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COVID-19 Pandemic | 12 Months Ended
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Dec. 31, 2020
Risks and Uncertainties [Abstract] |
Impacts of COVID-19 | COVID-19 PANDEMIC The public health and economic crises resulting from the outbreak of COVID-19 has had an unprecedented impact on the Company. Travel restrictions, event cancellations and social distancing guidelines implemented throughout the country drove significant declines in demand beginning in February, and adversely impacted revenues beginning in March 2020. Although the Company has experienced several months of modest improvement in demand, traffic remains well below 2019 levels. It is uncertain when the impacts of the crisis may resolve and when demand may return to normal levels. In response to the COVID-19 pandemic, the Company implemented a "Peace-of-Mind" waiver, which allows travelers to book tickets for travel for a specified period of time that can be changed or canceled without incurring change fees, which was extended to cover all ticketed travel purchased through March 31, 2021. Also in 2020 the Company announced all change fees will be eliminated for first class and main cabin fares. Cancellations and postponement of travel exceeded new bookings in March and April 2020, and had a material impact on passenger revenues, air traffic liability, and cash position. Refer to Note 3 for further discussion. The Company has taken decisive action to reduce costs and preserve cash and liquidity. The Company implemented a company-wide hiring freeze, reduced salaries of senior management and hours for management employees, suspended or canceled annual pay increases and solicited voluntary leaves of absence. In addition to these cost saving measures, the Company has actively negotiated with vendor partners to reduce contractual minimums and spending in line with the reduction in demand. Management also made the difficult decision to reduce the Company's workforce through voluntary and involuntary leaves. With demand dramatically depressed, the Company has significantly reduced its planned flying capacity. As a result, many aircraft have been parked or removed from service. As of December 31, 2020, 32 mainline aircraft remain temporarily grounded and 40 Airbus aircraft have been permanently removed from the operating fleet. As of December 31, 2020, all operating regional aircraft were in service. Valuation of long-lived assets The Company reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an asset or asset group may not be recoverable. To determine if impairment exists, a recoverability test is performed comparing the sum of estimated undiscounted future cash flows expected to be directly generated by the assets to the asset carrying value. Assets are grouped at the individual fleet level, which is the lowest level for which identifiable cash flows are available. The Company developed estimates of future cash flows utilizing historical results, adjusted for the current operating environment, including the impact of parked aircraft. Given the temporary and permanent parking of certain aircraft described above, the Company performed impairment tests on certain long-lived assets in each of the quarters of 2020. All individual fleets passed the recoverability test, except for the Q400 fleet and the 40 permanently parked Airbus aircraft. Q400 aircraft, including operating and held-for-sale assets, were written down to their fair value, resulting in an impairment charge of $61 million. Airbus aircraft, including owned and leased aircraft and associated capital improvements, were written off in full resulting in an impairment charge of $302 million. A summary of the impairment charges recorded for aircraft and other flight equipment for the year ended December 31, 2020 is as follows (in millions):
|  | Airbus Aircraft |  | Q400 Aircraft |  | Total Impairment
Aircraft and other flight equipment, net |  | $ | 146 |  |  | $ | 58 |  |  | $ | 204 |
Operating lease assets |  | 154 |  |  | — |  |  | 154 |
Inventory and supplies - net |  | 2 |  |  | — |  |  | 2 |
Prepaid expenses and other current assets |  | — |  |  | 3 |  |  | 3 |
Total impairment and related charges - Long-lived assets |  | $ | 302 |  |  | $ | 61 |  |  | $ | 363 |
The Company will continue to evaluate the need for further impairment of long-lived assets as expectations of future demand, market conditions and fleet decisions evolve. Lease Return Costs As a result of removing certain leased Airbus aircraft from operating service, an estimate of the expected future lease return costs was recorded. Lease return costs that were recorded for aircraft that were permanently parked were classified as Special items - impairment charges and other in the consolidated statements of operations. Included in the total net charge of $209 million is the write off of associated maintenance deposits, as the Company no longer expects to perform maintenance events covered by those deposits. Valuation of intangible assets and goodwill The Company reviews definite- and indefinite-lived intangible assets and goodwill for impairment on an annual basis in the fourth quarter, or more frequently should events or circumstances indicate that an impairment may exist. Given the strain in the general economic environment and a significant decline in Alaska Air Group market capitalization, the Company performed impairment tests on all three asset types at the end of each quarter in 2020. As a result of these analyses, indefinite-lived intangible assets and goodwill were deemed recoverable, and no impairment charges were recorded. Of the company’s definite-lived intangibles, leased gates at Dallas-Love Field (DAL Gates) were deemed not recoverable and an impairment charge of $10 million was recorded. No additional impairment charges were identified for definite-lived intangibles. Workforce restructuring The Company expects that demand will remain depressed into 2021, but will continue rebuilding towards 2019 capacity levels throughout 2021. Accordingly, the Company reduced its workforce to better align with the expected size of the business. To mitigate the need for involuntary furloughs, various early-out and voluntary leave programs were made available to all frontline work groups, in addition to incentive leave programs made available to Alaska pilots and mechanics. Through these programs over 600 employees took permanent early-outs, and over 3,300 employees took voluntary or incentive leaves. As a result of the participation in these mitigation programs, the involuntary furloughs that became effective October 1, 2020 were limited to approximately 400 employees. As of December 31, 2020, the majority of those involuntarily furloughed have been recalled. In addition to these furloughs, the Company permanently eliminated approximately 300 non-union management positions. As a result of these programs, the Company recorded expense of $220 million to Special items - restructuring charges in the consolidated statement of operations for the year ended December 31, 2020. The charge is primarily comprised of wages for those pilots and mechanics on incentive leaves, ongoing medical benefit coverage, and lump-sum termination payments. This accrual is based on the Company's best estimate of capacity expectations and training schedules for 2021 as of the date of this filing. The Company has an outstanding liability of $127 million for these charges as of December 31, 2020. Other considerations The Company evaluated other outstanding assets for recovery. As part of this process, the Company determined $15 million in existing purchase deposits on-hand with Airbus were not likely to be recoverable. The Company also identified a $5 million receivable from a vendor that filed for bankruptcy, for which management determined that collectability is not probable. The full balance for each of these assets were reserved and charged to Special items - impairment charges and other in the consolidated statements of operations during the year-ended December 31, 2020. The total of all the special charges summarized in this note, plus certain other immaterial amounts and the recognized subsequent event discussed in Note 12, comprise the $627 million in impairment charges and other special items reported on the Consolidated Statements of Operations for the period ending December 31, 2020. Refer to Note 6. Long-Term Debt for further information regarding liquidity obtained in response to the COVID-19 crisis. CARES Act Funding In 2020, Alaska, Horizon, and McGee finalized agreements with the U.S. Department of the Treasury (the Treasury) through the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Under the PSP and associated agreements, Alaska, Horizon, and McGee received total funds of approximately $1.1 billion. These funds are to be used exclusively toward continuing to pay employee salaries, wages and benefits. The funds received took the form of debt, warrants and a grant. The unsecured debt portion of $290 million was recorded at par, and warrants of $8 million were recorded on the consolidated balance sheet at fair value determined using the Black-Scholes model. The residual amount of $753 million was recorded as grant proceeds. The grant was recognized into earnings as eligible wages, salaries and benefits were incurred. During the year ended December 31, 2020, the Company recognized $753 million of the PSP grant proceeds as a wage offset. Also included within the annual total offset is approximately $29 million in employee retention credits as stipulated in the CARES Act. Also in 2020, the Company reached an agreement with the Treasury to participate in the CARES Act loan program. The loan agreement provides for a secured term loan facility, which allows Alaska to borrow up to $1.9 billion. As of December 31, 2020, the Company has borrowed $135 million under the loan facility. Refer to Note 6. Long-Term Debt and Note 11. Shareholders' Equity for further details regarding terms of the CARES Act loan agreement. In early 2021, Alaska, Horizon and McGee finalized agreements with the Treasury and accepted partial disbursement of funds through an extension of the PSP, made available under the Consolidated Appropriations Act, 2021. Under these extension agreements, Alaska, Horizon and McGee will receive a total of $546 million to be used exclusively toward continuing to pay employee salaries, wages and benefits. Alaska and Horizon received $266 million on January 15, 2021, with the remainder expected to be received in March 2021. McGee received a disbursement of $6 million on February 5, 2021. Of the funds received, $51 million takes the form of a senior term loan with a 10-year term, bearing an interest rate of 1% in years 1–5, and SOFR + 2% in years 6–10. The loan is prepayable at par at any time. As additional taxpayer protection required under the PSP extension, the Company granted the Treasury 101,227 warrants at a strike price of $52.25, based on the closing price on December 24, 2020. The warrants are non-voting, freely transferable, and may be settled as net shares or in cash at the Company's option. As a condition to receiving an extension of PSP funds, Alaska, Horizon and McGee agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through March 31, 2021, which also includes recalling certain employees involuntarily terminated or furloughed in the fourth quarter of 2020, and to limit executive compensation through October 1, 2022. Alaska Air Group agreed to continue suspension of dividends and share repurchases until March 31, 2022.

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