United Airlines 2014 Annual Report Download - page 105

Table of Contents
In September 2014, United entered into a 10-year lease extension through 2035 with the City and County of Denver to continue its use of the airport terminal
space at Denver International Airport. This extension is expected to result in annual cost savings through 2025 for the Company.
In November 2013, United signed a lease amendment with the City of Los Angeles and Los Angeles World Airports (“LAWA”) to its terminal facilities lease
at Los Angeles International Airport (“LAX”). The amendment allows United to make approximately $450 million in renovations at LAX that we expect to
complete in late 2017. United will fund the cost of these renovations and LAWA will acquire the improvements at the end of each designated construction
phase through a cash payment at the construction cost. United expects to be considered the owner of the property during and after the construction period for
accounting purposes. As a result, the construction project will be included on the Company’s balance sheet as operating property and equipment and with the
construction obligation under other liabilities.
United’s nonaircraft rent expense was approximately $1.4 billion, $1.3 billion and $1.3 billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to
regional aircraft operating leases, which is included as part of regional capacity purchase expense in United’s consolidated statement of operations, of $442
million, $428 million and $463 million for the years ended December 31, 2014, 2013 and 2012, respectively.
In connection with UAL Corporation’s and United Air Lines, Inc.’s fresh-start reporting requirements upon their exit from Chapter 11 bankruptcy protection
in 2006 and the Company’s acquisition accounting adjustments related to the Company’s merger transaction in 2010, lease valuation adjustments for
operating leases were initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates
and the fair market lease rates for similar leased assets at the time. An asset (liability) results when the contractual lease rates are more (less) favorable than
market lease terms at the valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the
individual applicable remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related
remaining lease terms are one to ten years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion
amounts are $160 million, $173 million and $240 million for the years ended December 31, 2014, 2013 and 2012, respectively.
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United has CPAs with certain regional carriers. We purchase all of the capacity from the flights covered by the CPA at a negotiated price. We pay the regional
carrier a pre-determined rate, subject to annual inflation adjustments, primarily for block hours flown (the hours from gate departure to gate arrival) and other
operating factors and reimburse the regional carrier for various pass-through expenses related to the flights. Under the CPAs, we are responsible for the cost of
providing fuel for all flights and for paying aircraft rent for all of the aircraft covered by the CPAs. Generally, the CPAs contain incentive bonus and rebate
provisions based upon each regional carrier’s operational performance. United’s CPAs are for 566 regional aircraft, and the CPAs have terms expiring through
2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased from third-party lessors and
operated by the regional carriers.
In September 2014, United entered into an amendment to a contract with Shuttle America Corporation (“Shuttle America”), a wholly-owned subsidiary of
Republic Airways Holdings, for Shuttle America to operate 50 new Embraer S.A. (“Embraer”) 175 aircraft under the United Express brand and extend the term
of 38 existing Embraer 170 aircraft operating under the United Express brand. Shuttle America will acquire fifty 76-seat Embraer E175 aircraft with deliveries
from 2015 through 2017, although United has the right to acquire the aircraft under certain circumstances and lease the aircraft to Shuttle America. These 50
aircraft are in addition to United’s other 70 Embraer E175 aircraft that are currently being operated or will in the future be operated by different United
Express carriers under CPAs. In a separate but related amendment with Republic Airways Holdings Inc. and its subsidiary, Republic Airline Inc. (“Republic”),
United and Republic agreed to remove 31 Q400 aircraft from United Express service in 2015 and 2016.
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