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LEASES | 12 Months Ended
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Dec. 31, 2022
Leases [Abstract] |
LEASES | LEASES We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below. We use the rate implicit in the lease to discount lease payments to present value, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date. Some of our aircraft lease agreements include provisions for residual value guarantees. These guarantees represent an immaterial portion of our lease liability. Aircraft As of December 31, 2022, including aircraft operated by our regional carriers, we leased 221 aircraft, of which 105 were under finance leases and 116 were operating leases. Our aircraft leases had remaining lease terms of one month to 13 years. In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 115 aircraft as of December 31, 2022 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements. Airport Facilities Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability. Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects. Other Ground Property and Equipment We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to seven years. Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant. Sale-Leaseback Transactions In 2020, we entered into $2.8 billion of sale-leaseback transactions for 85 aircraft. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement. The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement. Lease Position The table below presents the lease-related assets and liabilities recorded on the balance sheet.
Lease asset and liability balance sheet position by category |  |
|  | December 31,
(in millions) | Classification on the Balance Sheet | 2022 | 2021
Assets |  |  |
Operating lease assets | Operating lease right-of-use assets | $ | 7,036 |  | $ | 7,237 |
Finance lease assets | Property and equipment, net | 1,487 |  | 1,596 |
Total lease assets |  | $ | 8,523 |  | $ | 8,833 |
Liabilities |  |  |
Current |  |  |
Operating | Current maturities of operating leases | $ | 714 |  | $ | 703 |
Finance | Current maturities of debt and finance leases | 304 |  | 280 |
Noncurrent |  |  |
Operating | Noncurrent operating leases | 6,866 |  | 7,056 |
Finance | Debt and finance leases | 1,345 |  | 1,556 |
Total lease liabilities |  | $ | 9,229 |  | $ | 9,595 |
Weighted-average remaining lease term |  |  |
Operating leases |  | 13 years | 13 years
Finance leases |  | 5 years | 6 years
Weighted-average discount rate |  |  |
Operating leases |  | 4.30 | % | 3.81 | %
Finance leases |  | 3.05 | % | 3.36 | %
Lease Costs The table below presents certain information related to the lease costs for finance and operating leases.
Lease cost by category |  |  |
| Year Ended December 31,
(in millions) | 2022 | 2021 | 2020
Finance lease cost |  |  |
Amortization of leased assets | $ | 120 |  | $ | 131 |  | $ | 131 |
Interest of lease liabilities | 45 |  | 55 |  | 32 |
Operating lease cost(1) | 949 |  | 863 |  | 1,019 |
Short-term lease cost(1) | 281 |  | 245 |  | 264 |
Variable lease cost(1) | 1,859 |  | 1,599 |  | 1,406 |
Total lease cost | $ | 3,254 |  | $ | 2,893 |  | $ | 2,852 |
(1)Expenses are primarily classified within aircraft rent, landing fees and other rents and regional carrier expense on our income statement. Other Information The table below presents supplemental cash flow information related to leases.
Supplemental lease-related cash flow information |  |  |
| Year Ended December 31,
(in millions) | 2022 | 2021 | 2020
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows for operating leases | $ | 809 |  | $ | 999 |  | $ | 1,053 |
Operating cash flows for finance leases | 49 |  | 46 |  | 32 |
Financing cash flows for finance leases | 363 |  | 336 |  | 255 |
Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
Future lease cash flows and reconciliation to the balance sheet
(in millions) | Operating Leases | Finance Leases
2023 | $ | 976 |  | $ | 343 |
2024 | 946 |  | 375 |
2025 | 923 |  | 237 |
2026 | 836 |  | 174 |
2027 | 805 |  | 192 |
Thereafter | 5,323 |  | 470 |
Total minimum lease payments | 9,809 |  | 1,791 |
Less: amount of lease payments representing interest | (2,229) |  | (142) |
Present value of future minimum lease payments | 7,580 |  | 1,649 |
Less: current obligations under leases | (714) |  | (304) |
Long-term lease obligations | $ | 6,866 |  | $ | 1,345 |
As of December 31, 2022, we had additional leases that had not yet commenced of $242 million. These leases will commence in 2023 to 2024 with lease terms of 7 to 10 years.
LEASES | LEASES We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below. We use the rate implicit in the lease to discount lease payments to present value, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use our incremental borrowing rate, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date. Some of our aircraft lease agreements include provisions for residual value guarantees. These guarantees represent an immaterial portion of our lease liability. Aircraft As of December 31, 2022, including aircraft operated by our regional carriers, we leased 221 aircraft, of which 105 were under finance leases and 116 were operating leases. Our aircraft leases had remaining lease terms of one month to 13 years. In addition, we have regional aircraft leases that are embedded within our capacity purchase agreements and included in the ROU asset and lease liability. We allocated the consideration in each capacity purchase agreement to the lease and nonlease components based on their relative standalone value. Lease components of these agreements consist of 115 aircraft as of December 31, 2022 and nonlease components primarily consist of flight operations, in-flight and maintenance services. We determined our best estimate of the standalone value of the individual components by considering observable information including rates paid by our wholly owned subsidiary, Endeavor Air, Inc., and rates published by independent valuation firms. See Note 10, "Commitments and Contingencies," for additional information about our capacity purchase agreements. Airport Facilities Our facility leases are primarily for space at approximately 300 airports around the world that we serve. These leases reflect our use of airport terminals, office space, cargo warehouses and maintenance facilities. We generally lease space from government agencies that control the use of the airport, and as a result, these leases are classified as operating leases. The remaining lease terms vary from one month to 29 years. At the majority of the U.S. airports, the lease rates depend on airport operating costs or use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability. Some airport facilities have fixed payment schedules, the most significant of which are New York-LaGuardia and New York-JFK. For those airport leases, we have recorded a ROU asset and lease liability representing the fixed component of the lease payments. See Note 8, "Airport Redevelopment," for more information on our significant airport redevelopment projects. Other Ground Property and Equipment We lease certain IT assets (including servers, mainframes, etc.), ground support equipment (including tugs, tractors, fuel trucks and de-icers), and various other equipment. The remaining lease terms range from one month to seven years. Certain leased assets are embedded within various ground and IT service agreements. For ground service contracts, we have elected to include both the lease and nonlease components in the lease asset and lease liability balances on our balance sheet. For IT service contracts, we have elected to separate the lease and nonlease components and only the lease components are included in the lease asset and lease liability balances on our balance sheet. The amounts of these lease and nonlease components are not significant. Sale-Leaseback Transactions In 2020, we entered into $2.8 billion of sale-leaseback transactions for 85 aircraft. Of these transactions, 74 did not qualify as a sale as they are finance leases or have an option to repurchase at a stated price. The assets associated with these transactions remain on our balance sheet within property and equipment, net and we recorded the related liabilities under the lease. These liabilities are classified within other accrued or other noncurrent liabilities on our balance sheet. The cash proceeds were treated as financing inflows on the cash flows statement. The other 11 transactions qualified as sales, generating an immaterial loss, and the associated assets were removed from our balance sheet within property and equipment, net and recorded within ROU assets. The liabilities are recorded within current maturities of operating leases and noncurrent operating leases on our balance sheet. The cash proceeds were treated as investing cash inflows on the cash flows statement. Lease Position The table below presents the lease-related assets and liabilities recorded on the balance sheet.
Lease asset and liability balance sheet position by category |  |
|  | December 31,
(in millions) | Classification on the Balance Sheet | 2022 | 2021
Assets |  |  |
Operating lease assets | Operating lease right-of-use assets | $ | 7,036 |  | $ | 7,237 |
Finance lease assets | Property and equipment, net | 1,487 |  | 1,596 |
Total lease assets |  | $ | 8,523 |  | $ | 8,833 |
Liabilities |  |  |
Current |  |  |
Operating | Current maturities of operating leases | $ | 714 |  | $ | 703 |
Finance | Current maturities of debt and finance leases | 304 |  | 280 |
Noncurrent |  |  |
Operating | Noncurrent operating leases | 6,866 |  | 7,056 |
Finance | Debt and finance leases | 1,345 |  | 1,556 |
Total lease liabilities |  | $ | 9,229 |  | $ | 9,595 |
Weighted-average remaining lease term |  |  |
Operating leases |  | 13 years | 13 years
Finance leases |  | 5 years | 6 years
Weighted-average discount rate |  |  |
Operating leases |  | 4.30 | % | 3.81 | %
Finance leases |  | 3.05 | % | 3.36 | %
Lease Costs The table below presents certain information related to the lease costs for finance and operating leases.
Lease cost by category |  |  |
| Year Ended December 31,
(in millions) | 2022 | 2021 | 2020
Finance lease cost |  |  |
Amortization of leased assets | $ | 120 |  | $ | 131 |  | $ | 131 |
Interest of lease liabilities | 45 |  | 55 |  | 32 |
Operating lease cost(1) | 949 |  | 863 |  | 1,019 |
Short-term lease cost(1) | 281 |  | 245 |  | 264 |
Variable lease cost(1) | 1,859 |  | 1,599 |  | 1,406 |
Total lease cost | $ | 3,254 |  | $ | 2,893 |  | $ | 2,852 |
(1)Expenses are primarily classified within aircraft rent, landing fees and other rents and regional carrier expense on our income statement. Other Information The table below presents supplemental cash flow information related to leases.
Supplemental lease-related cash flow information |  |  |
| Year Ended December 31,
(in millions) | 2022 | 2021 | 2020
Cash paid for amounts included in the measurement of lease liabilities |  |  |
Operating cash flows for operating leases | $ | 809 |  | $ | 999 |  | $ | 1,053 |
Operating cash flows for finance leases | 49 |  | 46 |  | 32 |
Financing cash flows for finance leases | 363 |  | 336 |  | 255 |
Undiscounted Cash Flows The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
Future lease cash flows and reconciliation to the balance sheet
(in millions) | Operating Leases | Finance Leases
2023 | $ | 976 |  | $ | 343 |
2024 | 946 |  | 375 |
2025 | 923 |  | 237 |
2026 | 836 |  | 174 |
2027 | 805 |  | 192 |
Thereafter | 5,323 |  | 470 |
Total minimum lease payments | 9,809 |  | 1,791 |
Less: amount of lease payments representing interest | (2,229) |  | (142) |
Present value of future minimum lease payments | 7,580 |  | 1,649 |
Less: current obligations under leases | (714) |  | (304) |
Long-term lease obligations | $ | 6,866 |  | $ | 1,345 |
As of December 31, 2022, we had additional leases that had not yet commenced of $242 million. These leases will commence in 2023 to 2024 with lease terms of 7 to 10 years.

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