JetBlue Airlines 2012 Annual Report Download - page 56

JETBLUE AIRWAYS CORPORATION-2012 10K52
PART II
ITEM 8Financial Statements and Supplementary Data
NOTE 3 Operating Leases
We lease aircraft, as well as airport terminal space, other airport facilities,
offi ce space and other equipment, under leases which expire in various
years through 2035. Total rental expense for all operating leases in
2012, 2011 and 2010 was $284 million, $269 million and $245 million,
respectively. We have approximately $30 million in assets that serve as
collateral for letters of credit related to certain of our leases, which are
included in restricted cash.
During 2012, we extended the leases on three Airbus A320 aircraft; leases
which were previously set to expire in 2013. These extensions resulted
in an additional $24 million of lease commitments through 2018. During
2011, we extended the leases on four Airbus A320 aircraft; leases which
we previously set to expire in 2012. These extensions resulted in an
additional $19 million of lease commitments through 2015.
During 2010, we leased six used Airbus A320 aircraft from a third party,
each with a separate six year operating lease term.
At December31, 2012, 60 of the 180 aircraft we operated were leased
under operating leases, with lease expiration dates ranging from 2014 to
2026. As of December 31, 2012, two of our Airbus A320 aircraft leases
were scheduled to expire within 18 months. Five of the 60 aircraft operating
leases have variable rate rent payments based on LIBOR. Leases for 52 of
our aircraft can generally be renewed at rates based on fair market value at
the end of the lease term for one or two years. We have purchase options
in 45 of our aircraft leases at the end of the lease term at fair market value
and a one-time option during the term at fi xed amounts that were expected
to approximate fair market value at lease inception.
In 2010, we executed a supplement to our Terminal 5 lease with the Port
Authority of New York and New Jersey, or PANYNJ. Under this supplement,
we leased the 19.35 acre portion of JFK known as Terminal 6, which is
adjacent to our current facility at Terminal 5. We were responsible for the
demolishing, and related activities, of the Terminal 6 passenger terminal
buildings, the costs of which will be reimbursed by the PANYNJ. The
lease supplement also contains an option to extend our current Terminal
5 structure onto this property.
In May 2012, the PANYNJ approved our expansion to Terminal 5 to
accommodate a new international arrivals facility. In October 2012, we
commenced construction on our new international arrivals facility, or T5i,
which we expect to open in early 2015. T5i will include six international
arrival gates comprised of three new and three converted from Terminal 5,
as well as an international arrivals hall with full U.S. Customs and Border
Protection services. During 2012, we incurred approximately $17 million
in capital expenditures related to T5i.
Future minimum lease payments under noncancelable operating leases, including those described above, with initial or remaining terms in excess of one year
at December31, 2012, are as follows (in millions):
Aircraft Other Total
2013 $ 132 $ 66 $ 198
2014 138 56 194
2015 143 48 191
2016 82 43 125
2017 70 41 111
Thereafter 331 342 673
TOTAL MINIMUM OPERATING LEASE PAYMENTS $ 896 $ 596 $ 1,492
We have entered into sale-leaseback arrangements with a third party lender
for 45 of our operating aircraft. The sale-leasebacks occurred simultaneously
with the delivery of the related aircraft to us from their manufacturers. Each
sale-leaseback transaction was structured with a separate trust set up
by the third party lender, the assets of which consist of the one aircraft
initially transferred to it following the sale by us and the subsequent lease
arrangement with us. Because of their limited capitalization and the potential
need for additional fi nancial support, these trusts are variable interest entities
as defi ned in the Consolidations topic of the Codifi cation and must be
considered for consolidation in our fi nancial statements. Our assessment
of each trust considers both quantitative and qualitative factors, including
whether we have the power to direct the activities and to what extent we
participate in the sharing of benefi ts and losses of the trusts. JetBlue does
not retain any equity interests in any of these trusts and our obligations to
them are limited to the fi xed rental payments we are required to make to
them, which were approximately $795 million as of December31, 2012
and are refl ected in the future minimum lease payments in the table above.
Our only interest in these entities are the purchase options to acquire the
aircraft as specifi ed above. Since there are no other arrangements (either
implicit or explicit) between us and the individual trusts that would result
in our absorbing additional variability from the trusts, we concluded that
we are not the primary benefi ciary of these trusts. We account for these
leases as operating leases, following the appropriate lease guidance as
required by the Leases topic in the Codifi cation.
NOTE 4 JFK Terminal 5
In 2008, we began operating out of our new Terminal 5 at JFK, or Terminal
5. The construction and operation of this facility is governed by various
lease agreements with the PANYNJ. Under the terms of the facility lease
agreement, we were responsible for the construction of a 635,000 square
foot 26-gate terminal, a parking garage, roadways and an AirTrain Connector,
all of which are owned by the PANYNJ and which are collectively referred
to as the Project. We are responsible for various payments under the lease,
including ground rents for the new terminal site which began on lease
execution in 2005 and are refl ected in the future minimum lease payments
table in Note 3, and facility rents which commenced in 2008 when we took
benefi cial occupancy of Terminal 5, and are included below. The facility
rents are based on the number of passengers enplaned out of the terminal,
subject to annual minimums.The lease terms end in 2038 and we have a
one-time early termination option in 2033.
We were considered the owner of the Project for fi nancial reporting purposes
only and have been required to refl ect an asset and liability for the Project
on our consolidated balance sheets since construction commenced in
2005. Since certain elements of the Project, including the parking garage
and AirTrain Connector, are not subject to the underlying ground lease,
following their delivery to and acceptance by the PANYNJ in October 2008,
we removed them from our consolidated balance sheets. Our continuing
involvement in the remainder of the Project precludes us from sale and
leaseback accounting; therefore the cost of these elements of the Project
and the related liability will remain on our consolidated balance sheets and
be accounted for as a fi nancing.