The Company leases property and equipment under operating leases. For leases with initial terms greater than 12 months, the related operating lease right-of-use asset and corresponding operating lease liability are recorded at the present value of lease payments over the term on the Company’s consolidated balance sheets. Some leases include rental escalation clauses, renewal options, termination options, and/or other items that cause variability that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts, except for certain flight training equipment, for which consideration is allocated between lease and non-lease components.

When available, the rate implicit in the lease is used to discount lease payments to present value; however, most leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate (“IBR”) to discount the lease payments based on information available at lease commencement. The IBR utilized by the Company is first determined using an unsecured recourse borrowing rate over a tenor that matches the period of lease payments for each individual lease and then is adjusted to arrive at a rate that is representative of a collateralized rate (secured rate). Given the Company does not have an established unsecured public credit rating, the Company utilizes current period and projected financial information to simulate an unsecured credit rating. The Company then determines its secured rate (IBR) using a combination of several valuation methods that take into account the lower amount of risk of collateralized borrowings along with observable implied credit ratings from its current outstanding secured debt obligations.

As of December 31, 2021, the Company leased 110 aircraft with remaining terms ranging from three months to twelve years, all of which are under operating leases and are included within right-of-use asset and lease liabilities on the Company’s consolidated balance sheets. In addition, as of December 31, 2021, the Company leased 21 spare engines which are all under operating leases. As of December 31, 2021, the lease rates for seven of the engines depend on usage-based metrics which are variable and as such, these leases are not recorded on the Company’s consolidated balance sheets as a right-of-use asset and lease liability. As of December 31, 2021, the remaining terms for engines range from one month to twelve years.

During the years ended December 31, 2021, 2020 and 2019, the Company executed sale-leaseback transactions with third-party lessors for 13, 9, and 18 new Airbus A320 family aircraft, respectively. Additionally, the Company completed sale-leaseback transactions for two engines, one engine and two engines during the years ended December 31, 2021, 2020 and 2019, respectively. All of the leases from the sale-leaseback transactions are accounted for as operating leases. The Company recognized net sale-leaseback gains from those sale-leaseback transactions of $60 million, $48 million and $107 million during the years ended December 31, 2021, 2020 and 2019, respectively, which are included as a component of other operating expenses within the consolidated statements of operations.

In March 2020, the Company entered into two amendments with one lessor that were treated as one combined contract. One amendment extended the remaining lease terms on two aircraft from three to five years. The other amendment included the return of $17 million in previously unrecoverable maintenance reserves for two aircraft. The remaining unamortized amount is included within the Company’s right-of-use assets as a lessor incentive as of December 31, 2021 and December 31, 2020, as it was negotiated as a combined contract.

In May 2021, the Company entered into an early termination and buyout agreement with one of its lessors for six aircraft that were previously owned by the Company. Of the four A319 aircraft originally slated to be returned in December 2021, two were returned during the second quarter of 2021 and two were returned during the third quarter of 2021, and the two A320ceo aircraft were returned as scheduled during the fourth quarter of 2021. The early returns of these aircraft retired the remaining A319 aircraft in the Company’s fleet. As a result of this early termination and buyout arrangement, the Company recorded a $10 million charge included as a component of rent expense within the consolidated statements of operations for the year ended December 31, 2021 related to the accelerated rent and lease return obligations of the A319 aircraft returned early.

During the years ended December 31, 2021, 2020 and 2019, aircraft rent expense was $530 million, $396 million and $368 million, respectively. Aircraft rent expense includes supplemental rent, which is made up of maintenance reserves paid or to be paid that are not probable of being reimbursed and probable lease return condition obligations. Supplemental rent expense (benefit), which includes payments for maintenance-related reserves that were deemed non-recoverable and any impact from changes in estimate, was $(3) million, $2 million and $6 million for each of the years ended December 31, 2021, 2020 and 2019, respectively. The portion of supplemental rent expense related to probable lease return condition obligations was $61 million, $25 million and $5 million, for years ended December 31, 2021, 2020 and 2019, respectively.

Additionally, certain of the Company’s aircraft lease agreements require the Company to pay maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. As of December 31, 2021 and December 31, 2020, the Company had aircraft maintenance deposits that are expected to be recoverable of $108 million and $82 million, respectively, on the Company’s consolidated balance sheets of which $10 million and less than $1 million, respectively, are included in accounts receivable, net on the consolidated balance sheet as the eligible maintenance has been performed. The remaining $98

A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles. Maintenance reserves collateralize the lessor for maintenance time run off the aircraft until the completion of the maintenance of the aircraft. As of December 31, 2021, fixed maintenance reserve payments for aircraft and spare engines, including estimated amounts for contractual price escalations, were expected to be approximately $3 million per year for the years 2022 through 2026 and $9 million thereafter before consideration of reimbursements.

The Company’s facility leases are primarily for space at approximately 120 airports that are served and are primarily located in the United States. These leases are classified as operating leases and reflect the use of airport terminals, ticket counters, office space, and maintenance facilities. Generally, this space is leased from government agencies that control the use of the airport. The majority of these leases are short-term in nature and renew on an evergreen basis. For these leases, the contractual term is used as the lease term. As of December 31, 2021, the remaining lease terms vary from one month to eleven 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 the consolidated balance sheets as a right-of-use assets and lease liabilities.

The Company leases certain other assets such as flight training equipment, building space, and various other equipment. Certain of the Company’s leases for other assets are deemed to contain fixed rental payments and, as such, are classified as operating leases and are recorded on the consolidated balance sheets as a right-of-use asset and liability. The remaining lease terms range from one month to seven years as of December 31, 2021.

In response to the COVID-19 pandemic, beginning in 2020, the Company was granted payment deferrals on leases included in the Company’s right-of-use assets for certain aircraft and engines from lessors along with airport facilities and other vendors that are not included in the Company’s right-of-use assets. As these deferred payments are made, the Company will recognize the deferred payments in aircraft rent or station operations, as applicable, in the consolidated statements of operations. These deferrals changed operating cash flows and unfavorably impacted the Company’s results of operations by $22 million, net, for the year ended December 31, 2021, which was made up of a $31 million unfavorable impact to aircraft rent within the consolidated statements of operations and a $9 million favorable impact to station operations within the consolidated statements of operations resulting from additional deferrals granted for the year ended December 31, 2021. Expenses for these deferrals will be recognized throughout future years as such amounts are paid. The impact of the deferrals on the comparable prior year period was a favorable $33 million to operating cash flows for the year ended December 31, 2020, which included a $31 million

The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheets as of December 31, 2021 and 2020 (in millions):


		December 31
	Classification on the Balance Sheet	2021			2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	2,426		$	2,250
Liabilities
Current
Operating	Current maturities of operating leases	$	444		$	416
Long-term operating leases
Operating	Long-term operating leases	1,991			1,848
Total lease liabilities		$	2,435		$	2,264
Weighted-average remaining lease term
Operating leases		7 years			7 years
Weighted-average discount rate
Operating leases(1)		5.08		%	5.15		%

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The table below presents certain information related to lease costs for operating leases during the years ended December 31, 2021, 2020 and 2019 (in millions):


	Year Ended December 31,
	2021		2020		2019
Operating lease cost(1)	$	454	$	337	$	363
Variable lease cost(1)	284		220		186
Total lease costs	$	738	$	557	$	549

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The table below reconciles the undiscounted cash flows as of December 31, 2021 (in millions) for each of the next five years and total of the remaining years to the operating lease liability recorded on the consolidated balance sheet.


	December 31, 2021
Operating Leases
Year 1	$	456
Year 2	435
Year 3	419
Year 4	396
Year 5	332
Thereafter	915
Total undiscounted minimum lease rentals	2,953
Less: amount of lease payments representing interest	(518)
Present value of future minimum lease rentals	2,435
Less: current obligations under leases	(444)
Long-term lease obligations	$	1,991

During the years ended December 31, 2021 and 2020, the Company acquired, through new operating leases, operating lease assets totaling $500 million and $274 million, respectively, which are included in operating lease right-of-use assets on the consolidated balance sheets. During the years ended December 31, 2021, 2020 and 2019, the Company paid cash of $461 million, $340 million and $374 million, respectively, for amounts included in the measurement of lease liabilities.