330-800neo aircraft starting in 2019. These fuel efficient, long-range aircraft will complement our existing fleet of wide-body, twin aisle aircraft used for long-haul flying on our North America and International routes. |
We have purchase rights for an additional nine A321neo10 aircraft with scheduled deliveries between 2021 to 2025. In December 2021, we received notification of further delivery delays, and six A330-800neowe have agreed to defer delivery of our first two aircraft and can utilize these rights subject to production availability. See Note 9from the scheduled delivery at the end of 2022 to the consolidated financial statements for additional information regarding our aircraft lease agreements.first half of 2023. The remainder of the B787-9 delivery schedule remains unchanged.
Ground Facilities
Our principal terminal facilities, cargo facilities and hangar and maintenance facilities are located at the Daniel K. Inouye International Airport (HNL). The majority of the facilities at HNL are leased on a month-to-month basis. We are also charged for the use of terminal facilities at the four majorother Neighbor Island airports owned by the State of Hawai'i. Some terminal facilities, including gates and holding rooms, are considered by the State of Hawai'i to be common areas and thus are not exclusively controlled by us. We also utilize other Statestate of Hawai'i facilities, including station managers'manager offices, Premier Club lounges, and operations support space.
The table below sets forth the airport locations to which we utilizehave access pursuant to various agreements as of December 31, 2017: 2021: | | | | | | | | | | | | | | |
| Name of Airport | Location |
| Phoenix Sky Harbor International Airport | | Phoenix | | Arizona |
| Long Beach Airport | | Long Beach | | California |
| Los Angeles International Airport | | Los Angeles | | California |
| Oakland International Airport | | Oakland | | California |
| | | | |
Name ofOntario International Airport | Location | Ontario | | California |
Phoenix Sky Harbor International Airport | | Phoenix | | Arizona |
Los Angeles International Airport | | Los Angeles | | California |
Oakland International Airport | | Oakland | | California |
| Sacramento International Airport | | Sacramento | | California |
| San Diego International Airport | | San Diego | | California |
| San Francisco International Airport | | San Francisco | | California |
| Norman Y. Mineta San Jose International Airport | | San Jose | | California |
| | | | |
| Orlando International Airport | | Orlando | | Florida |
| Hilo International Airport | | Hilo | | Hawai'i |
| Daniel K. Inouye International Airport | | Honolulu | | Hawai'i |
| Kahului Airport | | Kahului | | Hawai'i |
Kapalua | | | | |
| Ellison Onizuka Kona International Airport | | LahainaKailua-Kona | | Hawai'i |
Kona International | | | | |
| Lihu'e Airport | | KonaLihu'e | | Hawai'i |
Lana'i Airport | | Lana'i | | Hawai'i |
Lihu'eBoston Logan International Airport | | Lihu'eBoston | | Hawai'iMassachusetts |
Moloka'iHarry Reid International Airport | | Moloka'iLas Vegas | | Hawai'iNevada |
McCarran International Airport | | Las Vegas | | Nevada |
| John F. Kennedy International Airport | | New York | | New York |
| Austin-Bergstrom International Airport | | Austin | | Texas |
| Portland International Airport | | Portland | | Oregon |
| | | | |
| Seattle-Tacoma International Airport | | SeattleSeaTac | | Washington |
| Pago Pago International Airport | | Pago Pago | | American Samoa |
| Brisbane International Airport | | Brisbane | | Australia |
| Sydney International Airport | | Sydney | | Australia |
Beijing Capital International Airport | | Beijing | | China |
| Haneda International Airport | | Tokyo | | Japan |
| Fukuoka International Airport | | Fukuoka | | Japan |
| Kansai International Airport | | Osaka | | Japan |
| Narita International Airport | | Tokyo | | Japan |
| New Chitose International Airport | | Sapporo | | Japan |
| Auckland Airport | | Auckland | | New Zealand |
| Incheon International Airport | | Seoul | | South Korea |
| Faa'a International Airport | | Papeete | | Tahiti |
Our corporate headquarters are located in leased premises adjacent to the Daniel K. Inouye International Airport.
ITEM 3. LEGAL PROCEEDINGS.
We are subject to legal proceedings arising in the normal course of our operations. We do not anticipate that the disposition of any currently pending proceeding will have a material effect on our operations, business or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ StockGlobal Select Market LLC (NASDAQ) under the symbol "HA." The following table sets forth the range of high and low sales prices of our common stock as reported on the NASDAQ and cash dividends declared by our Board of Directors for the periods indicated.
|
| | | | | | | | | | | |
| | Common Stock Prices | | Cash Dividends |
| | High | | Low | | Declared (Per Share) |
| 2017 | |
| | |
| | |
| Fourth Quarter | $ | 43.40 |
| | $ | 32.40 |
| | $ | 0.12 |
|
| Third Quarter | 48.65 |
| | 36.20 |
| | — |
|
| Second Quarter | 59.45 |
| | 45.45 |
| | — |
|
| First Quarter | 58.50 |
| | 46.05 |
| | — |
|
| 2016 | |
| | |
| | |
|
| Fourth Quarter | $ | 60.90 |
| | $ | 44.28 |
| | $ | — |
|
| Third Quarter | 49.87 |
| | 37.40 |
| | — |
|
| Second Quarter | 50.95 |
| | 34.69 |
| | — |
|
| First Quarter | 48.14 |
| | 28.40 |
| | — |
|
Holders
There were 788684stockholders of record of our common stock as of February 8, 2018,4, 2022, which does not reflect those shares held beneficially or those shares held in "street" name.
Dividends and Other Restrictions
In October 2017,Our receipt of financial assistance under federal Payroll Support Programs precludes us from making any further dividend payments through September 30, 2022. Prior to the suspension of dividend payments, we announced that our Boardpaid dividends of Directors declared a quarterly cash dividend of $0.12 per share payable on November 30, 2017,$5.5 million and $22.8 million to stockholdersshareholders of record as of November 17, 2017. The total cash payment for dividends during the year ended December 31, 2017 was $6.3 million, which was the first dividend payment made by us. In February 2018, we announced that our Board of Directors declared a quarterly cash dividend of $0.12 per share payable on February 28, 2018, to stockholders of record as of February 14, 2018.2020 and 2019, respectively.
Our dividend payments may change from time to time. We cannot provide assurance that we will continue to declare dividends for any fixed period and payment of dividends may be suspended at any time at our discretion.
United StatesU.S. law prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier or controlling a U.S. air carrier. Our certificate of incorporation prohibits the ownership or control of more than 25% (to be increased or decreased from time to time, as permitted under the laws of the U.S.) of our issued and outstanding voting capital stock by persons who are not "citizens of the U.S." As of December 31, 2017,2021, we believe we are in compliance with the law as it relates to voting stock held by non-U.S. citizens.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table displays information with respectOn March 18, 2020, as part of our response to the COVID-19 pandemic, we announced the suspension of our stock repurchase program. Pursuant to our receipt of financial assistance under federal Payroll Support Programs, we are prevented from executing stock repurchases of shares of our common stock during the three months ended December 31, 2017:
|
| | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (i) | | Average price paid per share (ii) | | Total number of shares purchased as part of publicly announced plans or programs (i) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (i) |
| October 1, 2017 - October 31, 2017 | | 295,388 |
| | $ | 33.85 |
| | 295,388 |
| | |
| November 1, 2017 - November 30, 2017 | | 619,733 |
| | 38.73 |
| | 619,733 |
| | |
| December 1, 2017 - December 31, 2017 | | 383,574 |
| | 40.45 |
| | 383,574 |
| | |
| Total | | 1,298,695 |
| | | | 1,298,695 |
| | $ | 100 |
|
| |
(i) | In April 2017, our Board of Directors approved the repurchase of up to $100 million of our outstanding common stock over a two-year period through May 2019 via the open market, established plans or privately negotiated transactions in |
accordance with all applicable securities laws, rules and regulations, which stock repurchase program was completed in December 2017. In November 2017, our Board of Directors approved a new stock repurchase program pursuant to which we may repurchase up to an additional $100 million of our outstanding common stock over a two-year period through December 2019. The stock repurchase program is subject to modification or termination at any time.
| |
(ii) | Weighted average price paid per share is calculated on a settlement basis and excludes commission. |
September 30, 2022.
Stockholder Return Performance Graph
The following graph compares cumulative total stockholder return on our common stock, the S&P 500 Index and the AMEX Airline Index from December 31, 20122016 to December 31, 2017.2021. The comparison assumes $100 was invested on December 31, 20122016 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes.
The stock performance depicted in the graph above is not to be relied upon as indicative of future performance. The stock performance graph shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the same by reference, nor shall it be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA.
The Selected Financial Data should be read in conjunction with our accompanying audited consolidated financial statements and the notes related thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" below.
Hawaiian Holdings, Inc.
Selected Financial DataRESERVED.
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (in thousands, except per share data) |
| Summary of Operations: | |
| | |
| | |
| | |
| | |
|
| Operating revenue | $ | 2,695,628 |
| | $ | 2,450,580 |
| | $ | 2,317,467 |
| | $ | 2,314,879 |
| | $ | 2,155,865 |
|
| Operating expenses | 2,211,856 |
| | 2,034,848 |
| | 1,868,837 |
| | 2,060,922 |
| | 2,004,444 |
|
| Operating income | 483,772 |
| | 415,732 |
| | 448,630 |
| | 253,957 |
| | 151,421 |
|
| Net Income | 364,041 |
| | 235,432 |
| | 182,646 |
| | 68,926 |
| | 51,854 |
|
| Net Income Per Common Stock Share: | |
| | |
| | |
| | |
| | |
|
| Basic | $ | 6.86 |
| | $ | 4.40 |
| | $ | 3.38 |
| | $ | 1.29 |
| | $ | 1.00 |
|
| Diluted | 6.82 |
| | 4.36 |
| | 2.98 |
| | 1.10 |
| | 0.98 |
|
| Cash dividends declared per common share | 0.12 |
| | 0.00 |
| | 0.00 |
| | 0.00 |
| | 0.00 |
|
| Balance Sheet Items as of December 31: | |
| | |
| | |
| | |
| | |
|
| Total assets | $ | 2,859,831 |
| | $ | 2,708,601 |
| | $ | 2,489,922 |
| | $ | 2,554,112 |
| | $ | 2,132,476 |
|
| Long-term debt, less discount, and capital lease obligations, excluding current maturities (a) | 511,201 |
| | 497,908 |
| | 677,915 |
| | 870,946 |
| | 732,093 |
|
| |
(a) | In 2016, we extinguished $140.5 million of existing debt under three secured financing agreements, which was originally scheduled to mature in 2022 and 2023. In 2015, we extinguished $123.9 million of existing debt under four secured financing agreements, which were originally scheduled to mature in 2018, 2023, and 2024. We also repurchased $70.8 million in principal of our Convertible Notes. In 2014, we received proceeds of $368.4 million in connection with the EETC financing for the purchase of five Airbus A330-200 aircraft. In 2013, we borrowed $132.0 million to finance a portion of the purchase price of two Airbus A330-200 aircraft, and received proceeds of $76.1 million in connection with the EETC financing for the purchase of one Airbus A330-200 aircraft. See further discussion at Note 8 to the consolidated financial statements. |
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. operations and is focused on our 2021 and 2020 financial results, including comparisons of year-over-year performance between these years. Discussion and analysis of our 2019 fiscal year, as well as the year-over-year comparison of our 2020 financial performance to 2019, 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, 2020, filed with the SEC on February 12, 2021.
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. See "Cautionary Note Regarding Forward-Looking Statements," above. 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.
Year in ReviewImpact of the COVID-19 Pandemic
2017 Financial Highlights
Operating income increased to $484 million compared to $416 million inThe widespread and unprecedented impact of COVID-19, along with the prior-year period.
Pre-tax income grew to $411 million compared to $379 million in the prior-year period.
GAAP net income of $364 million or $6.82 per diluted share compared to $235 million or $4.36 per diluted share in the prior year period.
Adjusted net income of $301 million or $5.64 per diluted share compared to $280 million or $5.19 per share in the prior year period.
Unrestricted cashresulting restrictions on travel and cash equivalentsevery day activities by local, state, federal, and short-term investments of $460 million compared to $610 millionin the prior year period.
See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
Outlook
Looking ahead, industry capacity increases in North America and parts of our International network are expected to increase in the first half of 2018. We expect our capacity to grow between 3.0% to 5.0%international governments, significantly reduced air travel demand beginning in the first quarter of 20182020 and through 2021.
The Safe Travels Hawai'i program was enacted to help control the spread of COVID-19 by enforcing quarantines and pre-travel testing requirements. In June 2021, the Safe Travels Hawai'i program was updated to remove restrictions on travel within the state of Hawai'i, and to permit travelers who were fully vaccinated in the state of Hawai'i to bypass testing or quarantine requirements with proof of vaccination when traveling into the state. In July 2021, all U.S. domestic travelers who were fully vaccinated in the United States also were permitted to bypass pre-travel testing or quarantine requirements with proof of vaccination when entering the state starting the 15th day following completion of their vaccination. In September 2021, both the City and County of Honolulu and the County of Maui enacted programs that impose certain vaccination and testing requirements on employees and customers of restaurants, bars, gyms and other similar establishments, with limited exceptions.
The rollout of COVID-19 vaccinations, along with the easing of restrictions in various locations, led to improved domestic travel demand during 2021; however, our passenger revenue was down approximately 47.2% during the twelve months ended December 31, 2021, as compared to 2019. Restrictions on travel to and from various international locations (including those within our network) remain in effect, continuing to suppress international travel demand, with revenue down 89.6% for the twelve months ended December 31, 2021 as compared to 2019. We have continued to evolve throughout the COVID-19 pandemic, building back our network where demand allowed, predominantly within our domestic network, while preparing for the return of other markets as restrictions ease. During 2021, we increased capacity (as measured in ASMs) by approximately 91.5% as compared to 2020; however, capacity in 2021 was down approximately 57.6% as compared to 2019. During the first quarter of 2022, we anticipate capacity will be down between 10% to 13%, as compared to the first quartersame period in 2019.
During 2021, our domestic network accounted for approximately 94.0% of 2017, primarily driventotal passenger revenue. We continue to monitor developments relating to restrictions on international travel by both the U.S. and international governments, including by the government of Japan, which represents a large percentage of our international revenue. The emergence of new service between Los Angeles-Kauaivariants of the COVID-19 virus, including the Delta and Portland-Maui. ForOmicron variants, continues to impact the first quarterrules and regulations governing international travel. In December 2021, President Biden announced that all international travelers aged two and older, regardless of 2018,nationality or vaccination status, are required to show documentation of a negative viral test result taken within one day of the flight's departure to the United States.
Despite the easing of restrictions on travel to and within Hawai'i, uncertainties remain regarding the impact of vaccination-related travel requirements and increased vaccination availability and uptake on the demand for air travel, including the availability, reliability and effectiveness of vaccines domestically and worldwide, particularly as new variants of the COVID-19 virus have emerged and spread. There can be no assurance whether, at some point, the State of Hawai'i or counties within the state may limit or suspend the ability for travelers to bypass quarantine requirements should the prevalence of the COVID-19 pandemic worsen. The U.S. government and international governments could also impose, extend or otherwise modify existing travel restrictions on international travel. Additionally, ongoing restrictions or shortages in other sectors of the travel industry, such as hotel or transportation availability, including as a result of vaccination requirements and any associated labor shortages, could negatively impact our operations and affect our ability to satisfy any increased demand we experience. As a result of all the above factors and our results to date, we expect bookings, revenue and results of operations in 2022 to be below to flat
compared to 2019 levels. Unpredictability in the aforementioned increasesdemand for air travel as a result of the ongoing COVID-19 pandemic may result in capacitydecreases to existing or anticipated levels of demand, and such decreases could be material to our business. We will continue to assess our routes and schedule in response to changes in demand, including those related to the COVID-19 pandemic.
Government Support Programs
The CARES Act was enacted on March 27, 2020 and 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, 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 Economic Relief Program (ERP), (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional Corporate tax benefits.
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 operating revenue (based ontax benefits for those years. Refer to Note 10 of the new revenue recognition standard) perNotes to Consolidated Financial Statements for additional discussion.
Economic Relief Program
In September 2020, the Company entered into the Amended and Restated Loan Agreement under the ERP pursuant to which the maximum facility available seat mile between a decrease of 0.5% to be borrowed increased to $622.0 million (the Amended and Restated Loan Agreement). In connection with our entry into the Amended and Restated Loan Agreement, we also entered into an increase of 2.5% as comparedERP Warrant Agreement with the Treasury. On September 25, 2020, we borrowed $45.0 million and issued to the first quarterTreasury warrants to purchase up to 380,711 shares of 2017.our common stock. We recorded the value of the loan and the warrants on a relative fair value basis as $41.9 million in noncurrent debt and $3.1 million in additional paid in capital, respectively.
On February 4, 2021, we repaid in full the $45.0 million loan under the ERP, and in connection with this repayment, terminated the Amended and Restated Loan Agreement. The debt extinguishment resulted in the recognition of a loss of $4.0 million, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.
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 expect thatimposes 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 operating costscommon stock at an exercise price of $11.82 per available seat mile will increase by 3.3%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 6.7% duringNote 8 of the first quarterNotes to Consolidated Financial Statements for additional discussion.
The CAA 2021 was enacted on December 27, 2020, and provided $15.0 billion for airline employee wages, salaries and benefits under an extension (the PSP Extension) of the Payroll Support Program created under the CARES Act. In January 2021, we entered into a PSP extension agreement with the Treasury (the PSP Extension Agreement). PSP Extension funds are required to expected increases inbe used exclusively for the purpose of continuing to pay employee salaries, wages and benefits, costsincluding the payment of lost wages, salaries and benefits to certain returning employees, as defined in the PSP Extension Agreement. 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 continuationdate of Airbus A321neo pilot training.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.
During the twelve months ended December 31, 2021, we received $192.7 million in grants, entered into a promissory note with the Treasury (the Extension Note) for approximately $27.8 million and issued to the Treasury warrants to purchase up to a total of 156,341 shares of our common stock at an exercise price of $17.78 per share (the PSP Extension Warrants) pursuant to the PSP Extension Agreement. The Extension Note has a 10-year term and bears interest at a rate per annum equal to 1.00% for the first five years and at a rate equal to the secured overnight financing rate plus 2.00% for the following five years. We recorded the value of the Extension Note and the PSP Extension Warrants on a relative fair value basis as $23.8 million in noncurrent debt and $4.0 million in additional paid in capital, respectively.
The ARP 2021 was enacted on March 11, 2021, and included a second PSP extension, providing an additional $14 billion in grants and loans for airline employee wages, salaries and benefits. In April 2021, we entered into a Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), a promissory note (the PSP3 Note), and a Warrant Agreement to purchase up to 87,670 shares of the Company's common stock at an exercise of $27.27 (the PSP3 Warrants). The PSP3 Agreement extends (i) the prohibition on conducting involuntary employee layoffs or furloughs through September 2021 or the date on which assistance provided under the agreement is exhausted, whichever is later, (ii) the prohibitions on share repurchases and dividends through September 2022, and (iii) the limitations on executive compensation until April 2023. The terms of the PSP3 Note and PSP3 Warrants are consistent with those of the original PSP and the first PSP Extension. During 2021, we received a total of $179.7 million pursuant to the PSP3 Agreement, consisting of approximately $155.8 million in a grant and $23.9 million in a ten-year loan.
Loyalty Program and Intellectual Property Financing
On February 4, 2021, we 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 require interest only payments, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, which began 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. 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, dated as of February 4, 2021), 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 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, dated as of February 4, 2021 (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, thereon, to, but not including, the applicable redemption date.
The Indenture contains certain covenants that limit the ability of the Issuers, the Cayman Guarantors (as defined below) 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 Loyalty Program Collateral, (iv) sell or otherwise dispose of the Loyalty Program 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. | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands, except as otherwise indicated) |
| Scheduled Operations (a) : | | | | | |
| Revenue passengers flown | 6,515 | | | 3,353 | | | 11,737 | |
| Revenue passenger miles (RPM) | 9,979,848 | | | 4,558,045 | | | 17,808,913 | |
| Available seat miles (ASM) | 14,411,410 | | | 7,527,383 | | | 20,568,476 | |
| Passenger revenue per RPM (Yield) | 13.74 | ¢ | | 14.59 | ¢ | | 14.59 | ¢ |
| Passenger load factor (RPM/ASM) | 69.2 | % | | 60.6 | % | | 86.6 | % |
| Passenger revenue per ASM (PRASM) | 9.51 | ¢ | | 8.83 | ¢ | | 12.63 | ¢ |
| Total Operations (a) : | | | | | |
| Revenue passengers flown | 6,543 | | | 3,362 | | | 11,751 | |
| RPM | 10,054,062 | | | 4,576,623 | | | 17,826,887 | |
| ASM | 14,535,425 | | | 7,560,486 | | | 20,596,711 | |
| Operating revenue per ASM (RASM) | 10.98 | ¢ | | 11.17 | ¢ | | 13.75 | ¢ |
| Operating cost per ASM (CASM) | 11.55 | ¢ | | 19.74 | ¢ | | 12.16 | ¢ |
| CASM excluding aircraft fuel and non-recurring items (b) | 11.20 | ¢ | | 18.35 | ¢ | | 9.54 | ¢ |
| Aircraft fuel expense per ASM (c) | 2.50 | ¢ | | 2.13 | ¢ | | 2.63 | ¢ |
| Revenue block hours operated | 157,236 | | | 82,711 | | | 218,801 | |
| Gallons of jet fuel consumed | 179,494 | | | 106,225 | | | 270,001 | |
| Average cost per gallon of jet fuel (actual) (c) | $ | 2.02 | | | $ | 1.52 | | | $ | 2.01 | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except as otherwise indicated) |
| Scheduled Operations (a) : | |
| | |
| | |
|
| Revenue passengers flown | 11,498 |
| | 11,044 |
| | 10,665 |
|
| Revenue passenger miles (RPM) | 16,307,344 |
| | 15,484,369 |
| | 14,450,564 |
|
| Available seat miles (ASM) | 18,991,566 |
| | 18,371,544 |
| | 17,710,309 |
|
| Passenger revenue per RPM (Yield) |
| 14.48 | ¢ | |
| 13.86 | ¢ | |
| 14.02 | ¢ |
| Passenger load factor (RPM/ASM) | 85.9 | % | | 84.3 | % | | 81.6 | % |
| Passenger revenue per ASM (PRASM) |
| 12.44 | ¢ | |
| 11.68 | ¢ | |
| 11.44 | ¢ |
| Total Operations (a) : | |
| | |
| | |
|
| Revenue passengers flown | 11,505 |
| | 11,051 |
| | 10,673 |
|
| RPM | 16,316,739 |
| | 15,492,509 |
| | 14,462,191 |
|
| ASM | 19,006,682 |
| | 18,384,637 |
| | 17,726,322 |
|
| Operating revenue per ASM (RASM) |
| 14.18 | ¢ | |
| 13.33 | ¢ | |
| 13.07 | ¢ |
| Operating cost per ASM (CASM) |
| 11.64 | ¢ | |
| 11.07 | ¢ | |
| 10.55 | ¢ |
| CASM excluding aircraft fuel and special items (b) |
| 9.20 | ¢ | |
| 8.61 | ¢ | |
| 8.19 | ¢ |
| Aircraft fuel expense per ASM (c) |
| 2.32 | ¢ | |
| 1.87 | ¢ | |
| 2.36 | ¢ |
| Revenue block hours operated | 189,881 |
| | 179,254 |
| | 173,546 |
|
| Gallons of jet fuel consumed | 259,915 |
| | 244,118 |
| | 234,183 |
|
| Average cost per gallon of jet fuel (actual) (c) | $ | 1.69 |
| | $ | 1.41 |
| | $ | 1.78 |
|
| |
(a) | Includes the operations of our contract carrier under a capacity purchase agreement. 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. |
(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. Revenue is recognizedWe record passenger revenue when either the transportation is provided or when the related ticket expiresscheduled flights 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. WeTypically, 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. Other revenue primarily consists of baggage fees, cargo revenue, incidental services revenue, ticket change and cancellation fees, marketing component related to the sale of frequent flyer miles, inflight revenue,and contract services and charter services revenue.services.
Operating revenue was $2.70$1.60 billion, $2.45$0.84 billion and $2.32$2.83 billion for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. The increaseOperating revenue was severely impacted beginning in operating revenue in 2017 from 2016 was driven primarily by an increase inthe first quarter of 2020 as a result of the unprecedented spread and ongoing impacts of the COVID-19 pandemic. Although restrictions have eased and passenger revenuetravel demand has improved, demand and is discussed below:capacity continue to remain below pre-pandemic levels.
20172021 vs. 20162020
Passenger Revenue
Passenger revenue was $2.36 billion and $2.15 billion forincreased by $706.1 million, or 106.2%, in the yearsyear ended December 31, 2017 and 2016, respectively.2021, as compared to the prior year. Details of these changesthis change are described in the table below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Increase (Decrease)
vs. Year Ended December 31, 2020 |
| | Year Ended December 31, 2021 | | Passenger
Revenue | | Yield | | RPMs | | ASM | | PRASM | | |
| (in millions) | | | | | | | | | | |
| Domestic | $ | 1,300.7 | | | $ | 783.3 | | | (12.6) | % | | 187.7 | % | | 128.0 | % | | 10.2 | % | | |
| International | 70.2 | | | (77.2) | | | 151.6 | | | (81.1) | | | (45.4) | | | (12.8) | | | |
| Total scheduled | $ | 1,370.9 | | | $ | 706.1 | | | (5.8) | % | | 119.0 | % | | 91.5 | % | | 7.7 | % | | |
|
| | | | | | | | | | | | |
| | Year Ended December 31, 2017 as compared to December 31, 2016 |
| | Change in scheduled passenger revenue | | Change in
Yield | | Change in
RPM | | Change in
ASM |
| | (in millions) | | | | | | |
| Domestic | $ | 85.8 |
| | 5.7 | % | | (0.5 | )% | | (2.3 | )% |
| International | 130.6 |
| | 7.2 |
| | 19.2 |
| | 15.6 |
|
| Total scheduled | $ | 216.4 |
| | 4.5 | % | | 5.3 | % | | 3.4 | % |
Domestic passenger revenue increased by $85.8 million on a yield improvement of 5.7%. North America routes drove the yield improvement as a result of strong demand and the relatively steady industry capacity environment in 2017, which resulted in higher unit prices.
International revenue increased by $130.6 million forduring the year ended December 31, 20172021 increased by $783.3 million, or 151.4%, as compared to 2020, on capacity growth of 128.0%. Our increased passenger revenue was the priorresult of improved demand for passenger travel, predominantly within our North America routes, driven by the relaxation of travel restrictions for travel to and within the state of Hawai'i. Despite these improvements, demand on our domestic network remains below our pre-COVID-19 pandemic levels, down 32.3%during 2021 as compared to 2019.
During 2021, we expanded service with the addition of three new U.S. mainland destinations: Austin, Texas, Orlando, Florida, and Ontario, California with service to and from Honolulu, Hawai'i, each of which commenced between March and April 2021. We also expanded service with a daily non-stop flight between Kahului, Hawai'i and Long Beach, California, which commenced in March 2021. Additionally, in March and April 2021, respectively, we announced the recommencement of our thrice-weekly service between Kahului, Hawai'i and Las Vegas, Nevada, and launched four-times-weekly seasonal service between Kahului, Hawai'i and Phoenix, Arizona, both of which commenced in May 2021.
International passenger revenue decreased $77.2 million, or 52.4%, during the year period. A 19.2% increaseended December 31, 2021 as compared to 2020, as a result of the ongoing impact of the COVID-19 pandemic and continued restrictions in RPMs alongplace for international travel. Although we recommenced scheduled international passenger flights on a limited basis beginning in late 2020, customer demand across our international network remains depressed given government travel restrictions, particularly as new variants of the COVID-19 virus have emerged and spread. We expect to see depressed international demand through at least the first quarter of 2022 because of the rapid spread of the Omicron variant, with yield improvement of 7.2% drove the strong revenue performance. The increase in RPMs flown is attributedour international markets expected to the expansion of Hawai'ilag behind domestic demand recovery until government travel restrictions begin to Japan service in 2016, which was fully realized in 2017 for these routes; the expansion of Honolululift and customer demand starts to Tokyo/Narita (July 2016 start), Kona to Tokyo/Haneda (December 2016 start), and expansion of existing Honolulu to Tokyo/Haneda, Japan service (December 2016 start).return.
Other Operating Revenue
Other operating revenue increased by $28.7 million, or 9.4%, in 2017, as compared to 2016, due to an increase in cargo revenue of $18.4 million, or 26.0%, due to an increase in freight volumes. The increase was also due to a $2.8 million increase in contract services (e.g. ground handling). Other components within our Other operating revenue line include, but are not limited to: charter revenue, baggage revenue, inflight revenue, and other miscellaneous items.
Operating Expenses
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. |
| | | | | | |
| | Changes for the year ended December 31, 2017 as compared to December 31, 2016 |
| | $ | | % |
| | (in thousands) | | |
| Operating expense: | |
| | |
|
| Aircraft fuel, including taxes and delivery | $ | 96,061 |
| | 27.9 | % |
| Wages and benefits | 97,733 |
| | 18.3 |
|
| Aircraft rent | 13,199 |
| | 10.6 |
|
| Maintenance materials and repairs | (9,417 | ) | | (4.1 | ) |
| Aircraft and passenger servicing | 13,690 |
| | 10.8 |
|
| Commissions and other selling | 6,052 |
| | 4.8 |
|
| Depreciation and amortization | 5,149 |
| | 4.8 |
|
| Other rentals and landing fees | 8,676 |
| | 8.0 |
|
| Purchased services | 14,513 |
| | 15.1 |
|
| Special items | (85,692 | ) | | (78.5 | ) |
| Other | 17,044 |
| | 13.4 |
|
| Total | $ | 177,008 |
| | 8.7 | % |
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 increases in aircraft fuel expense are illustrated in the following table: |
| | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2017 | | 2016 | | % Change |
| | (in thousands, except per-gallon amounts) | | |
| Aircraft fuel expense, including taxes and delivery | $ | 440,383 |
| | $ | 344,322 |
| | 27.9 | % |
| Fuel gallons consumed | 259,915 |
| | 244,118 |
| | 6.5 | % |
| Average fuel price per gallon, including taxes and delivery | $ | 1.69 |
| | $ | 1.41 |
| | 19.9 | % |
The increase in fuel expense from 2016 to 2017 is due to an increase in average fuel price per gallon and increased fuel consumption due to additional flights.
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: |
| | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2017 | | 2016 | | % Change |
| | (in thousands, except per-gallon amounts) | | |
| Aircraft fuel expense, including taxes and delivery | $ | 440,383 |
| | $ | 344,322 |
| | 27.9 | % |
| Realized losses on settlement of fuel derivative contracts | 534 |
| | 27,572 |
| | (98.1 | )% |
| Economic fuel expense | $ | 440,917 |
| | $ | 371,894 |
| | 18.6 | % |
| Fuel gallons consumed | 259,915 |
| | 244,118 |
| | 6.5 | % |
| Economic fuel costs per gallon | $ | 1.70 |
| | $ | 1.52 |
| | 11.8 | % |
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 expense increased by $97.7 million, or 18.3%, in 2017 as compared to 2016, of which approximately $43.4 million was due to the Air Line Pilots Association (ALPA) contract amendment effective April 1, 2017. In addition, employee benefits expenses (including health insurance) increased by $18.4 million for the year. The higher wages and benefits expenses also reflected an increase in the number of flight crew and training to prepare for the induction of our A321neo fleet, in addition to an overall increase in employee headcount by approximately 7.4% as compared to December 31, 2016, which includes flight attendants, machinists, and non-contract employees.
Aircraft rent increased by $13.2 million, or 10.6%, in 2017 as compared to 2016, due to a sale leaseback transaction for three Boeing 767-300 aircraft in April 2017 and the addition of two leased Boeing 717-200 aircraft in November 2016.
Aircraft and passenger servicing expenses increased $13.7 million, or 10.8%, in 2017 as compared to 2016, resulting directly from higher passenger counts, specifically a 21.5% increase in international passengers flown which generally have a higher associated food and handling cost per passenger. This increase resulted in an an overall increase of $5.4 million in food and beverage costs and $5.6 million in ground handling costs.
Purchased services expense increased by $14.5 million, or 15.1%, in 2017 as compared to 2016, due to an increase of $8.6 million in various third party expenses including: outsourced web and IT fees and outsourced labor resources associated with the maintenance hangar project.
Special items expense decreased by $85.7 million, or 78.5%, in 2017 as compared to 2016. See Note 11 to the consolidated financial statements for further discussion surrounding both 2017 and 2016 Special items.
Other expenses increased by $17.0 million, or 13.4%, in 2017 as compared to 2016, due to an increase of $3.8 million in hotel and personnel related expenses for our crew members (e.g. meals and entertainment), as well as a $4.1 million increase in other
supplies expenses. Other components of our Other expense line item include, but are not limited to: communications costs, professional and technical fees, insurance costs, legal fees and other miscellaneous expenses.
Nonoperating Expense
Net nonoperating expense increased by $36.9 million in 2017, as compared to 2016, due to a $35.2 million loss on plan termination and a $10.4 million partial settlement and curtailment loss, which were recorded in Other nonoperating special items in 2017. These expenses were partially offset by an $11.7 million fluctuation in fuel hedge gains during the same period.
In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (the Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, we completed the termination of the Merged Plan by transferring the assets and liabilities to a third-party insurance company. The Merged Plan was fully funded and we recognized a one-time Other nonoperating special item expense of $35.2 million as an Other nonoperating special item in our Consolidated Statement of Operations.
In 2017, we recognized a one-time Other nonoperating special item expense of $10.4 million related to the settlement of a portion of our pilots' other post-retirement medical plan liability, pursuant to which the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and to replace the benefit with a health retirement account (HRA) managed by ALPA. This transaction represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. In August 2017, we made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants.
2016 vs. 2015
Passenger Revenue
Passenger revenue was $2.15 billion and $2.03 billion for the years ended December 31, 2016 and 2015, respectively. Details of these changes are described in the table below: |
| | | | | | | | | | | | |
| | Year Ended December 31, 2016 as compared to December 31, 2015 |
| | Change in scheduled passenger revenue | | Change in
Yield | | Change in
RPM | | Change in
ASM |
| | (in millions) | | | | | | |
| Domestic | $ | 104.2 |
| | 0.1 | % | | 6.6 | % | | 2.9 | % |
| International | 15.9 |
| | (4.7 | ) | | 8.6 |
| | 5.6 |
|
| Total scheduled | $ | 120.1 |
| | (1.1 | )% | | 7.2 | % | | 3.7 | % |
Domestic revenue increased by $104.2 million in 2016, as compared to 2015, primarily due to capacity, yield, and load factor increases on our North America routes; along with increases in capacity on our Neighbor Island routes.
International revenue increased by $15.9 million in 2016, as compared to 2015, due to increased capacity. The strengthening of the U.S. dollar combined with lower fuel surcharges resulted in decreased average fares for our International routes compared to the prior period. Increased capacity was driven by changes we made to our network in 2016, including the introduction of service from Honolulu to Narita, Japan (July 2016) and expansion of service for the Kona to Haneda, Japan (December 2016) route.
Other Operating Revenue
Other operating revenue increased by $13.0$45.7 million, or 4.4%25.4%, in 2016,the year ended December 31, 2021, as compared to 2015,the prior year, primarily due to reductions in cargo and loyalty program revenue that occurred in the second half of 2020 as a result of the COVID-19 pandemic.
Cargo revenue increased $19.9 million during the twelve months ended December 31, 2021 as compared to the prior year due to increased salevolume and yield as a result of milesthe unfavorable impacts of the COVID-19 pandemic on 2020 results; however cargo revenue was down $1.1 million compared to 2019. Loyalty revenue, primarily comprised of brand and other revenue relatedmarketing performance obligations, increased $17.2 million during the twelve months ended December 31, 2021, as compared to our co-brandedthe prior
year, as a result of increased credit card agreementspend and cancellation penalty revenue.new cardholder acquisitions, but down $3.0 million as compared to 2019. Other components of ourin Other operating revenue line item include, but are not limited to, cargo revenue, charter revenue,ground handling and other freight services baggage revenue, inflight revenue,which collectively, increased during the twelve months ended December 31, 2021 by approximately $8.5 million as compared to the prior year, primarily attributed to increased volumes and other miscellaneous items.
contract service operations.
Operating Expenses
The largest components of ourDuring the year ended December 31, 2021, total operating expenses are wages and benefits providedexpense increased $0.2 billion or 12.5% to our employees, aircraft fuel (including taxes and delivery) and aircraft maintenance materials and repairs.$1.7 billion as compared to 2020. Increases (decreases) in operating expenses are detailed below. | | | | | | | | | | | | | | | |
| | Changes for the year ended December 31, 2021 as compared to year ended December 31, 2020 | | |
| | $ | | % | | | | |
| | (in thousands) | | | | | | |
| Operating expenses: | | | | | | | |
| Aircraft fuel, including taxes and delivery | $ | 201,640 | | | 125.0 | % | | | | |
| Wages and benefits | 69,543 | | | 11.1 | | | | | |
| Aircraft rent | 5,586 | | | 5.4 | | | | | |
| Maintenance materials and repairs | 48,477 | | | 39.9 | | | | | |
| Aircraft and passenger servicing | 47,659 | | | 82.1 | | | | | |
| Commissions and other selling | 26,215 | | | 56.6 | | | | | |
| Depreciation and amortization | (13,366) | | | (8.8) | | | | | |
| Other rentals and landing fees | 42,964 | | | 58.2 | | | | | |
| Purchased services | 4,163 | | | 4.2 | | | | | |
| | | | | | | |
| Special items | (175,128) | | | (95.1) | | | | | |
| Government grant recognition | (79,997) | | | 33.2 | | | | | |
| Other | 8,968 | | | 8.6 | | | | | |
| Total | $ | 186,724 | | | 12.5 | % | | | | |
|
| | | | | | |
| | Changes for the year ended December 31, 2016 as compared to December 31, 2015 |
| | $ | | % |
| | (in thousands) | | |
| Operating expense: | |
| | |
|
| Aircraft fuel, including taxes and delivery | $ | (73,406 | ) | | (17.6 | )% |
| Wages and benefits | 58,285 |
| | 12.2 |
|
| Aircraft rent | 8,912 |
| | 7.7 |
|
| Maintenance materials and repairs | 4,322 |
| | 1.9 |
|
| Aircraft and passenger servicing | 9,427 |
| | 8.0 |
|
| Commissions and other selling | 5,985 |
| | 5.0 |
|
| Depreciation and amortization | 2,547 |
| | 2.4 |
|
| Other rentals and landing fees | 13,032 |
| | 13.7 |
|
| Purchased services | 14,436 |
| | 17.6 |
|
| Special items | 109,142 |
| | 100.0 |
|
| Other | 13,329 |
| | 11.7 |
|
| Total | $ | 166,011 |
| | 8.9 | % |
DecreasesThe price and availability of aircraft fuel is volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. The increase in aircraft fuel expense areis illustrated in the following table: | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | | | % Change | | |
| | (in thousands, except per-gallon amounts) | | | | |
| Aircraft fuel expense, including taxes and delivery | $ | 363,003 | | | $ | 161,363 | | | | | 125.0 | % | | |
| Fuel gallons consumed | 179,494 | | | 106,225 | | | | | 69.0 | % | | |
| Average fuel price per gallon, including taxes and delivery | $ | 2.02 | | | $ | 1.52 | | | | | 32.9 | % | | |
|
| | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
| | (in thousands, except per-gallon amounts) | | |
| Aircraft fuel expense, including taxes and delivery | $ | 344,322 |
| | $ | 417,728 |
| | (17.6 | )% |
| Fuel gallons consumed | 244,118 |
| | 234,183 |
| | 4.2 | % |
| Average fuel price per gallon, including taxes and delivery | $ | 1.41 |
| | $ | 1.78 |
| | (20.8 | )% |
The decrease inWe 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 2015or paid to 2016 is primarily due to the decrease in averagehedge counterparties for fuel price per gallon, partially offset by increased fuel consumption due to an additional aircrafthedge derivative contracts settled in the fleet (Airbus 330-200).period inclusive of costs related to hedging premiums.
Economic fuel expense is calculated as follows: | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2021 | | 2020 | | | | % Change | | |
| | (in thousands, except per-gallon amounts) | | | | |
| Aircraft fuel expense, including taxes and delivery | $ | 363,003 | | | $ | 161,363 | | | | | 125.0 | % | | |
| Realized losses on settlement of fuel derivative instruments | 165 | | | 9,035 | | | | | (98.2) | % | | |
| Economic fuel expense | $ | 363,168 | | | $ | 170,398 | | | | | 113.1 | % | | |
| Fuel gallons consumed | 179,494 | | | 106,225 | | | | | 69.0 | % | | |
| Economic fuel costs per gallon | $ | 2.02 | | | $ | 1.60 | | | | | 26.3 | % | | |
|
| | | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 | | 2015 | | % Change |
| | (in thousands, except per-gallon amounts) | | |
| Aircraft fuel expense, including taxes and delivery | $ | 344,322 |
| | $ | 417,728 |
| | (17.6 | )% |
| Realized losses on settlement of fuel derivative contracts | 27,572 |
| | 60,946 |
| | (54.8 | )% |
| Economic fuel expense | $ | 371,894 |
| | $ | 478,674 |
| | (22.3 | )% |
| Fuel gallons consumed | 244,118 |
| | 234,183 |
| | 4.2 | % |
| Economic fuel costs per gallon | $ | 1.52 |
| | $ | 2.04 |
| | (25.5 | )% |
Wages and benefits
Wages and benefits expense increased by $58.3$69.5 million, or 12.2%11.1%, in 2016, as compared to 2015, due to an overall headcount increase of 11.7% resulting from growing capacity in 2016, increased pension and postretirement benefit expenses, and increased profit-sharing expenses due to our improved financial performancethe year ended December 31, 2021, as compared to the prior period. Actions taken by the Company in 2020, in response to decreased passenger travel demand attributed to the COVID-19 pandemic, had a significant impact on wages and benefits during the prior period. Beginning in the first quarter of 2021, improving domestic travel demand led to the ramp up of domestic operations, notably amongst our front-line employees. These actions, combined with scheduled contractual wage increases, resulted in higher wages and benefits during the twelve months ended December 31, 2021 as compared to 2020. We expect that wages and benefits will increase during the first quarter of 2022, as compared to the same period in 2021, as a result of the ramp up of our domestic operations and contractual wage increases.
Maintenance materials and repairs
Maintenance materials and repairs increased $48.5 million, or 39.9%, for the year ended December 31, 2021, as compared to the prior year. The increase is primarily attributed to increased utilization of our aircraft commensurate with the ramp up of our operations during the period, as discussed above. We expect maintenance, materials and repairs expense to increase in the first quarter of 2022 as compared to the same period in 2021, as we continue to rebuild operational capacity combined with scheduled heavy maintenance events and inflationary pressures.
Aircraft and passenger servicing
Aircraft and passenger servicing expense increased by $47.7 million, or 82.1%, for the year ended December 31, 2021 as compared to the prior year. The increase is primarily due to increased capacity and passengers flown, as discussed above. We expect aircraft and passenger servicing expense to increase in the first quarter of 2022, as compared to the same period in 2021, as we continue to rebuild operational capacity.
Commissions and other selling expenses
Commissions and other selling expenses increased by $26.2 million, or 56.6%, for the year ended December 31, 2021 as compared to the prior year. The increase in commissions and other selling expense was primarily related to the increase in operational capacity and passenger travel, as discussed above. We expect commissions and other selling expense to increase in the first quarter of 2022 as compared to the same period in 2021 as we continue to rebuild our operational capacity.
Depreciation and amortization
Depreciation and amortization expense decreased by $13.4 million, or 8.8%, for the year ended December 31, 2021 as compared to the prior year. The decrease is attributed to (a) the reclassification of approximately $29.5 million of ATR and commercial real estate assets to assets held for sale and (b) a reduction in capital expenditures during 2021 and 2020 below pre-COVID-19 pandemic levels while other existing fixed assets have fully depreciated.
Other rentals and landing fees
Other rentals and landing fees expense increased by $13.0$43.0 million, or 13.7%58.2%, in 2016 as compared to 2015, due to increased rates and landing frequencies.
Purchased services expense increased by $14.4 million, or 17.6%, in 2016 as compared to 2015, due to an increase in outsourced web and third-party vendor reservation fees because of increased passenger counts.
In 2016, we incurred $109.1 million in Special items. The $109.1 million is comprised of three components: (1) $49.4 million in impairment charges in connection with our owned Boeing 767-300 fleet and related assets, (2) $38.8 million related to retroactive bonuses included within a tentative agreement between us and ALPA as of February 2017 and profit sharing for other contract groups, and (3) $21.0 million related to the termination of our Boeing 767-300 maintenance contract.
The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to early exit the Boeing 767-300 fleet in 2018. The early exit of the Boeing 767-300 fleet was made possible by our decision to acquire one Airbus A330 (delivered in 2017), lease two additional Airbus A321s (to be delivered in 2018 in addition to our existing aircraft orders), and our ability to early terminate our long-term power-by-the-hour maintenance contract for the Boeing 767-300 fleet. This fleet change allows us to streamline our fleet, simplify our operations, and potentially reduce our cost structure in the future. In order to assess whether there was an impairment of our owned Boeing 767-300 asset group, we compared the projected undiscounted cash flows of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows. We estimated the fair value of our owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers of our owned aircraft, which resulted in a $49.4 million impairment charge. Our determination of fair value considered attributes specific to our owned Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.). The Boeing 767-300 asset group consists of both owned and leased aircraft. We expect to remove three leased Boeing 767-300 aircraft from service in 2018. At that time, these aircraft will have remaining lease payments of approximately $54.3 million. At the time each aircraft is removed from service, we will accrue for any remaining lease payments not mitigated through an arrangement with the lessor.
In March 2017 the Air Line Pilots Association (ALPA) voted to ratify their collective bargaining agreement. The agreement is for a 63-month contract amendment which includes (amongst other various benefits) a pay adjustment and ratification bonus. As ofyear ended December 31, 2016, we accrued $34.0 million related to past service (prior to January 1, 2017), which was paid upon ratification.
Other expenses increased by $13.3 million, or 11.7%, in 2016 as compared to 2015, due to an increase of $5.9 million in hotel expenses for our crew members, professional and technical fees of $4.5 million, as well as personnel related expenses such as meals and entertainment. Other components of our Other expense line item include, but are not limited to: communications costs, insurance costs, legal fees and other miscellaneous expenses.
Nonoperating Expense
Net nonoperating expense decreased by $116.7 million in 2016, as compared to 2015, due to reduced debt levels which resulted in a $19.1 million reduction in interest expense2021 as compared to the prior year period.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 decreaseincrease in net nonoperatinglanding fees and other rents is attributed to increased operations as discussed above. We expect other rentals and landing fees expense was alsoto increase in the first quarter of 2022, as compared to the same period in 2021, as we rebuild operational capacity and passenger travel demand continues to improve, and due to gainsinflationary pressures and increased infrastructure projects at various airports in which we operate, the costs of which are passed onto airlines.
Special items
During the twelve months ended December 31, 2021, we announced the termination of our 'Ohana by Hawaiian operations, which operated under a capacity purchase agreement (CPA) with a third-party carrier. We reclassified approximately $23.6 million to assets held for sale and recognized a one-time expense of $6.4 million to write-down the asset group to fair value. Additionally, we recorded a charge of approximately $2.6 million for the early termination of the CPA.
During the twelve months ended December 31, 2020 we recognized approximately $184.1 million of special items expense, 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 fuel hedge portfoliostock 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 $20.1 million in 2016 comparedMarch 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 lossesthe recognition of $59.9a 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 $17.8 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 separation programs discussed above.
Government grant recognition
During the years ended December 31, 2021 and 2020, we received $372.4 million and $300.9 million in federal payroll support payments, of which $320.6 million and $240.6 million, respectively, was in the form of a grant. These funds were required to be used exclusively for the payment of employee wages, salaries and benefits. During the years ended December 31, 2021 and 2020, we recognized approximately $320.6 million and $240.6 million, respectively, as contra-expense in the Consolidated Statements of Operations. As of December 31, 2021, we utilized all funds received under the federal payroll support programs to pay salaries and wages and reinstate employees previously impacted by involuntary leaves and terminations.
Other expense
Other expense increased by $9.0 million, or 8.6%, for the year ended December 31, 2021, as compared to 2020. The increase was primarily attributed to our ramp up of operations and increase in technology projects, including personnel-related expenditures for crew travel, professional and technical services, and other miscellaneous expenditures. We expect other expense to increase during the first quarter of 2022 as we continue to rebuild operational capacity.
Nonoperating expense, net
Net nonoperating expense increased by $50.3 million in the year ended December 31, 2021, as compared to the prior year period.year. The increase in expense was primarily attributed to an increase in interest expense as a result of the $1.2 billion loyalty and intellectual property financing completed in February 2021 combined with the recognition of approximately $38.9 million in losses related to the extinguishment of long-term debt. Refer to Note 8 of the Notes to Consolidated Financial Statements for additional discussion. These losses were offset by approximately $27.6 million in unrealized gains associated with our Japanese Yen-denominated debt as a result of favorable exchange rates.
Income Tax Expense
We recorded income
Our effective tax expense of $46.5 million, $144.0 million, and $113.0 million duringrate was 21.9% for the yearsyear ended December 31, 2017, 2016, and 2015, respectively. In 2017, 2016, and 2015, we had an2021, compared with 27.0% for the prior year. The effective tax rate represents a blend of 11.3%, 38.0%,federal and 38.2%, respectively.
As a result ofstate taxes and includes the Tax Cuts and Jobs Act of 2017, we recognized a one-time benefit of $104.2 million in the quarter ended December 31, 2017 from the estimated impact of the revaluation of$4.4 million valuation allowance reserve recorded against state deferred tax assets and liabilitiesassets. Refer to the new corporate federal rate of 21%. ASC 740 requires companies to account for the effects of changes in income tax rates and laws on deferred tax balances in the period in which the legislation is enacted. As of December 31, 2017, we have made a reasonable estimateNote 10 of the effects on our existing deferred tax balances. We are still analyzing the new legislation and refining our calculations, which could potentially impact the measurement of our tax balances. For 2018, we expect the reduction in the corporate federal tax rate will result in an all-in book tax rateNotes to Consolidated Financial Statements for us of 24% to 26%. However, the actual tax rate could differ due to a number of factors.additional discussion.
See Note 10 to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Our
Since the beginning of the COVID-19 pandemic in early 2020, we took various actions to increase liquidity is dependentand strengthen our financial position. For discussion on the actions we took in 2020, refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021. Refer to Cash Flow and Uses of Liquidity section for discussion of 2021 financing activities.
Cash, cash we generate from operating activities, our existing cash resources,equivalents (excluding restricted cash) and our debt financing arrangements. short-term investments totaled approximately $1.7 billion as of December 31, 2021, compared to $0.9 billion as of December 31, 2020.
As of December 31, 2017, we had $191.02021, our current assets exceeded our current liabilities by approximately $902.9 million in cash and cash equivalents and $269.3as compared to $113.93 million in short-term investments, representing a decrease of $149.8 million from December 31, 2016. Our restricted cash balance consists of cash
held as collateral by entities that process our credit card transactions for advanced ticket sales and, as of December 31, 2017 and 2016, our balance was $1.0 million and $5.0 million, respectively.
In 2018, we have significant obligations in order to fund our current aircraft orders, and we are currently evaluating our options to finance these transactions via our operating cash flows coupled with debt financing. We have been able to generate sufficient funds from our operations to meet our working capital requirements and we typically finance our aircraft through secured debt and lease financings. At December 31, 2017, we had $570.7 million of debt and capital lease obligations, including $59.5 million classified as a current liability in the Consolidated Balance Sheets. As of December 31, 2017, our current liabilities exceeded our current assets by approximately $189.8 million. However, approximately $545.42020. Approximately $631.2 million of our current liabilities are relatedrelate to our advanced ticket sales and frequent flyer deferred revenue, bothrevenue.
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 which largely represent revenuethe COVID-19 pandemic is uncertain. In addition, the magnitude and duration of the COVID-19 pandemic remains uncertain. However, we expect to be recognizedmeet our liquidity needs for travel within the next 12twelve months with cash and not actual cash outlays. The deficit in working capital does not have an adverse impact to ourequivalents (excluding restricted cash), short-term investments and cash flows from operations. We expect to meet our long-term liquidity or operations.
In December 2016, we amendedneeds with cash flows from operations and restated the existing credit agreement with Citigroup Global Markets Inc. by increasing the secured revolving credit facility (Revolving Credit Facility) from $175 million to $225 million. This Revolving Credit Facility will expire in December 2019. As of December 31, 2017, we had no outstanding borrowings under the Revolving Credit Facility.financing arrangements.
Cash FlowsFlow and Uses of Liquidity
Operating Activities
Net cash provided by operating activities was $331.1 million, $437.0 million, and $476.0$251.3 million in 2017, 2016, and 2015, respectively. The decrease in 2017 was primarily due to: (1)the year ended December 31, 2021 compared to net cash used to settle the Merged Plan, (2) cash used to partially settle the (Pilots) OPEB liability, and (3) a prepaymentin operating activities of $310.7 million in the amountprior year. Our operating cash flows are impacted by the following factors:
Advanced Ticket Sales. We sell tickets for air travel and record the receipt on advance sales as deferred revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer and fall peak travel seasons and decreases upon utilization during these seasons. The ongoing impact of $75 millionCOVID-19 has resulted in a lower level of advanced bookings than historically experienced, which has impacted seasonal trends. As discussed above, we noted marked improvements in air travel demand in 2021, as compared to one2020; however, demand (measured in passengers flown) and revenue remain well below 2019 levels. The ongoing impact and severity of the reduction in travel demand due to COVID-19 and related variants are uncertain, as described in Item 1A. Risk Factors.
Fuel. Fuel expense represented approximately 21.6% of our maintenance vendorstotal operating expense in 2021. The market price for jet fuel is volatile, which can impact the comparability of our cash flows from operations. We expect fuel consumption to increase in the first quarter of 2022 as compared to the same period in 2021 as we will receive benefits incontinue to ramp up operational capacity.
Pension and Other Postretirement Benefit Plan Funding. We sponsor a defined pension plan covering eligible pilots and retirees. This plan is closed to new entrants and frozen for future benefit accruals. Additionally, we sponsor four unfunded defined benefit postretirement medical and life insurance plans and a separate plan to administer the pilots' disability benefits. As of December 31, 2021, the excess of the amount paid. The decreaseprojected benefit obligations over the fair value of plan assets was approximately $168.4 million. We contributed $4.1 million to our disability plan in 2016 (versus 2015)both 2021 and 2020.
During the years ended December 31, 2021 and 2020, we were not required to, and did not make, contributions to our defined benefit pension plan. 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 and funding status, we do not anticipate requiring any cash contributions to our defined benefit plan between 2022 through 2024. For our pilot's disability plan, we anticipate annual contributions to the plan of approximately $4.0 million between 2022 and 2026.
Government Support Programs. Operating cash flows for the twelve months ended December 31, 2021 and 2020 included $320.6 million and $240.6 million in proceeds received as part of the government payroll support programs, all of which was utilized in each respective year to offset eligible payroll and payroll-related costs. As of December 31, 2021, all funds were utilized towards their stated purpose.
Operating Lease Obligations. As described further in Note 9 of the Notes to the Consolidated Financial Statements, as of December 31, 2021 we had a total of $502.5 million of minimum operating lease obligations. These minimum lease payments range from approximately $59.9 million to $104.5 million on an annual basis over the next five years.
Other Commitments. We have certain purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to 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. As of December 31, 2021, we had approximately $4.8 billion of such obligations, which range from approximately $439.8 million to $1.7 billion on an annual basis over the next five years.
Investing Activities
Short-Term Investments. During 2021, we acquired approximately $897.8 million (net of sales) in short-term investments, a portion of which was funded from proceeds we obtained through our financing transactions. See Note 5 of the Notes to the Consolidated Financial Statements for further information on these investments.
Capital Expenditures. Our capital expenditures are primarily duerelated to a $66.1the purchase of aircraft, fleet modifications and technology enhancements. Our capital expenditures decreased to $39.3 million decrease in our deferred income tax expense2021 as compared to $105.3 million in 2020, primarily as a result of becoming a cash taxpayer,the ongoing impacts of the COVID-19 pandemic and a $42.7our focus on strengthening our financial position.
We expect that we will have capital expenditures between approximately $105 million net increase in pension and postretirement benefit contributions, which were partially offset by an increase of $52.8$125 million in net income adjusted2022, primarily for aircraft, including advance deposit payments for future aircraft deliveries and aircraft modifications, along with facility upgrades and technology enhancements. We expect that the $49.4capital expenditures in 2022 will be funded through available liquidity and cash flows from operations. We have committed to future aircraft purchases, with scheduled deliveries between 2023 and 2026.
As of December 31, 2021, 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 2023 and 2026 |
| | | | | |
| | | | | |
| General Electric GEnx spare engines: | | | | | |
| B787-9 spare engines | 2 | | | 2 | | | Between 2023 and 2025 |
Committed expenditures for these aircraft, engines, and related flight equipment are approximately$92 million increasein 2022,$418 million in 2023, $503 million in 2024,$411 million in 2025, and $234 million in 2026.
In October 2020, we entered into an amendment to our Boeing 787-9 purchase agreement, which changed the scheduled delivery of each aircraft and related engines to between 2022 and 2026. In December 2021, we received notification of further delivery delays, and we have agreed to defer delivery of our first two aircraft from the scheduled delivery date at the end of 2022, to the first half of 2023. The remainder of the B787-9 delivery schedule has not changed. Refer to Note 9 of the Notes to Consolidated Financial Statements for additional discussion.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. We 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.
Financing Activities
Debt and finance lease obligations. As discussed above, in response to the COVID-19 pandemic that began in early 2020, we took actions to shore up our liquidity and financial position. In February 2021, we also completed the issuance of $1.2 billion in 5.75% senior secured notes, which are collateralized by our loyalty program and intellectual property. The Notes require quarterly interest payments and mature in January 2026. See above and Note 8 of the Notes to the Consolidated Financial Statements for more information on the offering.
As our liquidity stabilized following the offering, we repaid approximately $440.9 million in future debt obligations during the year ended December 31, 2021 as follows:
•In February 2021, we (a) paid in full the $45.0 million ERP loan issued pursuant to the CARES Act, and in connection with such repayment, terminated the Amended and Restated Loan Agreement. The warrants remain outstanding pursuant to the terms of the agreement, and (b) repaid the $235.0 million outstanding balance drawn on our revolving credit facility. The revolving credit facility matures in December 2022 and remains available to draw upon at a future date in the event the need arises.
•In October 2021, we repurchased approximately $160.9 million of our outstanding 7.375% Series 2020-1A Pass Through Certificates due 2027 and 11.250% Series 2020-1B Pass Through Certificates due 2025, and incurred a $34.9 million loss on extinguishment of debt, which is recorded in loss on extinguishment of debt in non-operating expense in the Consolidated Statements of Operations.
In addition, we received approximately $372.4 million through government payroll support programs discussed above, of which approximately $51.7 million was issued as a Note due at maturity in 2031.
As of December 31, 2021 our total debt was $1.8 billion, compared to $1.1 billion as of December 31, 2020.
Future Debt Obligations. As described in Note 8 of the Notes to the Consolidated Financial Statements, as of December 31, 2021, scheduled maturities of our debt in 2022 and 2023 were $98.7 million and $63.7 million, with scheduled maturities from 2024 through 2026 of $61.6 million, $79.1 million, and $1,347.4 million, respectively. As of December 31, 2021, scheduled maturities after 2026 aggregate to $188.3 million. In addition, we are obligated to make periodic interest payments at fixed and variable rates, depending on the terms of the applicable debt agreements. Based on applicable interest rates and scheduled debt maturities as of December 31, 2021, these interest obligations total $87.0 million in 2022, $84.0 million in 2023, $82.2 million in 2024, $80.1 million in 2025, $24.3 million in 2026, and $11.7 million thereafter.
Finance Lease Obligations. As described further in Note 9 of the Notes to the Consolidated Financial Statements as of December 31, 2021, we had a total of $125.1 million of minimum finance lease obligations. These minimum lease payments range from approximately $11.3 million to $29.5 million on an annual basis over the next five years.
Issuance of Equity. In December 2020, we 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 impairmentissuance and sale of up to 5.0 million shares of our owned Boeing 767-300 assets.common stock, par value $0.01 per share. During the twelve months ended December 31, 2021, we sold 2.9 million shares pursuant to the Equity Distribution Agreement at an average price of $24.47 per share, with net proceeds totaling approximately $68.1 million. As of March 5, 2021, we sold all of the 5.0 million shares authorized under the Equity Distribution Agreement, at an average price of $22.46 per share, with net proceeds of approximately $109.3 million.
NetReturn to Shareholders. 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 federal Payroll Support Programs, which restricts us from repurchasing shares and making dividend payments until September 30, 2022. We spent $7.5 million to repurchase and retire approximately 0.3 million shares of our common stock in open market transactions during the year ended December 31, 2020.
The following table displays information with respect to our stock repurchase programs as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 used in investing activities was $294.7dividends of $0.0 million, $154.1$5.5 million, and $35.3 million for 2017, 2016, and 2015, respectively. The increase in net cash used in investing activities in 2017 was primarily due to a $174.4 million increase in cash payments for the purchases of property and equipment, including two Airbus A321neo's and one Airbus A330 aircraft. We also made pre-delivery deposits for our Airbus A321neo's during 2017 of $87.8 million. The increase in net cash used in 2016 was primarily due to a $69.9 million decrease in cash received compared to 2015, for purchase assignment and leaseback transactions, and engine credit payments received from the manufacturer and an increase of $60.0$22.8 million in cash2021, 2020, and 2019, respectively. Our receipt of financial assistance under federal Payroll Support Programs precludes us from making any further dividend payments for propertyuntil September 30, 2022.
Undrawn Lines of Credit. As of December 31, 2021, we had approximately $235.0 million undrawn and equipment, including pre-delivery deposits for our Airbus A330-200 and Airbus A321neo fleet.
Net cash used in financing activities was $175.5 million, $238.5 million, and $424.9 million for 2017 and 2016, and 2015, respectively. The decrease in cash used in financing activities in 2017 was due to a reduction in repayment of long-term debt and capital lease obligations as compared to 2016. The decrease in cash used in 2016 was due to the lower amount of share repurchases and payments for settlements of our convertible notes in 2015.
Covenantsavailable under our Financing Arrangementsrevolving credit facility that matures in December 2022. We are currently exploring options to renew our revolving credit facility.
Credit Card Holdbacks. Under our 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. These holdbacks, which are included inreported as restricted cash in our Consolidated Balance Sheets totaled $1.0 million and $5.0 million asSheets. As of December 31, 20172021 and 2016, respectively.
2020, 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
Covenants. We are in compliance with covenants in our debt and Other Postretirement Benefit Plan Funding
As oflease agreements at December 31, 2017, the excess of the projected benefit obligations over the fair value of plan assets was approximately $224.0 million. We voluntarily contributed $30.2 million, $57.8 million, and $20.4 million to our defined benefit pension plans (excluding one-time settlement payments) and disability plan during 2017, 2016, and 2015, respectively. 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. We have made significant contributions (above the minimum required) to our defined benefit pension and disability plans in the past few years. In 2018, our minimum required contribution has been determined to be nil.2021.
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 Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, we completed the termination of the Merged Plan by transferring the assets and liabilities to a third-party insurance company. In 2017, we contributed $18.5 million in cash to fully fund the Merged Plan and recognized a one-time financial loss of $35.2 million as an Other nonoperating special item on our Consolidated Statement of Operations. We no longer have any expected contributions to the Merged Plan due to the final settlement.
In March 2017, we announced the ratification of a 63-month contract amendment with our pilots as represented by the Air Line Pilots Association (ALPA). In connection with the ratification of the agreement, the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and replace the benefit with a heath retirement account (HRA) managed by ALPA, which represented a curtailment and partial settlement of the pilots' other postretirement benefit plan. In August 2017, we made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 postretirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the partial settlement of the liability, the discount rate was updated to 3.86%. We recognized a one-time settlement loss as an Other nonoperating special item of $10.4 million. The obligation recorded for the unsettled portion of this plan was $73.4 million as of the partial settlement date.
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, 2017 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 and capital lease obligations(1) | $ | 735,415 |
| | $ | 88,858 |
| | $ | 157,689 |
| | $ | 156,015 |
| | $ | 332,853 |
|
| Operating leases—aircraft and related equipment(2) | 629,980 |
| | 127,235 |
| | 215,787 |
| | 123,241 |
| | 163,717 |
|
| Operating leases—non-aircraft | 124,342 |
| | 6,891 |
| | 12,983 |
| | 13,287 |
| | 91,181 |
|
| Purchase commitments—capital(3) | 1,504,089 |
| | 455,923 |
| | 745,991 |
| | 180,594 |
| | 121,581 |
|
| Other commitments(4) | 506,198 |
| | 73,041 |
| | 114,674 |
| | 102,322 |
| | 216,161 |
|
| Projected employee benefit contributions(5) | 38,481 |
| | 3,591 |
| | 34,890 |
| | — |
| | — |
|
| Total contractual obligations | $ | 3,538,505 |
| | $ | 755,539 |
| | $ | 1,282,014 |
| | $ | 575,459 |
| | $ | 925,493 |
|
| |
(1) | Amounts reflect capital lease obligations for one Airbus A330-200 aircraft, two Boeing 717-200 aircraft, one Airbus A330 flight simulator, aircraft and IT related equipment, and the building component of the cargo and maintenance hangar (within the capital commitments section). |
| |
(2) | Amounts reflect leases for ten Airbus A330-200 aircraft, seven Boeing 767-300 aircraft, and three Boeing 717-200 aircraft as of December 31, 2017. Subsequent to year ended December 31, 2017, in January 2018 we purchased three of our existing Boeing 767-300 that were classified as operating leases from the lessor and entered into a forward sale agreement for those same three aircraft (to be delivered later in 2018) with another airline. As these obligations are presented as of December 31, 2017, the associated lease payments are reflective in the table above. We are in process of evaluating the transactions and we expect to take a loss on the lease termination during the first quarter of 2018 between $15.0 million and $18.0 million related to this transaction. |
| |
(3) | Amounts include our firm commitments for aircraft and aircraft related equipment. |
| |
(4) | Amounts include commitments for services provided by third-parties for aircraft maintenance for our Airbus fleet, capacity purchases, IT, 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 contributions to our pension plans (based on actuarially determined estimates) and 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. We are currently unable to estimate the projected contributions beyond 2020. |
Capital Commitments
As of December 31, 2017, 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 | 14 |
| | 9 |
| | Between 2018 and 2020 |
| A330-800neo aircraft | 6 |
| | 6 |
| | Between 2019 and 2021 |
| Pratt & Whitney spare engines: | | | | | |
| A321neo spare engines | 3 |
| | 2 |
| | Between 2018 and 2019 |
| Rolls-Royce spare engines: | |
| | |
| | |
| A330-800neo spare engines | 2 |
| | — |
| | Between 2019 and 2020 |
Committed expenditures for these aircraft, engines, and related flight equipment are approximately $456 million in 2018, $503 million in 2019, $242 million in 2020, $170 million in 2021, $10 million in 2022, and $122 million thereafter.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. We 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.
In November 2016, we entered into a lease agreement with the Department of Transportation of the State of Hawai'i to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a lease term of 35 years. As the hangar was not fully constructed, we took responsibility for the remainder of the construction and were responsible for the remainder of the construction costs of $33.3 million. In accordance with the applicable accounting guidance, specifically as it relates to our involvement in the construction of the hangar, we were considered the owner of the asset under construction and have recognized a $73.0 million asset, with a corresponding lease liability, for the amount previously spent by the lessor.
We placed the hangar into service in late 2017. The $73.0 million liability will be reduced as we make rental payments under the agreement and the $106.3 million asset will be depreciated over the lease term.
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 boardBoard of directors'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, 2021, we recognized $320.6 million in contra-expense related to grant proceeds from the federal payroll support programs as compared to $240.6 million recognized in the prior year. The grant proceeds were recognized in proportion to estimated wages and benefits expense over the period the grant covers. We utilized all proceeds under the federal payroll support programs as of December 31, 2021.
•Losses on the extinguishment of debt are excluded to allow investors to better analyze our core operational performance and more readily compare our results to other results in the periods presented below.
•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, is excluded to alloware 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 to analyze our core operational performance and compare our results to other airlines in the periods presented below.
As a result•Change in unrealized losses (gains) on foreign debt are based on fluctuations in foreign exchanges rates related to foreign-denominated debt agreements. We believe that excluding the impact of the Tax Cutsthese amounts helps investors analyze our operational performance and Jobs Act of 2017, we recognized a one-time benefit of $104.2 millioncompare our results to other airlines in the fourth quarter of 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. This tax benefit is being excluded from our results as a Special item. We expect our effective tax rate in 2018 to be in the range of 24 to 26 percent. We excluded the Tax Cuts and Jobs Act of 2017 effect (on the financial statements) in order to allow investors to better analyze our core results and allow the information to beperiods presented on a comparative basis to the prior year.below.
2016 Special Items
The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to exit the Boeing 767-300 fleet in 2018. We estimated the fair value of the owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers, which resulted in a $49.4 million impairment charge.
In 2016, we accrued $34.0 million associated with the tentative agreement with ALPA related to past service (prior to January 1, 2017) and also elected to pay a $4.8 million profit sharing bonus payment to other labor groups related to prior period service.
In connection with the decision to exit the Boeing 767-300 fleet, we negotiated a termination of our Boeing 767-300 maintenance agreement and recorded a $21.0 million charge related to the amount paid to terminate the contract.
2017 Special Items
In August 2017, we terminated the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portion of our pilots' other post-retirement medical plan liability. In connection with the reduction of these liabilities we 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.
In April 2017, we executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft. The lease terms for the three aircraft commenced in April 2017 and continues through November 2018, December 2018, and January 2019, respectively. During the twelve months ended December 31, 2017,2020 we recorded a loss on salerecognized approximately $184.1 million of aircraftspecial items expense, comprised of $4.8 million.the following:
•During the first quarter of 2020, we recognized $126.9 million of special items in the Consolidated Statements of Operation, comprised of the following:
In February 2017, we reached a tentative agreement with ALPA, covering our pilots. In March 2017,◦On April 3, 2020, we received noticenotification from ALPAthe AFA that the agreementCBA was ratified by ALPA'sits members. The agreement became effective April 1, 2017 and has a term of 63 months. The agreement includes,ratified CBA provided for, among other various benefits,things, a pay adjustment andratification payment, payable over twelve months. We recorded a $23.5 million ratification bonus, computed based on previous service. 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 1 of 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 1 of 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 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.
During the twelve months ended December 31, 2017,2021, we expensed $18.7recognized approximately $9.0 million primarily related toof special items expense, comprised of the following:
•During the second quarter of 2021, we announced the termination of our 'Ohana by Hawaiian operations, which operated under a one-time payment to reduce our future 401K employer contributionCPA with a third-party carrier. The asset group met the requirements for, certain pilot groups, which is not recoverable once paid.and was reclassified as Held-for-Sale on the Consolidated Balance Sheets. We fair valued the asset group resulting in the write-down of approximately $6.4 million. Additionally, we recorded an early termination charge associated with the CPA of approximately $2.6 million.
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, |
| | 2017 | | 2016 | | 2015 |
| | Net Income | | Diluted Net Income Per Share | | Net Income | | Diluted Net Income Per Share | | Net Income | | Diluted Net Income Per Share |
| | (in thousands, except for per share data) |
| As reported—GAAP | $ | 364,041 |
| | $ | 6.82 |
| | $ | 235,432 |
| | $ | 4.36 |
| | $ | 182,646 |
| | $ | 2.98 |
|
| Add: estimated effect of revaluation of deferred tax liability | (104,176 | ) | | (1.95 | ) | | — |
| | — |
| | — |
| | — |
|
| Add: changes in fair value of derivative contracts | (3,846 | ) | | (0.07 | ) | | (47,678 | ) | | (0.88 | ) | | (1,015 | ) | | (0.02 | ) |
| Add: loss on extinguishment of debt | — |
| | — |
| | 10,473 |
| | 0.19 |
| | 12,058 |
| | 0.20 |
|
| Add: special items | | | | | | | | | | | |
| Operating | | | | | | | | | | | |
| Loss on sale of aircraft | 4,771 |
| | 0.09 |
| | — |
| | — |
| | — |
| | — |
|
| Collective bargaining charge | 18,679 |
| | 0.35 |
| | 38,781 |
| | 0.72 |
| | — |
| | — |
|
| Impairment charge | — |
| | — |
| | 49,361 |
| | 0.92 |
| | — |
| | — |
|
| Termination charge | — |
| | — |
| | 21,000 |
| | 0.39 |
| | — |
| | — |
|
| Nonoperating | | | | | | | | | | | |
| Partial settlement and curtailment loss | 10,384 |
| | 0.19 |
| | — |
| | — |
| | — |
| | — |
|
| Loss on plan termination | 35,201 |
| | 0.66 |
| | — |
| | — |
| | — |
| | — |
|
| Tax effect of adjustments | (23,924 | ) | | (0.45 | ) | | (27,307 | ) | | (0.51 | ) | | (4,417 | ) | | (0.07 | ) |
| Adjusted net income | $ | 301,130 |
| | $ | 5.64 |
| | $ | 280,062 |
| | $ | 5.19 |
| | $ | 189,272 |
| | $ | 3.09 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | 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 | $ | (144,773) | | | $ | (2.85) | | | $ | (510,935) | | | $ | (11.08) | | | $ | 223,984 | | | $ | 4.71 | |
| Adjusted for: | | | | | | | | | | | |
| CARES Act - carryback of additional NOLs | — | | | — | | | (45,416) | | | (0.99) | | | — | | | — | |
| Government grant recognition | (320,645) | | | (6.32) | | | (240,648) | | | (5.22) | | | — | | | — | |
| Loss on extinguishment of debt | 38,889 | | | 0.77 | | | — | | | — | | | — | | | — | |
| Changes in fair value of fuel derivative contracts | (382) | | | (0.01) | | | (2,105) | | | (0.05) | | | (5,694) | | | (0.13) | |
| Unrealized loss (gain) on non-designated fx positions | (1,352) | | | (0.03) | | | 1,327 | | | 0.03 | | | — | | | — | |
| Unrealized loss (gain) on foreign debt | (27,593) | | | (0.54) | | | 14,759 | | | 0.32 | | | 696 | | | 0.02 | |
| Gain on sale of aircraft | — | | | — | | | — | | | — | | | (1,948) | | | (0.04) | |
| Special items | 8,983 | | | 0.18 | | | 184,111 | | | 3.99 | | | — | | | — | |
| Nonoperating special items | — | | | — | | | 5,682 | | | 0.12 | | | — | | | — | |
| | | | | | | | | | | |
| Tax effect of adjustments | 63,441 | | | 1.25 | | | 42,252 | | | 0.92 | | | 1,845 | | | 0.04 | |
| Adjusted net income | $ | (383,432) | | | $ | (7.55) | | | $ | (550,973) | | | $ | (11.96) | | | $ | 218,883 | | | $ | 4.60 | |
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 and specialnon-recurring items are summarized in the table below: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| (in thousands, except for CASM figures) |
| GAAP operating expenses | $ | 1,679,148 | | | $ | 1,492,424 | | | $ | 2,504,751 | |
| Adjusted for: | | | | | |
| Aircraft fuel, including taxes and delivery | (363,003) | | | (161,363) | | | (542,573) | |
| Government grant recognition | 320,645 | | | 240,648 | | | — | |
| Special items | (8,983) | | | (184,111) | | | — | |
| | | | | |
| Gain on sale of aircraft | — | | | — | | | 1,948 | |
| Adjusted operating expenses | $ | 1,627,807 | | | $ | 1,387,598 | | | $ | 1,964,126 | |
| Available Seat Miles | 14,535,425 | | | 7,560,486 | | | 20,596,711 | |
| CASM—GAAP | 11.55 | ¢ | | 19.74 | ¢ | | 12.16 | ¢ |
| Adjusted for: | | | | | |
| Aircraft fuel, including taxes and delivery | (2.50) | | | (2.13) | | | (2.63) | |
| Government grant recognition | 2.21 | | | 3.18 | | | — | |
| Special items | (0.06) | | | (2.44) | | | — | |
| | | | | |
| Gain on sale of aircraft | — | | | — | | | 0.01 | |
| Adjusted CASM | 11.20 | ¢ | | 18.35 | ¢ | | 9.54 | ¢ |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except for CASM figures) |
| GAAP operating expenses | $ | 2,211,856 |
| | $ | 2,034,848 |
| | $ | 1,868,837 |
|
| Less: aircraft fuel, including taxes and delivery | (440,383 | ) | | (344,322 | ) | | (417,728 | ) |
| Less: special items | | | | | |
| Loss on sale of aircraft | (4,771 | ) | | — |
| | — |
|
| Collective bargaining charge | (18,679 | ) | | (38,781 | ) | | — |
|
| Impairment charge | — |
| | (49,361 | ) | | — |
|
| Termination of Boeing 767-300 engine maintenance contract | — |
| | (21,000 | ) | | — |
|
| Adjusted operating expenses—excluding aircraft fuel and special items | $ | 1,748,023 |
| | $ | 1,581,384 |
| | $ | 1,451,109 |
|
| Available Seat Miles | 19,006,682 |
| | 18,384,637 |
| | 17,726,322 |
|
| CASM—GAAP |
| 11.64 | ¢ | |
| 11.07 | ¢ | |
| 10.55 | ¢ |
| Less: aircraft fuel | (2.32 | ) | | (1.87 | ) | | (2.36 | ) |
| Less: special items | | | | | |
| Loss on sale of aircraft | (0.02 | ) | | — |
| | — |
|
| Collective bargaining charge | (0.10 | ) | | (0.20 | ) | | — |
|
| Impairment charge | — |
| | (0.28 | ) | | — |
|
| Termination of Boeing 767-300 engine maintenance contract | — |
| | (0.11 | ) | | — |
|
| CASM—excluding aircraft fuel and special items |
| 9.20 | ¢ | |
| 8.61 | ¢ | |
| 8.19 | ¢ |
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 U.S. generally accepted accounting principles.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 consolidated financial statementsNotes to Consolidated Financial Statements for additional discussion of the application of these estimates and other accounting policies.
Revenue Standard (ASC 606), effective January 1, 2018Recognition
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 new revenue standard (ASC 606), effective January 1, 2018, will affect our accounting policiesvalue 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 processes (including systems) regarding frequent flyer, passenger revenue, credit cardcredits 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 booking fees. The adoptionextended ticket validity for up to 24 months for (a) tickets issued between March 1, 2020 and December 31, 2020 and (b) tickets issued prior to March 1, 2020 for original travel between March 1, 2020 and February 28, 2021. In December 2021, we announced the further extension of ticket validity to December 31, 2022, which also includes all Main Cabin and First Class passenger tickets purchased in 2021. 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, available market information, forecasted trends and the extension of the standard will haveexpiration date for certain tickets impacted by COVID-19. During the year ended December 31, 2021, we recognized approximately $48.3 million in advanced ticket breakage. The primary assumption utilized in our calculation of advanced ticket breakage involves an estimate of future breakage patterns, which is based on a significantcombination of historical activity and expected customer behavior. A 10% change in this rate represents a change of approximately $4.8 million in advanced ticket breakage. Given the ongoing impact of the COVID-19 pandemic on actual results and its continued impact on travel demand, we continue to monitor customers' travel behavior and may adjust our financial statements and our critical accounting policies related to the standard will change as a result of adoption. As described and quantified in Note 1, we expect total operating revenue for the years under restatement to decrease by less than 1%, primarily due to changesestimates in the accounting for our frequentfuture.
Ticket change fees are recorded in Air traffic liability and recognized when the related transportation is provided. During the twelve months ended December 31, 2021 and 2020, we recognized approximately $4.8 million and $11.3 million, respectively in ticket change fee revenue.
Frequent flyer program. We will record an increase in deferred revenue related to miles earned for flights, which will result in a decrease in revenue compared to historical reporting as activity under the frequent flyer program grows. See Note 1 to our Consolidated Financial Statements for additional information including estimated quantification of the effect on our 2016 and 2017 financial statements.
Frequent Flyer Accounting (pre ASC 606)
revenue. HawaiianMiles,Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. We utilize the incremental cost method of accountingASC 606 requires us to account for free travel awardsmiles earned by passengers issued fromin the HawaiianMiles program through flight activity. This method utilizesactivity 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 estimates includingmiles that, based on historical experience, will be needed to obtain the incremental cost per mile and breakage. We recordaward. On a liabilityquarterly basis, we calculate the ETV by analyzing the fares of similar tickets for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on other airlines. We estimate the incremental cost of travel awards based on periodic studies of actual costsprior 12 months, considering cabin class and apply these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental costs include the cost of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical expirations.geographic region.
We also sell mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representingcontracts 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 other elements consistingfirst quarter of marketing related activities that2018, we conductamended our partnership with the participating company.
We account for ourBarclaycard US, Hawaiian's co-branded credit card agreementpartner. Management determined that the amendment should be accounted for as a multiple deliverable revenue arrangement, which requires the allocationtermination of the overall consideration received to each deliverable usingexisting contract and the estimated selling price. The objectivecreation of using estimateda new contract under ASC 606 and the relative 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 stand-alone basis.
The following four deliverables or elements were identified in the agreement: (i) travel miles; (ii) usewas 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 member lists;its members lists (collectively, brand performance), (iii) advertising elements;marketing, and (iv) other airline benefits to cardholders, including checkeddiscounts and anniversary travel benefits, baggage serviceswaivers and travel discounts.inflight purchase credits. We determined the relative fair value of each elementperformance 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 deliverablesperformance obligations based on their relative selling prices.
The transportation elementperformance obligation is deferred and recognized as passenger revenue over the period when the transportation is expectedprovided. The value to bethe financial institution is provided (23 months). The other elements are generally recognizedeach 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 other revenue when earned.
Undermembers use their co-brand credit card and the programs of certain participating companies,resulting mileage credits are accumulated in accounts maintained byissued to them, which best correlates with our performance toward satisfying the participating company, then transferred into a member's HawaiianMiles accountobligation.
Accounting for immediate redemptionfrequent flyer revenue involves the use of free travel awards. For those transactions, revenue is recognized overvarious techniques to estimate revenue. To determine the period during which the mileage is projected to be used for travel (four months).
On an annual basis,total estimated transaction price, we review the deferral period and deferral rate for mileage credits sold to participating companies (except for miles sold under our co-brandedforecast future credit card agreement)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.
In April 2021, we announced the elimination of our HawaiianMiles expiration policy, effective April 1, 2021. Prior to this change in policy, miles expired 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., as well as the breakage rate assumption for free travel awards earned in connection with the purchase of passenger tickets. The cost componentscredit card and non-credit card holders). Our estimate of the incremental costexpected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions are reviewedor 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. We do not believe that the change in expiration policy will have a material impact on a quarterly basis.our accounting estimates and will continue to evaluate the impact of this change 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, 20172021 are as follows:
|
| | | | | | | | | | |
| Pension: | |
| | |
| Discount rate to determine projected benefit obligation | 3.702.98 | % | | |
| Expected return on plan assets | 6.346.29 | % | | ^ |
| Postretirement: | |
| | |
Discount rate to determine projected benefit obligation (as of December 31, 2017) | 3.712.99 | % | | |
Discount rate used to determine the partial settlement and curtailment as of August 1, 2017 | 3.86% |
| | ^^ |
| Expected return on plan assets | N/A |
| | |
| Expected health care cost trend rate: | |
| | |
| Initial | 7.256.25 | % | | |
| Ultimate | 4.75 | % | | |
| Years to reach ultimate trend rate | 56 |
| | |
| Disability: | |
| | |
| Discount rate to determine projected benefit obligation | 3.723.03 | % | | |
| Expected return on plan assets | 4.604.28 | % | | ^ |
N/A Not Applicable
| |
^ | Expected return on plan assets used to determine the net periodic benefit expense for 2018 is 7.33% for the pension plans and 4.90% for the disability plan. |
| |
^^ | As of August 1, 2017 the Company partially settled the pilots' other post-retirement benefit plan. See Note 12 for further discussion. |
^ Expected return on plan assets used to determine the net periodic benefit expense for 2022 is 6.06% for the pension plans and4.35% 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 20182022 pension and disability benefit expense recorded in wages and benefits and nonoperating expense: |
| | | |
| | 100 Basis Point Decrease |
| | (in millions) |
| Increase in estimated 2018 pension expense | $ | 2.9 |
|
| Increase in estimated 2018 disability benefit expense | 0.3 |
|
| | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Increase in estimated 2022 pension expense | $ | 3.9 | |
| Increase in estimated 2022 disability benefit expense | 0.5 | |
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, 2017 | $ | 54.4 |
|
| Increase in other postretirement benefit obligation as of December 31, 2017 | 15.4 |
|
| Increase in estimated 2018 pension expense (operating and nonoperating) | (0.4 | ) |
| Increase in estimated 2018 other postretirement benefit expense (operating and nonoperating) | 1.0 |
|
| | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Increase in pension obligation as of December 31, 2021 | $ | 54.4 | |
| Increase in other postretirement benefit obligation as of December 31, 2021 | 21.7 | |
| Decrease in estimated 2022 pension expense (operating and nonoperating) | (0.7) | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 0.9 | |
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, 2017 | $ | 8.5 |
|
| Increase in estimated 2018 other postretirement benefit expense (operating and nonoperating) | 0.8 |
|
| | | | | |
| 100 Basis Point Increase |
| (in millions) |
| Increase in other postretirement benefit obligation as of December 31, 2021 | $ | 9.7 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.0 | |
| | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Decrease in other postretirement benefit obligation as of December 31, 2021 | $ | 8.3 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.2 | |
|
| | | |
| | 100 Basis Point Decrease |
| | (in millions) |
| Decrease in other postretirement benefit obligation as of December 31, 2017 | $ | 7.3 |
|
| Decrease in estimated 2018 other postretirement benefit expense (operating and nonoperating) | 1.0 |
|
In 2017, we recognized a one-time Other nonoperating special item expense of $10.4 million related to the settlement of a portion of our pilots' other post-retirement medical plan liability, pursuant to which the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and to replace the benefit with a health retirement account (HRA) managed by ALPA. We evaluated the accounting for the transaction in accordance with ASC 715-60 Compensation-Retirement Benefits - Defined Benefit Plans-Other Postretirement, and determined that it represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. The discount rate was revised to remeasure the remaining liability at that time. No other assumptions were updated because there was no indication of a significant change in trends in other assumptions, such as health care trends.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
Long-livedOur 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 finite-lived intangiblehave a carrying value of approximately $2.0 billion at December 31, 2021. We review long-lived assets are testedused 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 amount. When testing for impairment management considers market trends, the expected useful lives of the assets, changes in economic conditions, recent transactions involving sales of similar assets and, if necessary, estimates of future undiscounted cash flows.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, in 2020 we identifiedindicators of impairment analysis and ultimate charge in 2016 was triggered byof our long-lived assets. During the decision in the fourthsecond quarter of 2016 to exit2020, it was determined that the Boeing 767-300 fleet in 2018. The early exitnet carrying values of our ATR-42 and ATR-72 fleets and assets held under our commercial real estate subsidiary were not recoverable through the Boeing 767-300 fleet was made possible by our decision to acquire one Airbus A330 (delivered in 2017), lease two additional Airbus A321s (to be delivered in 2018 in addition to our existing aircraft orders), and our ability to early terminate our long-term power-by-the-hour maintenance contract for the Boeing 767-300 fleet. This fleet change allows us to streamline our fleet, simplify our operations, and reduce our cost structure in the future. In order to assess whether there was an impairmentgeneration of the Boeing 767-300 asset group, we compared the projectedfuture undiscounted cash flows as of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows.June 30, 2020. We estimated the fair value of our owned Boeing 767-300 fleet assetsATR-42 and ATR-72 fleets using third partya third-party valuation, which takes into consideration market pricing information, among other factors, and quotes from potential buyersresulted in a $27.5 million impairment charge. We estimated the fair value of our owned aircraft,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 $49.4$3.4 million impairment charge. Our determinationThe 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.
In the second quarter of 2021, we announced the termination of our 'Ohana by Hawaiian operations, which utilizes the ATR-42 and ATR-72 fleet, and was operated under a capacity purchase agreement (CPA) with a third-party carrier. Following the termination of the operations, which were temporarily suspended in late 2020, management committed to a plan of sale and wrote-down the related assets by approximately $6.4 million to fair value, considered attributes specificless cost to sell, and classified approximately $23.4 million as assets held for sale on the Consolidated Balance Sheets. Additionally, during the second quarter of 2021, management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and as of December 31, 2021, reclassified approximately $6.1 million as assets held for sale on the Consolidated Balance Sheets. Management expects to complete the sale of the above referenced assets within 12 months from the original designation date, and will continue to monitor the asset groups for potential impairment.
In addition, we will continue to monitor the duration and extent of the impact of the COVID-19 pandemic on our Boeing 767-300business and will continue to evaluate our current fleet and aircraft condition (e.g. age, maintenance requirements, cycles,other long-lived assets for impairment accordingly.
Income Tax Valuation Allowance
etc.). The Boeing 767-300 asset group consisted of both ownedWe periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets and leased (atestablish 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 time of the assessment) aircraft.overall business environment, our historical financial results, our industry's historically cyclical financial results and potential current and future tax planning strategies. We expectcannot presently determine when we will be able to remove three leased Boeing 767-300 aircraft from service in 2018. At the time of the assessment, these aircraft had remaining lease payments of approximately $54.3 million.
Subsequentgenerate sufficient taxable income to year end, in January 2018 we purchased threerealize all of our existing Boeing 767-300 that were classifiedstate deferred tax assets. Accordingly, as operating leases from the lessorof December 31, 2021 and entered into2020, we recorded a forward sale agreementvaluation allowance of those same three aircraft (to be delivered later in 2018) with another airline. We are in process of evaluating the transactions, and we expect to take a loss on the lease termination during the first quarter of 2018 between $15.0$14.1 million and $18.0$9.6 million, relatedrespectively, against our deferred tax assets. If we determine that it is more likely than not that we will generate sufficient taxable income to this transaction.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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to certain market risks, includingrisk exposure related to commodity price risk (i.e. jet fuel prices)(fuel) prices, interest rates, and foreign currency risk. We have market-sensitive instruments in the form of financial derivatives used to offset Hawaiian's exposure to jet fuel price increases, and financial hedge instruments used to hedge Hawaiian's exposure to foreign currency exchange risk.rates. The adverse effects of potential changes in these market risks are discussed below. In an effort to manage our exposure to these risks, we may enter into derivative contracts from time to time and may revise our derivative portfolio as market conditions change.
The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actionsactions we might undertake to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel Costs
Aircraft fuel costs constitute a significant portion of our operating expense. Fuel costs represented 20% of our operating expenses for the year ended December 31, 2017. Approximately 70% of our fuel is based on Singapore jetexpense and changes in fuel prices 27% is based on U.S. West Coast jet fuel prices, and 3% on other jet fuel prices. Based on gallons expected to be consumed in 2018, for everycould materially impact the results of operations. A one cent increase in the cost of a gallon of jet fuel would result in approximately $2.7 million in additional annual fuel expense based on 2019 consumption. Given the ongoing uncertainties of the impact of the COVID-19 pandemic, our fuel expense would increase by approximately $1.8 million.consumption was significantly less than our historical and expected future consumption. Approximately 56% of our fuel was purchased based on Singapore jet fuel prices, 36% was purchased based on U.S. West Coast jet fuel prices, and 8% on other jet fuel prices.
We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. During 2017, our fuel hedge portfolio primarily consisted of heating oil swaps and crude oil call options. Swaps provide for a settlement in our favor in the event the prices exceed a predetermined contractual level and are unfavorable in the event prices fall below a predetermined contractual level. With call options, we are hedged against spikes in crude oil prices, and during a period of decline in crude oil prices we only forfeit cash previously paid for hedge premiums.
As of December 31, 2017,2021, we hedged approximately 35% of our projected fuel requirements for 2018 with heating oil swaps and crude oil call options. As of December 31, 2017, the fair value of thesehave no outstanding fuel derivative agreements reflected a net asset of $20.6 million that is recorded as prepaid assets in the Consolidated Balance Sheets.positions.
We expect to continue our program of offsetting some of our exposure to future changes in the price of jet fuel with a combination of fixed forward pricing contracts, swaps, puts and other option-based structures.
We do not hold or issue derivative financial instruments for trading purposes.
Interest Rates
Our results of operations are affected by fluctuations in interest rates dueexposure to our interest income earned on our cash deposits. Our variable-rate debt agreements include the Revolving Credit Facility and secured loan agreements, the terms of which are discussed in Note 8 to our consolidated financial statements.
Changes in market interest rates have a direct and corresponding effect on our pre-tax earnings and cash flowsrisk associated with our interest-bearing cash accounts. Based on the balances of our cash and cash equivalents, restricted cash, and short-term investments as of December 31, 2017, a changechanges in interest rates is unlikely to have a material impact onprimarily associated with our results of operations.
debt obligations. At December 31, 2017,2021, we had $582.1 millionhad $1.8 billion of fixed-ratefixed-rate and no variable-rate debt. Market risk associated with our fixed rate long-term debt including aircraft capital lease obligations, facility agreements for aircraft purchases, and the outstanding equipment notes relatedrelates to the EETC financing. Market risk forpotential reduction in fair value from an increase in interest rates. An increase of 100 basis points in average annual interest rates would have decreased the estimated fair value of our fixed-rate long-term debt is estimated as the potential increase in fair value resulting from a hypothetical 10% decrease in market rates, and amounted to approximately $13.4by $31.3 million as ofat December 31, 2017.2021.
Foreign Currency
We generate revenues and incur expenses in foreign currencies. Changeshave exposure to market risk associated with changes in foreign currency exchange rates impact our results of operations through changesbecause we generate sales, incur expenses, and have debt denominated and paid in the dollar value of foreign currency-denominated operating revenues and expenses. Our most significant foreign currency exposures are the Japanese Yen and Australian Dollar. Based on expected 2018 revenues and expenses denominatedcurrencies, predominantly in Japanese Yen and to a lesser extent, the Australian Dollars,Dollar.
To manage exchange rate risk, we transact our international sales and expenditures in the same foreign currency, to the extent practical. Additionally, our Yen denominated debt serves as a natural hedge against the volatility of exchange rates against cash inflows. We also have an established foreign currency derivative program, where we periodically enter into foreign currency forward contracts. At December 31, 2021, the Company did not have any open derivative instruments designated for hedge accounting. We estimate that a 10% strengtheningdepreciation or appreciation in value of the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a decreasechange in operatingannual pretax income of approximately $29.4 million and $16.4 million, respectively, which excludes the offsetapproximately $30.0 million.
As of December 31, 2017, the fair value of our foreign currency forwards reflected a net asset of $2.2 million that is recorded in prepaid expenses and other, and $0.4 million recorded in long-term prepayments and other reflected in the Consolidated Balance Sheets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 20172021 and 2016,2020, 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, 2017,2021, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172021 and 2016,2020, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the PCAOB,Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2021, 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 13, 201810, 2022 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Calculation and recognition of air traffic liability breakage |
| Description of the Matter | | At December 31, 2021, the Company’s Air traffic liability (excluding frequent flyer) was $448.2 million, which included passenger tickets that are subject to extended ticket validity due to the impact of COVID-19. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company records an estimate of breakage revenue in proportion to the pattern of rights exercised by related passengers (e.g., scheduled departure dates) for tickets that will expire unused based on actual historical results and forecasted trends.
Auditing the estimate of breakage revenue was complex and highly judgmental due to significant judgments required in determining the breakage rate to be applied to tickets with extended validity given the impact COVID-19 is having on customer travel behavior and forecasted trends. |
| 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 significant underlying assumptions and data inputs used in the model.
To test the estimated breakage rates, our audit procedures included, among others, evaluating the methodology, significant assumptions, and underlying data utilized by the Company. We evaluated the methodology and significant assumptions applied by management in their calculation of breakage for consistency with prior reporting periods and appropriateness based on the applicable accounting framework. We compared the forecasted data to historical results and evaluated the sensitivity of the breakage revenue caused by variations in the forecasted data. |
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We have served as the Company's auditor since 1999.
Honolulu, Hawai‘iHawai'i
February 13, 201810, 2022
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2017, 20162021, 2020 and 20152019
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands, except per share data) |
| Operating Revenue: | | | | | |
| Passenger | $ | 1,370,902 | | | $ | 664,799 | | | $ | 2,597,772 | |
| Other | 225,682 | | | 180,014 | | | 234,456 | |
| Total | 1,596,584 | | | 844,813 | | | 2,832,228 | |
| Operating Expenses: | | | | | |
| Wages and benefits | 698,101 | | | 628,558 | | | 723,656 | |
| Aircraft fuel, including taxes and delivery | 363,003 | | | 161,363 | | | 542,573 | |
| Aircraft rent | 109,476 | | | 103,890 | | | 118,904 | |
| Maintenance materials and repairs | 170,048 | | | 121,571 | | | 249,772 | |
| Aircraft and passenger servicing | 105,675 | | | 58,016 | | | 164,275 | |
| Commissions and other selling | 72,512 | | | 46,297 | | | 130,216 | |
| Depreciation and amortization | 138,299 | | | 151,665 | | | 158,906 | |
| Other rentals and landing fees | 116,772 | | | 73,808 | | | 129,622 | |
| Purchased services | 103,213 | | | 99,050 | | | 131,567 | |
| | | | | |
| Special items | 8,983 | | | 184,111 | | | — | |
| Government grant recognition | (320,645) | | | (240,648) | | | — | |
| Other | 113,711 | | | 104,743 | | | 155,260 | |
| Total | 1,679,148 | | | 1,492,424 | | | 2,504,751 | |
| Operating Income (Loss) | (82,564) | | | (647,611) | | | 327,477 | |
| Nonoperating Income (Expense): | | | | | |
| Other nonoperating special items | — | | | (5,682) | | | — | |
| Interest expense and amortization of debt discounts and issuance costs | (110,431) | | | (40,439) | | | (27,864) | |
| Interest income | 8,603 | | | 8,731 | | | 12,583 | |
| Capitalized interest | 3,357 | | | 3,236 | | | 4,492 | |
| Other components of net periodic benefit cost, excluding settlements | 3,566 | | | 1,300 | | | (3,864) | |
| Gains (losses) on fuel derivatives | 217 | | | (6,930) | | | (6,709) | |
| Loss on extinguishment of debt | (38,889) | | | — | | | — | |
| Other, net | 30,818 | | | (12,657) | | | (1,119) | |
| Total | (102,759) | | | (52,441) | | | (22,481) | |
| Income (Loss) Before Income Taxes | (185,323) | | | (700,052) | | | 304,996 | |
| Income tax expense (benefit) | (40,550) | | | (189,117) | | | 81,012 | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Net Income (Loss) Per Common Stock Share: | | | | | |
| Basic | $ | (2.85) | | | $ | (11.08) | | | $ | 4.72 | |
| Diluted | $ | (2.85) | | | $ | (11.08) | | | $ | 4.71 | |
| Weighted Average Number of Common Stock Shares Outstanding: | | | | | |
| Basic | 50,769 | | | 46,100 | | | 47,435 | |
| Diluted | 50,769 | | | 46,100 | | | 47,546 | |
| Cash Dividends Declared Per Common Share | $ | — | | | $ | 0.12 | | | $ | 0.48 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except per share data) |
| Operating Revenue: | |
| | |
| | |
|
| Passenger | $ | 2,362,076 |
| | $ | 2,145,742 |
| | $ | 2,025,610 |
|
| Other | 333,552 |
| | 304,838 |
| | 291,857 |
|
| Total | 2,695,628 |
| | 2,450,580 |
| | 2,317,467 |
|
| Operating Expenses: | | | |
| | |
|
| Wages and benefits | 632,997 |
| | 535,264 |
| | 476,979 |
|
| Aircraft fuel, including taxes and delivery | 440,383 |
| | 344,322 |
| | 417,728 |
|
| Aircraft rent | 137,764 |
| | 124,565 |
| | 115,653 |
|
| Maintenance materials and repairs | 219,553 |
| | 228,970 |
| | 224,648 |
|
| Aircraft and passenger servicing | 140,566 |
| | 126,876 |
| | 117,449 |
|
| Commissions and other selling | 131,783 |
| | 125,731 |
| | 119,746 |
|
| Depreciation and amortization | 113,277 |
| | 108,128 |
| | 105,581 |
|
| Other rentals and landing fees | 116,763 |
| | 108,087 |
| | 95,055 |
|
| Purchased services | 110,787 |
| | 96,274 |
| | 81,838 |
|
| Special items | 23,450 |
| | 109,142 |
| | — |
|
| Other | 144,533 |
| | 127,489 |
| | 114,160 |
|
| Total | 2,211,856 |
| | 2,034,848 |
| | 1,868,837 |
|
| Operating Income | 483,772 |
| | 415,732 |
| | 448,630 |
|
| Nonoperating Income (Expense): | | | |
| | |
|
| Other nonoperating special items | (45,585 | ) | | — |
| | — |
|
| Interest expense and amortization of debt discounts and issuance costs | (30,901 | ) | | (36,612 | ) | | (55,678 | ) |
| Interest income | 6,132 |
| | 4,007 |
| | 2,811 |
|
| Capitalized interest | 8,437 |
| | 2,651 |
| | 3,261 |
|
| Other components of net periodic benefit cost, excluding settlements | (16,713 | ) | | (20,270 | ) | | (22,527 | ) |
| Gains (losses) on fuel derivatives | 3,312 |
| | 20,106 |
| | (59,931 | ) |
| Loss on extinguishment of debt | — |
| | (10,473 | ) | | (12,058 | ) |
| Other, net | 2,101 |
| | 4,323 |
| | (8,820 | ) |
| Total | (73,217 | ) | | (36,268 | ) | | (152,942 | ) |
| Income Before Income Taxes | 410,555 |
| | 379,464 |
| | 295,688 |
|
| Income tax expense | 46,514 |
| | 144,032 |
| | 113,042 |
|
| Net Income | $ | 364,041 |
| | $ | 235,432 |
| | $ | 182,646 |
|
| Net Income Per Common Stock Share: | | | |
| | |
|
| Basic | $ | 6.86 |
| | $ | 4.40 |
| | $ | 3.38 |
|
| Diluted | $ | 6.82 |
| | $ | 4.36 |
| | $ | 2.98 |
|
| Weighted Average Number of Common Stock Shares Outstanding: | | | |
| | |
|
| Basic | 53,074 |
| | 53,502 |
| | 54,031 |
|
| Diluted | 53,413 |
| | 53,958 |
| | 61,256 |
|
| Cash Dividends Declared Per Common Share | $ | 0.12 |
| | $ | — |
| | $ | — |
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
For the Years ended December 31, 2017, 20162021, 2020 and 20152019
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Other Comprehensive Income (Loss), net: | | | | | |
| Net change related to employee benefit plans, net of tax expense of $13,107 for 2021, and net of tax benefit of $2,315, and $4,349 for 2020 and 2019, respectively | 41,156 | | | (8,153) | | | (12,173) | |
| Net change in derivative instruments, net of tax benefit of $1,098 for 2020 and net of tax expense of $21 for 2019 | — | | | (3,341) | | | 24 | |
| Net change in available-for-sale investments, net of tax benefit of $2,784 for 2021, net of tax expense of $273 and $459 for 2020 and 2019, respectively | (8,467) | | | 850 | | | 1,406 | |
| Total Other Comprehensive Income (Loss) | 32,689 | | | (10,644) | | | (10,743) | |
| Total Comprehensive Income (Loss) | $ | (112,084) | | | $ | (521,579) | | | $ | 213,241 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Net Income | $ | 364,041 |
| | $ | 235,432 |
| | $ | 182,646 |
|
| Other Comprehensive Income (Loss), net: | |
| | |
| | |
|
| Net change related to employee benefit plans, net of tax expense of $22,321 for 2017, tax benefit of $3,588 for 2016, and tax expense of $18,826 for 2015 | 34,249 |
| | (6,337 | ) | | 31,655 |
|
| Net change in derivative instruments, net of benefit of $3,548 for 2017, tax expense of $1,290 for 2016, and tax benefit of $4,866 for 2015 | (5,822 | ) | | 2,111 |
| | (8,002 | ) |
| Net change in available-for-sale investments, net of tax benefit of $120 for 2017. tax expense of $6 for 2016, and tax benefit of $72 for 2015 | (198 | ) | | 10 |
| | (118 | ) |
| Total Other Comprehensive Income (Loss) | 28,229 |
| | (4,216 | ) | | 23,535 |
|
| Total Comprehensive Income | $ | 392,270 |
| | $ | 231,216 |
| | $ | 206,181 |
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 20172021 and 2016 |
| | | | | | | |
| | 2017 | | 2016 |
| | (in thousands, except share data) |
| ASSETS | | | |
|
| Current Assets: | | | |
|
| Cash and cash equivalents | $ | 190,953 |
| | $ | 325,991 |
|
| Restricted cash | 1,000 |
| | 5,000 |
|
| Short-term investments | 269,297 |
| | 284,075 |
|
| Accounts receivable, net | 140,279 |
| | 96,067 |
|
| Spare parts and supplies, net | 35,361 |
| | 20,363 |
|
| Prepaid expenses and other | 65,196 |
| | 66,740 |
|
| Total | 702,086 |
| | 798,236 |
|
| Property and equipment, net | | | |
|
| Flight equipment | 1,848,061 |
| | 1,658,698 |
|
| Pre-delivery deposits on flight equipment | 150,652 |
| | 117,762 |
|
| Other property and equipment | 402,098 |
| | 332,338 |
|
| | 2,400,811 |
| | 2,108,798 |
|
| Less accumulated depreciation and amortization | (558,548 | ) | | (454,231 | ) |
| Total | 1,842,263 |
| | 1,654,567 |
|
| Other Assets: | | | |
|
| Long-term prepayments and other | 193,632 |
| | 132,724 |
|
| Intangible assets, net | 15,187 |
| | 16,411 |
|
| Goodwill | 106,663 |
| | 106,663 |
|
| Total Assets | $ | 2,859,831 |
| | $ | 2,708,601 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
|
| Current Liabilities: | | | |
|
| Accounts payable | $ | 140,805 |
| | $ | 116,507 |
|
| Air traffic liability | 545,362 |
| | 482,496 |
|
| Other accrued liabilities | 146,283 |
| | 172,214 |
|
| Current maturities of long-term debt, less discount, and capital lease obligations | 59,470 |
| | 58,899 |
|
| Total | 891,920 |
| | 830,116 |
|
| Long-Term Debt and Capital Lease Obligations | 511,201 |
| | 497,908 |
|
| Other Liabilities and Deferred Credits: | | | |
|
| Accumulated pension and other postretirement benefit obligations | 220,788 |
| | 355,968 |
|
| Other liabilities and deferred credits | 95,636 |
| | 173,613 |
|
| Deferred tax liability, net | 174,344 |
| | 170,543 |
|
| Total | 490,768 |
| | 700,124 |
|
| Commitments and Contingent Liabilities |
|
| |
|
|
| Shareholders' Equity: | | | |
|
| Special preferred stock, $0.01 par value per share, three shares issued and outstanding at December 31, 2017 and 2016 | — |
| | — |
|
| Common stock, $0.01 par value per share, 51,173,453 and 53,435,234 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 512 |
| | 534 |
|
| Capital in excess of par value | 126,743 |
| | 127,266 |
|
| Accumulated income | 913,951 |
| | 656,146 |
|
| Accumulated other comprehensive loss, net | (75,264 | ) | | (103,493 | ) |
| Total | 965,942 |
| | 680,453 |
|
| Total Liabilities and Shareholders' Equity | $ | 2,859,831 |
| | $ | 2,708,601 |
|
| | | | | | | | | | | |
| | 2021 | | 2020 |
| | (in thousands, except share data) |
| ASSETS | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 490,561 | | | $ | 509,639 | |
| Restricted cash | 17,267 | | | — | |
| Short-term investments | 1,241,752 | | | 354,782 | |
| Accounts receivable, net | 92,888 | | | 67,527 | |
| Income taxes receivable | 71,201 | | | 95,002 | |
| Spare parts and supplies, net | 34,109 | | | 35,442 | |
| Prepaid expenses and other | 66,127 | | | 56,086 | |
| Total | 2,013,905 | | | 1,118,478 | |
| Property and equipment, net | 1,957,623 | | | 2,085,030 | |
| Other Assets: | | | |
| Assets held for sale | 29,449 | | | — | |
| Operating lease right-of-use assets | 536,154 | | | 627,359 | |
| Long-term prepayments and other | 80,489 | | | 133,663 | |
| | | |
| Intangible assets, net | 13,500 | | | 13,500 | |
| | | |
| Total Assets | $ | 4,631,120 | | | $ | 3,978,030 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Current Liabilities: | | | |
| Accounts payable | $ | 114,400 | | | $ | 112,002 | |
| Air traffic liability and current frequent flyer deferred revenue | 631,157 | | | 533,702 | |
| | | |
| Other accrued liabilities | 165,050 | | | 140,081 | |
| Current maturities of long-term debt, less discount | 97,096 | | | 115,019 | |
| Current maturities of finance lease obligations | 24,149 | | | 21,290 | |
| Current maturities of operating leases | 79,158 | | | 82,454 | |
| Total | 1,111,010 | | | 1,004,548 | |
| Long-Term Debt | 1,704,298 | | | 1,034,805 | |
| Other Liabilities and Deferred Credits: | | | |
| Noncurrent finance lease obligations | 100,995 | | | 120,618 | |
| Noncurrent operating leases | 423,293 | | | 503,376 | |
| Accumulated pension and other postretirement benefit obligations | 160,817 | | | 217,737 | |
| Other liabilities and deferred credits | 78,340 | | | 78,908 | |
| Noncurrent frequent flyer deferred revenue | 296,484 | | | 201,239 | |
| Deferred tax liability, net | 186,797 | | | 216,642 | |
| Total | 1,246,726 | | | 1,338,520 | |
| Commitments and Contingent Liabilities | 0 | | 0 |
| Shareholders' Equity: | | | |
| Special preferred stock, $0.01 par value per share, 3 shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.01 par value per share, 51,233,369 and 48,145,093 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 512 | | | 481 | |
| Capital in excess of par value | 269,575 | | | 188,593 | |
| Accumulated income | 380,837 | | | 525,610 | |
| Accumulated other comprehensive loss, net | (81,838) | | | (114,527) | |
| Total | 569,086 | | | 600,157 | |
| Total Liabilities and Shareholders' Equity | $ | 4,631,120 | | | $ | 3,978,030 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31, 2017, 20162021, 2020 and 2015 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock(*) | | Special
Preferred
Stock(**) | | Capital In Excess of Par Value | | Accumulated Income | | Accumulated Other Comprehensive Loss | | Total |
| | | | | (in thousands) | | | | |
| Balance at December 31, 2014 | $ | 545 |
| | $ | — |
| | $ | 251,432 |
| | $ | 238,068 |
| | $ | (122,812 | ) | | $ | 367,233 |
|
| Net Income | — |
| | — |
| | — |
| | 182,646 |
| | — |
| | 182,646 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 23,535 |
| | 23,535 |
|
| Issuance of 660,271 shares of common stock related to stock awards, net of shares withheld for taxes | 6 |
| | — |
| | (5,489 | ) | | — |
| | — |
| | (5,483 | ) |
| Repurchase and retirement of 1,714,400 shares common stock | (17 | ) | | — |
| | (40,120 | ) | | — |
| | — |
| | (40,137 | ) |
| Share-based compensation expense | — |
| | — |
| | 5,075 |
| | — |
| | — |
| | 5,075 |
|
| Excess tax benefits from stock issuance | — |
| | — |
| | 373 |
| | — |
| | — |
| | 373 |
|
| Reacquisition of equity component of convertible notes | — |
| | — |
| | (109,301 | ) | | — |
| | — |
| | (109,301 | ) |
| Settlement of convertible note call options | — |
| | — |
| | 304,752 |
| | — |
| | — |
| | 304,752 |
|
| Settlement of convertible note warrants | — |
| | — |
| | (282,631 | ) | | — |
| | — |
| | (282,631 | ) |
| Balance at December 31, 2015 | $ | 534 |
| | $ | — |
| | $ | 124,091 |
| | $ | 420,714 |
| | $ | (99,277 | ) | | $ | 446,062 |
|
| Net Income | — |
| | — |
| | — |
| | 235,432 |
| | — |
| | 235,432 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (4,216 | ) | | (4,216 | ) |
| Issuance of 412,857 shares of common stock related to stock awards, net of shares withheld for taxes | 4 |
| | — |
| | (7,589 | ) | | — |
| | — |
| | (7,585 | ) |
| Repurchase and retirement of 379,062 shares common stock | (4 | ) | | — |
| | (13,759 | ) | | — |
| | — |
| | (13,763 | ) |
| Share-based compensation expense | — |
| | — |
| | 6,005 |
| | — |
| | — |
| | 6,005 |
|
| Excess tax benefits from stock issuance | — |
| | — |
| | 19,656 |
| | — |
| | — |
| | 19,656 |
|
| Reacquisition of equity component of convertible notes | — |
| | — |
| | (1,138 | ) | | $ | — |
| | — |
| | (1,138 | ) |
| Balance at December 31, 2016 | $ | 534 |
| | $ | — |
| | $ | 127,266 |
| | $ | 656,146 |
| | $ | (103,493 | ) | | 680,453 |
|
| Net Income | — |
| | — |
| | — |
| | 364,041 |
| | — |
| | 364,041 |
|
| Dividends declared on common stock ($0.12 per share) | — |
| | — |
| | — |
| | (6,261 | ) | | — |
| | (6,261 | ) |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 28,229 |
| | 28,229 |
|
| Issuance of 247,852 shares of common stock related to stock awards, net of shares withheld for taxes | 3 |
| | — |
| | (7,535 | ) | | — |
| | — |
| | (7,532 | ) |
| Repurchase and retirement of 2,509,633 shares common stock | (25 | ) | | — |
| | — |
| | (99,975 | ) | | — |
| | (100,000 | ) |
| Share-based compensation expense | — |
| | — |
| | 7,012 |
| | — |
| | — |
| | 7,012 |
|
| Balance at December 31, 2017 | $ | 512 |
| | $ | — |
| | $ | 126,743 |
| | $ | 913,951 |
| | $ | (75,264 | ) | | 965,942 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 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 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 | |
| Net Loss | — | | | — | | | — | | | (144,773) | | | — | | | (144,773) | |
| | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 32,689 | | | 32,689 | |
| Issuance of 228,066 shares of common stock, net of shares withheld for taxes | 2 | | | — | | | (2,022) | | | — | | | — | | | (2,020) | |
| | | | | | | | | | | |
| CARES Act warrant issuance, net of tax | — | | | — | | | 4,419 | | | — | | | — | | | 4,419 | |
| Share-based compensation expense | — | | | — | | | 8,645 | | | — | | | — | | | 8,645 | |
| Issuance of 2,860,210 shares of common stock related to At-the-market offering | 29 | | | — | | | 69,940 | | | — | | | — | | | 69,969 | |
| Balance at December 31, 2021 | $ | 512 | | | $ | — | | | $ | 269,575 | | | $ | 380,837 | | | $ | (81,838) | | | $ | 569,086 | |
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of December 31, 20172021 and 2016.2020.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31, 20172021 and 20162020.
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2017, 20162021, 2020 and 20152019 | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Cash Flows From Operating Activities: | | | | | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Amortization of intangible assets | — | | | — | | | 649 | |
| Depreciation and amortization of property and equipment | 138,299 | | | 151,665 | | | 158,714 | |
| Deferred income taxes, net | (41,624) | | | (72,188) | | | 124,068 | |
| | | | | |
| | | | | |
| Goodwill impairment | — | | | 106,662 | | | — | |
| Impairment of assets | 6,383 | | | 38,933 | | | — | |
| Stock compensation | 8,645 | | | 4,936 | | | 8,253 | |
| | | | | |
| Loss on extinguishment of debt | 38,889 | | | — | | | — | |
| Amortization of debt discounts and issuance costs | 9,223 | | | 4,012 | | | 2,976 | |
| Employer contributions to pension and other postretirement plans | (10,232) | | | (7,691) | | | (7,169) | |
| Pension and postretirement benefit cost | 8,178 | | | 8,398 | | | 12,120 | |
| Special termination benefits and curtailment loss | — | | | 5,682 | | | — | |
| Change in unrealized gain on fuel derivative contracts | (383) | | | (2,106) | | | (5,694) | |
| Foreign currency debt remeasurement (gain) loss | (27,593) | | | 14,760 | | | 493 | |
| | | | | |
| Other, net | 7,275 | | | (7,007) | | | 2,564 | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | (25,361) | | | 29,853 | | | (24,756) | |
| Income taxes receivable | 23,804 | | | (30,810) | | | 19,605 | |
| Spare parts and supplies, net | (1,562) | | | (1,066) | | | (8,767) | |
| Prepaid expenses and other current assets | (13,140) | | | 24,410 | | | 3,662 | |
| Accounts payable | 5,785 | | | (49,469) | | | 6,244 | |
| Air traffic liability | 146,655 | | | (117,279) | | | (3,071) | |
| Other accrued liabilities | 24,366 | | | (18,025) | | | (43,034) | |
| Frequent flyer deferred revenue | 46,045 | | | 70,318 | | | 17,618 | |
| Other assets and liabilities, net | 52,459 | | | 46,239 | | | (3,319) | |
| Net cash provided by (used in) operating activities | 251,338 | | | (310,708) | | | 485,140 | |
| Cash Flows From Investing Activities: | | | | | |
| Additions to property and equipment, including pre-delivery deposits | (39,264) | | | (105,313) | | | (397,421) | |
| | | | | |
| Proceeds from purchase assignment and sale leaseback transactions | — | | | 114,000 | | | — | |
| Proceeds from disposition of equipment | 755 | | | — | | | 9,595 | |
| Purchases of investments | (1,856,035) | | | (395,793) | | | (312,768) | |
| Sales of investments | 958,242 | | | 288,336 | | | 301,662 | |
| Other | — | | | — | | | (6,275) | |
| Net cash used in investing activities | (936,302) | | | (98,770) | | | (405,207) | |
| Cash Flows From Financing Activities: | | | | | |
| Proceeds from the issuance of common stock | 68,132 | | | 41,196 | | | — | |
| Long-term borrowings | 1,251,705 | | | 602,264 | | | 227,889 | |
| Repayments of long-term debt and finance lease obligations | (611,725) | | | (78,824) | | | (109,128) | |
| Dividend payments | — | | | (5,514) | | | (22,774) | |
| | | | | |
| Repurchases of common stock | — | | | (7,510) | | | (68,769) | |
| | | | | |
| | | | | |
| Debt issuance costs and discounts | (24,776) | | | (4,975) | | | (1,623) | |
| | | | | |
| | | | | |
| | | | | |
| Other | (183) | | | (576) | | | (1,049) | |
| Net cash provided by financing activities | 683,153 | | | 546,061 | | | 24,546 | |
| Net increase (decrease) in cash and cash equivalents | (1,811) | | | 136,583 | | | 104,479 | |
| Cash, cash equivalents, and restricted cash—Beginning of Year | 509,639 | | | 373,056 | | | 268,577 | |
| Cash, cash equivalents, and restricted cash—End of Year | $ | 507,828 | | | $ | 509,639 | | | $ | 373,056 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Cash Flows From Operating Activities: | | | |
| | |
|
| Net Income | $ | 364,041 |
| | $ | 235,432 |
| | $ | 182,646 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | |
|
| Amortization of intangible assets | 1,224 |
| | 2,322 |
| | 2,640 |
|
| Depreciation and amortization of property and equipment | 112,627 |
| | 107,041 |
| | 104,176 |
|
| Deferred income taxes, net | (14,792 | ) | | 36,372 |
| | 102,446 |
|
| Impairment of assets | — |
| | 49,361 |
| | — |
|
| Stock compensation | 7,286 |
| | 8,424 |
| | 6,616 |
|
| Loss on extinguishment of debt | — |
| | 10,473 |
| | 12,058 |
|
| Amortization of debt discounts and issuance costs | 5,251 |
| | 5,579 |
| | 6,678 |
|
| Post retirement payments | (153,959 | ) | | (60,931 | ) | | (23,340 | ) |
| Pension and postretirement benefit cost | 29,580 |
| | 34,569 |
| | 38,879 |
|
| Partial settlement and curtailment loss | 45,585 |
| | — |
| | — |
|
| Change in unrealized (gain) loss on fuel derivative contracts | (3,845 | ) | | (47,678 | ) | | (1,015 | ) |
| Other, net | 11,170 |
| | 2,172 |
| | (1,811 | ) |
| Changes in operating assets and liabilities: | | | |
| | |
|
| Accounts receivable, net | (40,780 | ) | | (18,956 | ) | | (1,850 | ) |
| Spare parts and supplies, net | (21,964 | ) | | (5,259 | ) | | (4,323 | ) |
| Prepaid expenses and other current assets | 4,158 |
| | (12,319 | ) | | 7,065 |
|
| Accounts payable | 21,965 |
| | 12,305 |
| | 44 |
|
| Air traffic liability | 62,866 |
| | 51,730 |
| | 6,430 |
|
| Other accrued liabilities | (24,668 | ) | | 47,582 |
| | 10,075 |
|
| Other assets and liabilities, net | (74,610 | ) | | (21,175 | ) | | 28,614 |
|
| Net cash provided by operating activities | 331,135 |
| | 437,044 |
| | 476,028 |
|
| Cash Flows From Investing Activities: | | | |
| | |
|
| Additions to property and equipment, including pre-delivery deposits | (341,515 | ) | | (178,838 | ) | | (118,828 | ) |
| Proceeds from purchase assignment and leaseback transactions | — |
| | 31,851 |
| | 101,738 |
|
| Net proceeds from disposition of equipment | 33,941 |
| | 16 |
| | 3,669 |
|
| Purchases of investments | (231,393 | ) | | (260,987 | ) | | (257,448 | ) |
| Sales of investments | 244,261 |
| | 253,855 |
| | 236,062 |
|
| Other | — |
| | — |
| | (500 | ) |
| Net cash used in investing activities | (294,706 | ) | | (154,103 | ) | | (35,307 | ) |
| Cash Flows From Financing Activities: | | | |
| | |
|
| Repayments of long-term debt and capital lease obligations | (61,486 | ) | | (214,025 | ) | | (216,157 | ) |
| Dividend payments | (6,261 | ) | | — |
| | — |
|
| Repurchases and conversion of convertible notes | — |
| | (1,426 | ) | | (184,645 | ) |
| Repurchases of common stock | (100,000 | ) | | (13,763 | ) | | (40,138 | ) |
| Proceeds from settlement of convertible note call options | — |
| | — |
| | 304,752 |
|
| Payment for settlement of convertible note warrants | — |
| | — |
| | (282,631 | ) |
| Debt issuance costs | (188 | ) | | (1,653 | ) | | (572 | ) |
| Payment for taxes withheld for stock compensation | (7,532 | ) | | (7,585 | ) | | (5,481 | ) |
| Net cash used in financing activities | (175,467 | ) | | (238,452 | ) | | (424,872 | ) |
| Net increase (decrease) in cash and cash equivalents | (139,038 | ) | | 44,489 |
| | 15,849 |
|
| Cash, cash equivalents, and restricted cash—Beginning of Year | 330,991 |
| | 286,502 |
| | 270,653 |
|
| Cash, cash equivalents, and restricted cash—End of Year | $ | 191,953 |
| | $ | 330,991 |
| | $ | 286,502 |
|
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.
CertainThe Company reclassified certain prior period amounts were reclassified to conform to the current period presentation. NoneUnless otherwise noted, all amounts disclosed are stated before consideration of these reclassifications had a material effect on theincome taxes.
Use of Estimates
The preparation of consolidated financial statements.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
Cash equivalents consist of short-term, highlyHighly liquid investments with an originala maturity of three months or less at the date of purchase.purchase are classified as cash and cash equivalents.
Restricted CashShort Term Investments
Restricted cash consistsDebt and equity securities and other investments measured at net asset value are classified as available-for-sale and are stated at fair value. Realized gains and losses are recorded using the specific identification method and reflected in Other, net within nonoperating income (expense) in the Consolidated statements of cash heldoperations. Unrealized gains and losses on available-for-sale securities are reflected as collateral by institutions that process our credit card transactions for advanced ticket sales.a component of accumulated other comprehensive income (loss).
Spare PartsRevenue Recognition
Passenger revenue. We record direct passenger ticket sales and Supplies
Spare parts and supplies are valued at average cost, and primarily consist of expendable partstickets sold by other airlines for flight equipment and other supplies. An allowance for obsolescence of expendable partsuse on Hawaiian as passenger revenue when the transportation is provided over the estimated useful lives of the related aircraft and enginesor when scheduled flights for spare partstickets are expected to be on hand atexpire 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 aircraft are retired from service.waiver of certain change fees and extended ticket validity for up to 24 months for (a) tickets issued between March 1, 2020 and December 31, 2020 and (b) tickets issued prior to March 1, 2020 for original travel between March 1, 2020 and February 28, 2021. In December 2021, we announced the further extension of ticket validity to December 31, 2022, which also includes all Main Cabin and First Class passenger tickets purchased in 2021. We record an estimate of breakage revenue on the scheduled flight date for tickets that will expire unused. These allowancesestimates are based on management's estimatesthe evaluation of actual historical results, available market information, forecasted trends and are subject to change.
Property, Equipment and Depreciation
Property and equipment are stated at cost and depreciatedthe extension of the expiration date for certain tickets impacted by COVID-19. During the year ended December 31, 2021, we recognized approximately $48.3 million in advanced ticket breakage. The primary assumption utilized in our calculation of advanced ticket breakage involves an estimate of future breakage patterns, which is based on a straight-line basiscombination of historical activity and expected customer behavior. A 10% change in this rate represents a change of approximately $4.8 million in advanced ticket breakage. Given the ongoing impact of the COVID-19 pandemic on actual results and its continued impact on travel demand, we continue to theirmonitor 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. During the twelve months ended December 31, 2021 and 2020, we recognized approximately $4.8 million and $11.3 million, respectively in ticket change fee revenue.
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 residual valuesselling 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 asset's estimated useful life. Depreciation beginsnumber 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 asset is placed into service. Aircraftmileage credits are redeemed and marketing and brand related parts begin depreciating onactivities.
During the aircraft's first revenue flight.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
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Estimated useful livesconsidering discounted cash flows using multiple inputs and residual valuesassumptions, including: (1) the expected number of propertymiles to be awarded and equipment are as follows: |
| |
Boeing 717-200 aircraft and engines | 7 - 11 years, 7 - 34% residual value |
Boeing 767-300 aircraft and engines (1) | 1 year (1) |
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 | 10 years, 15% residual value |
Aircraft under capital leases | 8 - 12 years, no residual value |
Flight simulator under capital lease | 10 years, no residual value |
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 |
(1) In 2016,redeemed; (2) the Company madeestimated weighted average equivalent ticket value, adjusted by a determination to early retire its Boeing 767-300 fleet byfulfillment discount; (3) the endestimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of 2018. Useful lives and residual values have been adjusted accordingly to reflect this decision and match the retirement dateseach of the aircraft. See Note 11airline 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 further discussion.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.
Additions
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 modifications that significantly enhancemethods including, but not limited to, discounted cash flows, brand value, number of miles awarded and number of miles redeemed. We estimate the operating performance and/or extendselling price of miles using an ETV adjusted for a fulfillment discount as described above.
In April 2021, we announced the useful liveselimination of propertyour HawaiianMiles expiration policy, effective April 1, 2021. Prior to this change in policy, miles expired after 18 months of member account inactivity. We review our breakage estimates annually based upon the latest available information regarding redemption and equipment are capitalizedexpiration patterns (e.g., credit card and depreciated over the lessernon-credit card holders). Our estimate of the remaining useful lifeexpected 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 asset orCOVID-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 remaining lease term,future as applicable. Expenditures thatadditional information becomes available. We do not improve or extend asset lives are chargedbelieve that the change in expiration policy will have a material impact on our accounting estimates and will continue to expenseevaluate the impact of this change as incurred. Pre-delivery deposits are capitalized when paid.additional information becomes available.
Aircraft under capital leases are recorded at an amount equal to
Pension and Other Postretirement and Postemployment Benefits
The calculation of pension and other postretirement and postemployment benefit expenses and its corresponding liabilities require the present valueuse of minimum lease payments utilizingsignificant assumptions, including the Company's incremental borrowingassumed discount rate, at lease inception and amortizedthe expected long-term rate of return on a straight-line basis over the lesserplan assets, expected mortality rates of the remaining useful life ofplan participants, and the aircraft orexpected health care cost trend rate. Changes in these assumptions will impact the lease term. expense and liability amounts, and future actual experience may differ from these assumptions.
The amortization is recorded in depreciation and amortization expense on the Consolidated Statement of Operations. Accumulated amortization of aircraft and other capital leases was $70.9 million and $56.1 millionsignificant assumptions as of December 31, 2017 and 2016, respectively.2021 are as follows:
The Company capitalizes certain costs related | | | | | | | | | | | |
| Pension: | | | |
| Discount rate to determine projected benefit obligation | 2.98 | % | | |
| Expected return on plan assets | 6.29 | % | | ^ |
| Postretirement: | | | |
| Discount rate to determine projected benefit obligation | 2.99 | % | | |
| Expected return on plan assets | N/A | | |
| Expected health care cost trend rate: | | | |
| Initial | 6.25 | % | | |
| Ultimate | 4.75 | % | | |
| Years to reach ultimate trend rate | 6 | | |
| Disability: | | | |
| Discount rate to determine projected benefit obligation | 3.03 | % | | |
| Expected return on plan assets | 4.28 | % | | ^ |
N/A Not Applicable
^ Expected return on plan assets used to determine 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, whichperiodic benefit expense for 2022 is included in Other property and equipment on the consolidated balance sheets, was $34.6 million and $31.0 million at December 31, 2017 and 2016, respectively. The value of construction in progress, primarily consisting of aircraft in 2017 and aircraft facilities in 2016 which is included in property and equipment on the consolidated balance sheets, was $135.3 million and $157.8 million as of December 31, 2017 and 2016, respectively. Amortization expense related to computer software was $12.3 million, $9.7 million and $6.3 million6.06% for the years ended December 31, 2017, 2016,pension plans and 2015 respectively.4.35% for the disability plan.
Aircraft Maintenance and Repair Costs
Maintenance and repair costs for owned and leased flight equipment,The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans' assets, including the overhaultrustee's review of aircraft components, are charged to operating expensesasset class return expectations by several consultants and economists, as incurred. Engine overhaul costs covered by power-by-the-hour arrangements are paid and expensedwell as incurred or expensedlong-term inflation assumptions. Our expected long-term rate of return 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, 2017 and 2016 the Company had approximately $109.3 million and $50.0 million, respectively in prepayments to one of its power-by-the-hour vendors, whichplan assets is recoverable over the next four 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, suchtarget 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
flight hours,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 2022 pension and
are availabledisability benefit expense recorded in wages and benefits and nonoperating expense: | | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Increase in estimated 2022 pension expense | $ | 3.9 | |
| Increase in estimated 2022 disability benefit expense | 0.5 | |
We determine the appropriate discount rate for reimbursementeach 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 Companydiscount 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, 2021 | $ | 54.4 | |
| Increase in other postretirement benefit obligation as of December 31, 2021 | 21.7 | |
| Decrease in estimated 2022 pension expense (operating and nonoperating) | (0.7) | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 0.9 | |
The health care cost trend rate is based upon the completionan evaluation of the maintenance of the leased aircraft. However, reimbursements are
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 areour historical trends and experience taking into account current and expected to be recovered from lessors are recorded as depositsmarket conditions. Changes in the Consolidated Balance Sheets as an asset until it is less than probable that any portion ofassumed current health care cost trend rate by year by 100 basis points would have 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 expensed as incurred. Any costs that are substantially and contractually unrelated to the maintenance of the leased asset are considered to be unrecoverable. In order to properly account for the costs that are related to the maintenance of the leased asset, the Company bifurcates its maintenance reserves into two groups and expenses the proportionate share that is expected to be unrecoverable.following annual effects:
Goodwill and Indefinite-lived Intangible | | | | | |
| 100 Basis Point Increase |
| (in millions) |
| Increase in other postretirement benefit obligation as of December 31, 2021 | $ | 9.7 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.0 | |
| | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Decrease in other postretirement benefit obligation as of December 31, 2021 | $ | 8.3 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.2 | |
Long-Lived Assets
Goodwill and intangible assets with indefinite lives are not amortized, but are tested for impairment at least annually using a three-step process in accordance with Accounting Standard Codification (ASC) Intangibles—Goodwill and Other (ASC 350).
In the event that the Company determines that the values of goodwill or indefinite-lived intangible assets have become impaired, the Company will incur an accounting charge during the period in which such determination is made.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
Long-livedOur 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 finite-lived intangiblehave a carrying value of approximately $2.0 billion at December 31, 2021. We review long-lived assets are testedused 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 amount. When testing for impairment management considers market trends, the expected useful lives of the assets, changes in economic conditions, recent transactions involving sales of similar assets and, if necessary, estimates of future undiscounted cash flows.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. In 2016,
As a $49.4 millionresult of the COVID-19 pandemic, in 2020 we identifiedindicators of impairment chargeof our long-lived assets. During the second quarter of 2020, it was recorded as the Company determined that the Boeing 767-300net 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.
In the second quarter of 2021, we announced the termination of our 'Ohana by Hawaiian operations, which utilizes the ATR-42 and ATR-72 fleet, and was operated under a capacity purchase agreement (CPA) with a third-party carrier. Following the termination of the operations, which were temporarily suspended in late 2020, management committed to a plan of sale and wrote-down the related assets were impaired. See Note 11by approximately $6.4 million to fair value, less cost to sell, and classified approximately $23.4 million as assets held for further details.sale on the Consolidated Balance Sheets. Additionally, during the second quarter of 2021, management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and as of December 31, 2021, reclassified approximately $6.1 million as assets held for sale on the Consolidated Balance Sheets. Management expects to complete the sale of the above referenced assets within 12 months from the original designation date, and will continue to monitor the asset groups for potential impairment.
Operating Leases
The Company leases aircraft, engines, airport terminal facilities, office space,In addition, 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 equipment underlong-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, 2021 and 2020, we recorded a valuation allowance of $14.1 million and $9.6 million, respectively, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to market risk exposure related to commodity (fuel) prices, interest rates, and foreign currency exchange rates. The adverse effects of potential changes in these market risks are discussed below. In an effort to manage our exposure to these risks, we may enter into derivative contracts from time to time and may revise our derivative portfolio as market conditions change.
The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we might undertake to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Aircraft fuel costs constitute a significant portion of our operating leases. Someexpense and changes in fuel prices could materially impact the results of these lease agreements include escalation clauses and renewal options. For scheduled rent escalation clauses duringoperations. A one cent increase in the lease terms or for rental payments commencing atcost of a date other thangallon of jet fuel would result in approximately $2.7 million in additional annual fuel expense based on 2019 consumption. Given the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the termsongoing uncertainties of the leases in the Consolidated Statements of Operations. When lease renewals are considered to be reasonably assured, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the lifeimpact of the lease. Rental expense for operating leases totaled $208.0 million, $193.0 million,COVID-19 pandemic, our fuel consumption was significantly less than our historical and $174.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Leased Aircraft Return Costs
Costs associated with the returnexpected future consumption. Approximately 56% of leased aircraft are accrued when it is probable that a payment will be made and that amount is reasonably estimable. Any accrual isour fuel was purchased based on the time remainingSingapore jet fuel prices, 36% was purchased based on the lease, planned aircraft usage,U.S. West Coast jet fuel prices, and the provisions included in the lease agreement, although the actual amount due to any lessor upon return will not be known with certainty until lease termination.
8% on other jet fuel prices.
We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. As of December 31, 2021, we have no outstanding fuel derivative positions.
Interest Rates
Our exposure to market risk associated with changes in interest rates is primarily associated with our debt obligations. At December 31, 2021, we had $1.8 billion of fixed-rate and no variable-rate debt. Market risk associated with our fixed rate long-term debt relates to the potential reduction in fair value from an increase in interest rates. An increase of 100 basis points in average annual interest rates would have decreased the estimated fair value of our fixed-rate long-term debt by $31.3 million at December 31, 2021.
Foreign Currency
We have exposure to market risk associated with changes in foreign currency exchange rates because we generate sales, incur expenses, and have debt denominated and paid in foreign currencies, predominantly in Japanese Yen and to a lesser extent, the Australian Dollar.
To manage exchange rate risk, we transact our international sales and expenditures in the same foreign currency, to the extent practical. Additionally, our Yen denominated debt serves as a natural hedge against the volatility of exchange rates against cash inflows. We also have an established foreign currency derivative program, where we periodically enter into foreign currency forward contracts. At December 31, 2021, the Company did not have any open derivative instruments designated for hedge accounting. We estimate that a 10% depreciation or appreciation in the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a change in annual pretax income of approximately $30.0 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
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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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, 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 10, 2022 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Calculation and recognition of air traffic liability breakage |
| Description of the Matter | | At December 31, 2021, the Company’s Air traffic liability (excluding frequent flyer) was $448.2 million, which included passenger tickets that are subject to extended ticket validity due to the impact of COVID-19. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company records an estimate of breakage revenue in proportion to the pattern of rights exercised by related passengers (e.g., scheduled departure dates) for tickets that will expire unused based on actual historical results and forecasted trends.
Auditing the estimate of breakage revenue was complex and highly judgmental due to significant judgments required in determining the breakage rate to be applied to tickets with extended validity given the impact COVID-19 is having on customer travel behavior and forecasted trends. |
| 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 significant underlying assumptions and data inputs used in the model.
To test the estimated breakage rates, our audit procedures included, among others, evaluating the methodology, significant assumptions, and underlying data utilized by the Company. We evaluated the methodology and significant assumptions applied by management in their calculation of breakage for consistency with prior reporting periods and appropriateness based on the applicable accounting framework. We compared the forecasted data to historical results and evaluated the sensitivity of the breakage revenue caused by variations in the forecasted data. |
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We have served as the Company's auditor since 1999.
Honolulu, Hawai'i
February 10, 2022
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands, except per share data) |
| Operating Revenue: | | | | | |
| Passenger | $ | 1,370,902 | | | $ | 664,799 | | | $ | 2,597,772 | |
| Other | 225,682 | | | 180,014 | | | 234,456 | |
| Total | 1,596,584 | | | 844,813 | | | 2,832,228 | |
| Operating Expenses: | | | | | |
| Wages and benefits | 698,101 | | | 628,558 | | | 723,656 | |
| Aircraft fuel, including taxes and delivery | 363,003 | | | 161,363 | | | 542,573 | |
| Aircraft rent | 109,476 | | | 103,890 | | | 118,904 | |
| Maintenance materials and repairs | 170,048 | | | 121,571 | | | 249,772 | |
| Aircraft and passenger servicing | 105,675 | | | 58,016 | | | 164,275 | |
| Commissions and other selling | 72,512 | | | 46,297 | | | 130,216 | |
| Depreciation and amortization | 138,299 | | | 151,665 | | | 158,906 | |
| Other rentals and landing fees | 116,772 | | | 73,808 | | | 129,622 | |
| Purchased services | 103,213 | | | 99,050 | | | 131,567 | |
| | | | | |
| Special items | 8,983 | | | 184,111 | | | — | |
| Government grant recognition | (320,645) | | | (240,648) | | | — | |
| Other | 113,711 | | | 104,743 | | | 155,260 | |
| Total | 1,679,148 | | | 1,492,424 | | | 2,504,751 | |
| Operating Income (Loss) | (82,564) | | | (647,611) | | | 327,477 | |
| Nonoperating Income (Expense): | | | | | |
| Other nonoperating special items | — | | | (5,682) | | | — | |
| Interest expense and amortization of debt discounts and issuance costs | (110,431) | | | (40,439) | | | (27,864) | |
| Interest income | 8,603 | | | 8,731 | | | 12,583 | |
| Capitalized interest | 3,357 | | | 3,236 | | | 4,492 | |
| Other components of net periodic benefit cost, excluding settlements | 3,566 | | | 1,300 | | | (3,864) | |
| Gains (losses) on fuel derivatives | 217 | | | (6,930) | | | (6,709) | |
| Loss on extinguishment of debt | (38,889) | | | — | | | — | |
| Other, net | 30,818 | | | (12,657) | | | (1,119) | |
| Total | (102,759) | | | (52,441) | | | (22,481) | |
| Income (Loss) Before Income Taxes | (185,323) | | | (700,052) | | | 304,996 | |
| Income tax expense (benefit) | (40,550) | | | (189,117) | | | 81,012 | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Net Income (Loss) Per Common Stock Share: | | | | | |
| Basic | $ | (2.85) | | | $ | (11.08) | | | $ | 4.72 | |
| Diluted | $ | (2.85) | | | $ | (11.08) | | | $ | 4.71 | |
| Weighted Average Number of Common Stock Shares Outstanding: | | | | | |
| Basic | 50,769 | | | 46,100 | | | 47,435 | |
| Diluted | 50,769 | | | 46,100 | | | 47,546 | |
| Cash Dividends Declared Per Common Share | $ | — | | | $ | 0.12 | | | $ | 0.48 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
For the Years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Other Comprehensive Income (Loss), net: | | | | | |
| Net change related to employee benefit plans, net of tax expense of $13,107 for 2021, and net of tax benefit of $2,315, and $4,349 for 2020 and 2019, respectively | 41,156 | | | (8,153) | | | (12,173) | |
| Net change in derivative instruments, net of tax benefit of $1,098 for 2020 and net of tax expense of $21 for 2019 | — | | | (3,341) | | | 24 | |
| Net change in available-for-sale investments, net of tax benefit of $2,784 for 2021, net of tax expense of $273 and $459 for 2020 and 2019, respectively | (8,467) | | | 850 | | | 1,406 | |
| Total Other Comprehensive Income (Loss) | 32,689 | | | (10,644) | | | (10,743) | |
| Total Comprehensive Income (Loss) | $ | (112,084) | | | $ | (521,579) | | | $ | 213,241 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2021 and 2020 | | | | | | | | | | | |
| | 2021 | | 2020 |
| | (in thousands, except share data) |
| ASSETS | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 490,561 | | | $ | 509,639 | |
| Restricted cash | 17,267 | | | — | |
| Short-term investments | 1,241,752 | | | 354,782 | |
| Accounts receivable, net | 92,888 | | | 67,527 | |
| Income taxes receivable | 71,201 | | | 95,002 | |
| Spare parts and supplies, net | 34,109 | | | 35,442 | |
| Prepaid expenses and other | 66,127 | | | 56,086 | |
| Total | 2,013,905 | | | 1,118,478 | |
| Property and equipment, net | 1,957,623 | | | 2,085,030 | |
| Other Assets: | | | |
| Assets held for sale | 29,449 | | | — | |
| Operating lease right-of-use assets | 536,154 | | | 627,359 | |
| Long-term prepayments and other | 80,489 | | | 133,663 | |
| | | |
| Intangible assets, net | 13,500 | | | 13,500 | |
| | | |
| Total Assets | $ | 4,631,120 | | | $ | 3,978,030 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Current Liabilities: | | | |
| Accounts payable | $ | 114,400 | | | $ | 112,002 | |
| Air traffic liability and current frequent flyer deferred revenue | 631,157 | | | 533,702 | |
| | | |
| Other accrued liabilities | 165,050 | | | 140,081 | |
| Current maturities of long-term debt, less discount | 97,096 | | | 115,019 | |
| Current maturities of finance lease obligations | 24,149 | | | 21,290 | |
| Current maturities of operating leases | 79,158 | | | 82,454 | |
| Total | 1,111,010 | | | 1,004,548 | |
| Long-Term Debt | 1,704,298 | | | 1,034,805 | |
| Other Liabilities and Deferred Credits: | | | |
| Noncurrent finance lease obligations | 100,995 | | | 120,618 | |
| Noncurrent operating leases | 423,293 | | | 503,376 | |
| Accumulated pension and other postretirement benefit obligations | 160,817 | | | 217,737 | |
| Other liabilities and deferred credits | 78,340 | | | 78,908 | |
| Noncurrent frequent flyer deferred revenue | 296,484 | | | 201,239 | |
| Deferred tax liability, net | 186,797 | | | 216,642 | |
| Total | 1,246,726 | | | 1,338,520 | |
| Commitments and Contingent Liabilities | 0 | | 0 |
| Shareholders' Equity: | | | |
| Special preferred stock, $0.01 par value per share, 3 shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.01 par value per share, 51,233,369 and 48,145,093 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 512 | | | 481 | |
| Capital in excess of par value | 269,575 | | | 188,593 | |
| Accumulated income | 380,837 | | | 525,610 | |
| Accumulated other comprehensive loss, net | (81,838) | | | (114,527) | |
| Total | 569,086 | | | 600,157 | |
| Total Liabilities and Shareholders' Equity | $ | 4,631,120 | | | $ | 3,978,030 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31, 2021, 2020 and 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 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 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 | |
| Net Loss | — | | | — | | | — | | | (144,773) | | | — | | | (144,773) | |
| | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 32,689 | | | 32,689 | |
| Issuance of 228,066 shares of common stock, net of shares withheld for taxes | 2 | | | — | | | (2,022) | | | — | | | — | | | (2,020) | |
| | | | | | | | | | | |
| CARES Act warrant issuance, net of tax | — | | | — | | | 4,419 | | | — | | | — | | | 4,419 | |
| Share-based compensation expense | — | | | — | | | 8,645 | | | — | | | — | | | 8,645 | |
| Issuance of 2,860,210 shares of common stock related to At-the-market offering | 29 | | | — | | | 69,940 | | | — | | | — | | | 69,969 | |
| Balance at December 31, 2021 | $ | 512 | | | $ | — | | | $ | 269,575 | | | $ | 380,837 | | | $ | (81,838) | | | $ | 569,086 | |
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of December 31, 2021 and 2020.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31, 2021 and 2020.
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2021, 2020 and 2019 | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Cash Flows From Operating Activities: | | | | | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Amortization of intangible assets | — | | | — | | | 649 | |
| Depreciation and amortization of property and equipment | 138,299 | | | 151,665 | | | 158,714 | |
| Deferred income taxes, net | (41,624) | | | (72,188) | | | 124,068 | |
| | | | | |
| | | | | |
| Goodwill impairment | — | | | 106,662 | | | — | |
| Impairment of assets | 6,383 | | | 38,933 | | | — | |
| Stock compensation | 8,645 | | | 4,936 | | | 8,253 | |
| | | | | |
| Loss on extinguishment of debt | 38,889 | | | — | | | — | |
| Amortization of debt discounts and issuance costs | 9,223 | | | 4,012 | | | 2,976 | |
| Employer contributions to pension and other postretirement plans | (10,232) | | | (7,691) | | | (7,169) | |
| Pension and postretirement benefit cost | 8,178 | | | 8,398 | | | 12,120 | |
| Special termination benefits and curtailment loss | — | | | 5,682 | | | — | |
| Change in unrealized gain on fuel derivative contracts | (383) | | | (2,106) | | | (5,694) | |
| Foreign currency debt remeasurement (gain) loss | (27,593) | | | 14,760 | | | 493 | |
| | | | | |
| Other, net | 7,275 | | | (7,007) | | | 2,564 | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | (25,361) | | | 29,853 | | | (24,756) | |
| Income taxes receivable | 23,804 | | | (30,810) | | | 19,605 | |
| Spare parts and supplies, net | (1,562) | | | (1,066) | | | (8,767) | |
| Prepaid expenses and other current assets | (13,140) | | | 24,410 | | | 3,662 | |
| Accounts payable | 5,785 | | | (49,469) | | | 6,244 | |
| Air traffic liability | 146,655 | | | (117,279) | | | (3,071) | |
| Other accrued liabilities | 24,366 | | | (18,025) | | | (43,034) | |
| Frequent flyer deferred revenue | 46,045 | | | 70,318 | | | 17,618 | |
| Other assets and liabilities, net | 52,459 | | | 46,239 | | | (3,319) | |
| Net cash provided by (used in) operating activities | 251,338 | | | (310,708) | | | 485,140 | |
| Cash Flows From Investing Activities: | | | | | |
| Additions to property and equipment, including pre-delivery deposits | (39,264) | | | (105,313) | | | (397,421) | |
| | | | | |
| Proceeds from purchase assignment and sale leaseback transactions | — | | | 114,000 | | | — | |
| Proceeds from disposition of equipment | 755 | | | — | | | 9,595 | |
| Purchases of investments | (1,856,035) | | | (395,793) | | | (312,768) | |
| Sales of investments | 958,242 | | | 288,336 | | | 301,662 | |
| Other | — | | | — | | | (6,275) | |
| Net cash used in investing activities | (936,302) | | | (98,770) | | | (405,207) | |
| Cash Flows From Financing Activities: | | | | | |
| Proceeds from the issuance of common stock | 68,132 | | | 41,196 | | | — | |
| Long-term borrowings | 1,251,705 | | | 602,264 | | | 227,889 | |
| Repayments of long-term debt and finance lease obligations | (611,725) | | | (78,824) | | | (109,128) | |
| Dividend payments | — | | | (5,514) | | | (22,774) | |
| | | | | |
| Repurchases of common stock | — | | | (7,510) | | | (68,769) | |
| | | | | |
| | | | | |
| Debt issuance costs and discounts | (24,776) | | | (4,975) | | | (1,623) | |
| | | | | |
| | | | | |
| | | | | |
| Other | (183) | | | (576) | | | (1,049) | |
| Net cash provided by financing activities | 683,153 | | | 546,061 | | | 24,546 | |
| Net increase (decrease) in cash and cash equivalents | (1,811) | | | 136,583 | | | 104,479 | |
| Cash, cash equivalents, and restricted cash—Beginning of Year | 509,639 | | | 373,056 | | | 268,577 | |
| Cash, cash equivalents, and restricted cash—End of Year | $ | 507,828 | | | $ | 509,639 | | | $ | 373,056 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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
Debt and equity securities and other investments measured at net asset value are classified as available-for-sale and are stated at fair value. Realized gains and losses are recorded using the specific identification method and reflected in Other, net within nonoperating income (expense) in the Consolidated statements of operations. Unrealized gains and losses on available-for-sale securities are reflected as a component of accumulated other comprehensive income (loss).
Revenue Recognition
Passenger revenue. We record direct passenger ticket sales and tickets sold by other airlines for use on Hawaiian as passenger revenue is recognized either 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 for (a) tickets issued between March 1, 2020 and December 31, 2020 and (b) tickets issued prior to March 1, 2020 for original travel between March 1, 2020 and February 28, 2021. In December 2021, we announced the further extension of ticket validity to December 31, 2022, which also includes all Main Cabin and First Class passenger tickets purchased in 2021. 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, available market information, forecasted trends and the extension of the expiration date for certain tickets impacted by COVID-19. During the year ended December 31, 2021, we recognized approximately $48.3 million in advanced ticket breakage. The primary assumption utilized in our calculation of advanced ticket breakage involves an estimate of future breakage patterns, which is based on a combination of historical activity and expected customer behavior. A 10% change in this rate represents a change of approximately $4.8 million in advanced ticket breakage. Given the ongoing impact of the COVID-19 pandemic on actual results and its continued impact on travel demand, we 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. During the twelve months ended December 31, 2021 and 2020, we recognized approximately $4.8 million and $11.3 million, respectively in ticket change fee revenue.
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.
In April 2021, we announced the elimination of our HawaiianMiles expiration policy, effective April 1, 2021. Prior to this change in policy, miles expired 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. We do not believe that the change in expiration policy will have a material impact on our accounting estimates and will continue to evaluate the impact of this change 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, 2021 are as follows:
| | | | | | | | | | | |
| Pension: | | | |
| Discount rate to determine projected benefit obligation | 2.98 | % | | |
| Expected return on plan assets | 6.29 | % | | ^ |
| Postretirement: | | | |
| Discount rate to determine projected benefit obligation | 2.99 | % | | |
| Expected return on plan assets | N/A | | |
| Expected health care cost trend rate: | | | |
| Initial | 6.25 | % | | |
| Ultimate | 4.75 | % | | |
| Years to reach ultimate trend rate | 6 | | |
| Disability: | | | |
| Discount rate to determine projected benefit obligation | 3.03 | % | | |
| Expected return on plan assets | 4.28 | % | | ^ |
N/A Not Applicable
^ Expected return on plan assets used to determine the net periodic benefit expense for 2022 is 6.06% for the pension plans and4.35% 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 2022 pension and disability benefit expense recorded in wages and benefits and nonoperating expense: | | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Increase in estimated 2022 pension expense | $ | 3.9 | |
| Increase in estimated 2022 disability benefit expense | 0.5 | |
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, 2021 | $ | 54.4 | |
| Increase in other postretirement benefit obligation as of December 31, 2021 | 21.7 | |
| Decrease in estimated 2022 pension expense (operating and nonoperating) | (0.7) | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 0.9 | |
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, 2021 | $ | 9.7 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.0 | |
| | | | | |
| 100 Basis Point Decrease |
| (in millions) |
| Decrease in other postretirement benefit obligation as of December 31, 2021 | $ | 8.3 | |
| Increase in estimated 2022 other postretirement benefit expense (operating and nonoperating) | 1.2 | |
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 $2.0 billion at December 31, 2021. 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, in 2020 we identifiedindicators 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.
In the second quarter of 2021, we announced the termination of our 'Ohana by Hawaiian operations, which utilizes the ATR-42 and ATR-72 fleet, and was operated under a capacity purchase agreement (CPA) with a third-party carrier. Following the termination of the operations, which were temporarily suspended in late 2020, management committed to a plan of sale and wrote-down the related assets by approximately $6.4 million to fair value, less cost to sell, and classified approximately $23.4 million as assets held for sale on the Consolidated Balance Sheets. Additionally, during the second quarter of 2021, management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and as of December 31, 2021, reclassified approximately $6.1 million as assets held for sale on the Consolidated Balance Sheets. Management expects to complete the sale of the above referenced assets within 12 months from the original designation date, and will continue to monitor the asset groups for potential impairment.
In addition, 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, 2021 and 2020, we recorded a valuation allowance of $14.1 million and $9.6 million, respectively, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to market risk exposure related to commodity (fuel) prices, interest rates, and foreign currency exchange rates. The adverse effects of potential changes in these market risks are discussed below. In an effort to manage our exposure to these risks, we may enter into derivative contracts from time to time and may revise our derivative portfolio as market conditions change.
The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we might undertake to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Aircraft fuel costs constitute a significant portion of our operating expense and changes in fuel prices could materially impact the results of operations. A one cent increase in the cost of a gallon of jet fuel would result in approximately $2.7 million in additional annual fuel expense based on 2019 consumption. Given the ongoing uncertainties of the impact of the COVID-19 pandemic, our fuel consumption was significantly less than our historical and expected future consumption. Approximately 56% of our fuel was purchased based on Singapore jet fuel prices, 36% was purchased based on U.S. West Coast jet fuel prices, and 8% on other jet fuel prices.
We periodically enter into derivative financial instruments to manage our exposure to changes in the price of jet fuel. As of December 31, 2021, we have no outstanding fuel derivative positions.
Interest Rates
Our exposure to market risk associated with changes in interest rates is primarily associated with our debt obligations. At December 31, 2021, we had $1.8 billion of fixed-rate and no variable-rate debt. Market risk associated with our fixed rate long-term debt relates to the potential reduction in fair value from an increase in interest rates. An increase of 100 basis points in average annual interest rates would have decreased the estimated fair value of our fixed-rate long-term debt by $31.3 million at December 31, 2021.
Foreign Currency
We have exposure to market risk associated with changes in foreign currency exchange rates because we generate sales, incur expenses, and have debt denominated and paid in foreign currencies, predominantly in Japanese Yen and to a lesser extent, the Australian Dollar.
To manage exchange rate risk, we transact our international sales and expenditures in the same foreign currency, to the extent practical. Additionally, our Yen denominated debt serves as a natural hedge against the volatility of exchange rates against cash inflows. We also have an established foreign currency derivative program, where we periodically enter into foreign currency forward contracts. At December 31, 2021, the Company did not have any open derivative instruments designated for hedge accounting. We estimate that a 10% depreciation or appreciation in the U.S. dollar, relative to the Japanese Yen and Australian Dollar, would result in a change in annual pretax income of approximately $30.0 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
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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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, 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 10, 2022 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| | Calculation and recognition of air traffic liability breakage |
| Description of the Matter | | At December 31, 2021, the Company’s Air traffic liability (excluding frequent flyer) was $448.2 million, which included passenger tickets that are subject to extended ticket validity due to the impact of COVID-19. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company records an estimate of breakage revenue in proportion to the pattern of rights exercised by related passengers (e.g., scheduled departure dates) for tickets that will expire unused based on actual historical results and forecasted trends.
Auditing the estimate of breakage revenue was complex and highly judgmental due to significant judgments required in determining the breakage rate to be applied to tickets with extended validity given the impact COVID-19 is having on customer travel behavior and forecasted trends. |
| 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 significant underlying assumptions and data inputs used in the model.
To test the estimated breakage rates, our audit procedures included, among others, evaluating the methodology, significant assumptions, and underlying data utilized by the Company. We evaluated the methodology and significant assumptions applied by management in their calculation of breakage for consistency with prior reporting periods and appropriateness based on the applicable accounting framework. We compared the forecasted data to historical results and evaluated the sensitivity of the breakage revenue caused by variations in the forecasted data. |
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We have served as the Company's auditor since 1999.
Honolulu, Hawai'i
February 10, 2022
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands, except per share data) |
| Operating Revenue: | | | | | |
| Passenger | $ | 1,370,902 | | | $ | 664,799 | | | $ | 2,597,772 | |
| Other | 225,682 | | | 180,014 | | | 234,456 | |
| Total | 1,596,584 | | | 844,813 | | | 2,832,228 | |
| Operating Expenses: | | | | | |
| Wages and benefits | 698,101 | | | 628,558 | | | 723,656 | |
| Aircraft fuel, including taxes and delivery | 363,003 | | | 161,363 | | | 542,573 | |
| Aircraft rent | 109,476 | | | 103,890 | | | 118,904 | |
| Maintenance materials and repairs | 170,048 | | | 121,571 | | | 249,772 | |
| Aircraft and passenger servicing | 105,675 | | | 58,016 | | | 164,275 | |
| Commissions and other selling | 72,512 | | | 46,297 | | | 130,216 | |
| Depreciation and amortization | 138,299 | | | 151,665 | | | 158,906 | |
| Other rentals and landing fees | 116,772 | | | 73,808 | | | 129,622 | |
| Purchased services | 103,213 | | | 99,050 | | | 131,567 | |
| | | | | |
| Special items | 8,983 | | | 184,111 | | | — | |
| Government grant recognition | (320,645) | | | (240,648) | | | — | |
| Other | 113,711 | | | 104,743 | | | 155,260 | |
| Total | 1,679,148 | | | 1,492,424 | | | 2,504,751 | |
| Operating Income (Loss) | (82,564) | | | (647,611) | | | 327,477 | |
| Nonoperating Income (Expense): | | | | | |
| Other nonoperating special items | — | | | (5,682) | | | — | |
| Interest expense and amortization of debt discounts and issuance costs | (110,431) | | | (40,439) | | | (27,864) | |
| Interest income | 8,603 | | | 8,731 | | | 12,583 | |
| Capitalized interest | 3,357 | | | 3,236 | | | 4,492 | |
| Other components of net periodic benefit cost, excluding settlements | 3,566 | | | 1,300 | | | (3,864) | |
| Gains (losses) on fuel derivatives | 217 | | | (6,930) | | | (6,709) | |
| Loss on extinguishment of debt | (38,889) | | | — | | | — | |
| Other, net | 30,818 | | | (12,657) | | | (1,119) | |
| Total | (102,759) | | | (52,441) | | | (22,481) | |
| Income (Loss) Before Income Taxes | (185,323) | | | (700,052) | | | 304,996 | |
| Income tax expense (benefit) | (40,550) | | | (189,117) | | | 81,012 | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Net Income (Loss) Per Common Stock Share: | | | | | |
| Basic | $ | (2.85) | | | $ | (11.08) | | | $ | 4.72 | |
| Diluted | $ | (2.85) | | | $ | (11.08) | | | $ | 4.71 | |
| Weighted Average Number of Common Stock Shares Outstanding: | | | | | |
| Basic | 50,769 | | | 46,100 | | | 47,435 | |
| Diluted | 50,769 | | | 46,100 | | | 47,546 | |
| Cash Dividends Declared Per Common Share | $ | — | | | $ | 0.12 | | | $ | 0.48 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
For the Years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Other Comprehensive Income (Loss), net: | | | | | |
| Net change related to employee benefit plans, net of tax expense of $13,107 for 2021, and net of tax benefit of $2,315, and $4,349 for 2020 and 2019, respectively | 41,156 | | | (8,153) | | | (12,173) | |
| Net change in derivative instruments, net of tax benefit of $1,098 for 2020 and net of tax expense of $21 for 2019 | — | | | (3,341) | | | 24 | |
| Net change in available-for-sale investments, net of tax benefit of $2,784 for 2021, net of tax expense of $273 and $459 for 2020 and 2019, respectively | (8,467) | | | 850 | | | 1,406 | |
| Total Other Comprehensive Income (Loss) | 32,689 | | | (10,644) | | | (10,743) | |
| Total Comprehensive Income (Loss) | $ | (112,084) | | | $ | (521,579) | | | $ | 213,241 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2021 and 2020 | | | | | | | | | | | |
| | 2021 | | 2020 |
| | (in thousands, except share data) |
| ASSETS | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 490,561 | | | $ | 509,639 | |
| Restricted cash | 17,267 | | | — | |
| Short-term investments | 1,241,752 | | | 354,782 | |
| Accounts receivable, net | 92,888 | | | 67,527 | |
| Income taxes receivable | 71,201 | | | 95,002 | |
| Spare parts and supplies, net | 34,109 | | | 35,442 | |
| Prepaid expenses and other | 66,127 | | | 56,086 | |
| Total | 2,013,905 | | | 1,118,478 | |
| Property and equipment, net | 1,957,623 | | | 2,085,030 | |
| Other Assets: | | | |
| Assets held for sale | 29,449 | | | — | |
| Operating lease right-of-use assets | 536,154 | | | 627,359 | |
| Long-term prepayments and other | 80,489 | | | 133,663 | |
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| Intangible assets, net | 13,500 | | | 13,500 | |
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| Total Assets | $ | 4,631,120 | | | $ | 3,978,030 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Current Liabilities: | | | |
| Accounts payable | $ | 114,400 | | | $ | 112,002 | |
| Air traffic liability and current frequent flyer deferred revenue | 631,157 | | | 533,702 | |
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| Other accrued liabilities | 165,050 | | | 140,081 | |
| Current maturities of long-term debt, less discount | 97,096 | | | 115,019 | |
| Current maturities of finance lease obligations | 24,149 | | | 21,290 | |
| Current maturities of operating leases | 79,158 | | | 82,454 | |
| Total | 1,111,010 | | | 1,004,548 | |
| Long-Term Debt | 1,704,298 | | | 1,034,805 | |
| Other Liabilities and Deferred Credits: | | | |
| Noncurrent finance lease obligations | 100,995 | | | 120,618 | |
| Noncurrent operating leases | 423,293 | | | 503,376 | |
| Accumulated pension and other postretirement benefit obligations | 160,817 | | | 217,737 | |
| Other liabilities and deferred credits | 78,340 | | | 78,908 | |
| Noncurrent frequent flyer deferred revenue | 296,484 | | | 201,239 | |
| Deferred tax liability, net | 186,797 | | | 216,642 | |
| Total | 1,246,726 | | | 1,338,520 | |
| Commitments and Contingent Liabilities | 0 | | 0 |
| Shareholders' Equity: | | | |
| Special preferred stock, $0.01 par value per share, 3 shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.01 par value per share, 51,233,369 and 48,145,093 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 512 | | | 481 | |
| Capital in excess of par value | 269,575 | | | 188,593 | |
| Accumulated income | 380,837 | | | 525,610 | |
| Accumulated other comprehensive loss, net | (81,838) | | | (114,527) | |
| Total | 569,086 | | | 600,157 | |
| Total Liabilities and Shareholders' Equity | $ | 4,631,120 | | | $ | 3,978,030 | |
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31, 2021, 2020 and 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 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 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 | |
| Net Loss | — | | | — | | | — | | | (144,773) | | | — | | | (144,773) | |
| | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 32,689 | | | 32,689 | |
| Issuance of 228,066 shares of common stock, net of shares withheld for taxes | 2 | | | — | | | (2,022) | | | — | | | — | | | (2,020) | |
| | | | | | | | | | | |
| CARES Act warrant issuance, net of tax | — | | | — | | | 4,419 | | | — | | | — | | | 4,419 | |
| Share-based compensation expense | — | | | — | | | 8,645 | | | — | | | — | | | 8,645 | |
| Issuance of 2,860,210 shares of common stock related to At-the-market offering | 29 | | | — | | | 69,940 | | | — | | | — | | | 69,969 | |
| Balance at December 31, 2021 | $ | 512 | | | $ | — | | | $ | 269,575 | | | $ | 380,837 | | | $ | (81,838) | | | $ | 569,086 | |
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of December 31, 2021 and 2020.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31, 2021 and 2020.
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2021, 2020 and 2019 | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Cash Flows From Operating Activities: | | | | | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Amortization of intangible assets | — | | | — | | | 649 | |
| Depreciation and amortization of property and equipment | 138,299 | | | 151,665 | | | 158,714 | |
| Deferred income taxes, net | (41,624) | | | (72,188) | | | 124,068 | |
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| Goodwill impairment | — | | | 106,662 | | | — | |
| Impairment of assets | 6,383 | | | 38,933 | | | — | |
| Stock compensation | 8,645 | | | 4,936 | | | 8,253 | |
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| Loss on extinguishment of debt | 38,889 | | | — | | | — | |
| Amortization of debt discounts and issuance costs | 9,223 | | | 4,012 | | | 2,976 | |
| Employer contributions to pension and other postretirement plans | (10,232) | | | (7,691) | | | (7,169) | |
| Pension and postretirement benefit cost | 8,178 | | | 8,398 | | | 12,120 | |
| Special termination benefits and curtailment loss | — | | | 5,682 | | | — | |
| Change in unrealized gain on fuel derivative contracts | (383) | | | (2,106) | | | (5,694) | |
| Foreign currency debt remeasurement (gain) loss | (27,593) | | | 14,760 | | | 493 | |
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| Other, net | 7,275 | | | (7,007) | | | 2,564 | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable, net | (25,361) | | | 29,853 | | | (24,756) | |
| Income taxes receivable | 23,804 | | | (30,810) | | | 19,605 | |
| Spare parts and supplies, net | (1,562) | | | (1,066) | | | (8,767) | |
| Prepaid expenses and other current assets | (13,140) | | | 24,410 | | | 3,662 | |
| Accounts payable | 5,785 | | | (49,469) | | | 6,244 | |
| Air traffic liability | 146,655 | | | (117,279) | | | (3,071) | |
| Other accrued liabilities | 24,366 | | | (18,025) | | | (43,034) | |
| Frequent flyer deferred revenue | 46,045 | | | 70,318 | | | 17,618 | |
| Other assets and liabilities, net | 52,459 | | | 46,239 | | | (3,319) | |
| Net cash provided by (used in) operating activities | 251,338 | | | (310,708) | | | 485,140 | |
| Cash Flows From Investing Activities: | | | | | |
| Additions to property and equipment, including pre-delivery deposits | (39,264) | | | (105,313) | | | (397,421) | |
| | | | | |
| Proceeds from purchase assignment and sale leaseback transactions | — | | | 114,000 | | | — | |
| Proceeds from disposition of equipment | 755 | | | — | | | 9,595 | |
| Purchases of investments | (1,856,035) | | | (395,793) | | | (312,768) | |
| Sales of investments | 958,242 | | | 288,336 | | | 301,662 | |
| Other | — | | | — | | | (6,275) | |
| Net cash used in investing activities | (936,302) | | | (98,770) | | | (405,207) | |
| Cash Flows From Financing Activities: | | | | | |
| Proceeds from the issuance of common stock | 68,132 | | | 41,196 | | | — | |
| Long-term borrowings | 1,251,705 | | | 602,264 | | | 227,889 | |
| Repayments of long-term debt and finance lease obligations | (611,725) | | | (78,824) | | | (109,128) | |
| Dividend payments | — | | | (5,514) | | | (22,774) | |
| | | | | |
| Repurchases of common stock | — | | | (7,510) | | | (68,769) | |
| | | | | |
| | | | | |
| Debt issuance costs and discounts | (24,776) | | | (4,975) | | | (1,623) | |
| | | | | |
| | | | | |
| | | | | |
| Other | (183) | | | (576) | | | (1,049) | |
| Net cash provided by financing activities | 683,153 | | | 546,061 | | | 24,546 | |
| Net increase (decrease) in cash and cash equivalents | (1,811) | | | 136,583 | | | 104,479 | |
| Cash, cash equivalents, and restricted cash—Beginning of Year | 509,639 | | | 373,056 | | | 268,577 | |
| Cash, cash equivalents, and restricted cash—End of Year | $ | 507,828 | | | $ | 509,639 | | | $ | 373,056 | |
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
Debt and equity securities and other investments measured at net asset value are classified as available-for-sale and are stated at fair value. Realized gains and losses are recorded using the specific identification method and reflected in Other, net within nonoperating income (expense) in the Consolidated statements of operations. Unrealized gains and losses on available-for-sale securities are reflected as a component of 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 the Company's property and equipment:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| | (in thousands) |
| Flight equipment | $ | 2,482,686 | | | $ | 2,526,440 | |
| Pre-delivery deposits on flight equipment | 83,034 | | | 75,089 | |
| Other property and equipment | 391,869 | | | 378,020 | |
| 2,957,589 | | | 2,979,549 | |
| Less accumulated depreciation and amortization | (999,966) | | | (894,519) | |
| Total property and equipment, net | 1,957,623 | | | 2,085,030 | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 |
| |
| 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 |
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 $147.8 million and $124.3 million as of December 31, 2021 and 2020, 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 $21.1 million and $29.2 million at December 31, 2021 and 2020, respectively. The value of construction in progress, primarily consisting of aircraft in 2021 and 2020, which is included in property and equipment on the Consolidated Balance Sheets, was $42.4 million and $27.5 million as of December 31, 2021 and 2020, respectively. Amortization expense related to computer software was $13.1 million, $15.7 million and $17.5 million for the years ended December 31, 2021, 2020, and 2019 respectively.
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, 2021 and 2020, the Company had approximately$5.9 millionand $56.3 million, respectively in prepayments to one of its power-by-the-hour vendors, which is recoverable over the next one year.
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
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 indefinite-lived intangible assets, including goodwill. Goodwill and indefinite-lived intangible assets 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 1 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.
As of December 31, 2021, the Company had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. The Company assesses its indefinite-lived assets under a qualitative approach. The Company analyzes market factors to determine if events and circumstances have affected the fair value of the indefinite-lived intangible assets.
Impairment of Long-Lived Assets
Long-lived assets used in operations, consist principally of property and equipment and have a carrying value of approximately $2.0 billion at December 31, 2021. 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.
During the year ended December 31, 2020, the Company recorded an impairment charge of $39.4 million related to its ATR-42 and ATR-72 fleet, assets held under its commercial real estate subsidiary, and software-related projects that were discontinued as a result of the COVID-19 pandemic. In 2021, the Company announced the termination of its 'Ohana by Hawaiian operations, which operated the ATR-42 and ATR-72 aircraft under a capacity purchase agreement with a third-party carrier. Following the termination of the operations, management committed to a plan of sale and wrote down the related assets by approximately $6.4 million to fair value, less cost to sell, and reclassified approximately $23.4 million as assets held for sale on the
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Consolidated Balance Sheets. 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.
Additionally, in the second quarter of 2021, management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and reclassified approximately $6.1 million as assets held for sale on the Consolidated Balance Sheets.
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.
Assets Held for Sale
Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying amount or fair value less cost to sell. Gains and losses realized on transactions are recognized immediately. If the determination is made that the Company no longer expects to sell an asset within the next year, the asset is reclassified out of assets held for sale. See Note 11 of the Notes to the Consolidated Financial Statements for additional discussion.
Revenue Recognition
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 flights for tickets expected to expire unused. The value of unused passenger tickets for future travel is included in current liabilities as airAir 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).
Various taxesPrior 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 assessedand extended ticket validity for up to 24 months for (a) tickets issued between March 1, 2020 and December 31, 2020 and (b) tickets issued prior to March 1, 2020 for original travel between March 1, 2020 and February 28, 2021. In December 2021, the Company announced the further extension of ticket validity for eligible tickets impacted by the COVID-19 pandemic, including all Main Cabin and First Class passenger tickets purchased in 2021, to December 31, 2022. The Company records an estimate of breakage revenue on the sale ofscheduled flight date for tickets that will expire unused. To calculate the portion to end customers are collected bybe recognized as revenue in the period, the Company as an agentutilizes historical information, available market information, forecasted trends, and remittedthe extension of the ticket validity date for those tickets impacted by COVID-19 and applies the estimated spoilage rate to taxing authorities.passenger revenues for each specific period. During the year ended December 31, 2021, the Company recognized approximately $48.3 million in advanced ticket breakage. Given the impact of the COVID-19 pandemic on actual results along with reductions in operational capacity, the Company continues 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. During the twelve months ended December 31, 2021, 2020 and 2019, the Company recognized approximately $4.8 million, $11.3 million and $28.2 million, respectively in ticket change fee revenue.
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 taxes and fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted to the appropriate taxing authority.
Other operating revenue includes checked baggage revenue, cargo revenue, ticket change and cancellation fees, charter revenue, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies, inflight revenue, and other incidental sales.
Ticket change and cancellation fees are recognized at the time the fees are assessed. All other revenue is recognized as revenue when the related goods and services are provided.remitted.
Frequent Flyer Program
HawaiianMiles,Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. TheASC 606 requires the Company utilizes the incremental cost method of accountingto account for free travel awardsmiles earned by passengers issued fromin the HawaiianMiles program through flight activity. The Company recordsactivity as a liability forcomponent of the passenger revenue ticket transaction at the estimated incremental costselling price of providingthe miles. Ticket consideration received is allocated between the performance obligations, primarily travel awards that are expectedand miles earned by
Hawaiian Holdings, Inc.
Notes to be redeemed on Hawaiian orConsolidated Financial Statements (Continued)
passengers. The allocated value of the contractual ratemiles is deferred until the free travel is used by the passenger, at which time it is included in revenue. The value of expected redemption on other airlines. The Company estimates the incremental costticket used in the determination of travel awardsthe estimated selling price is based on periodic studiesthe historical value of actual costsequivalent flights to those provided for loyalty awards and applies these cost estimatesthe related miles redeemed to all issued miles, less an appropriateobtain that award adjusted for breakage factor for estimatedor 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, will not be redeemed. Incremental cost includes the costs of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysishistorical experience, will be needed to obtain the award. The Company's estimate of historical expirations.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 ourits frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representingcontracts generally include multiple performance obligations, including the traveltransportation that will ultimately be provided when the mileage credits are redeemed and the other consisting of marketing and brand related activities that we conduct with the participating company.
activities. The Company accounts formarketing and brand performance obligations are effectively provided each time a HawaiianMiles members uses the co-branded credit card agreementand 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 recognizes 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 the Company's 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 multiple deliverable revenue arrangement, which requires the allocationtermination of the overall consideration received to each deliverable usingexisting contract and the estimated selling price. The objectivecreation of using estimateda new contract under ASC 606 and the relative 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 stand-alone basis.
The following four deliverables or elements were identified in the agreement: (i) travel miles; (ii) usewas determined for each performance obligation of the new agreement. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for the Company'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 member lists;its members lists (collectively, brand performance), (iii) advertising elements;marketing, and (iv) other airline benefits to cardholders, including checkeddiscounts and anniversary travel benefits, baggage serviceswaivers and travel discounts.inflight purchase credits. The Company determined the relative fair value of each elementperformance 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 deliverablesperformance 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 its 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.
In April 2021, the Company announced the elimination of its HawaiianMiles expiration policy, effective immediately. Prior to April 2021, miles expired 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 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 element is deferred and recognized as passenger revenue overcustomers. The Company provides an allowance for uncollectible accounts equal to the period when the transportation isestimated losses expected to be provided (23 months). Theincurred based on historical chargebacks, write-offs, bankruptcies and other elements will generally be recognized as other revenue when earned.
The Company's total frequent flyer liability for future award redemptions is reflected as components of Air traffic liability (for sold miles) and Other liabilities and deferred credits (for miles at incremental cost) within the Consolidated Balance Sheets as
specific analyses. Bad debt expense was not material in any period presented.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Costs to Obtain or Fulfill a Contract
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| Air traffic liability | $ | 71,537 |
| | $ | 67,936 |
|
| Other liabilities and deferred credits | 19,795 |
| | 18,461 |
|
| Total frequent flyer liability | $ | 91,332 |
| | $ | 86,397 |
|
UnderIn order for the programs of certain participating companies, creditsCompany to provide transportation to its customers, the Company incurs fulfillment costs (booking fees, credit card fees, and commission/selling costs), which are accumulated in accounts maintained by the participating company and then transferred into a member's HawaiianMiles account for immediate redemption of free travel awards. For those transactions, revenue is recognized overdeferred until the period duringin which the mileage is projectedflight occurs. As of December 31, 2021 and 2020, the Company's asset balance associated with these costs were $13.9 million and $9.1 million, respectively. During the twelve months ended December 31, 2021, 2020, and 2019, expenses related to be used for travel (four months).
On an annual basis,these costs totaled to $45.1 million, $24.6 million, and $91.0 million, respectively. To determine the amount to capitalize and expense at the end of each period, the Company reviewsuses historical sales data and estimates the deferral period and deferral rate for mileage credits sold to participating companies, as well as the breakage rate assumption for free travel awards earned in connectionamount associated with the purchase of passengerunflown tickets. The Company's incremental cost assumption is reviewed on a quarterly basis.
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"all or almost all”all" inactive.
As described further in Note 12, in August 2017, the Company made a one-time cash payment of $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation for all active pilots as of April 1, 2017. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the settlement of the liability, the discount rate was updated to 3.86%. The Company recognized a one-time settlement loss of $10.4 million. The obligation recorded for the unsettled portion of this plan was $73.4 million as of the partial settlement date. No other assumptions were updated because there was no indication of a significant change in trends in other assumptions, such as health care trends.
Advertising Costs
Advertising costs are expensed when incurred. Advertising expense was $16.6$20.2 million, $18.3$15.3 million and $17.6$22.3 million for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively.
Capitalized Interest
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
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Stock Compensation Plans
The Company has a stock compensation plan for it and its subsidiaries' officers' and non-employee directors. The Company accounts for stock compensation awards under ASC 718, Compensation—Stock Compensation, which requires companies to measuremeasures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such awards on the dates they are granted.award. The fair value of the awards areis 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 ofrestricted stock units (RSU) subject to timeservice and / or performance-based vesting. The resultantresulting 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: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Derivative Type | | Accounting Designation | | Classification of Realized
Gains and Losses | | Classification of Unrealized
Gains (Losses) |
| | | | | | | | |
| Foreign currency exchange contracts | | | | | | Classification of Unrealized
Gains (Losses)
|
Derivative Type | | Accounting Designation | | Classification of Realized
Gains and Losses
| | Effective Portion | | Ineffective Portion |
Interest rate contracts | | Designated as cash flow hedges | | Interest expense and amortization of debt discounts and issuance costsPassenger revenue | | AOCI | | Nonoperating income (expense) |
Foreign currency exchange contracts | | Designated as cash flow hedges | | Passenger revenue | | AOCI | | Nonoperating income (expense) |
| Fuel hedge contracts | | Not designated as hedges | | Gains (losses) on fuel derivatives | | Change in fair value is recorded in nonoperating income (expense) |
| | | | | | |
| Foreign currency exchange contracts | | Not designated as hedges | | Nonoperating income (expense), Other | | Change in fair value is recorded in nonoperating income (expense) |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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.
UseIncome Taxes
We account for deferred income taxes under the liability method. We recognize deferred tax assets and liabilities based on the tax effects of Estimates intemporary differences between the Preparationfinancial statement and tax basis of Financial Statementsassets and liabilities, as measured by enacted tax rates. Deferred tax assets and liabilities are net by jurisdiction and are recorded as noncurrent on the consolidated balance sheets.
A valuation allowance is recorded to reduce deferred tax assets when necessary. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies, where applicable. See Note 10 of the Notes to the consolidated financial statements for additional discussion.
The preparationCompany 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 financial statementsthe positions taken by the Company, potentially resulting in conformity with U.S. generally accepted accounting principles requires management to make estimatesadditional liabilities for taxes and assumptionsinterest. The Company's uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the amounts reportedavailability 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 the financial statements and accompanying notes. Actual results could differ significantly from those estimates.its Consolidated Statements of Operations.
Recently Adopted Accounting Pronouncements
In March 2017,December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, ImprovingNo. 2019-12, Income Taxes (Topic 740): Simplifying the PresentationAccounting for Income Taxes (ASU 2019-12), 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 Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, requiring an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU 2017-07Topic 740. This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early2020, including interim periods therein. The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption only permitted indid not have a material effect on the first quarterCompany's consolidated financial statements.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (ASU 2021-10), which requires entities to provide disclosures around the nature of 2017.the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity's financial statements, and any significant terms and conditions of the agreements. This guidance is effective for fiscal years beginning after December 15, 2021. The Company early adopted this standard during the first quarter of 2017. TheASU 2021-10 effective January 1, 2021 and its adoption of ASU 2017-07 resulted indid not have a reclassification of $20.3 million and $22.5 million from wages and benefits to other components of net periodic benefit costmaterial effect on the Company's consolidated financial statements as the adoption only impacted annual financial statement of operations for the twelve months ended December 31, 2016 and 2015, respectively.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, requiring restricted cash and restricted cash equivalents to be included with cash and cash equivalents on the statement of cash flows when reconciling the
footnote disclosures.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company early adopted this standard during the first quarter of 2017. Restricted cash is now included as a component of cash, cash equivalents, and restricted cash on the Company's condensed consolidated statement of cash flows. The inclusion of restricted cash increased the beginning balances of the condensed consolidated statement of cash flows by $5.0 million and $6.7 million and the ending balances by $5.0 million for the twelve months ended December 31, 2016 and 2015, respectively.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, requiring all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. ASU 2016-09 will also allow an employer to withhold more shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016. The Company adopted this standard during the first quarter of 2017. The primary impact of the adoption of the standard on the Company's consolidated financial statements was the recognition of excess tax benefits in the provision for income taxes rather than additional paid-in capital, which reduced income tax expense by $5.7 million for the twelve months ended December 31, 2017.
Recently Issued Accounting Pronouncements
In February 2018, the FASB issued a proposed ASU which would require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. Consequently, the amendments in this proposed ASU would eliminate the stranded tax effects associated with the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017. If this ASU is finalized, we will consider adoption in 2018, which would result in a reclassification of approximately $12.5 million from accumulated other comprehensive income to retained earnings
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging, which better aligns a company's risk management activities and financial reporting for hedging relationships and is intended to simplify the hedge accounting requirements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the components and options within ASU 2017-12.
In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires entities to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is evaluating the impact the adoption of this standard will have on its consolidated financial statements and believes this ASU will have a significant impact on its consolidated balance sheet but does not expect that the ASU will have a material impact on the Company's results of operations or cash flows. The effect of adopting the new standard will be to record right-of-use assets and operating lease obligations for fixed payments associated with current operating leases on the Company's balance sheet. See Note 9 which discusses our lease obligations as of December 31, 2017.
In November 2017, the FASB directed the staff to draft a proposed ASU that would provide transition relief allowing entities to continue to apply the guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year that a Company adopts the new leases guidance (ASC 842). Entities that elect this option would record the cumulative effect of adoption on the effective date rather than at the beginning of the earliest comparative period presented. The Company is awaiting the finalized pronouncement.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and created a new topic (ASC 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will elect to adopt the full retrospective transition method as of January 1, 2018, resulting in the restatement of certain prior periods on the date of adoption.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company completed its overall analysis for the provisions of ASC 606 specific to its consolidated financial statements and related disclosures. The Company has also designed and implemented controls and systems in anticipation of the adoption of the standard, effective January 1, 2018 which has a material impact on its consolidated financial statements. The overall decrease in equity as of January 1, 2016 is approximately $76.0 million net of tax, with an offsetting change primarily in Other liabilities and deferred credits.
The most significant impact of the standard relates to the accounting for the Company's frequent flyer travel award program. This change as well as other less significant changes, are briefly described below:
Frequent flyer - The standard 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 (effectively eliminating the incremental cost accounting currently applied). Under ASC 606, ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles will be deferred based on the equivalent ticket value (ETV) of a mile until the free travel or other award is used by the passenger, at which time it will be included in passenger revenues. In order to calculate ETV the Company analyzed the prior 12 months' weighted average ETV of similar fares as those used to settle award redemptions, considering cabin class and geographic region. ASC 606 will result in a significant increase to the deferred revenue liability on the Company's balance sheet, as the estimated selling price of the miles significantly exceeds the value previously recorded for incremental cost. The allocated value of miles earned through flights and sold to partners, will be recognized at the time the free travel or other award is used by the passenger.
Passenger revenue - Prior to January 1, 2018, passenger revenue was recognized either when the transportation was provided or when tickets expire unused. However, after the application of ASC 606, passenger revenue associated with unused tickets, which represent unexercised passenger rights, is expected to be recognized in proportion to the pattern of rights exercised by related passengers (e.g. scheduled departure dates). This will have the effect of reducing the recorded balance in air traffic liability as of the date of the cumulative effect adjustment on January 1, 2016 but is not expected to have a significant effect on annual revenue recognition.
Other operating revenue - Other operating revenue includes checked baggage revenue, cargo revenue, ticket change and cancellation fees, charter revenue, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies, inflight revenue, and other incidental sales. Ticket change and cancellation fees are currently recognized at the time the fees are assessed. The Company expects to defer the recognition of ticket change fees as a component of air traffic liability until the related transportation is provided. Certain amounts currently classified in other revenue (e.g. bag and other ancillary fees) will be reclassified to passenger revenue.
Selling Costs - Certain selling costs to issue passenger tickets (e.g. credit card and booking fees) are currently recognized when incurred. Consistent with the Company’s current accounting for commissions, under ASC 606 the Company will capitalize selling costs associated with credit card and booking fees and recognize the associated expense at the ticketed flight date.
The adoption of the standard required the implementation of new accounting processes and systems, which will change the Company's internal control over revenue recognition (effective January 1, 2018). Select recast pro forma financial statement information, which reflect the adoption of the ASC is below.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Pro Forma |
| | As Reported | | Adjustments | | Recast for Adoption of ASC 606 |
| | (in thousands) |
| Operating Revenue: | | | | | |
| Passenger | $ | 2,145,742 |
| | $ | 125,945 |
| | $ | 2,271,687 |
|
| Other | 304,838 |
| | (144,112 | ) | | 160,726 |
|
| Total | $ | 2,450,580 |
| | $ | (18,167 | ) | | $ | 2,432,413 |
|
| Operating Expenses | 2,034,848 |
| | 78 |
| | 2,034,926 |
|
| Operating Income | 415,732 |
| | (18,245 | ) | | 397,487 |
|
| Nonoperating Income (Expense) | (36,268 | ) | | — |
| | (36,268 | ) |
| Income tax expense | 144,032 |
| | (6,933 | ) | | 137,099 |
|
| Net Income | $ | 235,432 |
| | $ | (11,312 | ) | | $ | 224,120 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Pro Forma |
| | As Reported | | Adjustments | | Recast for Adoption of ASC 606 |
| | (in thousands) |
| Operating Revenue: | | | | | |
| Passenger | $ | 2,362,076 |
| | $ | 124,751 |
| | $ | 2,486,827 |
|
| Other | 333,552 |
| | (145,234 | ) | | 188,318 |
|
| Total | $ | 2,695,628 |
| | $ | (20,483 | ) | | $ | 2,675,145 |
|
| Operating Expenses | 2,211,856 |
| | (749 | ) | | 2,211,107 |
|
| Operating Income | 483,772 |
| | (19,734 | ) | | 464,038 |
|
| Nonoperating Income (Expense) | (73,217 | ) | | — |
| | (73,217 | ) |
| Income tax expense | 46,514 |
| | 13,697 |
| | 60,211 |
|
| Net Income | $ | 364,041 |
| | $ | (33,431 | ) | | $ | 330,610 |
|
Select consolidated balance sheet line items, which reflect the adoption of the new standard are as follows:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | |
| | December 31, 2017 |
| | Pro Forma Balance Sheet Data |
| | As Reported | | Adjustments | | Recast for Adoption of ASC 606 |
| | (in thousands) |
| ASSETS | | | | | |
| Prepaid expenses and other | $ | 65,196 |
| | $ | 13,990 |
| | $ | 79,186 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | |
| Current Liabilities: | | | | | |
| Air traffic liability | 545,362 |
| | 43,731 |
| | 589,093 |
|
| Other accrued liabilities | 146,283 |
| | 1,310 |
| | 147,593 |
|
| Noncurrent Liabilities: | | | | | |
| Other liabilities and deferred credits | 95,636 |
| | 129,969 |
| | 225,605 |
|
| Deferred tax liability | 174,344 |
| | (40,203 | ) | | 134,141 |
|
| Shareholders' Equity: | | | | | |
| Accumulated income | 913,951 |
| | (120,817 | ) | | 793,134 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss by component is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, | | |
| Details about accumulated other comprehensive loss components | | 2021 | | 2020 | | 2019 | | Affected line items in the statement where net income is presented |
| | | (in thousands) | | |
| Derivatives designated as hedging instruments under ASC 815 | | | | | | | | |
| Foreign currency derivative gains | | $ | — | | | $ | (3,075) | | | $ | (5,307) | | | Passenger revenue |
| Foreign currency derivative gains | | — | | | (3,945) | | | — | | | Nonoperating Income (Expense), Other, net |
| Total before tax | | — | | | (7,020) | | | (5,307) | | | |
| Tax expense | | — | | | 1,737 | | | 2,616 | | | |
| Total, net of tax | | $ | — | | | $ | (5,283) | | | $ | (2,691) | | | |
| Amortization of defined benefit pension items | | | | | | | | |
| Actuarial loss | | $ | 4,195 | | | $ | 4,048 | | | $ | 3,201 | | | Nonoperating Income (Expense), Other, net |
| Prior service cost | | 370 | | | 712 | | | 225 | | | Nonoperating Income (Expense), Other, net |
| Special termination benefits | | — | | | 5,258 | | | — | | | Other nonoperating special items |
| Curtailment loss | | — | | | 424 | | | — | | | Other nonoperating special items |
| Total before tax | | 4,565 | | | 10,442 | | | 3,426 | | | |
| Tax benefit | | (1,103) | | | (2,309) | | | (902) | | | |
| Total, net of tax | | $ | 3,462 | | | $ | 8,133 | | | $ | 2,524 | | | |
| Short-term investments | | | | | | | | |
| Realized (gain) loss on sales of investments, net | | (1,531) | | | (689) | | | (192) | | | Nonoperating Income (Expense), Other, net |
| Total before tax | | (1,531) | | | (689) | | | (192) | | | |
| Tax expense | | 379 | | | 168 | | | 47 | | | |
| Total, net of tax | | (1,152) | | | (521) | | | (145) | | | |
| Total reclassifications for the period | | $ | 2,310 | | | $ | 2,329 | | | $ | (312) | | | |
|
| | | | | | | | | | | | | | |
| | | Year ended December 31, | | |
| Details about accumulated other comprehensive loss components | | 2017 | | 2016 | | 2015 | | Affected line items in the statement where net income is presented |
| | | (in thousands) | | |
| Derivatives designated as hedging instruments under ASC 815 | | | | |
| | | | |
| Foreign currency derivative (gains) losses, net | | $ | (2,391 | ) | | $ | 196 |
| | $ | (17,443 | ) | | Passenger revenue |
| Interest rate derivative losses, net | | — |
| | 944 |
| | 687 |
| | Interest expense |
| Total before tax | | (2,391 | ) | | 1,140 |
| | (16,756 | ) | | |
| Tax expense (benefit) | | 906 |
| | (438 | ) | | 6,333 |
| | |
| Total, net of tax | | $ | (1,485 | ) | | $ | 702 |
| | $ | (10,423 | ) | | |
| Amortization of defined benefit pension items | | | | |
| | | | |
| Actuarial loss | | $ | 8,792 |
| | $ | 7,730 |
| | $ | 11,407 |
| | Other components of net periodic benefit cost |
| Prior service cost | | 254 |
| | 227 |
| | 227 |
| | Other components of net periodic benefit cost |
| Partial settlement and curtailment loss | | 10,384 |
| | — |
| | — |
| | Other nonoperating special items |
| Loss on plan termination | | 35,201 |
| | — |
| | — |
| | Other nonoperating special items |
| Total before tax | | 54,631 |
| | 7,957 |
| | 11,634 |
| | |
| Tax benefit | | (21,519 | ) | | (3,048 | ) | | (4,396 | ) | | |
| Total, net of tax | | $ | 33,112 |
| | $ | 4,909 |
| | $ | 7,238 |
| | |
| Short-term investments | | | | | | | | |
| Realized gain on sales of investments, net | | (32 | ) | | (108 | ) | | (8 | ) | | Other nonoperating income |
| Total before tax | | (32 | ) | | (108 | ) | | (8 | ) | | |
| Tax expense | | 12 |
| | 41 |
| | 3 |
| | |
| Total, net of tax | | (20 | ) | | (67 | ) | | (5 | ) | | |
| Total reclassifications for the period | | $ | 31,607 |
| | $ | 5,544 |
| | $ | (3,190 | ) | | |
A rollforward of the amounts included in accumulated other comprehensive loss, net of taxes, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | | Foreign
Currency
Derivatives | | Defined
Benefit
Pension Items | | Short-Term Investments | | Total |
| | | | (in thousands) |
| Beginning balance | | | $ | — | | | $ | (116,181) | | | $ | 1,654 | | | $ | (114,527) | |
| Other comprehensive income (loss) before reclassifications, net of tax | | | — | | | 37,694 | | | (7,315) | | | 30,379 | |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | | — | | | 3,462 | | | (1,152) | | | 2,310 | |
| Net current-period other comprehensive income (loss), net of tax | | | — | | | 41,156 | | | (8,467) | | | 32,689 | |
| Ending balance | | | $ | — | | | $ | (75,025) | | | $ | (6,813) | | | $ | (81,838) | |
|
| | | | | | | | | | | | | | | |
| Year ended December 31, 2017 | Foreign
Currency
Derivatives | | Defined
Benefit
Pension Items | | Short-Term Investments | | Total |
| | (in thousands) |
| Beginning balance | $ | 7,071 |
| | $ | (110,202 | ) | | $ | (362 | ) | | $ | (103,493 | ) |
| Other comprehensive income (loss) before reclassifications, net of tax | (4,337 | ) | | 1,137 |
| | (178 | ) | | (3,378 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | (1,485 | ) | | 33,112 |
| | (20 | ) | | 31,607 |
|
| Net current-period other comprehensive income (loss), net of tax | (5,822 | ) | | 34,249 |
| | (198 | ) | | 28,229 |
|
| Ending balance | $ | 1,249 |
| | $ | (75,953 | ) | | $ | (560 | ) | | $ | (75,264 | ) |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 | | | Foreign
Currency
Derivatives | | Defined
Benefit
Pension Items | | Short-Term Investments | | Total |
| | | | (in thousands) |
| Beginning balance | | | $ | 3,341 | | | $ | (108,028) | | | $ | 804 | | | $ | (103,883) | |
| Other comprehensive income (loss) before reclassifications, net of tax | | | 1,942 | | | (16,286) | | | 1,371 | | | (12,973) | |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | | (5,283) | | | 8,133 | | | (521) | | | 2,329 | |
| Net current-period other comprehensive income (loss), net of tax | | | (3,341) | | | (8,153) | | | 850 | | | (10,644) | |
| Ending balance | | | $ | — | | | $ | (116,181) | | | $ | 1,654 | | | $ | (114,527) | |
|
| | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2016 | Interest
Rate
Derivative | | Foreign
Currency
Derivatives | | Defined
Benefit
Pension Items | | Short-Term Investments | | Total |
| | (in thousands) |
| Beginning balance | $ | 81 |
| | $ | 4,879 |
| | $ | (103,865 | ) | | $ | (372 | ) | | $ | (99,277 | ) |
| Other comprehensive income (loss) before reclassifications, net of tax | (668 | ) | | 2,077 |
| | (11,246 | ) | | 77 |
| | (9,760 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | 587 |
| | 115 |
| | 4,909 |
| | (67 | ) | | 5,544 |
|
| Net current-period other comprehensive income (loss), net of tax | (81 | ) | | 2,192 |
| | (6,337 | ) | | 10 |
| | (4,216 | ) |
| Ending balance | $ | — |
| | $ | 7,071 |
| | $ | (110,202 | ) | | $ | (362 | ) | | $ | (103,493 | ) |
3. Earnings Per Share
Basic earnings (loss) per share, which excludes dilution, is computed by dividing net income (loss) 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. |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands, except for per share data) |
| Numerator: | |
| | |
| | |
|
| Net Income | $ | 364,041 |
| | $ | 235,432 |
| | $ | 182,646 |
|
| Denominator: | |
| | |
| | |
|
| Weighted average common shares outstanding—Basic | 53,074 |
| | 53,502 |
| | 54,031 |
|
| Assumed exercise of stock options and awards | 339 |
| | 450 |
| | 438 |
|
| Assumed exercise of convertible note premium | — |
| | 6 |
| | 1,245 |
|
| Assumed conversion of warrants | — |
| | — |
| | 5,542 |
|
| Weighted average common shares outstanding—Diluted | 53,413 |
| | 53,958 |
| | 61,256 |
|
| Net Income Per Common Stock Share: | |
| | |
| | |
|
| Basic | $ | 6.86 |
| | $ | 4.40 |
| | $ | 3.38 |
|
| Diluted | $ | 6.82 |
| | $ | 4.36 |
| | $ | 2.98 |
|
Convertible Notes
In 2016, The potentially dilutive shares that were excluded from the
Company settledcomputation of diluted weighted average common stock shares outstanding because their effect would have been antidilutive was550,112 and227,545 for the remaining $0.3 million of the convertible note outstanding. In 2015, the Company repurchased and converted $70.8 million in principal of the Convertible Notes, respectively. During the yearstwelve months ended December 31, 20162021 and 2015, the average share price of the Company’s common stock exceeded the conversion price of $7.88 per share. Therefore, shares related to the conversion premium of the Convertible Notes (for which share settlement is assumed for EPS purposes) are included in2020, respectively. The following table shows the Company's computation of basic and diluted earnings (loss) per share forshare: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands, except for per share data) |
| Numerator: | | | | | |
| Net Income (Loss) | $ | (144,773) | | | $ | (510,935) | | | $ | 223,984 | |
| Denominator: | | | | | |
| Weighted average common shares outstanding—Basic | 50,769 | | | 46,100 | | | 47,435 | |
| Dilutive effect of share-based awards and warrants | — | | | — | | | 111 | |
| | | | | |
| | | | | |
| Weighted average common shares outstanding—Diluted | 50,769 | | | 46,100 | | | 47,546 | |
| Net Income (Loss) Per Common Stock Share: | | | | | |
| Basic | $ | (2.85) | | | $ | (11.08) | | | $ | 4.72 | |
| Diluted | $ | (2.85) | | | $ | (11.08) | | | $ | 4.71 | |
4. Revenue Recognition
Passenger & Other revenue - The Company's contracts with customers have two principal performance obligations, which are the periodpromise to provide transportation to the related Notes were outstanding. See Note 8 for further information overpassenger and the Convertible Notes.
Convertible Note Call Options and Warrants
frequent flyer miles earned on the flight. In March 2011,addition, the Company entered into a convertible note transaction which includedoften charges additional fees for items such as baggage and other miscellaneous ancillary services. Such items are not capable of being distinct from the saletransportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of convertible notes, purchase of call optionsHawaiianMiles awards for flights, is satisfied, and sale of warrants. The call options and warrants were settledrevenue is recognized, as transportation is provided. In some instances, tickets sold by the Company withcan 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.
The majority of the Company's revenue is derived from transporting passengers on its respective counterpartiesaircraft. The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in 2015.the state of Hawai'i. The outstanding convertible notes maturedmanagement of such operations is based on March 15, 2016.
a system-wide approach due to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian offers only 1 significant line of business (i.e., air transportation), management has concluded that it has only 1 segment. The Company's operating revenues by geographic
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
region (as defined by the Department of Transportation, DOT) are summarized below: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Domestic | $ | 1,504,151 | | | $ | 640,153 | | | $ | 2,057,650 | |
| Pacific | 92,433 | | | 204,660 | | | 774,578 | |
| Total operating revenue | $ | 1,596,584 | | | $ | 844,813 | | | $ | 2,832,228 | |
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, 2021, 2020, and 2019, North America routes accounted for approximately 83%, 78% and 74% 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, |
| | 2021 | | 2020 | | 2019 |
| Passenger Revenue by Type | | (in thousands) |
| Passenger revenue, excluding frequent flyer | | $ | 1,264,059 | | | $ | 616,214 | | | $ | 2,440,909 | |
| Frequent flyer revenue, transportation component | | 106,843 | | | 48,585 | | | 156,863 | |
| Passenger Revenue | | $ | 1,370,902 | | | $ | 664,799 | | | $ | 2,597,772 | |
| | | | | | |
| Other revenue (e.g. cargo and other miscellaneous) | | $ | 126,349 | | | $ | 94,187 | | | $ | 147,237 | |
| Frequent flyer revenue, marketing and brand component | | 99,333 | | | 85,827 | | | 87,219 | |
| Other Revenue | | $ | 225,682 | | | $ | 180,014 | | | $ | 234,456 | |
For the yeartwelve months ended December 31, 2015, the average share price of2021, 2020, and 2019, the Company's common stock exceeded the warrant strike price of $10.00 per share. Therefore, the impact of the assumed conversion of the warrants are included in the Company's computation of diluted earnings per share for the period they were outstanding.
Dividends
In October 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.12 per share payable on November 30, 2017, to stockholders of record as of November 17, 2017. The Company paid dividends of $6.3 million to shareholders of record during 2017total revenue was $1.6 billion, $0.8 billion, and $0.0 million during 2016 and 2015. In February 2018, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.12 per share payable on February 28, 2018, to stockholders of record as of February 14, 2018. The Company's dividend payments may change from time to time. The Company cannot provide assurance that it will continue to declare dividends for any fixed period and payment of dividends may be suspended at any time at its discretion.
Stock Repurchase Program
In April 2017, 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 May 2019 via the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules and regulations, which was completed in December 2017. In November 2017, the Company's Board of Directors approved a new stock repurchase program pursuant to which the Company may repurchase up to an additional $100 million of its outstanding common stock over a two-year period through December 2019. The stock repurchase program is subject to modification or termination at any time.
In 2017, the Company spent $100.0 million to repurchase approximately 2.5 million shares of the Company's common stock in open market transactions. In 2016, the Company spent $13.8 million to repurchase approximately 379,000 shares of the Company's common stock in open market transactions.$2.8 billion, respectively. As of December 31, 2017,2021 and 2020, the Company has $100.0Company's Air traffic liability balance as it relates to passenger tickets (excluding frequent flyer) was $448.2 million remainingand $308.2 million, respectively, which represents future revenue that is expected to spend under its stock repurchase program. See Part II, Item 5, “Marketbe realized.
During the twelve months ended December 31, 2021, 2020, and 2019, the amount of revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $184.0 million, $254.8 million, and $424.2 million, respectively.
Frequent Flyer
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, 2021 and 2020, the balances were as follows:
| | | | | | | | | | | |
| | As of December 31, |
| | 2021 | | 2020 |
| | (in thousands) |
| Air traffic liability (current portion of frequent flyer deferred revenue) | $ | 169,687 | | | $ | 218,886 | |
| Noncurrent frequent flyer deferred revenue | 296,484 | | | 201,239 | |
| Total frequent flyer liability | $ | 466,171 | | | $ | 420,125 | |
The table below presents a roll forward of Frequent flyer deferred revenue for Registrant’s Common Equity, Related Stockholder Mattersthe years ended December 31, 2021 and Issuer Purchases2020:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| | (in thousands) |
| Total Frequent flyer liability - beginning balance | $ | 420,125 | | | $ | 349,806 | |
| Miles awarded | 155,178 | | | 120,345 | |
| Travel miles redeemed (Passenger Revenue) | (106,843) | | | (48,585) | |
| Non-travel miles redeemed (Other Revenue) | (2,289) | | | (1,441) | |
| Total Frequent flyer liability - ending balance | $ | 466,171 | | | $ | 420,125 | |
Notes to Consolidated Financial Statements (Continued)
4.5. Short-Term Investments
Debt securities that are not classified as cash equivalents are classified as available-for-sale investments and are stated at fair value. Realized gains and losses on sales of investments are reflected in nonoperating income (expense). Unrealized gains and losses on available-for-sale securities are reflected as a component of accumulated other comprehensive income/(loss).
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following is a summary of short-term investments held as of December 31, 20172021 and 2016:2020: |
| | | | | | | | | | | | | | | | |
| December 31, 2017 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | (in thousands) |
| Corporate debt | | $ | 165,610 |
| | $ | 8 |
| | $ | (535 | ) | | $ | 165,083 |
|
| U.S. government and agency debt | | 59,054 |
| | 1 |
| | (215 | ) | | 58,840 |
|
| Municipal bonds | | 21,517 |
| | — |
| | (104 | ) | | 21,413 |
|
| Other fixed income securities | | 23,973 |
| | 1 |
| | (13 | ) | | 23,961 |
|
| Total short-term investments | | $ | 270,154 |
| | $ | 10 |
| | $ | (867 | ) | | $ | 269,297 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | (in thousands) |
| Debt securities | | | | | | | | |
| Corporate debt securities | | $ | 450,954 | | | $ | 277 | | | $ | (4,652) | | | $ | 446,579 | |
| U.S. government and agency securities | | 374,113 | | | 87 | | | (1,893) | | | 372,307 | |
| Asset-backed securities | | 142,035 | | | 883 | | | (638) | | | 142,280 | |
| Other fixed income securities | | 19,372 | | | 7 | | | (71) | | | 19,308 | |
| Collateralized loan obligations | | 51,082 | | | 32 | | | (116) | | | 50,998 | |
| Bank notes | | 8,110 | | | — | | | (20) | | | 8,090 | |
| Equity securities | | 202,068 | | | 1 | | | (2,023) | | | 200,046 | |
| Other investments measured at net asset value | | 2,193 | | | — | | | (49) | | | 2,144 | |
| Total short-term investments | | $ | 1,249,927 | | | $ | 1,287 | | | $ | (9,462) | | | $ | 1,241,752 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | (in thousands) |
| Debt securities | | | | | | | | |
| Corporate debt | | $ | 142,050 | | | $ | 1,354 | | | $ | (12) | | | $ | 143,392 | |
| U.S. government and agency securities | | 155,615 | | | 814 | | | (1) | | | 156,428 | |
| | | | | | | | |
| Other fixed income securities | | 54,928 | | | 34 | | | — | | | 54,962 | |
| Total short-term investments | | $ | 352,593 | | | $ | 2,202 | | | $ | (13) | | | $ | 354,782 | |
|
| | | | | | | | | | | | | | | | |
| December 31, 2016 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | (in thousands) |
| Corporate debt | | $ | 171,139 |
| | $ | 84 |
| | $ | (357 | ) | | $ | 170,866 |
|
| U.S. government and agency debt | | 53,916 |
| | 8 |
| | (134 | ) | | 53,790 |
|
| Municipal bonds | | 22,893 |
| | 1 |
| | (144 | ) | | 22,750 |
|
| Other fixed income securities | | 36,670 |
| | — |
| | (1 | ) | | 36,669 |
|
| Total short-term investments | | $ | 284,618 |
| | $ | 93 |
| | $ | (636 | ) | | $ | 284,075 |
|
Contractual maturities of short-term investments as of December 31, 20172021 are shown below. below:
|
| | | | | | | | | | | | |
| | | Under 1 Year | | 1 to 5 Years | | Total |
| | | (in thousands) |
| Corporate debt | | $ | 73,786 |
| | $ | 91,297 |
| | $ | 165,083 |
|
| U.S. government and agency debt | | 43,252 |
| | 15,588 |
| | 58,840 |
|
| Municipal bonds | | 11,243 |
| | 10,170 |
| | 21,413 |
|
| Other fixed income securities | | 18,299 |
| | 5,662 |
| | 23,961 |
|
| Total short-term investments | | $ | 146,580 |
| | $ | 122,717 |
| | $ | 269,297 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Under 1 Year | | 1 to 5 Years | | Over 5 Years | | Total |
| | (in thousands) |
| Debt securities | | | | | | | | |
| Corporate debt securities | | $ | 30,425 | | | $ | 315,625 | | | $ | 100,529 | | | $ | 446,579 | |
| U.S. government and agency securities | | 25,742 | | | 340,858 | | | 5,707 | | | 372,307 | |
| Asset-backed securities | | 114,075 | | | 15,284 | | | 12,921 | | | 142,280 | |
| Other fixed income securities | | 11 | | | 12,532 | | | 6,765 | | | 19,308 | |
| Collateralized loan obligations | | — | | | — | | | 50,998 | | | 50,998 | |
| Bank notes | | — | | | 4,100 | | | 3,990 | | | 8,090 | |
| Total debt securities | | $ | 170,253 | | | $ | 688,399 | | | $ | 180,910 | | | $ | 1,039,562 | |
The Company classifies investments as current assets as these securities are available for use in its current operations.
5.Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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—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. |
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
62
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following tables below 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, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) |
| Cash equivalents | $ | 339,522 | | | $ | 239,912 | | | $ | 99,610 | | | $ | — | |
| | | | | | | |
| Restricted cash | 17,267 | | | 17,267 | | | — | | | — | |
| Short-term investments | | | | | | | |
| Debt securities | | | | | | | |
| Corporate debt securities | 446,579 | | | — | | | 446,579 | | | — | |
| U.S. government and agency securities | 372,307 | | | — | | | 372,307 | | | — | |
| Other fixed income securities | 142,280 | | | — | | | 142,280 | | | — | |
| Asset-backed securities | 19,308 | | | — | | | 15,305 | | | 4,003 | |
| Collateralized loan obligations | 50,998 | | | — | | | 47,676 | | | 3,322 | |
| Bank notes | 8,090 | | | — | | | 1,337 | | | 6,753 | |
| Equity securities | 200,046 | | | 200,046 | | | — | | | — | |
| Other investments measured at net asset value | 2,144 | | | — | | | — | | | — | |
| Total short-term investments | 1,241,752 | | | 200,046 | | | 1,025,484 | | | 14,078 | |
| | | | | | | |
| Assets held for sale | 29,449 | | | — | | | — | | | 29,449 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total assets measured at fair value | $ | 1,627,990 | | | $ | 457,225 | | | $ | 1,125,094 | | | $ | 43,527 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Foreign currency derivatives | — | | | — | | | — | | | — | |
| Total liabilities measured at fair value | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2017 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) |
| Cash equivalents | $ | 62,310 |
| | $ | 27,807 |
| | $ | 34,503 |
| | $ | — |
|
| Restricted cash | 1,000 |
| | 1,000 |
| | — |
| | — |
|
| Short-term investments | 269,297 |
| | — |
| | 269,297 |
| | — |
|
| Fuel derivative contracts: | |
| | |
| | |
| | |
|
| Crude oil call options | 20,272 |
| | — |
| | 20,272 |
| | — |
|
| Heating oil swaps | 336 |
| | — |
| | 336 |
| | — |
|
| Foreign currency derivatives | 4,300 |
| | — |
| | 4,300 |
| | — |
|
| Total assets measured at fair value | $ | 357,515 |
| | $ | 28,807 |
| | $ | 328,708 |
| | $ | — |
|
| Foreign currency derivatives | 1,713 |
| | — |
| | 1,713 |
| | — |
|
| Total liabilities measured at fair value | $ | 1,713 |
| | $ | — |
| | $ | 1,713 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 securities | 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, 2016 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | (in thousands) |
| Cash equivalents | $ | 123,120 |
| | $ | 104,113 |
| | $ | 19,007 |
| | $ | — |
|
| Restricted cash | 5,000 |
| | 5,000 |
| | — |
| | — |
|
| Short-term investments | 284,075 |
| | — |
| | 284,075 |
| | — |
|
| Fuel derivative contracts: | |
| | |
| | |
| | |
|
| Crude oil call options | 8,489 |
| | — |
| | 8,489 |
| | — |
|
| Heating oil swaps | 6,601 |
| | — |
| | 6,601 |
| | — |
|
| Foreign currency derivatives | 12,906 |
| | — |
| | 12,906 |
| | — |
|
| Total assets measured at fair value | $ | 440,191 |
| | $ | 109,113 |
| | $ | 331,078 |
| | $ | — |
|
| Foreign currency derivatives | 1,469 |
| | — |
| | 1,469 |
| | — |
|
| Total liabilities measured at fair value | $ | 1,469 |
| | $ | — |
| | $ | 1,469 |
| | $ | — |
|
Cash equivalents. equivalents and restricted cash. The Company’sCompany's Level 1 cash equivalents consist of money market securities and mutual funds. The carrying amounts approximate fair value because of the short-term maturity of these assets. Level 2 cash equivalents consist primarily of U.S. agency bonds,debt securities with original maturity dates less than 90 days. The fair value of these instruments is based on a market approach using prices generated by market transactions involving similar assets. Restricted cash includes funds held in a controlled account to be used for debt service payments associated with the Company's loyalty and intellectual brand offering.
Short-term investments. The Company's Level 1 short-term investments consist of equity mutual funds, and commercial paper. The instruments classified aswhich are valued based on a market approach using prices generated by market transactions involving identical assets. Level 2 short-term investments consist of corporate debt securities, U.S. government and agency securities, other fixed income securities, asset-backed securities, collateralized loan obligations, and bank notes, which 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 or market data. Certain asset-backed securities, collateralized loan obligations, and private bank notes that are not readily marketable are classified as Level 3 in active markets.
Restricted cash. The Company’s restricted cash consist of money market securities.
Short-term investments. Short-term investments include U.S.the fair value hierarchy and foreign government notes and bonds, U.S. agency bonds, variable rate corporate bonds, asset backed securities, foreign and domestic corporate bonds, municipal bonds, and commercial paper. These instruments are valued using quoted pricescertain unobservable inputs including future cash flows and discount rates. The Company entered into all of its Level 3 investments during the fourth quarter of 2021, and as a result, cost approximates fair value as of December 31, 2021.
The reconciliation of our short-term investments measured at fair value on a recurring basis using unobservable inputs (Level 3) for similarthe year ended December 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Short-term Investment Activity for the Twelve Months Ended December 31, 2021 |
| Other fixed income securities | | Bank notes | | Collateralized loan obligations | | Total |
| (in thousands) |
| Beginning balance as of December 31, 2020 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Purchases and settlements, net | 4,012 | | | 6,772 | | | 3,322 | | | 14,106 | |
| Realized and unrealized net losses | (9) | | | (19) | | | — | | | (28) | |
| | | | | | | |
| | | | | | | |
| Ending balance as of December 31, 2021 | $ | 4,003 | | | $ | 6,753 | | | $ | 3,322 | | | $ | 14,078 | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Other investments at net asset value ("NAV"). In accordance with relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are investments in a partnership for which a secondary market does not exist. Investments in the partnership are carried at estimated net asset value as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets in active markets or other observable inputs.of the limited partnerships. The Company can redeem its shares upon approval by the respective partnerships' managing member.
Fuel derivative contracts. The Company’s fuelFuel derivative contracts, consist of heating oil swaps and crude oil call options which are not traded on a public exchange. The fair value of these instrumentsexchange, are determinedvalued 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. The Company’s foreignForeign currency derivatives consist of Japanese Yen and Australian Dollar forward contracts and are valued based primarily on data readily observable in public markets.
Hawaiian Holdings, Inc.
aircraft, engine, rotable and expendable aircraft parts, and commercial real estate. The assets are measured at the lower of the carrying amount or fair value less cost to sell and a loss is recognized for any initial adjustment of the assets' carrying amount to fair value less cost to sell. The fair value measurements for the Company's held for sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources and other market sources. Refer to Note 11 of the Notes to Consolidated Financial Statements (Continued)
for additional discussion.
The reconciliation of our assets held for sale measured at fair value on a recurring basis using unobservable inputs (Level 3) for the year ended December 31, 2021 is as follows:
| | | | | | | | |
| | Assets Held for Sale Activity for the Twelve Months Ended December 31, 2021 |
| | |
| | (in thousands) |
| Beginning balance as of December 31, 2020 | | $ | — | |
| Additions | | 29,607 | |
| Sales | | (157) | |
| | |
| Ending balance as of December 31, 2021 | | $ | 29,449 | |
The table below presents the Company's debt
(excluding obligations under capital leases and financing obligations) measured at fair value:
| | | Fair Value of Debt | Fair Value of Debt | Fair Value of Debt |
| December 31, 2017 | | December 31, 2016 | |
| December 31, 2021 | | December 31, 2021 | | December 31, 2020 |
Carrying
Amount | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| (in thousands) | (in thousands) | | (in thousands) | (in thousands) |
| $ | 433,072 |
| | $ | 444,099 |
| | $ | — |
| | $ | — |
| | $ | 444,099 |
| | $ | 481,874 |
| | $ | 484,734 |
| | $ | — |
| | $ | — |
| | $ | 484,734 |
| 1,838,954 | | | $ | 1,808,530 | | | $ | — | | | $ | — | | | $ | 1,808,530 | | | $ | 1,171,349 | | | $ | 1,054,410 | | | $ | — | | | $ | — | | | $ | 1,054,410 | |
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.
During the fourth quarter of 2016, the Company recorded a $49.4 million impairment charge for its Boeing 767-300 fleet. To determine the fair value of the Boeing 767-300 fleet and related assets, the Company utilized quoted prices, assuming that the asset would be exchanged in an orderly transaction between market participants. The Company's determination of fair value considered attributes specific to its Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.), and is therefore considered a Level 3 measurement. See Note 11 for further details.
6.7. 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.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 primarily used heating oil swaps and crude oil call optionsuses a combination of derivative contracts to hedge its aircraft fuel expense. As of December 31, 2017,2021, the Company had heating oil swaps and crude oil call options, which weredid not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result,hold any changes in fair value of thesefuel derivative instruments are adjusted through other nonoperating income (expense) in the period of change.positions.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Losses realized at settlement | $ | (534 | ) | | $ | (27,572 | ) | | $ | (60,946 | ) |
| Reversal of prior period unrealized amounts | (7,946 | ) | | 39,731 |
| | 41,583 |
|
| Unrealized gains (losses) that will settle in future periods | 11,792 |
| | 7,947 |
| | (40,568 | ) |
| Gains (losses) on fuel derivatives recorded as Nonoperating income (expense) | $ | 3,312 |
| | $ | 20,106 |
| | $ | (59,931 | ) |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Losses realized at settlement | $ | (165) | | | $ | (9,035) | | | $ | (12,403) | |
| Prior period unrealized amounts | 382 | | | 2,487 | | | 8,181 | |
| Unrealized losses on contracts that will settle in future periods | — | | | (382) | | | (2,487) | |
| Gains (losses) on fuel derivatives recorded as nonoperating income (expense) | $ | 217 | | | $ | (6,930) | | | $ | (6,709) | |
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 effective portion of the gain or loss is reported as a component of AOCIaccumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. The effective portion of the foreignForeign currency forward contracts represents the changethat are not designated as cash flow hedges are recorded at fair value, and therefore any changes in fair value of the hedge that offsets the changeare recognized as other nonoperating income (expense) in the fair valueperiod of change.
During the twelve months ended December 31, 2020, the Company de-designated certain hedged item. Totransactions with maturity dates through February 2022 as the extentCompany concluded that the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized as nonoperating income (expense).
The Company believes that its foreign currency forward contracts will continue to be effective in offsetting changes in cash flowflows attributable to the hedged risk. Therisk were no longer probable of occurring. As a result, the Company expects to reclassify a net gain ofreclassified approximately $1.4$3.9 million into earnings over the next 12 months from AOCI based onto nonoperating income in the values atperiod during the twelve months ended December 31, 2017.2020. Future gains and losses related to these instruments continue to be recorded in nonoperating expense. As of December 31, 2021, the Company did not have any open foreign currency derivative instruments.
The following tables presenttable presents 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 | |
| | | | | | | | | | | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Derivative positions as of December 31, 2017 |
| | | | | | | | | | | | | | |
| | 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 | | 16,732,375 Japanese Yen
47,805 Australian Dollars | | December 2018 | | 3,737 |
| | (1,441 | ) | | 2,296 |
|
| | Long-term prepayments and other | | 4,666,700 Japanese Yen
9,180 Australian Dollars | | December 2019 | | 546 |
| | (195 | ) | | 351 |
|
| Derivatives not designated as hedges | | | | | | | |
| | |
| |
|
|
| Foreign currency derivatives | Other accrued liabilities | | 866,150 Japanese Yen
3,148 Australian Dollars | | March 2018 | | 17 |
| | (77 | ) | | (60 | ) |
| Fuel derivative contracts | Prepaid expenses and other | | 94,332 gallons | | December 2018 | | 20,608 |
| | — |
| | 20,608 |
|
Derivative positions as of December 31, 2016 |
| | | | | | | | | | | | | | |
| | 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 |
| 16,121,500 Japanese Yen
41,917 Australian Dollars | | December 2017 | | 9,803 |
| | (1,349 | ) | | 8,454 |
|
| | Long-term prepayments and other |
| 4,371,900 Japanese Yen
8,434 Australian Dollars | | December 2018 | | 2,632 |
| | (59 | ) | | 2,573 |
|
| Derivatives not designated as hedges | |
| | | | | |
| | |
| | |
|
| Foreign currency derivatives | Prepaid expenses and other |
| 879,050 Japanese Yen
5,802 Australian Dollars | | March 2017 | | 471 |
| | (61 | ) | | 410 |
|
| Fuel derivative contracts | Prepaid expenses and other |
| 88,368 gallons | | December 2017 | | 15,090 |
| | — |
| | 15,090 |
|
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 (effective portion) | | (Gain) Loss reclassified from AOCI into income (effective portion) | | Gain recognized in nonoperating (income) expense (ineffective portion) |
| | Year ended December 31, | | Year ended December 31, | | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Foreign currency derivatives | $ | 6,983 |
| | $ | (3,350 | ) | | $ | (4,854 | ) | | $ | (2,391 | ) | | $ | 196 |
| | $ | (17,443 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate derivatives | — |
| | 923 |
| | 182 |
| | — |
| | 944 |
| | 687 |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Gain) Loss recognized in AOCI on derivatives | | (Gain) Loss reclassified from AOCI into income | | |
| | Year ended December 31, | | Year ended December 31, | | |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | | | | | |
| | (in thousands) |
| Foreign currency derivatives | $ | — | | | $ | 3,131 | | | $ | (5,349) | | | $ | — | | | $ | (7,020) | | | $ | (5,307) | | | | | | | |
| | | | | | | | | | | | | | | | | |
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.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 that arewas in a net asset position was $23.2 million and a net asset position of $26.5$1.3 million as of December 31, 2017 and2020. As of December 31, 2016, respectively.2021, there were no open derivative positions.
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 no collateral posted with its counterparties as of December 31, 20172021 and $0.4 million collateral posted with its counterparties as of December 31, 2016.2020.
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.
78
7. Intangible Assets
The following tables summarize the gross carrying values of intangible assets less accumulated amortization, and the useful lives assigned to each asset. |
| | | | | | | | | | | | | | |
| | As of December 31, 2017 | | | |
| | Gross carrying
value | | Accumulated
amortization | | Net book value | | Approximate
useful life (years) | |
| | (in thousands) | | | |
| Favorable aircraft maintenance contracts | $ | 8,740 |
| | $ | (7,708 | ) | | $ | 1,032 |
| | 14 | (*) |
| Hawaiian Airlines trade name | 13,000 |
| | — |
| | 13,000 |
| | Indefinite | |
| Operating certificates | 3,660 |
| | (3,660 | ) | | — |
| | 12 | |
| Other | 1,888 |
| | (733 | ) | | 1,155 |
| | 3 |
|
| Total intangible assets | $ | 27,288 |
| | $ | (12,101 | ) | | $ | 15,187 |
| | | |
|
| | | | | | | | | | | | | | |
| | As of December 31, 2016 | | | |
| | Gross carrying
value | | Accumulated
amortization | | Net book value | | Approximate
useful life (years) | |
| | (in thousands) | |
| |
| Favorable aircraft maintenance contracts | $ | 8,740 |
| | $ | (7,132 | ) | | $ | 1,608 |
| | 14 | (*) |
| Hawaiian Airlines trade name | 13,000 |
| | — |
| | 13,000 |
| | Indefinite | |
| Operating certificates | 3,660 |
| | (3,475 | ) | | 185 |
| | 12 | |
| Other | 1,888 |
| | (270 | ) | | 1,618 |
| | 3 | |
| Total intangible assets | $ | 27,288 |
| | $ | (10,877 | ) | | $ | 16,411 |
| | | |
(*) Weighted average is based on the gross carrying values and estimated useful lives as of June 2, 2005 (the date Hawaiian emerged from bankruptcy).
Amortization expense related to the above intangible assets was $1.2 million, $2.3 million, and $2.6 million for the years ended December 31, 2017, 2016, and 2015, respectively. Amortization of the favorable aircraft maintenance contracts are included in maintenance materials and repairs in the accompanying Consolidated Statements of Operations. The estimated future amortization expense as of December 31, 2017 for the intangible assets subject to amortization is as follows (in thousands):
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Debt
Long-term debt, (including capital and financing lease obligations) net of unamortized discounts and issuance costs, is outlined as follows: |
| | | | | | | |
| | 2017 | | 2016 |
| | (in thousands) |
| Class A EETC, fixed interest rate of 3.9%, semiannual principal and interest payments, remaining balance due at maturity in January 2026(1) | $ | 263,864 |
| | $ | 284,692 |
|
| Class B EETC, fixed interest rate of 4.95%, semiannual principal and interest payments, remaining balance of due at maturity in January 2022(1) | 94,580 |
| | 100,159 |
|
| Boeing 717-200 Aircraft Facility Agreements, fixed interest rate of 8%, monthly principal and interest payments, remaining balance due at maturity in June 2019(2) | 74,629 |
| | 97,023 |
|
| Capital & Financing lease obligations (see Note 9) | 149,039 |
| | 88,729 |
|
| Total debt, capital, and financing lease obligations | $ | 582,112 |
| | $ | 570,603 |
|
| Less: | |
| | |
|
| Unamortized debt discount, debt issuance costs and discount on convertible note | (11,441 | ) | | (13,796 | ) |
| Current maturities | (59,470 | ) | | (58,899 | ) |
| Long-Term Debt, less discount, Capital, and Financing Lease Obligations | $ | 511,201 |
| | $ | 497,908 |
|
| | | | | | | | | | | |
| December 31, |
| | 2021 | | 2020 |
| | (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 | $ | 196,338 | | | $ | 214,923 | |
| Class B EETC-13, fixed interest rate of 4.95%, semiannual principal and interest payments, remaining balance of due at maturity in January 2022 | 45,090 | | | 75,565 | |
| Japanese Yen denominated financing, fixed interest rate of 1.05%, quarterly principal and interest payments, remaining balance due at maturity in May 2030 | 30,213 | | | 37,526 | |
| Japanese Yen denominated financing, fixed interest rate of 1.01%, semiannual principal and interest payments, remaining balance due at maturity in June 2030 | 26,271 | | | 33,573 | |
| Japanese Yen denominated financing, fixed interest rate of 0.65%, quarterly principal and interest payments, remaining balance due at maturity in March 2025 | 91,041 | | | 121,480 | |
| Japanese Yen denominated financing, fixed interest rate of 0.76%, semiannual principal and interest payments, remaining balance due at maturity in September 2031 | 70,269 | | | 86,018 | |
| 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 | 48,245 | | | 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 | 19,504 | | | 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 | | | 60,278 | |
| Payroll Support Program Extension, 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 March 2031 through April 2031 | 27,797 | | | — | |
| Payroll Support Program 3, 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 June 2031 | 23,908 | | | — | |
| 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 | |
| Loyalty Program Financing, fixed interest of 5.75%, quarterly interest payments, principal balance due at maturity in January 2026 | 1,200,000 | | | — | |
| Unamortized debt discount and issuance costs | (37,560) | | | (21,525) | |
| Total debt | $ | 1,801,394 | | | $ | 1,149,824 | |
| Less: Current maturities of long-term debt | (97,096) | | | (115,019) | |
| Long-Term Debt, less discount | $ | 1,704,298 | | | $ | 1,034,805 | |
(1)The equipment notes underlying these EETCs are the direct obligations of Hawaiian
(2)Aircraft Facility Agreements are secured by aircraft
Enhanced Equipment Trust Certificates (EETC)
In 2013, Hawaiian consummated an EETC financing, whereby it created two2 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 six6 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.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 terms of the loans have a final maturity date of September 2027 and September 2025, at fixed installment coupon rates of 7.375% and 11.250%, respectively. The 2020-1 EETC is secured by 2 A330-200 aircraft and 6 A321-200neo aircraft.
The Company evaluated whether the pass-through trusts formed are variable interest entities ("VIEs")(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 itthe 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.
Convertible Notes
On March 2011, the Company issued $86.25 million principal amount of the Convertible Notes due March 2016. The Convertible Notes were issued at par and bore interest at a rate of 5.00% per annum. Interest was paid semiannually, in arrears, on March 15 and September 15 each year. The outstanding convertible notes matured on March 15, 2016.
During 2016, the Company settled the remaining $0.3 million of the convertible notes outstanding. During 2015,In October 2021, the Company repurchased and converted $70.8approximately $160.9 million in principal of its Convertible Notes for $184.6 million.outstanding 7.375% Series 2020-1A Pass Through Certificates due 2027 and 11.250% Series 2020-1B Pass Through Certificates due 2025. The cash consideration was allocated to the fair value of the liability component immediately before extinguishment and the remaining consideration was allocated to the equity component and recognized asCompany paid a reduction of shareholders' equity. During 2015,premium on the repurchase, and
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
conversion of the Convertible Noteswhich resulted in the recognition of a loss on the extinguishment of $7.4debt of $34.9 million which is reflected inas nonoperating income (expense) in the Consolidated Statement of Operations.
In connection withJanuary 2022, the issuanceCompany made the final scheduled principal payment of the Convertible Notes,$45.1 million for its Class B EETC-13 debt obligation.
Foreign Denominated Financing
In 2018, the Company entered into separate call option transactions2 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 separate warrant transactionsinterest payments, respectively, at fixed installment coupon rates of 1.01% and 1.05%, respectively.
In 2019, the Company entered into 2 Japanese Yen denominated agreements totaling $227.9 million (¥24.7 billion), which were collateralized through a combination of 2 A321neo and 4 A330-200 aircraft with certain financial investors to reduce the potential dilutiona net book value of approximately $382.7 million. The terms of the Company's common stockloans are 12 years and to offset potential payments by5.5 years, at fixed installment coupon rates of 0.76% and 0.65%, respectively.
At each balance sheet date, the Company to holders ofremeasures the Convertible Notes in excess ofoutstanding principal balance at the principal of the Convertible Notes upon conversion.
During the quarter ended December 31, 2015, the Company settled the call options and warrants with its respective counterparties and received net settlement proceeds of $22.1 million, which was recognized as an increase to shareholders' equity. Gross proceeds from the settlement of the call options of $304.8 million and gross paymentsspot rate for the settlement ofrespective period and records any gain or loss at the warrants of $282.6 million are reflectedcurrent rate within the other nonoperating income (expense) line item in the Consolidated Statements of Shareholders' EquityOperations. During 2021 and Consolidated Statements of Cash Flows.
Debt Extinguishment
In 2017,2020, the Company had no debt extinguishment activity. In 2016, Hawaiian extinguished $140.5recorded foreign currency unrealized gains of $27.6 million and unrealized losses of its existing debt under secured financing agreements, which were originally scheduled to mature in 2022 and 2023. This debt extinguishment resulted in a loss of $10.0$14.8 million, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.respectively.
In 2015, Hawaiian extinguished $123.9 million of existing debt under four secured financing agreements, which were originally scheduled to mature in 2018, 2023 and 2024. This debt extinguishment resulted in a loss of $4.7 million, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.
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 2016, Hawaiian amended and restated11, 2018. In February 2021, the existing credit agreement with Citigroup Global Markets Inc. by increasingCompany repaid the secured$235 million outstanding amount drawn on its revolving credit facility. The Credit Agreement terminates, and letter to $225 million, maturing inall outstanding revolving loans thereunder will be due and payable, on December 2019 (Revolving Credit Facility). Hawaiian may, from time to time, grant liens on certain eligible account receivables, aircraft, spare engines, ground support equipment and route authorities, as well as cash and certain cash equivalents, in order to secure its outstanding obligations under11, 2022, unless otherwise extended by the Revolving Credit Facility. Indebtedness under the Revolving Credit Facility willparties. The revolving loans bear interest, at a per annum rate based on, at Hawaiian's option: (1) a variable interest rate equal to the London interbank offer rate plus a margin of 2.5%; or (2) another rate based on certain market interest rates plus a margin of 1.5%2.25%. Hawaiian is also subject to compliance andThe Credit Agreement requires that the Company maintain $300 million in liquidity, covenantsas defined under the Revolving Credit Facility. 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.
As of December 31, 2017,2021, the Company had no outstanding borrowinghas $235 million undrawn and available under its revolving credit facility.
Payroll Support Program Loans
The Company participated in the Revolving Credit Facility.
Schedule of Maturities of Long-Term Debt
As ofinitial PSP, the PSP Extension, and the PSP3. During the twelve months ended December 31, 2017,2021, the scheduled maturitiesCompany received $372.4 million in payroll support payments. The support payments included total grants of long-term debt are as follows (in thousands): |
| | | |
| 2018 | $ | 48,244 |
|
| 2019 | 72,927 |
|
| 2020 | 21,413 |
|
| 2021 | 49,060 |
|
| 2022 | 56,856 |
|
| Thereafter | 184,573 |
|
| | $ | 433,073 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
$320.6 million that were recognized as a contra-expense in the Consolidated Statements of Operations. A summary of the amounts received and warrants issued as of December 31, 2021 under these programs is set forth in the following table:
9. Leases
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Summary of payroll support program activity | | | | | | | | |
| (in millions, except percentages) | | Total Amount | | Grant | | Loan | | Number of warrants | | Percentage of outstanding shares at December 31, 2021 |
| Payroll Support Program | | $ | 300.9 | | | $ | 240.6 | | | $ | 60.3 | | | 0.5 | | 1.0 | % |
| Payroll Support Program Extension | | 192.7 | | | 164.9 | | | 27.8 | | | 0.2 | | 0.3 | % |
| Payroll Support Program 3 | | 179.7 | | | 155.8 | | | 23.9 | | | 0.1 | | 0.2 | % |
| Total | | $ | 673.3 | | | $ | 561.3 | | | $ | 112.0 | | | 0.8 | | 1.5 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Payroll Support Program. In April 2020, the Company entered into a Payroll Support Program agreement (the PSP Agreement) with the U.S. Department of Treasury (the Treasury) under the CARES Act. Pursuant to the PSP Agreement, the Treasury provided the Company with financial assistance, paid in installments, totaling approximately $300.9 million. 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 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. 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.
Payroll Support Program Extension. In January 2021, the Company entered into a PSP extension agreement (the PSP Extension Agreement) and contemporaneously entered into a warrant agreement (the Warrant Extension Agreement) with the Treasury and issued a promissory note to the Treasury (the Extension Note). During the twelve months ended December 31, 2021, the Company received a total of $192.7 million in financial assistance, to be used exclusively for 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. These support payments consisted of $164.9 million in a grant and $27.8 million in an unsecured 10-year low interest loan, and as compensation to the U.S. government, and pursuant to the Warrant Extension Agreement, the Company issued warrants to the Treasury to purchase up to a total of 156,341 shares of its 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 the Company's option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions. The Company recorded the value of the Extension Note and the PSP Extension Warrants on a relative fair value basis as $23.8 million in noncurrent debt and $4.0 million in additional paid in capital, respectively.
Payroll Support Program 3. In April 2021, the Company entered into a Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), a promissory note (the PSP3 Note), and a Warrant Agreement (the PSP3 Warrant Agreement). The PSP3 Agreement extends (i) the prohibition on conducting involuntary employee layoffs or furloughs through September 2021 or the date on which assistance provided under the agreement is exhausted, whichever is later, (ii) the prohibitions on share repurchases and dividends through September 2022, and (iii) the limitations on executive compensation until April 2023.
During the twelve months ended December 31, 2021, the Company received $179.7 million in payroll support payments under the PSP3 Agreement, consisting of $155.8 million in a grant and $23.9 million in an unsecured 10-year low interest loan. As compensation to the U.S. government, and pursuant to the PSP3 Warrant Agreement, the Company issued warrants to the Treasury to purchase up to a total of 87,670 shares of its common stock at an exercise of $27.27 per share (the PSP3 Warrants). The terms of the PSP3 Note and PSP3 Warrants are consistent with those of the original PSP and the first PSP Extension. The Company recorded the value of the PSP3 Note and the PSP3 Warrants on a relative fair value basis as $22.1 million in noncurrent debt and $1.8 million in additional paid in capital, respectively.
Economic Relief Program
In 2020, the Company entered into and subsequently amended and restated its Loan Agreement with the Treasury (Amended and Restated Loan Agreement), which increased the maximum facility available to be borrowed by the Company to
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
$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 2 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.
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. The debt extinguishment resulted in the recognition of a loss of $4.0 million during the twelve months ended December 31, 2021, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations. The warrants issued under the ERP Warrant Agreement remain outstanding pursuant to its terms.
Loyalty Program and Intellectual Property Financing
In February 2021, 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 require interest only payments, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, which began on July 20, 2021.
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 the Indenture, among the Issuers, the Guarantors and Wilmington Trust, National Association, as trustee, collateral custodian.
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 Hawaiian an exclusive, worldwide, perpetual and royalty-bearing sublicense to use the Brand IP. 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.
As of December 31, 2017,2021, approximately $17.3 million in cash was held in the Interest Reserve Account designated for debt servicing, and is classified as restricted cash on the Company's Consolidated Balance Sheets.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Schedule of Debt Maturities
As of December 31, 2021, the scheduled maturities of debt, excluding debt issuance costs, are as follows (in thousands): | | | | | |
| 2022 | $ | 98,735 | |
| 2023 | 63,704 | |
| 2024 | 61,589 | |
| 2025 | 79,139 | |
| 2026 | 1,347,440 | |
| Thereafter | 188,347 | |
| $ | 1,838,954 | |
Covenants
The Company's debt agreements contain various affirmative, negative and financial covenants as discussed above within this Note. We were in compliance with the covenants in these debt agreements as of December 31, 2021.
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 Right-of-Use (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 hadutilizes an incremental borrowing rate to discount lease contractspayments based on information available at lease commencement. The Company gives consideration to its recent debt issuances as well as publicly available data for 23instruments 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 2 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, Engines, and Aircraft Equipment
As of December 31, 2021, the Company leased 21 of its 6068 aircraft. Of the 2321 lease contracts, 34 aircraft lease contracts were accounted for as capitalfinance leases, with the remaining 2017 lease contracts accounted for as operating leases. These aircraft leases have remaining lease terms ranging from 2 years to 11 years. The Company also has 2 engines under operating leases with remaining lease terms of 4 years and 5 years. The Company has a flight simulator under a finance lease with a remaining lease term of approximately less than4 years.
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 yearmonth to 1028 years. At the majority of U.S. airports, the lease rates depend on airport
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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 30 years as of December 31, 2021. 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 4 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, 2021
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 | | 2021 | | 2020 |
| | | | (in thousands) |
| Assets: | | | | | | |
| Operating lease assets | | Operating lease right-of use assets | | $ | 536,154 | | | $ | 627,359 | |
| Finance lease assets | | Property and equipment, net | | 114,376 | | | 129,969 | |
| Total lease assets | | | | $ | 650,530 | | | $ | 757,328 | |
| | | | | | |
| Liabilities: | | | | | | |
| Current | | | | | | |
| Operating | | Current maturities of operating leases | | $ | 79,158 | | | $ | 82,454 | |
| Finance | | Current maturities of finance lease obligations | | 24,149 | | | 21,290 | |
| Noncurrent | | | | | | |
| Operating | | Noncurrent operating leases | | 423,293 | | | 503,376 | |
| Finance | | Finance lease obligations | | 100,995 | | | 120,618 | |
| Total lease liabilities | | | | $ | 627,595 | | | $ | 727,738 | |
| | | | | | |
| Weighted-average remaining lease term | | | | | | |
| Operating leases | | | | 10.4 years | | 10.6 years |
| Finance leases | | | | 7.2 years | | 7.9 years |
| Weighted-average discount rate | | | | | | |
| Operating leases (1) | | | | 5.63 | % | | 5.45 | % |
| Finance leases | | | | 4.37 | % | | 4.42 | % |
(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Lease Costs
During the twelve months ended December 31, 2021 and 2020, the total lease costs for finance and operating leases were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 | | |
| | (in thousands) |
| Finance lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | $ | 23,339 | | | $ | 23,197 | | | $ | 25,319 | | | |
| Interest of lease liabilities | | 6,022 | | | 6,887 | | | 8,249 | | | |
| Operating lease cost (1) | | 110,864 | | | 108,505 | | | 116,866 | | | |
| Short-term lease cost (1) | | 2,909 | | | 981 | | | 4,671 | | | |
| Variable lease cost (1) | | 112,475 | | | 68,212 | | | 126,989 | | | |
| Total lease cost | | $ | 255,609 | | | $ | 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, 2021, the cash paid for amounts included in the measurement of lease liabilities were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 | | |
| | (in thousands) |
| Operating cash flows for operating leases | | 110,286 | | | 113,585 | | | 116,485 | | | |
| Operating cash flows for finance leases | | 5,997 | | | 6,887 | | | 8,223 | | | |
| Financing cash flows for finance lease | | 23,040 | | | 22,295 | | | 23,384 | | | |
Undiscounted Cash Flows
As of December 31, 2017,2021, the scheduled future minimum rental payments under capitalfinance 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) |
| 2022 | $ | 23,413 | | | $ | 5,677 | | | $ | 92,603 | | | $ | 11,917 | |
| 2023 | 22,972 | | | 6,570 | | | 86,467 | | | 12,057 | |
| 2024 | 16,669 | | | 1,175 | | | 77,497 | | | 12,288 | |
| 2025 | 11,941 | | | 974 | | | 56,045 | | | 11,715 | |
| 2026 | 11,047 | | | 236 | | | 49,734 | | | 10,127 | |
| Thereafter | 38,448 | | | 6,405 | | | 95,005 | | | 154,839 | |
| Total minimum lease payments | 124,490 | | | 21,037 | | | $ | 457,351 | | | $ | 212,943 | |
| Less: amounts representing interest | (16,533) | | | (3,850) | | | (78,408) | | | (89,436) | |
| Present value of future minimum lease payments | $ | 107,957 | | | $ | 17,187 | | | $ | 378,943 | | | $ | 123,507 | |
| Less: current maturities of lease obligations | (19,120) | | | (5,029) | | | (73,176) | | | (5,981) | |
| Long-term lease obligations | $ | 88,837 | | | $ | 12,158 | | | $ | 305,767 | | | $ | 117,526 | |
|
| | | | | | | | | | | | | | | |
| | Capital & Financing Leases | | Operating Leases |
| | Aircraft | | Other | | Aircraft (1) | | Other |
| | (in thousands) |
| 2018 | $ | 13,803 |
| | $ | 6,998 |
| | $ | 127,235 |
| | $ | 6,891 |
|
| 2019 | 13,803 |
| | 6,338 |
| | 118,070 |
| | 6,584 |
|
| 2020 | 10,473 |
| | 4,405 |
| | 97,717 |
| | 6,399 |
|
| 2021 | 10,323 |
| | 4,330 |
| | 64,730 |
| | 6,509 |
|
| 2022 | 10,323 |
| | 4,634 |
| | 58,511 |
| | 6,778 |
|
| Thereafter | 14,501 |
| | 112,509 |
| | 163,717 |
| | 91,181 |
|
| | 73,226 |
| | 139,214 |
| | $ | 629,980 |
| | $ | 124,342 |
|
| Less amounts representing interest | (10,981 | ) | | (52,420 | ) | | |
| | |
|
| Present value of minimum capital & financing lease payments | $ | 62,245 |
| | $ | 86,794 |
| | |
| | |
|
(1)Subsequent to year ended December 31, 2017, in January 2018 the Company purchased three of its existing Boeing 767-300 that were classified as operating leases from the lessor and entered into a forward sale agreement for those same three aircraft (to be delivered later in 2018) with another airline. As these obligations are presented as of December 31, 2017, the associated lease payments are reflective in the table above. Management is in the process of evaluating the transactions and expects to take a loss on the lease termination during the first quarter of 2018 between $15.0 million and $18.0 million related to this transaction.
Maintenance Hangar
In November 2016, the Company entered into a lease agreement with the Department of Transportation of the State of Hawai'i to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a lease term of 35 years. As the hangar was not fully constructed, we took responsibility of the construction and were responsible for the remainder of the construction costs of $33.3 million. In accordance with the applicable accounting guidance, specifically as it relates to the Company's involvement in the construction of the hangar, the Company was considered the owner of the asset under construction and has recognized a $73.0 million asset, with a corresponding lease liability, for the amount previously spent by the lessor.
The Company placed the hangar into service in late 2017. The $73.0 million liability will be relieved as the Company makes rental payments under the agreement and the $106.3 million asset (the original $73.0 million plus an additional $33.3 million of asset additions), will be depreciated over the lease term.
10. Income Taxes
As a result of the Tax Cuts and Jobs Act of 2017, the Company recognized a one-time benefit of $104.2 million in the quarter ended December 31, 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. ASC 740 requires companies to account for the effects of changes in income tax rates and laws on deferred tax balances in the period in which the legislation is enacted. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Income Taxes
liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company will continue to refine the calculations as additional analysis is completed. In addition, these estimates may also be affected as the Company gains a more thorough understanding of the tax law, including those related to the deductibility of purchased assets and state tax treatment. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
The significant components of income tax expense (benefit) are as follows: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Current | | | | | |
| Federal | $ | 1,522 | | | $ | (113,010) | | | $ | (46,764) | |
| State | (448) | | | (3,919) | | | 3,708 | |
| $ | 1,074 | | | $ | (116,929) | | | $ | (43,056) | |
| Deferred | | | | | |
| Federal | $ | (39,589) | | | $ | (52,824) | | | $ | 109,489 | |
| State | (2,035) | | | (19,364) | | | 14,579 | |
| | | | | |
| $ | (41,624) | | | $ | (72,188) | | | $ | 124,068 | |
| Income tax expense (benefit) | $ | (40,550) | | | $ | (189,117) | | | $ | 81,012 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Current | |
| | |
| | |
|
| Federal | $ | 49,835 |
| | $ | 94,459 |
| | $ | 5,008 |
|
| State | 11,471 |
| | 13,201 |
| | 5,588 |
|
| | $ | 61,306 |
| | $ | 107,660 |
| | $ | 10,596 |
|
| Deferred | |
| | |
| | |
|
| Federal | $ | 82,870 |
| | $ | 32,334 |
| | $ | 94,457 |
|
| State | 6,514 |
| | 4,038 |
| | 7,989 |
|
| Estimated Tax Cuts and Jobs Act impact | (104,176 | ) | | — |
| | — |
|
| | $ | (14,792 | ) | | $ | 36,372 |
| | $ | 102,446 |
|
| Income tax expense | $ | 46,514 |
| | $ | 144,032 |
| | $ | 113,042 |
|
The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Income tax expense computed at the statutory federal rate | $ | (38,918) | | | $ | (147,012) | | | $ | 64,049 | |
| Increase (decrease) resulting from: | | | | | |
| State income taxes, net of federal tax effect | (6,203) | | | (22,508) | | | 14,446 | |
| Nondeductible meals | 466 | | | 271 | | | 756 | |
| Goodwill impairment | — | | | 22,399 | | | — | |
| Change in valuation allowance | 4,445 | | | 7,070 | | | — | |
| CARES Act (NOL carryback) | — | | | (45,417) | | | — | |
| | | | | |
| | | | | |
| Excess tax benefits from stock issuance | 436 | | | 473 | | | — | |
| Other | (776) | | | (4,393) | | | 1,761 | |
| Income tax expense (benefit) | $ | (40,550) | | | $ | (189,117) | | | $ | 81,012 | |
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. 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 preceding tax years resulted in the recognition of a tax benefit of approximately $45.4 million.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Income tax expense computed at the statutory federal rate | $ | 143,694 |
| | $ | 132,813 |
| | $ | 103,491 |
|
| Increase (decrease) resulting from: | |
| | |
| | |
|
| State income taxes, net of federal tax effect | 11,690 |
| | 11,261 |
| | 8,825 |
|
| Nondeductible meals | 1,146 |
| | 1,100 |
| | 915 |
|
| Estimated Tax Cuts and Jobs Act impact | (104,176 | ) | | — |
| | — |
|
| Excess tax benefits from stock issuance | (5,288 | ) | | — |
| | — |
|
| Other | (552 | ) | | (1,142 | ) | | (189 | ) |
| Income tax expense | $ | 46,514 |
| | $ | 144,032 |
| | $ | 113,042 |
|
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| | (in thousands) |
| Deferred tax assets: | | | |
| Accumulated pension and other postretirement benefits | $ | 41,740 | | | $ | 55,137 | |
| Operating leases liabilities | 124,570 | | | 143,768 | |
| Finance leases | 2,641 | | | 2,984 | |
| Air traffic liability and frequent flyer liability | 118,005 | | | 90,047 | |
| | | |
| Partnership deferred revenue | 5,242 | | | 8,250 | |
| Federal and state net operating loss carryforwards | 26,725 | | | 29,560 | |
| Accrued compensation | 15,377 | | | 9,694 | |
| Other accrued assets | 14,360 | | | 13,350 | |
| | | |
| Other assets | 33,046 | | | 18,972 | |
| Total gross deferred tax assets | 381,706 | | | 371,762 | |
| Less: Valuation allowance | (14,062) | | | (9,617) | |
| Net deferred tax assets | $ | 367,644 | | | $ | 362,145 | |
| Deferred tax liabilities: | | | |
| Intangible assets | $ | (3,223) | | | $ | (3,190) | |
| Property and equipment, principally accelerated depreciation | (394,207) | | | (405,583) | |
| Finance leases | (5,228) | | | (6,369) | |
| Operating lease right-of-use assets | (135,659) | | | (156,155) | |
| Other liabilities | (16,124) | | | (7,490) | |
| Total deferred tax liabilities | (554,441) | | | (578,787) | |
| Net deferred tax liability | $ | (186,797) | | | $ | (216,642) | |
As of December 31, 2021, the Company had federal and state NOL carryforwards of $5.4 million and $502.0 million, respectively. The Company's federal NOLs have an 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's managementCompany 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.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The components of the Company's deferred tax assets and liabilities were as follows: |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| Deferred tax assets: | |
| | |
|
| Accumulated pension and other postretirement benefits | $ | 54,784 |
| | $ | 136,066 |
|
| Leases | 4,490 |
| | 8,323 |
|
| Air traffic liability | 9,406 |
| | 13,366 |
|
| Federal and state net operating loss carryforwards | 2,547 |
| | 2,115 |
|
| Accrued compensation | 7,627 |
| | 35,505 |
|
| Other accrued assets | 11,661 |
| | 18,733 |
|
| Fuel derivative contracts | 2,156 |
| | 2,705 |
|
| Other assets | 12,642 |
| | 20,320 |
|
| Total gross deferred tax assets | 105,313 |
| | 237,133 |
|
| Less: Valuation allowance | (2,547 | ) | | (1,992 | ) |
| Net deferred tax assets | $ | 102,766 |
| | $ | 235,141 |
|
| Deferred tax liabilities: | |
| | |
|
| Intangible assets | $ | (3,432 | ) | | $ | (5,601 | ) |
| Property and equipment, principally accelerated depreciation | (265,293 | ) | | (385,831 | ) |
| Other liabilities | (8,385 | ) | | (14,252 | ) |
| Total deferred tax liabilities | (277,110 | ) | | (405,684 | ) |
| Net deferred tax liability | $ | (174,344 | ) | | $ | (170,543 | ) |
As of December 31, 2017, the Company had available for state income tax purposes net operating loss carryforwards of $73.3 million. As of December 31, 2016, the Company had available for state income tax purposes net operating loss carryforwards of $73.5 million. The tax benefit of the net operating lossstate NOL carryforwards as of December 31, 20172021 was $2.5$25.6 million, substantially all of which $14.1 million has a valuation allowance. 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.
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 does not expect thatrecords 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 benefit related tobenefits will be resolved. As of December 31, 2021, the Company has $0.5 million of uncertain tax positions will significantly changethat may decrease within the next 12 months.twelve months due to the expiration of the statute of limitations.
The table below reconciles beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
| | | | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| | (in thousands) | | (in thousands) |
| Balance at January 1 | $ | 3,329 |
| | $ | — |
| | $ | — |
| Balance at January 1 | $ | 3,449 | | | $ | 6,263 | | | $ | 5,086 | |
| Increases related to prior year tax positions | 253 |
| | 2,830 |
| | — |
| Increases related to prior year tax positions | 11 | | | 104 | | | 118 | |
| Increases related to current year tax positions | 499 |
| | 499 |
| | — |
| Increases related to current year tax positions | 672 | | | 562 | | | 1,059 | |
| Settlements with taxing authority | | Settlements with taxing authority | — | | | (1,063) | | | — | |
| Effect of the expiration of statutes of limitation | | Effect of the expiration of statutes of limitation | (361) | | | (2,417) | | | — | |
| Balance at December 31 | $ | 4,081 |
| | $ | 3,329 |
| | $ | — |
| Balance at December 31 | $ | 3,771 | | | $ | 3,449 | | | $ | 6,263 | |
|
The Company's policy is to includerecognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. NoIn 2021, 2020, and 2019, the Company recognized expense (benefit) of $0.0 million, $(0.7) million, and $0.9 million, respectively, for interest orand penalties on uncertain tax positions. As of December 31, 2021 and 2020, the Company accrued approximately $0.2 million and $0.2 million, respectively, for the payment of interest and penalties related to these positions were accrued as of December 31, 2017.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 20142017 and beyond remain subject to examination by the Internal Revenue Service.Service and state taxing authorities.
11. Assets Held-For-Sale
During the second quarter of 2021, management reclassified approximately $29.5 million in long-lived assets as held for sale as follows:
•Management announced the termination of its 'Ohana by Hawaiian operations, which utilizes its ATR-42 and ATR-72 fleet, and operated under a capacity purchase agreement (CPA) with a third-party carrier. Following the termination of the operations, management committed to a plan of sale and wrote-down the related assets by approximately $6.4 million to fair value, less cost to sell, and classified approximately $23.4 million as assets held for sale on the Consolidated Balance Sheets.
•Management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and reclassified approximately $6.1 million as assets held for sale on the Consolidated Balance Sheets.
As of December 31, 2021 and 2020, the Company had approximately $29.4 million and $0.0 million, respectively, in assets held for sale on the Consolidated Balance Sheets. Management expects to complete the sale of the above referenced assets within the upcoming 12 months, and will continue to monitor the asset groups for potential impairment.
12. Special Items
Special items in the Consolidated Statements of Operations consisted of the following:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (in thousands) |
| Operating special items: | | | | | |
| 'Ohana by Hawaiian termination (1) | $ | 8,983 | | | $ | — | | | $ | — | |
| 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 Operating special items | $ | 8,983 | | | $ | 184,111 | | | $ | — | |
| Nonoperating special items: | | | | | |
| | | | | |
| Special termination benefits (6) | $ | — | | | $ | 5,258 | | | $ | — | |
| Curtailment loss (6) | — | | | 424 | | | — | |
| | | | | |
| | | | | |
| Total Other nonoperating special items | $ | — | | | $ | 5,682 | | | $ | — | |
11. Special Items
Special items in(1)In the statementssecond quarter of consolidated operations consisted of the following:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Operating | | | | | |
Loss on sale of aircraft (2) | $ | 4,771 |
| | $ | — |
| | $ | — |
|
Collective bargaining agreement (3)(5) | 18,679 |
| | 38,781 |
| | — |
|
Impairment charge in connection with its owned Boeing 767-300 fleet and related assets (4) | — |
| | 49,361 |
| | — |
|
Termination of Boeing 767-300 engine maintenance contract (6) | — |
| | 21,000 |
| | — |
|
| Total Operating special items | $ | 23,450 |
| | $ | 109,142 |
| | $ | — |
|
| Nonoperating | | | | | |
Partial settlement and curtailment loss (1) | $ | 10,384 |
| | $ | — |
| | $ | — |
|
Loss on plan termination (1) | 35,201 |
| | — |
| | — |
|
| Total Other nonoperating special items | $ | 45,585 |
| | $ | — |
| | $ | — |
|
2017
(1) In August 2017,2021, the Company terminatedannounced the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portiontermination of its pilots' other post-retirement medical plan liability. In connection with'Ohana by Hawaiian operations. The Company wrote-down the reduction of these liabilitiesasset group to fair value, less cost to sell by approximately $6.4 million. Additionally, the Company recorded a one-time Other nonoperating special chargescharge of $35.2approximately $2.6 million related tofor the Merged Planearly termination and $10.4 million related to the other post-retirement (OPEB) medical plan partial settlement.of its CPA.
(2)In April 2017,March 2020, the Company executedreached an agreement in principle with the flight attendants of Hawaiian, represented by the Association of Flight Attendants (the AFA) on a sale leaseback transaction with an independent third partynew 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, three Boeing 767-300 aircraft. The lease terms for the three aircraft commenced in April 2017among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and continues through November 2018, December 2018, and January 2019, respectively.a one-time medical savings contribution to eligible flights attendants upon retirement. During the twelve months ended December 31, 2017,2021, the Company recorded a loss on sale$23.5 million ratification bonus, of aircraftwhich $20.2 million was related to service prior to January 1, 2020, and was recorded as a Special item in the Consolidated Statements of $4.8 million.Operations. The remaining $3.3 million was recorded as a component of Wages and benefits in the Consolidated Statements of Operations.
(3) In February 2017,As discussed in Note 1, the Company reachedrecognized a tentative agreement with ALPA, coveringgoodwill 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 $39.4 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 pilots. In March 2017,workforce. The Company recorded $17.8 million during the Company received notice from ALPA thattwelve months ended December 31, 2020 related to the agreement was ratified by ALPA's members. The agreement became effective April 1, 2017workforce reduction and has a term of 63 months. The agreement includes, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. separation programs.
(6)During the twelve months ended December 31, 2017,2020, the Company expensed $18.7recorded $5.7 million principallyin special termination benefits and curtailment losses related to a one-time payment to reduce the Company's future 401K employer contribution for certain pilot groups, which is not recoverable once paid.
2016
(4) The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to exit the Boeing 767-300 fleet in 2018. The early exit of the Boeing 767-300 fleet was made possible by the Company's decision to acquire one Airbus A330-200 (delivered in 2017), lease two additional Airbus A321neo's (to be delivered in 2018 and in addition to the Company's existing aircraft orders),pension and the Company's ability to early terminate our long-term power-by-the-hour maintenance contractother postretirement benefit plans in connection with its voluntary separation programs. See Note 13 for the Boeing 767-300 fleet. This fleet change allows the Company to streamline the fleet, simplify operations, and potentially reduce costs in the future. In order to assess whether there was an impairment of the Boeing 767-300 asset group, the Company compared the projected undiscounted cash flows of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows. The Company estimated the fair value of the owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers, which resulted in a $49.4 million impairment charge ($0.92 per diluted share). The Company's determination of fair value considered attributes specific to the owned Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.). The Company expects to remove three leased Boeing 767-300 aircraft from service in 2018. At that time, these aircraft will have remaining lease payments of approximately $54.3 million. At the time each aircraft is removed from service the Company will accrue for any remaining lease payments not mitigated through an arrangement with the lessor.additional information.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
(5) In 2016, the Company accrued $34.0 million associated with the tentative agreement with ALPA related to past service (prior to January 1, 2017) and also elected to pay a $4.8 million profit sharing bonus payment to other labor groups related to prior period service.
(6) In connection with the decision to exit the Boeing 767-300 fleet, the Company negotiated a termination of its Boeing 767-300 maintenance agreement and recorded a $21.0 million charge related to the amount paid to terminate the contract.
12.13. Employee Benefit Plans
Defined Benefit Plans
Hawaiian sponsors variousa defined benefit pension plan covering the ALPA and prior to August 2017, sponsored the defined benefit pension plans coveringfor the Air Line Pilots Association (ALPA), 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 four4 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 Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plana merged plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, the Company completed the termination of the plan by transferring the assets and liabilities to a third-party insurance company. In 2017, the Company contributed a total of $18.5 million in cash to fully fund the plan and recognized a one-time financial loss of $35.2 million as an Other nonoperating special item on the Company's Consolidated Statement of Operations. The Company no longer has any expected contributions to the Merged Plan due to the final settlement.
In March 2017, the Company announced the ratification of a 63-month contract amendment with its pilots as represented by the Air Line Pilots Association (ALPA). In connection with the ratification of the agreement, the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots, and replace the benefit with a heath retirement account (HRA) managed by ALPA, which represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. In August 2017, the Company made a one-time cash payment of $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation (for active pilots as of April 1, 2017). The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the settlement of the liability, the discount rate was updated to 3.86%. The Company recognized a one-time settlement loss of $10.4 million. The obligation recorded for the unsettled portion of this plan was $73.4 million as of the partial settlement date.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the Consolidated Balance Sheets: |
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Pension | | Other | | Pension | | Other |
| | (in thousands) |
| Change in benefit obligations | |
| | |
| | |
| | |
|
| Benefit obligations, beginning of year | $ | (462,762 | ) | | $ | (224,316 | ) | | $ | (445,619 | ) | | $ | (211,716 | ) |
| Service cost | (480 | ) | | (12,403 | ) | | (681 | ) | | (13,618 | ) |
| Interest cost | (18,042 | ) | | (8,022 | ) | | (19,969 | ) | | (10,227 | ) |
| Actuarial gains (losses) | (42,775 | ) | | 17,484 |
| | (21,432 | ) | | 7,966 |
|
| Benefits paid | 23,999 |
| | 4,587 |
| | 24,007 |
| | 4,217 |
|
| Less: federal subsidy on benefits paid | N/A |
| | (57 | ) | | N/A |
| | (58 | ) |
| Plan amendments | — |
| | 381 |
| | 932 |
| | (880 | ) |
| Settlements | 73,994 |
| | 101,929 |
| | — |
| | — |
|
Benefit obligation at end of year (a) | $ | (426,066 | ) | | $ | (120,417 | ) | | $ | (462,762 | ) | | $ | (224,316 | ) |
| Change in plan assets | |
| | |
| | |
| | |
|
| Fair value of assets, beginning of year | $ | 302,982 |
| | $ | 24,751 |
| | $ | 259,626 |
| | $ | 21,893 |
|
| Actual return on plan assets | 42,652 |
| | 2,629 |
| | 12,618 |
| | 889 |
|
| Employer contribution | 48,745 |
| | 3,285 |
| | 54,745 |
| | 6,186 |
|
| Benefits paid | (23,999 | ) | | (4,587 | ) | | (24,007 | ) | | (4,217 | ) |
| Settlements | (73,994 | ) | | — |
| | — |
| | — |
|
| Fair value of assets at end of year | $ | 296,386 |
| | $ | 26,078 |
| | $ | 302,982 |
| | $ | 24,751 |
|
| Unfunded status at December 31 | $ | (129,680 | ) | | $ | (94,339 | ) | | $ | (159,780 | ) | | $ | (199,565 | ) |
| Amounts recognized in the statement of financial position consist of: | |
| | |
| | |
| | |
|
| Current benefit liability | $ | (214 | ) | | $ | (3,017 | ) | | $ | (25 | ) | | $ | (3,352 | ) |
| Noncurrent benefit liability | (129,466 | ) | | (91,322 | ) | | (159,755 | ) | | (196,213 | ) |
| | $ | (129,680 | ) | | $ | (94,339 | ) | | $ | (159,780 | ) | | $ | (199,565 | ) |
| Amounts recognized in accumulated other comprehensive loss | |
| | |
| | |
| | |
|
| Unamortized actuarial loss (gain) | $ | 112,417 |
| | $ | (13,521 | ) | | $ | 140,205 |
| | $ | 15,593 |
|
| Prior service cost (credit) | — |
| | 1,962 |
| | (980 | ) | | 2,626 |
|
| | $ | 112,417 |
| | $ | (11,559 | ) | | $ | 139,225 |
| | $ | 18,219 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| | Pension | | Other | | Pension | | Other |
| | (in thousands) |
| Change in projected benefit obligations | | | | | | | |
| Benefit obligations, beginning of year | $ | (474,750) | | | $ | (171,480) | | | $ | (444,896) | | | $ | (147,286) | |
| Service cost | — | | | (11,744) | | | (12) | | | (10,791) | |
| Interest cost | (12,216) | | | (4,769) | | | (14,639) | | | (5,167) | |
| Actuarial gains (losses) | 9,738 | | | 16,623 | | | (39,039) | | | (4,608) | |
| Benefits paid | 24,603 | | | 5,641 | | | 23,836 | | | 5,785 | |
| Less: federal subsidy on benefits paid | N/A | | — | | | N/A | | — | |
| Plan amendments | — | | | — | | | — | | | (3,260) | |
| Special/contractual termination benefits | — | | | — | | | — | | | (5,258) | |
| Curtailments | — | | | — | | | — | | | (895) | |
| | | | | | | |
| Benefit obligation at end of year (a) | $ | (452,625) | | | $ | (165,729) | | | $ | (474,750) | | | $ | (171,480) | |
| Change in plan assets | | | | | | | |
| Fair value of assets, beginning of year | $ | 382,846 | | | $ | 38,710 | | | $ | 351,821 | | | $ | 32,545 | |
| Actual return on plan assets | 46,297 | | | 3,357 | | | 54,081 | | | 3,870 | |
| Employer contribution | — | | | 4,008 | | | 780 | | | 8,080 | |
| Benefits paid | (23,777) | | | (1,443) | | | (23,836) | | | (5,785) | |
| | | | | | | |
| Fair value of assets at end of year | $ | 405,366 | | | $ | 44,632 | | | $ | 382,846 | | | $ | 38,710 | |
| Unfunded status at December 31 | $ | (47,259) | | | $ | (121,097) | | | $ | (91,904) | | | $ | (132,770) | |
| Amounts recognized in the statement of financial position consist of: | | | | | | | |
| Current benefit liability | $ | (800) | | | $ | (6,739) | | | $ | (793) | | | $ | (6,144) | |
| Noncurrent benefit liability | (46,459) | | | (114,358) | | | (91,111) | | | (126,626) | |
| $ | (47,259) | | | $ | (121,097) | | | $ | (91,904) | | | $ | (132,770) | |
| Amounts recognized in accumulated other comprehensive loss | | | | | | | |
| Unamortized actuarial loss (gain) | $ | 94,537 | | | $ | (16,161) | | | $ | 131,653 | | | $ | 1,790 | |
| Prior service cost (credit) | — | | | 3,690 | | | — | | | 4,060 | |
| $ | 94,537 | | | $ | (12,471) | | | $ | 131,653 | | | $ | 5,850 | |
| |
(a) | The accumulated pension benefit obligation as of December 31, 2017 and 2016 was $424.2 million and $459.5 million, respectively. |
(a)The accumulated pension benefit obligation as of December 31, 2021 and 2020 was $452.6 million and $474.8 million, respectively.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | Pension | | Other | | Pension | | Other | | Pension | | Other |
| | (in thousands) |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | |
| Service cost | $ | — | | | $ | 11,744 | | | $ | 12 | | | $ | 10,791 | | | $ | 175 | | | $ | 8,255 | |
| Other cost: | | | | | | | | | | | |
| Interest cost | 12,216 | | | 4,769 | | | 14,639 | | | 5,167 | | | 16,910 | | | 5,472 | |
| Expected return on plan assets | (23,327) | | | (1,785) | | | (23,418) | | | (1,746) | | | (20,519) | | | (1,421) | |
| Recognized net actuarial loss (gain) | 4,407 | | | (212) | | | 4,091 | | | (43) | | | 4,103 | | | (902) | |
| Prior service cost (credit) | — | | | 370 | | | — | | | 288 | | | — | | | 225 | |
| Total other components of the net periodic benefit cost | $ | (6,704) | | | $ | 3,142 | | | $ | (4,688) | | | $ | 3,666 | | | $ | 494 | | | $ | 3,374 | |
| | | | | | | | | | | |
| Special/contractual termination benefits | — | | | — | | | — | | | 5,258 | | | — | | | — | |
| Curtailment loss | — | | | — | | | — | | | 424 | | | — | | | — | |
| Net periodic benefit cost | $ | (6,704) | | | $ | 14,886 | | | $ | (4,676) | | | $ | 20,139 | | | $ | 669 | | | $ | 11,629 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss | | | | | | | | | | | |
| Current year actuarial (gain) loss | $ | (32,709) | | | $ | (16,989) | | | $ | 8,376 | | | $ | 3,409 | | | $ | 6,907 | | | $ | 13,041 | |
| Current year prior service cost | — | | | — | | | — | | | 3,260 | | | — | | | — | |
| Amortization of actuarial gain (loss) | (4,407) | | | 212 | | | (4,091) | | | 43 | | | (4,103) | | | 902 | |
| Amortization of prior service credit (cost) | — | | | (370) | | | — | | | (712) | | | — | | | (225) | |
| Settlement and curtailment loss | — | | | — | | | — | | | — | | | — | | | — | |
| Total recognized in other comprehensive loss | $ | (37,116) | | | $ | (17,147) | | | $ | 4,285 | | | $ | 6,000 | | | $ | 2,804 | | | $ | 13,718 | |
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | (43,820) | | | $ | (2,261) | | | $ | (391) | | | $ | 26,139 | | | $ | 3,473 | | | $ | 25,347 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | Pension | | Other | | Pension | | Other | | Pension | | Other |
| | (in thousands) |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | |
| Service cost | $ | 480 |
| | $ | 12,403 |
| | $ | 681 |
| | $ | 13,618 |
| | $ | 1,016 |
| | $ | 15,335 |
|
| Other cost: | | | | | | | | | | | |
| Interest cost | 18,042 |
| | 8,022 |
| | 19,969 |
| | 10,227 |
| | 19,788 |
| | 9,930 |
|
| Expected return on plan assets | (17,291 | ) | | (1,106 | ) | | (16,746 | ) | | (1,137 | ) | | (17,753 | ) | | (1,072 | ) |
| Recognized net actuarial loss (gain) | 9,033 |
| | (241 | ) | | 7,526 |
| | 204 |
| | 8,889 |
| | 2,518 |
|
| Prior service cost (credit) | (28 | ) | | 282 |
| | (2 | ) | | 229 |
| | (2 | ) | | 229 |
|
| Total other components of the net periodic benefit cost | $ | 9,756 |
| | $ | 6,957 |
| | $ | 10,747 |
| | $ | 9,523 |
| | $ | 10,922 |
| | $ | 11,605 |
|
| Settlement and curtailment loss | 35,201 |
| | 10,384 |
| | — |
| | — |
| | — |
| | — |
|
| Net periodic benefit cost | $ | 45,437 |
| | $ | 29,744 |
| | $ | 11,428 |
| | $ | 23,141 |
| | $ | 11,938 |
| | $ | 26,940 |
|
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss | | | | | | | | | | | |
| Current year actuarial (gain) loss | $ | 17,414 |
| | $ | (18,972 | ) | | $ | 25,559 |
| | $ | (7,677 | ) | | $ | (14,762 | ) | | $ | (24,085 | ) |
| Current year prior service cost | — |
| | (381 | ) | | (932 | ) | | — |
| | — |
| | — |
|
| Amortization of actuarial gain (loss) | (9,033 | ) | | 241 |
| | (7,526 | ) | | (204 | ) | | (8,889 | ) | | (2,518 | ) |
| Amortization of prior service credit (cost) | 28 |
| | (282 | ) | | 2 |
| | (229 | ) | | 2 |
| | (229 | ) |
| Settlement and curtailment loss | (35,201 | ) | | (10,384 | ) | | — |
| | — |
| | — |
| | — |
|
| Total recognized in other comprehensive loss | $ | (26,792 | ) | | $ | (29,778 | ) | | $ | 17,103 |
| | $ | (8,110 | ) | | $ | (23,649 | ) | | $ | (26,832 | ) |
| Total recognized in net periodic benefit cost and other comprehensive loss | $ | 18,645 |
| | $ | (34 | ) | | $ | 28,531 |
| | $ | 15,031 |
| | $ | (11,711 | ) | | $ | 108 |
|
The weighted average actuarial assumptions used to determine the net periodic benefit expense and the projected benefit obligation were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Postretirement | | Disability | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | |
| Discount rate to determine net periodic benefit expense | 2.63 | % | | 3.38 | % | | 2.62 | % | | 2.89 | % | | 2.67 | % | | 3.18 | % | |
| Discount rate to determine projected benefit obligation | 2.98 | % | | 2.63 | % | | 2.99 | % | | 2.62 | % | | 3.03 | % | | 2.67 | % | |
| Expected return on plan assets | 6.29 | % | ** | 6.76 | % | | N/A | | N/A | | 4.28 | % | ** | 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 | % | | 6.50 | % | | 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 | |
| Health care trend rate to determine projected benefit obligation | N/A | | N/A | | 6.25 | % | | 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 | | 6 | | N/A | | N/A | |
_______________________________________________________________________________ |
| | | | | | | | | | | | | | | | | | |
| | Pension | | Postretirement | | Disability | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
| Discount rate to determine net periodic benefit expense | 4.19 | % | | 4.56 | % | | 4.29 | % | | 4.72 | % | | 4.24 | % | | 4.61 | % | |
| Discount rate to determine projected benefit obligation | 3.70 | % | | 4.19 | % | | 3.71 | % | | 4.29 | % | | 3.72 | % | | 4.24 | % | |
| Expected return on plan assets | 6.34 | % | ** | 6.69 | % | | N/A |
| | N/A |
| | 4.60 | % | ** | 5.37 | % | |
| 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 |
| | 7.75 | % | | 8.25 | % | | N/A |
| | N/A |
| |
| Ultimate trend rate | N/A |
| | N/A |
| | 7.25 | % | | 4.75 | % | | N/A |
| | N/A |
| |
| Years to reach ultimate trend rate | N/A |
| | N/A |
| | 6 |
| | 7 |
| | N/A |
| | N/A |
| |
| Health care trend rate to determine projected benefit obligation | N/A |
| | N/A |
| | 7.25 | % | | 7.75 | % | | 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 |
| | 5 |
| | 6 |
| | N/A |
| | N/A |
| |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
* 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% for 2017 (4.0% to 35.2% for 2016 ).
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
in both 2021 and 2020).
** Expected return on plan assets used to determine the net periodic benefit expense for 20182022 is 7.33%6.06% for Pension and 4.90%4.35% for Disability.
A change in the assumed health care cost trend rates would have the following effects: |
| | | | | | | |
| | 100 Basis
Point
Increase | | 100 Basis
Point
Decrease |
| | (in thousands) |
| Effect on postretirement benefit obligation at December 31, 2017 | $ | 8,545 |
| | $ | (7,304 | ) |
| Effect on total service and interest cost for the year ended December 31, 2017 | 952 |
| | (788 | ) |
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 20182022 are as follows: |
| | | | | | | |
| | Pension | | Other |
| | (in thousands) |
| Actuarial (gain) loss | $ | 3,223 |
| | $ | (729 | ) |
| Amortization of prior service cost (credit) | — |
| | 225 |
|
| To be recognized in net periodic benefit cost from accumulated other comprehensive loss | $ | 3,223 |
| | $ | (504 | ) |
| | | | | | | | | | | |
| | Pension | | Other |
| | (in thousands) |
| Actuarial (gain) loss | $ | 2,596 | | | $ | (468) | |
| Amortization of prior service cost | — | | | 370 | |
| To be recognized in net periodic benefit cost from accumulated other comprehensive (gain) loss | $ | 2,596 | | | $ | (98) | |
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, 20172021 are as follows: |
| | | | | |
| | Asset Allocation for Pilots pension and VEBA Plans |
| | 2017 | | Target |
| Equity securities | 59 | % | | 60 | % |
| Fixed income securities | 36 | % | | 35 | % |
| Real estate investment trusts | 5 | % | | 5 | % |
| | 100 | % | | 100 | % |
| | | | | | | | | | | |
| | Asset Allocation for Pilots pension and VEBA Plans |
| | 2021 | | Target |
| Equity securities | 56 | % | | 60 | % |
| Fixed income securities | 40 | % | | 35 | % |
| Real estate investment trusts | 4 | % | | 5 | % |
| 100 | % | | 100 | % |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
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, |
| | | 2021 | | 2020 |
| | | (in thousands) |
| Pension Plan Assets: | | | | |
| | | | |
| | | | |
| Equity index funds | | $ | 226,291 | | | $ | 227,357 | |
| Fixed income funds | | 158,334 | | | 134,074 | |
| Real estate investment fund | | 18,614 | | | 19,286 | |
| Insurance company pooled separate account | | 2,127 | | | 2,132 | |
| Total | | $ | 405,366 | | | $ | 382,849 | |
| Postretirement Assets: | | | | |
| Common collective trust fund | | $ | 44,509 | | | $ | 38,579 | |
| Money market fund | | 123 | | | 131 | |
| | $ | 44,632 | | | $ | 38,710 | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | |
| | Fair Value Measurements as of December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
| Pension Plan Assets: | |
| | |
|
| Equity index funds | $ | 177,252 |
| | $ | 147,440 |
|
| Fixed income funds | 100,504 |
| | 140,454 |
|
| Real estate investment fund | 14,587 |
| | 12,304 |
|
| Insurance company pooled separate account | 4,044 |
| | 2,293 |
|
| Total | $ | 296,387 |
| | $ | 302,491 |
|
| Postretirement Assets: | |
| | |
|
| Common collective trust fund | $ | 25,973 |
| | $ | 21,544 |
|
The fair value of each of the investments in the table above havehas been estimated using the net asset value per share, and in accordance with subtopic ASC 820-10, Fair Value Measurement and Disclosures are, is not required to be presented in the fair value hierarchy.
Equity index funds. The investment objective of these funds areis 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 areis 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 current assumptions, the contribution that the Company expectsdoes not expect to have a minimum contribution requirement of nil for 2018.2022 as sufficient funding balance exists to cover all funding requirements in 2022. 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:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
| | | | | | | | | | | | |
| | | | | Other Benefits |
| | | Pension
Benefits | | Gross | | Expected
Federal Subsidy |
| | | (in thousands) |
| 2018 | | $ | 21,889 |
| | $ | 4,803 |
| | $ | (48 | ) |
| 2019 | | 23,216 |
| | 5,441 |
| | (54 | ) |
| 2020 | | 24,216 |
| | 6,032 |
| | (59 | ) |
| 2021 | | 24,895 |
| | 6,751 |
| | (62 | ) |
| 2022 | | 25,392 |
| | 7,258 |
| | (64 | ) |
| 2023 - 2027 | | 130,599 |
| | 43,478 |
| | (349 | ) |
| | | $ | 250,207 |
| | $ | 73,763 |
| | $ | (636 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Other Benefits |
| | | Pension
Benefits | | Gross | | Expected
Federal Subsidy |
| | | (in thousands) |
| 2022 | | $ | 26,158 | | | $ | 8,400 | | | $ | — | |
| 2023 | | 27,004 | | | 8,391 | | | — | |
| 2024 | | 27,477 | | | 8,819 | | | — | |
| 2025 | | 27,685 | | | 9,187 | | | — | |
| 2026 | | 27,777 | | | 9,792 | | | — | |
| 2027 - 2031 | | 136,006 | | | 52,565 | | | — | |
| | $ | 272,107 | | | $ | 97,154 | | | $ | — | |
Defined Contribution Plans
The Company also sponsors separate defined contribution plans for its pilots, flight attendants and ground personnel, and salaried personnel. Contributions to the Company's defined contribution plans were $39.1$47.3 million, $31.6$43.6 million and $29.4$46.7 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
13.14. Capital Stock and Share-based Compensation
Common Stock and Dividend Declaration
The Company has one1 class of common stock issued and outstanding. Each share of common stock is entitled to one1 vote per share.
In October 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.12 per share payable on November 30, 2017, to stockholders of record as of November 17, 2017. The total cash payment for dividends during the year ended December 31, 2017 was $6.3 million and no dividends were paid by the Company during the years ended December 31, 2016 or 2015. In February 2018, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.12 per share payable on February 28, 2018, to stockholders of record as of February 14, 2018.
Special Preferred Stock
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The IAM, AFA, and ALPA each hold one1 share of Special Preferred Stock, which entitles each union to nominate one1 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 two2 times the dividend per share paid on the common stock; (iii) is entitled to one1 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's receipt of financial assistance under federal Payroll Support Programs precludes the Company from making any further dividend payments until September 30, 2022. Prior to the suspension of dividend payments, the Company paid cash dividends of $5.5 million and $22.8 million during the years ended December 31, 2020 and 2019, respectively.
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 federal Payroll Support Programs, it is restricted from making any stock repurchases until September 30, 2022.
The Company had no stock repurchase activity during the twelve months ended December 31, 2021. Prior to the suspension of its stock repurchase program, the Company spent $7.5 million and $68.8 million to repurchase approximately 0.3 million shares and 2.5 million shares of the Company's common stock in open market transactions for the years ended December 31, 2020 and 2019, respectively.
At-the-Market Offering Program
On December 1, 2020, the Company entered into the Equity Distribution Agreement with 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, 2021, we sold 2.9 million shares pursuant to the Equity Distribution Agreement at an average price of $24.47 per share, with net proceeds totaling approximately $68.1 million. On March 5, 2021, the Company completed the sale of the 5.0 million shares authorized under the Equity Distribution Agreement at an average price of $22.46 per share, with total net proceeds of approximately $109.3 million.
Share-Based Compensation
Total share-based compensation expense recognized by the Company under ASC 718 was $7.3$8.6 million, $8.4$4.9 million and $6.6$8.3 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. As of December 31, 2017, $6.92021, $6.5 million of share-based compensation expense related to unvested stock options and other stock awardsRSU (inclusive of $0.4$0.5 million for stock options and other stock awardsRSU 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 1.11.5 years.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Performance-Based RSU
Performance-Based Stock Awards
During 2017,2021, the Company granted performance-based stock awardsRSU covering 355,897141,473 shares of common stock (the Target Award) with a maximum payout of 414,240212,210 shares of common stock (the Maximum Award) to employees pursuant to the Company's 2015 Stock Incentive Plan. These awards vest over a periodthree year period. The performance-based RSU include a market condition and were valued using a binomial-lattice model (i.e. Monte Carlo simulation model). The Monte Carlo Simulation model required key assumptions: including the (a) expected volatility of one orthe Company's common stock, (b) expected life of the RSU, (c) risk-free interest rate, and (d) dividend yield. The Company valued the award at $3.0 million, which will be recognized as stock-based compensation expense over the vesting period. The effect of market conditions is considered in determining the grant date fair value, which is not subsequently revised based on actual performance.
During 2020 and 2019, the Company granted performance-based stock awards without a market condition, covering 204,589 and 114,858 shares, respectively, of common stock (the Target Award) with a maximum payout of 406,916 and 229,716 shares, respectively of common stock (the Maximum Award) to employees pursuant to the Company's 2015 Stock Incentive Plan. These awards vest over a three years.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, 2019 | 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 | |
| Granted | 141,473 | | | 21.52 | |
| Vested | (67,695) | | | 37.20 | |
| Forfeited | (70,108) | | | 39.09 | |
| Non-vested at December 31, 2021 | 445,623 | | | $ | 25.76 | |
|
| | | | | | |
| | Number of units | | Weighted
average
grant date
fair value |
| Non-vested at January 1, 2015 | 1,003,629 |
| | $ | 7.19 |
|
| Granted | 183,827 |
| | 19.01 |
|
| Vested | (419,097 | ) | | 6.41 |
|
| Forfeited | (89,617 | ) | | 9.76 |
|
| Non-vested at December 31, 2015 | 678,742 |
| | $ | 10.53 |
|
| Granted | 117,849 |
| | 33.94 |
|
| Vested | (349,403 | ) | | 7.32 |
|
| Forfeited | (24,891 | ) | | 13.45 |
|
| Non-vested at December 31, 2016 | 422,297 |
| | $ | 14.00 |
|
| Granted | 355,897 |
| | 43.51 |
|
| Vested | (358,619 | ) | | 12.71 |
|
| Forfeited | (37,619 | ) | | 27.60 |
|
| Non-vested at December 31, 2017 | 381,956 |
| | $ | 28.03 |
|
In 2017 there were 144,780 additional shares from a prior year grant that the performance metric was achieved and vested, thus included in the 2017 amounts. The fair value of performance-based stock awardsRSU vested in the years ended December 31, 2017, 20162021, 2020 and 20152019 was $17.9$1.9 million, $11.3$1.7 million and $10.5$1.7 million, respectively. Fair value of the awards are based on the stock price on date of vest.
Service-Based Stock AwardsRSU
During 2017,2021, the Company awarded 22,898270,282 service-based stock awardsRSU to employees and non-employee directors, pursuant to the Company's 2015 Stock Incentive Plan. These stock awards vest over a one, two, or three year periodperiods and have a grant date fair value equal to the Company's share price on the measurement date.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information about outstanding service-based stock awards:RSU:
| | | | | | | | | | | |
| | Number of units | | Weighted
average
grant date
fair value |
| Non-vested at January 1, 2019 | 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 | |
| Granted | 270,282 | | | 21.65 | |
| Vested | (248,432) | | | 21.75 | |
| Forfeited | (12,313) | | | 20.12 | |
| Non-vested at December 31, 2021 | 457,368 | | | $ | 23.09 | |
|
| | | | | | |
| | Number of units | | Weighted
average
grant date
fair value |
| Non-vested at January 1, 2015 | 437,961 |
| | $ | 9.66 |
|
| Granted | 149,138 |
| | 21.24 |
|
| Vested | (224,268 | ) | | 9.01 |
|
| Forfeited | (92,110 | ) | | 14.25 |
|
| Non-vested at December 31, 2015 | 270,721 |
| | $ | 15.02 |
|
| Granted | 110,276 |
| | 37.08 |
|
| Vested | (169,218 | ) | | 16.32 |
|
| Forfeited | (16,330 | ) | | 20.46 |
|
| Non-vested at December 31, 2016 | 195,449 |
| | $ | 24.29 |
|
| Granted | 22,898 |
| | 49.95 |
|
| Vested | (110,575 | ) | | 23.80 |
|
| Forfeited | (16,394 | ) | | 26.71 |
|
| Non-vested at December 31, 2017 | 91,378 |
| | $ | 28.12 |
|
The fair value of service-based stock awardsRSU vested in 2017, 2016,2021, 2020, and 20152019 was $5.6$5.4 million, $6.1$2.8 million and $4.6$2.2 million, respectively. Fair value of the awards are based on the stock price on date of vest.
14.15. 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 2024.2033. 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) |
| 2018 | $ | 455,923 |
| | $ | 73,041 |
| | $ | 528,964 |
|
| 2019 | 503,496 |
| | 59,444 |
| | 562,940 |
|
| 2020 | 242,495 |
| | 55,230 |
| | 297,725 |
|
| 2021 | 170,480 |
| | 51,097 |
| | 221,577 |
|
| 2022 | 10,113 |
| | 51,225 |
| | 61,338 |
|
| Thereafter | 121,582 |
| | 216,161 |
| | 337,743 |
|
| | $ | 1,504,089 |
| | $ | 506,198 |
| | $ | 2,010,287 |
|
| | | | | | | | | | | | | | | | | |
| | Aircraft and aircraft related | | Other | | Total Committed
Expenditures |
| | (in thousands) |
| 2022 | $ | 92,402 | | | $ | 28,068 | | | $ | 120,470 | |
| 2023 | 418,196 | | | 27,959 | | | 446,155 | |
| 2024 | 503,272 | | | 26,392 | | | 529,664 | |
| 2025 | 410,957 | | | 17,903 | | | 428,860 | |
| 2026 | 233,822 | | | 13,532 | | | 247,354 | |
| Thereafter | — | | | 26,975 | | | 26,975 | |
| $ | 1,658,649 | | | $ | 140,829 | | | $ | 1,799,478 | |
As of December 31, 2017, we2021, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | |
| Aircraft Type | Firm
Orders | | Purchase
Rights | | Expected Delivery Dates |
| A321neo aircraft | — | | | 9 | | | N/A |
| B787-9 aircraft | 10 | | | 10 | | | Between 2023 and 2026 |
| | | | | |
| | | | | |
| General Electric GEnx spare engines: | | | | | |
| B787-9 spare engines | 2 | | | 2 | | | Between 2023 and 2025 |
|
| | | | | | | |
| Aircraft Type | Firm
Orders | | Purchase
Rights | | Expected Delivery Dates |
| A321neo aircraft | 14 |
| | 9 |
| | Between 2018 and 2020 |
| A330-800neo aircraft | 6 |
| | 6 |
| | Between 2019 and 2021 |
| Pratt & Whitney spare engines: | | | | | |
| A321neo spare engines | 3 |
| | 2 |
| | Between 2018 and 2019 |
| Rolls-Royce spare engines: | |
| | |
| | |
| A330-800neo spare engines | 2 |
| | — |
| | Between 2019 and 2020 |
In July 2018, the Company entered into a purchase agreement for the purchase of 10 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 4 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. The committed expenditures under the amended agreement is reflected in the table above. In December 2021, the Company received notification of further delivery delays, and we have agreed to defer delivery of the first 2 aircraft from the scheduled delivery at the end of 2022 to the first half of 2023. The remainder of the B787-9 delivery schedule has not changed and all such commitments are reflected in the tables above.
In order to complete the purchase of these aircraft and fund related costs, wethe 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 ourthe 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 the contract.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 theirsuch parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to itsthe 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. TheseAs of December 31, 2021 and 2020, there were no holdbacks which are included in restricted cash inheld with the Company's Consolidated Balance Sheets, totaled $1.0 million and $5.0 million at December 31, 2017 and 2016, respectively.credit card processors.
In the event of a material adverse change in the Company's business, the holdbackcredit card processor could increase holdbacks to an amount up to 100% of the applicableamount of outstanding credit card airtickets that are unflown (e.g., Air traffic liability, excluding frequent flyer deferred revenue), which would also cause an increaseresult in the levela restriction of restricted cash.
Labor Negotiations
As of December 31, 2017, approximately 83% of employees were represented by unions. Additionally, the collective bargaining agreement for the Association of Flight Attendants (AFA), which represents 29% of employees became amendable on January 1, 2017, If the Company is currently in negotiations with the AFA. The Company can provide no assurance thatwere unable to obtain a successfulwaiver of, or timely resolution of these labor negotiations will be achieved.
otherwise
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
15. Geographic Information
The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or endmitigate the increase in the Staterestriction of Hawai'i.cash, it could have a material impact on the Company's operations, business or financial condition.
Labor Negotiations
As of December 31, 2021, approximately 82.3% of employees were represented by unions. The managementcollective bargaining agreements for the IAM-M and IAM-C (collectively, the IAM), which represent 37.9% of such operationsemployees, became amendable on January 1, 2021. In January 2022, the Company reached a Tentative Agreement with the IAM. Additionally, the collective bargaining agreement for the TWU, which represents 0.8% of employees, became amendable on July 22, 2021. The Company is based on a system-wide approach due tocurrently in negotiations with the interdependenceTWU regarding the terms 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 collective bargaining agreements.
The Company's operating revenues by geographic region (as defined by the Department of Transportation, DOT) are summarized below: |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Domestic | $ | 1,988,686 |
| | $ | 1,906,840 |
| | $ | 1,775,355 |
|
| Pacific | 706,942 |
| | 543,740 |
| | 542,112 |
|
| Total operating revenue | $ | 2,695,628 |
| | $ | 2,450,580 |
| | $ | 2,317,467 |
|
Hawaiian attributes operating revenue by geographic region based upon the origin and 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.
16. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information and non-cash investing and financing activities were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
| Cash payments for interest (net of amounts capitalized) | $ | 91,927 | | | $ | 23,951 | | | $ | 20,346 | |
| Cash payments (refunds) for income taxes | (23,123) | | | (81,372) | | | 25,809 | |
| Investing and Financing Activities Not Affecting Cash: | | | | | |
| Property and equipment acquired through a finance lease | 8,121 | | | 939 | | | 6,567 | |
| Right-of-use assets acquired under operating leases | — | | | 75,667 | | | 74,529 | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (in thousands) |
| Cash payments for interest (net of amounts capitalized) | $ | 23,134 |
| | $ | 29,751 |
| | $ | 45,519 |
|
| Cash payments (refunds) for income taxes | 65,812 |
| | 92,934 |
| | 4,664 |
|
| Investing and Financing Activities Not Affecting Cash: | |
| | |
| | |
|
| Property and equipment acquired through a capital or financing lease | 72,996 |
| * | 6,092 |
| | 2,791 |
|
Maintenance hangar project (see Note 9 for further discussion) | — |
| | 72,996 |
| * | — |
|
* Amount was reclassified from an other liability as of December 31, 2016 to a financing (lease) liability at the date of in-service, and reflected as such as of December 31, 2017.
17. 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 two2 pass-through trusts formed by Hawaiian (which is also referred to in this Note 17 as Subsidiary Issuer / Guarantor) of pass-through certificates, as discussed in Note 8, the Company (which is also referred to in this Note 17 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.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed consolidating financial statements are presented in the following tables:
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)Loss
Year Ended December 31, 2017 |
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| Operating Revenue | $ | — |
| | $ | 2,687,918 |
| | $ | 8,102 |
| | $ | (392 | ) | | $ | 2,695,628 |
|
| Operating Expenses: | |
| | |
| | |
| | |
| | |
|
| Aircraft fuel, including taxes and delivery | — |
| | 440,383 |
| | — |
| | — |
| | 440,383 |
|
| Wages and benefits | — |
| | 632,997 |
| | — |
| | — |
| | 632,997 |
|
| Aircraft rent | — |
| | 137,289 |
| | 475 |
| | — |
| | 137,764 |
|
| Maintenance materials and repairs | — |
| | 215,473 |
| | 4,080 |
| | — |
| | 219,553 |
|
| Aircraft and passenger servicing | — |
| | 140,566 |
| | — |
| | — |
| | 140,566 |
|
| Commissions and other selling | 85 |
| | 131,706 |
| | 129 |
| | (137 | ) | | 131,783 |
|
| Depreciation and amortization | — |
| | 109,458 |
| | 3,819 |
| | — |
| | 113,277 |
|
| Other rentals and landing fees | — |
| | 116,763 |
| | — |
| | — |
| | 116,763 |
|
| Purchased services | 478 |
| | 109,436 |
| | 933 |
| | (60 | ) | | 110,787 |
|
| Special items | — |
| | 23,450 |
| | — |
| | — |
| | 23,450 |
|
| Other | 5,391 |
| | 137,499 |
| | 1,838 |
| | (195 | ) | | 144,533 |
|
| Total | 5,954 |
| | 2,195,020 |
| | 11,274 |
| | (392 | ) | | 2,211,856 |
|
| Operating Income (Loss) | (5,954 | ) | | 492,898 |
| | (3,172 | ) | | — |
| | 483,772 |
|
| Nonoperating Income (Expense): | |
| | |
| | |
| | |
| | |
|
| Undistributed net income of subsidiaries | 367,715 |
| | — |
| | — |
| | (367,715 | ) | | — |
|
| Other nonoperating special items | — |
| | (45,585 | ) | | — |
| | — |
| | (45,585 | ) |
| Interest expense and amortization of debt discounts and issuance costs | — |
| | (30,901 | ) | | — |
| | — |
| | (30,901 | ) |
| Interest income | 301 |
| | 5,831 |
| | — |
| | — |
| | 6,132 |
|
| Capitalized interest | — |
| | 8,437 |
| | — |
| | — |
| | 8,437 |
|
| Other components of net periodic benefit cost | — |
| | (16,713 | ) | | — |
| | — |
| | (16,713 | ) |
| Gains on fuel derivatives | — |
| | 3,312 |
| | — |
| | — |
| | 3,312 |
|
| Other, net | — |
| | 2,101 |
| | — |
| | — |
| | 2,101 |
|
| Total | 368,016 |
| | (73,518 | ) | | — |
| | (367,715 | ) | | (73,217 | ) |
| Income (Loss) Before Income Taxes | 362,062 |
| | 419,380 |
| | (3,172 | ) | | (367,715 | ) | | 410,555 |
|
| Income tax expense (benefit) | (1,979 | ) | | 49,602 |
| | (1,109 | ) | | — |
| | 46,514 |
|
| Net Income (Loss) | $ | 364,041 |
| | $ | 369,778 |
| | $ | (2,063 | ) | | $ | (367,715 | ) | | $ | 364,041 |
|
| Comprehensive Income (Loss) | $ | 392,270 |
| | $ | 398,007 |
| | $ | (2,063 | ) | | $ | (395,944 | ) | | $ | 392,270 |
|
2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| (in thousands) |
| Operating Revenue | $ | — | | | $ | 1,593,058 | | | $ | 34,850 | | | $ | (31,324) | | | $ | 1,596,584 | |
| Operating Expenses: | | | | | | | | | |
| Aircraft fuel, including taxes and delivery | — | | | 363,003 | | | — | | | — | | | 363,003 | |
| Wages and benefits | — | | | 698,101 | | | — | | | — | | | 698,101 | |
| Aircraft rent | — | | | 109,476 | | | — | | | — | | | 109,476 | |
| Maintenance materials and repairs | — | | | 169,977 | | | 71 | | | — | | | 170,048 | |
| Aircraft and passenger servicing | — | | | 105,675 | | | — | | | — | | | 105,675 | |
| Commissions and other selling | 8 | | | 71,171 | | | 1,533 | | | (200) | | | 72,512 | |
| Depreciation and amortization | — | | | 136,752 | | | 1,547 | | | — | | | 138,299 | |
| Other rentals and landing fees | — | | | 116,893 | | | — | | | (121) | | | 116,772 | |
| Purchased services | 2,033 | | | 103,749 | | | 2,053 | | | (4,622) | | | 103,213 | |
| Special items | — | | | 4,648 | | | 4,335 | | | — | | | 8,983 | |
| | | | | | | | | |
| Government grant recognition | — | | | (320,645) | | | — | | | — | | | (320,645) | |
| Other | 6,289 | | | 131,842 | | | 1,961 | | | (26,381) | | | 113,711 | |
| Total | 8,330 | | | 1,690,642 | | | 11,500 | | | (31,324) | | | 1,679,148 | |
| Operating Income (Loss) | (8,330) | | | (97,584) | | | 23,350 | | | — | | | (82,564) | |
| Nonoperating Income (Expense): | | | | | | | | | |
| Undistributed net loss of subsidiaries | (136,478) | | | (39,344) | | | — | | | 175,822 | | | — | |
| | | | | | | | | |
| Interest expense and amortization of debt discounts and issuance costs | — | | | (46,329) | | | (66,815) | | | 2,713 | | | (110,431) | |
| Interest income | 35 | | | 8,555 | | | 2,726 | | | (2,713) | | | 8,603 | |
| Capitalized interest | — | | | 3,357 | | | — | | | — | | | 3,357 | |
| Other components of net periodic benefit cost | — | | | 3,566 | | | — | | | — | | | 3,566 | |
| Gains on fuel derivatives | — | | | 217 | | | — | | | — | | | 217 | |
| Loss on debt extinguishment | — | | | (38,889) | | | — | | | — | | | (38,889) | |
| | | | | | | | | |
| Other, net | — | | | 30,818 | | | — | | | — | | | 30,818 | |
| Total | (136,443) | | | (78,049) | | | (64,089) | | | 175,822 | | | (102,759) | |
| Loss Before Income Taxes | (144,773) | | | (175,633) | | | (40,739) | | | 175,822 | | | (185,323) | |
| Income tax benefit | — | | | (40,550) | | | — | | | — | | | (40,550) | |
| Net Loss | $ | (144,773) | | | $ | (135,083) | | | $ | (40,739) | | | $ | 175,822 | | | $ | (144,773) | |
| Comprehensive Loss | $ | (112,084) | | | $ | (102,394) | | | $ | (40,739) | | | $ | 143,133 | | | $ | (112,084) | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)Loss
Year Ended December 31, 20162020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | — | | | 628,558 | | | — | | | — | | | 628,558 | |
| 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 | |
| Government grant recognition | — | | | (240,648) | | | — | | | — | | | (240,648) | |
| 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 Loss | $ | (521,579) | | | $ | (487,168) | | | $ | (28,607) | | | $ | 515,775 | | | $ | (521,579) | |
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| Operating Revenue | $ | — |
| | $ | 2,444,646 |
| | $ | 6,297 |
| | $ | (363 | ) | | $ | 2,450,580 |
|
| Operating Expenses: | |
| | |
| | |
| | |
| | |
|
| Aircraft fuel, including taxes and delivery | — |
| | 344,322 |
| | — |
| | — |
| | 344,322 |
|
| Wages and benefits | — |
| | 535,264 |
| | — |
| | — |
| | 535,264 |
|
| Aircraft rent | — |
| | 124,521 |
| | 44 |
| | — |
| | 124,565 |
|
| Maintenance materials and repairs | — |
| | 225,633 |
| | 3,337 |
| | — |
| | 228,970 |
|
| Aircraft and passenger servicing | — |
| | 126,876 |
| | — |
| | — |
| | 126,876 |
|
| Commissions and other selling | 72 |
| | 125,661 |
| | 124 |
| | (126 | ) | | 125,731 |
|
| Depreciation and amortization | — |
| | 104,689 |
| | 3,439 |
| | — |
| | 108,128 |
|
| Other rentals and landing fees | — |
| | 108,087 |
| | — |
| | — |
| | 108,087 |
|
| Purchased services | 149 |
| | 95,525 |
| | 660 |
| | (60 | ) | | 96,274 |
|
| Special items | — |
| | 109,142 |
| | — |
| | — |
| | 109,142 |
|
| Other | 5,300 |
| | 121,104 |
| | 1,262 |
| | (177 | ) | | 127,489 |
|
| Total | 5,521 |
| | 2,020,824 |
| | 8,866 |
| | (363 | ) | | 2,034,848 |
|
| Operating Income (Loss) | (5,521 | ) | | 423,822 |
| | (2,569 | ) | | — |
| | 415,732 |
|
| Nonoperating Income (Expense): | |
| | |
| | |
| | |
| | |
|
| Undistributed net income of subsidiaries | 238,772 |
| | — |
| | — |
| | (238,772 | ) | | — |
|
| Interest expense and amortization of debt discounts and issuance costs | 117 |
| | (36,729 | ) | | — |
| | — |
| | (36,612 | ) |
| Interest income | 265 |
| | 3,742 |
| | — |
| | — |
| | 4,007 |
|
| Capitalized interest | — |
| | 2,651 |
| | — |
| | — |
| | 2,651 |
|
| Other components of net periodic benefit cost | — |
| | (20,270 | ) | | — |
| | — |
| | (20,270 | ) |
| Gains on fuel derivatives | — |
| | 20,106 |
| | — |
| | — |
| | 20,106 |
|
| Loss on extinguishment of debt | — |
| | (10,473 | ) | | — |
| | — |
| | (10,473 | ) |
| Other, net | — |
| | 4,323 |
| | — |
| | — |
| | 4,323 |
|
| Total | 239,154 |
| | (36,650 | ) | | — |
| | (238,772 | ) | | (36,268 | ) |
| Income (Loss) Before Income Taxes | 233,633 |
| | 387,172 |
| | (2,569 | ) | | (238,772 | ) | | 379,464 |
|
| Income tax expense (benefit) | (1,799 | ) | | 146,730 |
| | (899 | ) | | — |
| | 144,032 |
|
| Net Income (Loss) | $ | 235,432 |
| | $ | 240,442 |
| | $ | (1,670 | ) | | $ | (238,772 | ) | | $ | 235,432 |
|
| Comprehensive Income (Loss) | $ | 231,216 |
| | $ | 236,226 |
| | $ | (1,670 | ) | | $ | (234,556 | ) | | $ | 231,216 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Year Ended December 31, 20152019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | |
| | | | | | | | | |
| 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 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| Operating Revenue | $ | — |
| | $ | 2,313,159 |
| | $ | 4,645 |
| | $ | (337 | ) | | $ | 2,317,467 |
|
| Operating Expenses: | |
| | |
| | |
| | |
| | |
|
| Aircraft fuel, including taxes and delivery | — |
| | 417,728 |
| | — |
| | — |
| | 417,728 |
|
| Wages and benefits | — |
| | 476,979 |
| | — |
| | — |
| | 476,979 |
|
| Aircraft rent | — |
| | 115,653 |
| | — |
| | — |
| | 115,653 |
|
| Maintenance materials and repairs | — |
| | 223,135 |
| | 1,513 |
| | — |
| | 224,648 |
|
| Aircraft and passenger servicing | — |
| | 117,449 |
| | — |
| | — |
| | 117,449 |
|
| Commissions and other selling | 5 |
| | 119,749 |
| | 103 |
| | (111 | ) | | 119,746 |
|
| Depreciation and amortization | — |
| | 102,586 |
| | 2,995 |
| | — |
| | 105,581 |
|
| Other rentals and landing fees | — |
| | 95,055 |
| | — |
| | — |
| | 95,055 |
|
| Purchased services | 985 |
| | 80,775 |
| | 141 |
| | (63 | ) | | 81,838 |
|
| Other | 4,927 |
| | 108,594 |
| | 802 |
| | (163 | ) | | 114,160 |
|
| Total | 5,917 |
| | 1,857,703 |
| | 5,554 |
| | (337 | ) | | 1,868,837 |
|
| Operating Income (Loss) | (5,917 | ) | | 455,456 |
| | (909 | ) | | — |
| | 448,630 |
|
| Nonoperating Income (Expense): | |
| | |
| | |
| | |
| | |
|
| Undistributed net income of subsidiaries | 192,278 |
| | — |
| | — |
| | (192,278 | ) | | — |
|
| Interest expense and amortization of debt discounts and issuance costs | (1,733 | ) | | (53,945 | ) | | — |
| | — |
| | (55,678 | ) |
| Interest income | 220 |
| | 2,591 |
| | — |
| | — |
| | 2,811 |
|
| Capitalized interest | — |
| | 3,261 |
| | — |
| | — |
| | 3,261 |
|
| Other components of net periodic benefit cost | — |
| | (22,527 | ) | | — |
| | — |
| | (22,527 | ) |
| Losses on fuel derivatives | — |
| | (59,931 | ) | | — |
| | — |
| | (59,931 | ) |
| Loss on extinguishment of debt | (7,387 | ) | | (4,671 | ) | | — |
| | — |
| | (12,058 | ) |
| Other, net | — |
| | (8,821 | ) | | 1 |
| | — |
| | (8,820 | ) |
| Total | 183,378 |
| | (144,043 | ) | | 1 |
| | (192,278 | ) | | (152,942 | ) |
| Income (Loss) Before Income Taxes | 177,461 |
| | 311,413 |
| | (908 | ) | | (192,278 | ) | | 295,688 |
|
| Income tax expense (benefit) | (5,185 | ) | | 118,546 |
| | (319 | ) | | — |
| | 113,042 |
|
| Net Income (Loss) | $ | 182,646 |
| | $ | 192,867 |
| | $ | (589 | ) | | $ | (192,278 | ) | | $ | 182,646 |
|
| Comprehensive Income (Loss) | $ | 206,181 |
| | $ | 216,402 |
| | $ | (589 | ) | | $ | (215,813 | ) | | $ | 206,181 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| ASSETS | |
| | |
| | |
| | |
| | |
|
| Current assets: | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 57,405 |
| | $ | 125,861 |
| | $ | 7,687 |
| | $ | — |
| | $ | 190,953 |
|
| Restricted cash | — |
| | 1,000 |
| | — |
| | — |
| | 1,000 |
|
| Short-term investments | — |
| | 269,297 |
| | — |
| | — |
| | 269,297 |
|
| Accounts receivable, net | 25 |
| | 139,008 |
| | 1,455 |
| | (209 | ) | | 140,279 |
|
| Spare parts and supplies, net | — |
| | 35,361 |
| | — |
| | — |
| | 35,361 |
|
| Prepaid expenses and other | 171 |
| | 64,943 |
| | 82 |
| | — |
| | 65,196 |
|
| Total | 57,601 |
| | 635,470 |
| | 9,224 |
| | (209 | ) | | 702,086 |
|
| Property and equipment at cost | — |
| | 2,326,249 |
| | 74,562 |
| | — |
| | 2,400,811 |
|
| Less accumulated depreciation and amortization | — |
| | (546,831 | ) | | (11,717 | ) | | — |
| | (558,548 | ) |
| Property and equipment, net | — |
| | 1,779,418 |
| | 62,845 |
| | — |
| | 1,842,263 |
|
| Long-term prepayments and other | — |
| | 193,449 |
| | 183 |
| | — |
| | 193,632 |
|
| Deferred tax assets, net | 31,845 |
| | — |
| | — |
| | (31,845 | ) | | — |
|
| Goodwill and other intangible assets, net | — |
| | 120,695 |
| | 1,155 |
| | — |
| | 121,850 |
|
| Intercompany receivable | — |
| | 392,791 |
| | — |
| | (392,791 | ) | | — |
|
| Investment in consolidated subsidiaries | 1,258,758 |
| | — |
| | — |
| | (1,258,758 | ) | | — |
|
| TOTAL ASSETS | $ | 1,348,204 |
| | $ | 3,121,823 |
| | $ | 73,407 |
| | $ | (1,683,603 | ) | | $ | 2,859,831 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
| Current liabilities: | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 622 |
| | $ | 138,818 |
| | $ | 1,574 |
| | $ | (209 | ) | | $ | 140,805 |
|
| Air traffic liability | — |
| | 540,635 |
| | 4,727 |
| | — |
| | 545,362 |
|
| Other accrued liabilities | 32 |
| | 145,901 |
| | 350 |
| | — |
| | 146,283 |
|
| Current maturities of long-term debt, less discount, and capital lease obligations | — |
| | 59,470 |
| | — |
| | — |
| | 59,470 |
|
| Total | 654 |
| | 884,824 |
| | 6,651 |
| | (209 | ) | | 891,920 |
|
| Long-term debt and capital lease obligations | — |
| | 511,201 |
| | — |
| | — |
| | 511,201 |
|
| Intercompany payable | 381,608 |
| | — |
| | 11,183 |
| | (392,791 | ) | | — |
|
| Other liabilities and deferred credits: | |
| | |
| | |
| | |
| | |
|
| Accumulated pension and other postretirement benefit obligations. | — |
| | 220,788 |
| | — |
| | — |
| | 220,788 |
|
| Other liabilities and deferred credits | — |
| | 94,531 |
| | 1,105 |
| | — |
| | 95,636 |
|
| Deferred tax liabilities, net | — |
| | 206,189 |
| | — |
| | (31,845 | ) | | 174,344 |
|
| Total | — |
| | 521,508 |
| | 1,105 |
| | (31,845 | ) | | 490,768 |
|
| Shareholders' equity | 965,942 |
| | 1,204,290 |
| | 54,468 |
| | (1,258,758 | ) | | 965,942 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,348,204 |
| | $ | 3,121,823 |
| | $ | 73,407 |
| | $ | (1,683,603 | ) | | $ | 2,859,831 |
|
2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| ASSETS | (in thousands) |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 20,803 | | | $ | 434,615 | | | $ | 35,143 | | | $ | — | | | $ | 490,561 | |
| Restricted cash | — | | | — | | | 17,267 | | | — | | | 17,267 | |
| Short-term investments | — | | | 1,241,752 | | | — | | | — | | | 1,241,752 | |
| Accounts receivable, net | — | | | 85,109 | | | 21,348 | | | (13,569) | | | 92,888 | |
| Income taxes receivable | — | | | 71,201 | | | — | | | — | | | 71,201 | |
| Spare parts and supplies, net | — | | | 34,109 | | | — | | | — | | | 34,109 | |
| Prepaid expenses and other | 21 | | | 66,084 | | | 22 | | | — | | | 66,127 | |
| Total | 20,824 | | | 1,932,870 | | | 73,780 | | | (13,569) | | | 2,013,905 | |
| Property and equipment at cost | — | | | 2,957,589 | | | — | | | — | | | 2,957,589 | |
| Less accumulated depreciation and amortization | — | | | (999,966) | | | — | | | — | | | (999,966) | |
| Property and equipment, net | — | | | 1,957,623 | | | — | | | — | | | 1,957,623 | |
| Assets held for sale | — | | | 926 | | | 28,523 | | | — | | | 29,449 | |
| Operating lease right-of-use assets | — | | | 536,154 | | | — | | | — | | | 536,154 | |
| Long-term prepayments and other | 50 | | | 79,953 | | | 1,200,486 | | | (1,200,000) | | | 80,489 | |
| | | | | | | | | |
| | | | | | | | | |
| Goodwill and other intangible assets, net | — | | | 0 | | 13,500 | | | — | | | 13,500 | |
| Intercompany receivable | — | | | 571,096 | | | — | | | (571,096) | | | — | |
| Investment in consolidated subsidiaries | 1,007,650 | | | (26,344) | | | 503 | | | (981,809) | | | — | |
| TOTAL ASSETS | $ | 1,028,524 | | | $ | 5,052,278 | | | $ | 1,316,792 | | | $ | (2,766,474) | | | $ | 4,631,120 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | |
| Current liabilities: | | | | | | | | | |
| Accounts payable | $ | 422 | | | $ | 122,437 | | | $ | 2,398 | | | $ | (10,857) | | | $ | 114,400 | |
| Air traffic liability and current frequent flyer deferred revenue | — | | | 617,685 | | | 13,472 | | | — | | | 631,157 | |
| Other accrued liabilities | — | | | 153,423 | | | 14,339 | | | (2,712) | | | 165,050 | |
| Current maturities of long-term debt, less discount | — | | | 97,096 | | | — | | | — | | | 97,096 | |
| Current maturities of finance lease obligations | — | | | 24,149 | | | — | | | — | | | 24,149 | |
| Current maturities of operating leases | — | | | 79,158 | | | — | | | — | | | 79,158 | |
| Total | 422 | | | 1,093,948 | | | 30,209 | | | (13,569) | | | 1,111,010 | |
| Long-term debt | — | | | 1,724,631 | | | 1,179,667 | | | (1,200,000) | | | 1,704,298 | |
| Intercompany payable | 459,016 | | | — | | | 112,080 | | | (571,096) | | | — | |
| Other liabilities and deferred credits: | | | | | | | | | |
| Noncurrent finance lease obligations | — | | | 100,995 | | | — | | | — | | | 100,995 | |
| Noncurrent operating leases | — | | | 423,293 | | | — | | | — | | | 423,293 | |
| Accumulated pension and other postretirement benefit obligations. | — | | | 160,817 | | | — | | | — | | | 160,817 | |
| Other liabilities and deferred credits | — | | | 78,188 | | | 152 | | | — | | | 78,340 | |
| Noncurrent frequent flyer deferred revenue | — | | | 296,484 | | | — | | | — | | | 296,484 | |
| Deferred tax liabilities, net | — | | | 186,797 | | | — | | | — | | | 186,797 | |
| Total | — | | | 1,246,574 | | | 152 | | | — | | | 1,246,726 | |
| Shareholders' equity | 569,086 | | | 987,125 | | | (5,316) | | | (981,809) | | | 569,086 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,028,524 | | | $ | 5,052,278 | | | $ | 1,316,792 | | | $ | (2,766,474) | | | $ | 4,631,120 | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
December 31, 20162020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| ASSETS | |
| | |
| | |
| | |
| | |
|
| Current assets: | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 67,629 |
| | $ | 249,985 |
| | $ | 8,377 |
| | $ | — |
| | $ | 325,991 |
|
| Restricted cash | — |
| | 5,000 |
| | — |
| | — |
| | 5,000 |
|
| Short-term investments | — |
| | 284,075 |
| | — |
| | — |
| | 284,075 |
|
| Accounts receivable, net | 28 |
| | 94,852 |
| | 1,392 |
| | (205 | ) | | 96,067 |
|
| Spare parts and supplies, net | — |
| | 20,363 |
| | — |
| | — |
| | 20,363 |
|
| Prepaid expenses and other | 29 |
| | 66,665 |
| | 46 |
| | — |
| | 66,740 |
|
| Total | 67,686 |
| | 720,940 |
| | 9,815 |
| | (205 | ) | | 798,236 |
|
| Property and equipment at cost | — |
| | 2,038,931 |
| | 69,867 |
| | — |
| | 2,108,798 |
|
| Less accumulated depreciation and amortization | — |
| | (445,868 | ) | | (8,363 | ) | | — |
| | (454,231 | ) |
| Property and equipment, net | — |
| | 1,593,063 |
| | 61,504 |
| | — |
| | 1,654,567 |
|
| Long-term prepayments and other | — |
| | 132,724 |
| | — |
| | — |
| | 132,724 |
|
| Deferred tax assets, net | 28,757 |
| | — |
| | — |
| | (28,757 | ) | | — |
|
| Goodwill and other intangible assets, net | — |
| | 121,456 |
| | 1,618 |
| | — |
| | 123,074 |
|
| Intercompany receivable | — |
| | 277,732 |
| | — |
| | (277,732 | ) | | — |
|
| Investment in consolidated subsidiaries | 855,289 |
| | — |
| | — |
| | (855,289 | ) | | — |
|
| TOTAL ASSETS | $ | 951,732 |
| | $ | 2,845,915 |
| | $ | 72,937 |
| | $ | (1,161,983 | ) | | $ | 2,708,601 |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | |
| | |
| | |
|
| Current liabilities: | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | 492 |
| | $ | 114,935 |
| | $ | 1,285 |
| | $ | (205 | ) | | $ | 116,507 |
|
| Air traffic liability | — |
| | 478,109 |
| | 4,387 |
| | — |
| | 482,496 |
|
| Other accrued liabilities | 4,088 |
| | 167,864 |
| | 262 |
| | — |
| | 172,214 |
|
| Current maturities of long-term debt, less discount, and capital lease obligations | — |
| | 58,899 |
| | — |
| | — |
| | 58,899 |
|
| Total | 4,580 |
| | 819,807 |
| | 5,934 |
| | (205 | ) | | 830,116 |
|
| Long-term debt and capital lease obligations | — |
| | 497,908 |
| | — |
| | — |
| | 497,908 |
|
| Intercompany payable | 266,699 |
| | — |
| | 11,033 |
| | (277,732 | ) | | — |
|
| Other liabilities and deferred credits: | |
| | |
| | |
| | |
| | |
|
| Accumulated pension and other postretirement benefit obligations. | — |
| | 355,968 |
| | — |
| | — |
| | 355,968 |
|
| Other liabilities and deferred credits | — |
| | 172,783 |
| | 830 |
| |
|
| | 173,613 |
|
| Deferred tax liabilities, net | — |
| | 199,300 |
| | — |
| | (28,757 | ) | | 170,543 |
|
| Total | — |
| | 728,051 |
| | 830 |
| | (28,757 | ) | | 700,124 |
|
| Shareholders' equity | 680,453 |
| | 800,149 |
| | 55,140 |
| | (855,289 | ) | | 680,453 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 951,732 |
| | $ | 2,845,915 |
| | $ | 72,937 |
| | $ | (1,161,983 | ) | | $ | 2,708,601 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| (in thousands) |
| Net Cash Provided By (Used In) Operating Activities: | $ | (7,489) | | | $ | 277,635 | | | $ | (18,808) | | | $ | — | | | $ | 251,338 | |
| Cash Flows From Investing Activities: | | | | | | | | | |
| Net payments to affiliates | 2,725 | | | 1,179,100 | | | (1,110,610) | | | (71,215) | | | — | |
| Additions to property and equipment, including pre-delivery deposits | — | | | (38,812) | | | (452) | | | — | | | (39,264) | |
| | | | | | | | | |
| | | | | | | | | |
| Proceeds from disposition of property and equipment | — | | | 228 | | | 527 | | | — | | | 755 | |
| Purchases of investments | — | | | (1,856,035) | | | — | | | — | | | (1,856,035) | |
| Sales of investments | — | | | 958,242 | | | — | | | — | | | 958,242 | |
| | | | | | | | | |
| Net cash provided by (used in) investing activities | 2,725 | | | 242,723 | | | (1,110,535) | | | (71,215) | | | (936,302) | |
| Cash Flows From Financing Activities: | | | | | | | | | |
| Proceeds from the issuance of common stock | 68,132 | | | — | | | — | | | — | | | 68,132 | |
| Long-term borrowings | — | | | 51,705 | | | 1,200,000 | | | — | | | 1,251,705 | |
| Repayments of long-term debt and finance lease obligations | — | | | (611,725) | | | — | | | — | | | (611,725) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Debt issuance costs | — | | | (112) | | | (24,664) | | | — | | | (24,776) | |
| Net payments from affiliates | (68,490) | | | — | | | (2,725) | | | 71,215 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other | 1,837 | | | (2,020) | | | — | | | — | | | (183) | |
| Net cash provided by (used in) financing activities | 1,479 | | | (562,152) | | | 1,172,611 | | | 71,215 | | | 683,153 | |
| Net increase (decrease) in cash and cash equivalents | (3,285) | | | (41,794) | | | 43,268 | | | — | | | (1,811) | |
| Cash and cash equivalents—Beginning of Period | 24,088 | | | 476,409 | | | 9,142 | | | — | | | 509,639 | |
| Cash and cash equivalents—End of Period | $ | 20,803 | | | $ | 434,615 | | | $ | 52,410 | | | $ | — | | | $ | 507,828 | |
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 20172020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 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) | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Other | 796 | | | (1,372) | | | — | | | — | | | (576) | |
| 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, cash equivalents, and restricted cash—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 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| Net Cash Provided By (Used In) Operating Activities: | $ | (4,803 | ) | | $ | 334,433 |
| | $ | 1,505 |
| | $ | — |
| | $ | 331,135 |
|
| Cash Flows From Investing Activities: | |
| | |
| | |
| | |
| | |
|
| Net payments to affiliates | (2,500 | ) | | (103,254 | ) | | — |
| | 105,754 |
| | — |
|
| Additions to property and equipment, including pre-delivery deposits | — |
| | (336,820 | ) | | (4,695 | ) | | — |
| | (341,515 | ) |
| Proceeds from disposition of property and equipment | — |
| | 33,941 |
| | — |
| | — |
| | 33,941 |
|
| Purchases of investments | — |
| | (231,393 | ) | | — |
| | — |
| | (231,393 | ) |
| Sales of investments | — |
| | 244,261 |
| | — |
| | — |
| | 244,261 |
|
| Net cash used in investing activities | (2,500 | ) | | (393,265 | ) | | (4,695 | ) | | 105,754 |
| | (294,706 | ) |
| Cash Flows From Financing Activities: | |
| | |
| | |
| | |
| | |
|
| Repayments of long-term debt and capital lease obligations | — |
| | (61,486 | ) | | — |
| | — |
| | (61,486 | ) |
| Dividend payments | (6,261 | ) | | — |
| | — |
| | — |
| | (6,261 | ) |
| Repurchases of common stock | (100,000 | ) | | — |
| | — |
| | — |
| | (100,000 | ) |
| Debt issuance costs | — |
| | (188 | ) | | — |
| | — |
| | (188 | ) |
| Net payments from affiliates | 103,254 |
| | — |
| | 2,500 |
| | (105,754 | ) | | — |
|
| Other | 86 |
| | (7,618 | ) | | — |
| |
|
| | (7,532 | ) |
| Net cash provided by (used in) financing activities | (2,921 | ) | | (69,292 | ) | | 2,500 |
| | (105,754 | ) | | (175,467 | ) |
| Net decrease in cash and cash equivalents | (10,224 | ) | | (128,124 | ) | | (690 | ) | | — |
| | (139,038 | ) |
| Cash, cash equivalents, and restricted cash—Beginning of Period | 67,629 |
| | 254,985 |
| | 8,377 |
| | — |
| | 330,991 |
|
| Cash, cash equivalents, and restricted cash—End of Period | $ | 57,405 |
| | $ | 126,861 |
| | $ | 7,687 |
| | $ | — |
| | $ | 191,953 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 20162019
|
| | | | | | | | | | | | | | | | | | | |
| | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) |
| Net Cash Provided By (Used In) Operating Activities: | $ | (4,954 | ) | | $ | 440,203 |
| | $ | 1,795 |
| | $ | — |
| | $ | 437,044 |
|
| Cash Flows From Investing Activities: | |
| | |
| | |
| | |
| | |
|
| Net payments to affiliates | — |
| | (28,927 | ) | | — |
| | 28,927 |
| | — |
|
| Additions to property and equipment, including pre-delivery deposits | — |
| | (165,710 | ) | | (13,128 | ) | | — |
| | (178,838 | ) |
| Proceeds from purchase assignment and leaseback transactions | — |
| | 31,851 |
| | — |
| | — |
| | 31,851 |
|
| Proceeds from disposition of property and equipment | — |
| | 15 |
| | 1 |
| | — |
| | 16 |
|
| Purchases of investments | — |
| | (260,987 | ) | | — |
| | — |
| | (260,987 | ) |
| Sales of investments | — |
| | 253,855 |
| | — |
| | — |
| | 253,855 |
|
| Net cash provided by (used in) investing activities | — |
| | (169,903 | ) | | (13,127 | ) | | 28,927 |
| | (154,103 | ) |
| Cash Flows From Financing Activities: | |
| | |
| | |
| | |
| | |
|
| Repayments of long-term debt and capital lease obligations | — |
| | (214,025 | ) | | — |
| | — |
| | (214,025 | ) |
| Repurchases and conversion of convertible notes | (1,426 | ) | | — |
| | — |
| | — |
| | (1,426 | ) |
| Repurchases of common stock | (13,763 | ) | | — |
| | — |
| | — |
| | (13,763 | ) |
| Debt issuance costs | — |
| | (1,653 | ) | | — |
| | — |
| | (1,653 | ) |
| Net payments from affiliates | 17,894 |
| | — |
| | 11,033 |
| | (28,927 | ) | | — |
|
| Other | 458 |
| | (8,043 | ) | | — |
| |
|
| | (7,585 | ) |
| Net cash provided by (used in) financing activities | 3,163 |
| | (223,721 | ) | | 11,033 |
| | (28,927 | ) | | (238,452 | ) |
| Net increase (decrease) in cash and cash equivalents | (1,791 | ) | | 46,579 |
| | (299 | ) | | — |
| | 44,489 |
|
| Cash, cash equivalents, and restricted cash—Beginning of Period | 69,420 |
| | 208,406 |
| | 8,676 |
| | — |
| | 286,502 |
|
| Cash, cash equivalents, and restricted cash—End of Period | $ | 67,629 |
| | $ | 254,985 |
| | $ | 8,377 |
| | $ | — |
| | $ | 330,991 |
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2015
| | | | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated | | Parent Issuer /
Guarantor | | Subsidiary
Issuer /
Guarantor | | Non-Guarantor
Subsidiaries | | Eliminations | | Consolidated |
| | (in thousands) | | (in thousands) |
| Net Cash Provided By (Used In) Operating Activities: | $ | (4,084 | ) | | $ | 477,310 |
| | $ | 2,802 |
| | $ | — |
| | $ | 476,028 |
| Net Cash Provided By (Used In) Operating Activities: | $ | (1,635) | | | $ | 484,602 | | | $ | 2,173 | | | $ | — | | | $ | 485,140 | |
| Cash Flows From Investing Activities: | |
| | |
| | |
| | |
| | | Cash Flows From Investing Activities: | | | | | | | | |
| Net payments to affiliates | (25,000 | ) | | (220,538 | ) | | — |
| | 245,538 |
| | — |
| Net payments to affiliates | (3,611) | | | (92,562) | | | — | | | 96,173 | | | — | |
| Additions to property and equipment, including pre-delivery deposits | — |
| | (95,252 | ) | | (23,576 | ) | | — |
| | (118,828 | ) | Additions to property and equipment, including pre-delivery deposits | — | | | (392,695) | | | (4,726) | | | — | | | (397,421) | |
| Proceeds from purchase assignment and leaseback transactions | — |
| | 101,738 |
| | — |
| | — |
| | 101,738 |
| |
| | Net proceeds from disposition of equipment | — |
| | 3,598 |
| | 71 |
| | — |
| | 3,669 |
| Net proceeds from disposition of equipment | — | | | 9,595 | | | — | | | — | | | 9,595 | |
| Purchases of investments | — |
| | (257,448 | ) | | — |
| | — |
| | (257,448 | ) | Purchases of investments | — | | | (312,768) | | | — | | | — | | | (312,768) | |
| Sales of investments | — |
| | 236,062 |
| | — |
| | — |
| | 236,062 |
| Sales of investments | — | | | 301,662 | | | — | | | — | | | 301,662 | |
| Other | — |
| | — |
| | (500 | ) | | — |
| | (500 | ) | Other | — | | | (6,275) | | | — | | | — | | | (6,275) | |
| Net cash used in investing activities | (25,000 | ) | | (231,840 | ) | | (24,005 | ) | | 245,538 |
| | (35,307 | ) | Net cash used in investing activities | (3,611) | | | (493,043) | | | (4,726) | | | 96,173 | | | (405,207) | |
| Cash Flows From Financing Activities: | |
| | |
| | |
| | |
| | |
| Cash Flows From Financing Activities: | | | | | | | | | |
| Repayments of long-term debt and capital lease obligations | — |
| | (216,157 | ) | | — |
| | — |
| | (216,157 | ) | |
| Repurchases and conversion of convertible notes | (184,645 | ) | | — |
| | — |
| | — |
| | (184,645 | ) | |
| | Long-term borrowings | | Long-term borrowings | — | | | 227,889 | | | — | | | — | | | 227,889 | |
| Repayments of long-term debt and finance lease obligations | | Repayments of long-term debt and finance lease obligations | — | | | (109,122) | | | (6) | | | — | | | (109,128) | |
| Dividend payments | | Dividend payments | (22,774) | | | — | | | — | | | — | | | (22,774) | |
| | Repurchases of common stock | (40,138 | ) | | — |
| | — |
| | — |
| | (40,138 | ) | Repurchases of common stock | (68,769) | | | — | | | — | | | — | | | (68,769) | |
| Proceeds from settlement of convertible note call options | 304,752 |
| | — |
| | — |
| | — |
| | 304,752 |
| |
| Payment for settlement of convertible note warrants | (282,631 | ) | | — |
| | — |
| | — |
| | (282,631 | ) | |
| | Debt issuance costs | — |
| | (572 | ) | | — |
| | — |
| | (572 | ) | Debt issuance costs | — | | | (1,623) | | | — | | | — | | | (1,623) | |
| Net payments to parent company | 220,538 |
| | — |
| | 25,000 |
| | (245,538 | ) | | — |
| |
| Net payments from affiliates | | Net payments from affiliates | 92,863 | | | — | | | 3,310 | | | (96,173) | | | — | |
| Other | 1,096 |
| | (6,577 | ) | | — |
| | — |
| | (5,481 | ) | Other | — | | | (1,049) | | | — | | | — | | | (1,049) | |
| Net cash provided by (used in) financing activities | 18,972 |
| | (223,306 | ) | | 25,000 |
| | (245,538 | ) | | (424,872 | ) | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 1,320 | | | 116,095 | | | 3,304 | | | (96,173) | | | 24,546 | |
| Net increase (decrease) in cash and cash equivalents | (10,112 | ) | | 22,164 |
| | 3,797 |
| | — |
| | 15,849 |
| Net increase (decrease) in cash and cash equivalents | (3,926) | | | 107,654 | | | 751 | | | — | | | 104,479 | |
| Cash, cash equivalents, and restricted cash—Beginning of Period | 79,532 |
| | 186,242 |
| | 4,879 |
| | — |
| | 270,653 |
| Cash, cash equivalents, and restricted cash—Beginning of Period | 5,154 | | | 255,279 | | | 8,144 | | | — | | | 268,577 | |
| Cash, cash equivalents, and restricted cash—End of Period | $ | 69,420 |
| | $ | 208,406 |
| | $ | 8,676 |
| | $ | — |
| | $ | 286,502 |
| Cash, cash equivalents, and restricted cash—End of Period | $ | 1,228 | | | $ | 362,933 | | | $ | 8,895 | | | $ | — | | | $ | 373,056 | |
Income Taxes
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
18. Supplemental Financial Information (unaudited)
Unaudited Quarterly Financial Information:
|
| | | | | | | | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | |
| | (in thousands, except per share data) | |
| 2017: | |
| | |
| | |
| | |
| |
| Operating revenue | $ | 614,185 |
| | $ | 675,335 |
| | $ | 719,559 |
| | $ | 686,549 |
| |
| Operating income | 67,294 |
| | 142,549 |
| | 173,751 |
| | 100,178 |
| |
| Nonoperating income (loss) | (15,812 | ) | | (13,191 | ) | | (54,113 | ) | | 9,899 |
| * |
| Net income | 36,912 |
| | 80,433 |
| | 74,566 |
| | 172,130 |
| ** |
| Net Income Per Common Stock Share: | |
| | |
| | |
| | |
| |
| Basic | $ | 0.69 |
| | $ | 1.50 |
| | $ | 1.40 |
| | $ | 3.31 |
| |
| Diluted | 0.68 |
| | 1.49 |
| | 1.39 |
| | 3.29 |
| |
| 2016: | |
| | |
| | |
| | |
| |
| Operating revenue | $ | 551,180 |
| | $ | 594,590 |
| | $ | 671,837 |
| | $ | 632,973 |
| |
| Operating income | 96,950 |
| | 123,952 |
| | 178,908 |
| | 15,922 |
| |
| Nonoperating income (loss) | (13,846 | ) | | 4,688 |
| | (14,749 | ) | | (12,361 | ) | |
| Net income | 51,466 |
| | 79,570 |
| | 102,454 |
| | 1,942 |
| |
| Net Income Per Common Stock Share: | |
| | |
| | |
| | |
| |
| Basic | $ | 0.96 |
| | $ | 1.48 |
| | $ | 1.92 |
| | $ | 0.04 |
| |
| Diluted | 0.95 |
| | 1.48 |
| | 1.91 |
| | 0.04 |
| |
* During the fourth quarter of 2017, the Company recorded a $4.6 million reduction in its OPEB settlement related to the third quarter of 2017 revising the settlement from $15.0 million to $10.4 million.
** Amount reflects the 2017 Tax Cut and Jobs Act adjustment, see Note 10 for further discussion.
The sum of the quarterly net income (loss) per common stock share amounts does not equal the annual amount reported since per share amounts are computed independently for each quarter and for the full year based on respective weighted-average common shares outstanding and other dilutive potential common shares.
The Company's quarterly financial results are subject to seasonal fluctuations. Historically its second and third quarter financial results, which reflect periods of higher travel demand, are better than its first and fourth quarter financial results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management's Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2017,2021, and provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Under the supervision and with the participation of our management, including our CEO and CFO, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20172021 was conducted. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 framework). Based on their assessment, we concluded that, as of December 31, 2017,2021, the Company's internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management's assessment with the Audit Committee of our Board of Directors.
The effectiveness of our internal control over financial reporting as of December 31, 2017,2021, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also has audited our consolidated financial statementsConsolidated Financial Statements included in this Annual Report on Form 10-K. Ernst & Young's report on our internal control over financial reporting appears below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 20172021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Hawaiian Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Hawaiian Holdings, Inc.’s's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hawaiian Holdings, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Hawaiian Holdings, Inc.the Company as of December 31, 20172021 and 2016, and2020, the related consolidated statements of operations, comprehensive income, shareholders'shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2021, and the related notes and financial statement schedules listed in the Index at Item 15(a)(collectively (collectively referred to as the “financial statements”“Consolidated Financial Statements”) of the Company and our report dated February 13, 201810, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Annual“Management's Report on Internal Control Over Financial Reporting”.Reporting.” Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Honolulu, Hawai'i
February 13, 201810, 2022
ITEM 9B. OTHER INFORMATION.
None.Election of Director.
The International Association of Machinists and Aerospace Workers (the “IAM”), as the sole holder of record of one share of the Company Series B Special Preferred Stock, is entitled, under the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated By-laws, to nominate one director to the Company’s Board of Directors. The IAM nominated and the Board of Directors approved, the appointment of Mark Schneider to the Board of Directors, effective February 8, 2022.
As a non-employee director, Mr. Schneider will receive the compensation and travel benefits provided under the Company’s previously disclosed non-employee director compensation policy. This includes a base annual retainer of $80,000 plus $1,500 for each meeting of the Board of Directors that he attends in person and $750 for each meeting he attends telephonically, in each case in excess of eight meetings (whether in-person or via telephone) during the twelve-month period beginning June 1st each year. Additionally, as a new non-employee director, Mr. Schneider was automatically granted 1,226 restricted stock units upon his appointment to the Board of Directors. These restricted stock units will vest in full on the day prior to the Company’s 2023 annual meeting of stockholders provided that Mr. Schneider continues to serve as a director through such date.
The Company and Mr. Schneider will also enter into the Company’s standard form of indemnification agreement.
Other than as described above, there are no arrangements or understandings between Mr. Schneider and any other person pursuant to which Mr. Schneider was selected as a director. There are no transactions, arrangements or relationships between the Company or its subsidiaries, on one hand, and Mr. Schneider on the other hand, that would require disclosure pursuant to Item 404(a) of Regulation S-K. Mr. Schneider does not have any family relationships with any of the Company’s directors or executive officers.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 20182022 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 20182022 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 20182022 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 20182022 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 20182022 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| |
(a) | Financial Statements and Financial Statement Schedules: |
(a)Financial Statements and Financial Statement Schedules:
(1)Financial Statements of Hawaiian Holdings, Inc.
i. Report of Ernst & Young LLP, Independent Registered Public Accounting Firm.
ii. Consolidated Statements of Operations for the Years ended December 31, 2017, 20162021, 2020 and 2015.2019.
iii. Consolidated Statements of Comprehensive Income, December 31, 2017, 20162021, 2020 and 2015.2019.
iv. Consolidated Balance Sheets, December 31, 20172021 and 2016.2020.
v. Consolidated Statements of Shareholders' Equity, Years ended December 31, 2017, 20162021, 2020 and 2015.2019.
vi. Consolidated Statements of Cash Flows for the Years ended December 31, 2017, 20162021, 2020 and 2015.2019.
vii. Notes to Consolidated Financial Statements.
(2)Schedule of Valuation and Qualifying Accounts of Hawaiian Holdings, Inc.
The information required by Schedule I, "Condensed Financial Information of Registrant" has been provided in Note 1617 to the consolidated financial statements.Consolidated Financial Statements. All other schedules have been omitted because they are not required.
(b)Exhibits:The documents listed in the Exhibit Index of the Annual Report on Form 10-K are incorporated by reference or are filed with this Annual Report on Form 10-K, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
Exhibit Index |
| | | | |
| 3.1 |
| |
| 3.2 |
| |
| 4.1 | | |
| 4.2 | | |
10.14.3 |
| |
| 4.4 | | |
| 4.5 | | Trust Supplement No. 2020-1A, dated as of August 5, 2020, between Wilmington Trust, National Association, as trustee, and Hawaiian Airlines, Inc., to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.1 to Form 8-K filed August 7, 2020 and incorporated herein by reference).* |
| 4.6 | | Trust Supplement No. 2020-1B, dated as of August 5, 2020, between Wilmington Trust, National Association, as trustee, and Hawaiian Airlines, Inc., to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.2 to Form 8-K filed August 7, 2020 and incorporated herein by reference).* |
| 4.7 | | |
| 4.8 | | Note Purchase Agreement, dated as of August 5, 2020, among Hawaiian Airlines, Inc., Wilmington Trust, National Association, as pass through trustee under the pass through trusts, and Wilmington Trust, National Association, as subordination agent (filed as Exhibit 4.4 to Form 8-K filed August 7, 2020 and incorporated herein by reference).* |
| | | | | |
| 4.9 | | |
| 4.10 | | |
| 4.11 | | |
| 4.12 | | |
| 4.13 | | |
| 4.14 | | |
| 4.15 | | |
| 4.16 | | |
| 4.17 | | |
| 4.18 | | Indenture, dated as of February 4, 2021, by and among Hawaiian Brand Intellectual Property, Ltd., HawaiianMiles Loyalty, Ltd., the guarantors named therein and Wilmington Trust, National Association, as trustee, collateral agent and collateral custodian, governing the 5.750% Senior Secured Notes due 2026 (filed as Exhibit 4.1 to Form 8-K filed February 4, 2021 and incorporated herein by reference).* |
| 4.19 | | Form of 5.750% Senior Secured Notes due 2026 (included in Exhibit 4.18 as Exhibit A thereto). |
| 4.20 | | |
| 4.21 | | |
| 4.22 | | |
| 10.1 | | |
10.2 |
| |
10.3 |
| |
10.4 |
| |
10.5 |
| |
10.6 |
| |
10.710.2 |
| |
10.8 |
| |
10.910.3 |
| |
10.1010.4 |
| |
10.11 |
| |
10.12 |
| |
10.1310.5 |
| |
10.1410.6 |
| |
10.1510.7 |
| |
10.1610.8 |
| |
10.17 |
| |
10.18 |
| |
10.18.1 |
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10.18.2 |
| |
10.19 |
| |
10.19.1 |
| |
|
| |
| |
10.20 |
|
| |
| |
| 10.9 | | |
10.2110.10 |
| |
10.22 |
| |
10.22.1 |
| |
10.22.2 |
| |
10.22.3 |
| |
10.22.4 |
| |
10.22.5 |
| |
10.22.6 |
| |
10.22.7 |
| |
10.22.8 |
| |
10.22.9 |
| |
10.22.10 |
| |
10.23 |
|
| Purchase Agreement, dated as of June 27, 2011, by and among Wells Fargo Bank Northwest, National Association, solely as owner trustee of trusts beneficially owned by BCC Equipment Leasing Corporation and MDFC Spring Company, and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 27, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).*‡ |
| |
| |
|
| | | | |
10.24 |
10.11 | Facility Agreement [Hawaiian 717-200 [55001]], dated as of June 27, 2011 by and between Hawaiian Airlines, Inc. and Boeing Capital Loan Corporation (filed as Exhibit 10.3 to the Form 10-Q/A filed by Hawaiian Holdings, Inc. on December 14, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Facility Agreement [Hawaiian 717-200 [55002]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55118]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55121]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55122]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55123]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55124]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55125]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55126]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55128]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55129]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55130]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55131]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55132]], dated as of June 27, 2011; and Facility Agreement [Hawaiian 717-200 [55151]], dated as of June 27, 2011, which facility agreements are substantially identical to Facility Agreement 55001, and pursuant to Regulation S-K Item 601, Instruction 2, these facility agreements were not filed.*‡ |
10.25 |
| Lease Agreement 491HA, dated as of June 28, 2011, by and between Wells Fargo Bank Northwest, National Association, a national banking association organized under the laws of the United States of America, not in its individual capacity, but solely as owner trustee of a trust beneficially owned by BCC Equipment Leasing Corporation, and Hawaiian Airlines, Inc. (filed as Exhibit 10.5 to Form 10-Q/A filed by Hawaiian Holdings, Inc. on December 14, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Lease Agreement 492HA, dated as of June 28, 2011; and Lease Agreement 493HA, dated as of June 28, 2011, which lease agreements are substantially identical to Lease Agreement 491HA, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.*‡ |
10.26 |
| |
10.27 |
| |
10.27.1 |
10.11.1 | |
10.27.2 |
10.11.2 | |
10.28 |
10.12 | |
10.29 |
10.13 | Trust Supplement No. 2013-1A-O, dated as of May 29, 2013, between Wilmington Trust, National Association, as Trustee, and Hawaiian Airlines, Inc. to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.30 |
10.14 | Trust Supplement No. 2013-1A-S, dated as of May 29, 2013, between Wilmington Trust, National Association, as Trustee, and Hawaiian Airlines, Inc. to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.3110.15 |
| Trust Supplement No. 2013-1B-O, dated as of May 29, 2013, between Wilmington Trust, National Association, as Trustee, and Hawaiian Airlines, Inc. to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.4 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.3210.16 |
| Trust Supplement No. 2013-1B-S, dated as of May 29, 2013, between Wilmington Trust, National Association, as Trustee, and Hawaiian Airlines, Inc. to Pass Through Trust Agreement, dated as of May 29, 2013 (filed as Exhibit 4.5 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.3310.17 |
| Revolving Credit Agreement (2013-1A), dated as of May 29, 2013, between Wilmington Trust, National Association, as subordination agent, as agent and trustee, and as borrower, and Natixis S.A., acting via its New York Branch, as liquidity provider (filed as Exhibit 4.6 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.34 |
10.18 | Revolving Credit Agreement (2013-1B), dated as of May 29, 2013, between Wilmington Trust, National Association, as subordination agent, as agent and trustee, and as borrower, and Natixis S.A., acting via its New York Branch, as liquidity provider (filed as Exhibit 4.7 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
|
| | |
10.35 |
10.19 | Intercreditor Agreement, dated as of May 29, 2013, among Wilmington Trust, National Association, as trustee, Natixis S.A., acting via its New York Branch, as liquidity provider, and Wilmington Trust, National Association, as subordination agent and trustee (filed as Exhibit 4.8 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.36 |
10.20 | Deposit Agreement (Class A), dated as of May 29, 2013, between Wells Fargo Bank Northwest, National Association, as escrow agent, and Natixis S.A., acting via its New York Branch, as depositary (filed as Exhibit 4.9 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.37 |
10.21 | Deposit Agreement (Class B), dated as of May 29, 2013, between Wells Fargo Bank Northwest, National Association, as escrow agent, and Natixis S.A., acting via its New York Branch, as depositary (filed as Exhibit 4.10 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.38 |
10.22 | Escrow and Paying Agent Agreement (Class A), dated as of May 29, 2013, among Wells Fargo Bank Northwest, National Association, as escrow agent, Citigroup Global Markets Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, for themselves and on behalf of the several Underwriters of the Certificates, Wilmington Trust, National Association, as trustee, and Wilmington Trust, National Association, as paying agent (filed as Exhibit 4.11 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.39 |
10.23 | Escrow and Paying Agent Agreement (Class B), dated as of May 29, 2013, among Wells Fargo Bank Northwest, National Association, as escrow agent, Citigroup Global Markets Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, for themselves and on behalf of the several Underwriters of the Certificates, Wilmington Trust, National Association, as trustee, and Wilmington Trust, National Association, as paying agent (filed as Exhibit 4.12 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.40 |
10.24 | Note Purchase Agreement, dated as of May 29, 2013, among Hawaiian Airlines, Inc., Wilmington Trust, National Association, as trustee, Wilmington Trust, National Association, as subordination agent, Wells Fargo Bank Northwest, National Association, as escrow agent, and Wilmington Trust, National Association, as paying agent (filed as the Exhibit 4.13 to the Form 8-K filed by Hawaiian Holdings, Inc. on May 31, 2013).* |
10.41 |
10.25 | |
| | | | | |
10.42 |
10.26 | |
10.43 |
10.27 | |
10.44 |
10.28 | |
10.45 |
10.29 | |
12 |
10.30 | ComputationAircraft General Terms Agreement Number AGTA-HWI, dated as of ratioJuly 18, 2018 between The Boeing Company and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on October 24, 2018 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of earnings to fixed charges for the years ended December 31, 2017, 2016, 2015, 2014, and 2013.Securities Exchange Act of 1934, as amended).*‡ |
21.1 |
10.31 | |
| 10.32 | |
| 10.33 | |
| 10.34 | |
| 10.35 | Amended and Restated Credit and Guaranty Agreement, dated as of December 11, 2018, among Hawaiian Airlines, Inc., Hawaiian Amended and Restated Credit and Guaranty Agreement, dated as of December 11, 2018, among Hawaiian Airlines, Inc., Hawaiian Holdings, Inc., certain other subsidiaries of Hawaiian Holdings, Inc., the lenders party thereto and Citibank, N.A. (filed as Exhibit 10.39 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 13, 2019), Inc., certain other subsidiaries of Hawaiian Holdings, Inc., the lenders party thereto and Citibank, N.A. (filed as Exhibit 10.39 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 13, 2019).* |
| 10.36 | |
| 10.37 | Loan and Guarantee Agreement, dated as of September 25, 2020, among Hawaiian Airlines, Inc., as borrower, Hawaiian Holdings, Inc., the guarantors party thereto from time to time, The United States Department of the Treasury, and The Bank of New York Mellon, as administrative agent and collateral agent (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on October 28, 2020).* |
| 10.38 | Amended and Restated Loan and Guarantee Agreement, dated as of October 23, 2020, among Hawaiian Airlines, Inc., as borrower, Hawaiian Holdings, Inc., the guarantors party thereto from time to time, The United States Department of the Treasury, and The Bank of New York Mellon, as administrative agent and collateral agent (filed as Exhibit 10.2 to the Form 10-Q filed by Hawaiian Holdings, Inc. on October 28, 2020).* |
| 10.39 | Amendment to Loan and Guarantee Agreement, dated as of January 15, 2021, among Hawaiian Airlines, Inc,, as borrower, Hawaiian Holdings, Inc., the guarantors party thereto from time to time, the United States Department of the Treasury, and The Bank of New York Mellon, as administrative agent and collateral agent (filed as Exhibit 10.39 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 12, 2021).* |
| 10.40 | |
| 10.41 | |
| 21.1 | |
| 23.1 |
| |
31.1 |
24.1 | |
| 31.1 | |
| 31.2 |
| |
| | | | | |
| 32.1 |
| |
| 32.2 |
| |
| 101.INS |
| XBRL Instance Document. |
| 101.SCH |
| XBRL Taxonomy Extension Schema DocumentDocument. |
| 101.CAL |
| XBRL Taxonomy Extension Valuation Linkbase Document. |
| 101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document. |
|
| 101.PRE | | |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | | Cover Page Interactive Data Files (formatted as inline XBRL and contained in Exhibit 101) |
+ These exhibits relate to management contracts or compensatory plans or arrangements.
* Previously filed; incorporated herein by reference.
‡ Confidential treatment has been requested for a portion of this exhibit.
Schedule II—Hawaiian Holdings, Inc.
Valuation and Qualifying Accounts
Years Ended December 31, 2017, 20162021, 2020 and 20152019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| COLUMN A | COLUMN B | | COLUMN C
ADDITIONS | | COLUMN D | | COLUMN E |
| Description | Balance at Beginning of Year | | Charged to Costs and Expenses | | Charged to Other Accounts | | Deductions | | Balance at End of Year |
| (in thousands) |
| Allowance for Doubtful Accounts | | | | | | | | | |
| 2021 | $ | 2,096 | | | 317 | | | — | | | (1,569) | | (a) | $ | 844 | |
| 2020 | $ | 651 | | | 5,004 | | | — | | | (3,559) | | (a) | $ | 2,096 | |
| 2019 | $ | 54 | | | 1,371 | | | — | | | (774) | | (a) | $ | 651 | |
| Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies | | | | | | | | | |
| 2021 | $ | 17,977 | | | 3,213 | | (b) | — | | | (2,457) | | (c) | $ | 18,733 | |
| 2020 | $ | 15,919 | | | 3,254 | | (b) | — | | | (1,196) | | (c) | $ | 17,977 | |
| 2019 | $ | 22,588 | | | 3,830 | | (b) | — | | | (10,499) | | (c) | $ | 15,919 | |
| Valuation Allowance on Deferred Tax Assets | | | | | | | | | |
| 2021 | $ | 9,617 | | | 4,445 | | | — | | | — | | | $ | 14,062 | |
| 2020 | $ | 2,547 | | | 7,070 | | | — | | | — | | | $ | 9,617 | |
| 2019 | $ | 2,547 | | | — | | | — | | | — | | | $ | 2,547 | |
|
| | | | | | | | | | | | | | | | |
| COLUMN A | COLUMN B | | COLUMN C
ADDITIONS | | COLUMN D | | COLUMN E |
| Description | Balance at Beginning of Year | | (1)
Charged to Costs and Expenses | | (2)
Charged to Other Accounts | | Deductions | | Balance at End of Year |
| | (in thousands) |
| Allowance for Doubtful Accounts | |
| | |
| | |
| | |
| | |
|
| 2017 | $ | 34 |
| | 1,810 |
| | — |
| | (1,832 | ) | (a) | $ | 12 |
|
| 2016 | $ | 166 |
| | 2,896 |
| | — |
| | (3,028 | ) | (a) | $ | 34 |
|
| 2015 | $ | 135 |
| | 484 |
| | — |
| | (453 | ) | (a) | $ | 166 |
|
| Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies | |
| | |
| | |
| | |
| | |
|
| 2017 | $ | 17,358 |
| | 6,276 |
| (b) | — |
| | (2,188 | ) | (c) | $ | 21,446 |
|
| 2016 | $ | 16,454 |
| | 3,301 |
| (b) | — |
| | (2,397 | ) | (c) | $ | 17,358 |
|
| 2015 | $ | 14,499 |
| | 2,895 |
| (b) | — |
| | (940 | ) | (c) | $ | 16,454 |
|
| Valuation Allowance on Deferred Tax Assets | |
| | |
| | |
| | |
| | |
|
| 2017 | $ | 1,992 |
| | 555 |
|
| — |
| | — |
| | $ | 2,547 |
|
| 2016 | $ | 3,912 |
| | — |
|
| — |
| | (1,920 | ) | (d) | $ | 1,992 |
|
| 2015 | $ | 3,396 |
| | 516 |
|
| — |
| | — |
| | $ | 3,912 |
|
| |
(a) | Doubtful accounts written off, net of recoveries. |
| |
(b) | Obsolescence reserve for Hawaiian flight equipment expendable parts and supplies. |
| |
(c) | Spare parts and supplies written off against the allowance for obsolescence. |
| |
(d) | Re-classified to uncertain tax position. |
(a)Doubtful accounts written off, net of recoveries.
(b)Obsolescence reserve for Hawaiian flight equipment expendable parts and supplies.
(c)Spare parts and supplies written off against the allowance for obsolescence.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
| | | | | | | | | | |
| HAWAIIAN HOLDINGS, INC. |
February 13, 201810, 2022 | By | | /s/ SHANNON L. OKINAKA |
| | | Shannon L. Okinaka Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Peter R. Ingram and Shannon L. Okinaka, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents with full power of each to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 13, 2018. 10, 2022. | | | | | | | | |
| Signature | | Title |
| | |
Signature | | Title |
| | |
/s/ MARK B. DUNKERLEYPETER R. INGRAM | | President and Chief Executive Officer, and Director (Principal Executive Officer) |
Mark B. DunkerleyPeter R. Ingram | | |
| /s/ SHANNON L. OKINAKA | | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
| Shannon L. Okinaka | | |
| /s/ LAWRENCE S. HERSHFIELD | | Chair of the Board of Directors |
| Lawrence S. Hershfield | | |
| /s/ DONALD J. CARTY | | Director |
| Donald J. Carty | | |
/s/ ABHINAV DHAR | | Director |
Abhinav Dhar | | |
| /s/ EARL E. FRY | | Director |
| Earl E. Fry | | |
/s/ JOSEPH GUERRIERI, JR.C. JAYNE HRDLICKA | | Director |
Joseph Guerrieri, Jr.C. Jayne Hrdlicka | | |
| /s/ RANDALL L. JENSON | | Director |
| Randall L. Jenson | | |
| /s/ MICHAEL E. MCNAMARA | | Director |
| Michael E. McNamara | | |
| /s/ CRYSTAL K. ROSE | | Director |
| Crystal K. Rose | | |
| /s/ WILLIAM S. SWELBAR | | Director |
| William S. Swelbar | | |
| /s/ DUANE E. WOERTH | | Director |
| Duane E. Woerth | | |
| /s/ RICHARD N. ZWERN | | Director |
| Richard N. Zwern | | |
