Special Items (Tables)

9 Months Ended

Sep. 30, 2022

Property, Plant and Equipment [Abstract]

Schedule of unusual or infrequent items, or both

The following is a listing of special items presented on our consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Special Items
Federal payroll support grant recognition(1)	$	—	$	(186)	$	—	$	(830)
CARES Act employee retention credit(2)	—		—		—		(11)
Fleet Impairment (3)	—		—		5		—
Air Lines Pilot Association ratification bonus (4)	—		—		32		—
Spirit Airlines, Inc. acquisition related expenses (5)	11		—		18		—
Fleet Retirement (6)	2		—		2
Total	$	13	$	(186)	$	57	$	(841)

(1) As discussed in Note 3 to our condensed consolidated financial statements, we received assistance in the form of grants and unsecured loans under various federal payroll support programs in 2020 and 2021. Funds under these federal payroll support programs were to be used exclusively for the continuation of payment of crewmember wages, salaries and benefits. The carrying values of the payroll support grants (after consideration of the warrants we issued) were recorded within other liabilities and were recognized as contra-expenses within special items on our consolidated statements of operations as the funds were utilized. We utilized $186 million and $830 million of payroll support grants for the three and nine months ended September 30, 2021, respectively. Our payroll support grants were fully utilized as of September 30, 2021.

(2) The Employee Retention Credit ("ERC") under the CARES Act is a refundable tax credit which encourages businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers can qualify for up to $5,000 of credit for each employee based on qualified wages paid after March 12, 2020 and before January 1, 2021. The Internal Revenue Service ("IRS") subsequently issued Notice 2021-23 and Notice 2021-49 which collectively extended the ERC eligibility to cover qualified wages paid after December 31, 2020 and before January 1, 2022. Qualified wages are the wages paid to an employee for the time that the employee is not providing services due to an economic hardship, specifically, either (1) a full or partial suspension of operations by order of a governmental authority due to COVID-19, or (2) a significant decline in gross receipts. Our policy is to recognize the ERC when it is filed with the Internal Revenue Service. We recognized $11 million of ERC as a contra-expense within special items on our consolidated statements of operations for the nine months ended September 30, 2021, respectively.

(3) Under Topic 320 - Property, Plant, and Equipment of the FASB Codification, we are required to assess long-lived assets for impairment when events and circumstances indicate that the assets may be impaired. An impairment of long-lived assets exists when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets are less than the book value of the assets. Our long-lived assets include both owned and leased properties which are classified as property and equipment, and operating lease assets on our consolidated balance sheets, respectively.

To determine if impairment exists in our fleet, we grouped our aircraft by fleet-type and estimated their future cash flows based on projections of capacity, aircraft age, and maintenance conditions. Based on the assessment, we determined the future cash flows from the operation our Embraer E190 fleet were lower than the carrying value. For those aircraft, including the ones that are under operating lease, and related spare parts in our Embraer E190 fleet, we recorded impairment losses of $5 million for the nine months ended September 30, 2022. These losses represent the difference between the book value of these assets and their fair value. In determining fair value, we obtained third party valuations for our Embraer E190 fleet, which considered the effects of the current market environment, age of the assets, and marketability. For our owned Embraer E190 aircraft and related spare parts, we made adjustments to the valuations to reflect the impact of their current maintenance conditions to determine fair value. Our estimate of fair value was not based on distressed sales or forced liquidations. The fair value of our Embraer E190 aircraft under operating lease and related parts was based on the present value of current market lease rates utilizing a market discount rate for the remaining term of each lease. Since the fair value of our Embraer E190 fleet was

determined using unobservable inputs, it is classified as Level 3 in the fair value hierarchy.

We did not record any impairment loss on our long-lived assets for the three and nine months ended September 30, 2021.

(4) As discussed in Note 6 to our condensed consolidated financial statements, we paid $32 million for an ALPA ratification bonus and the associated payroll taxes during the nine months ended September 30, 2022.

(5) As discussed in Note 11 to our condensed consolidated financial statements, we incurred and paid $18 million for acquisition-related cost related to our Spirit merger during the nine months ended September 30, 2022.

(6) As part of our Embraer E190 retirement plan, we exchanged the title to an unencumbered CF34 engine with an engine owned by an Embraer E190 lessor. We recorded the $2 million difference between the carrying value of the original engine and the appraised value of the received engine as a loss for the three and nine months ended September 31, 2022.