United Airlines 2015 Annual Report Download - page 100

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 $461
million, $442 million and $428 million for the years ended December 31, 2015, 2014 and 2013, 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 nine years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion
amounts are $107 million, $160 million and $173 million for the years ended December 31, 2015, 2014 and 2013, 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 predetermined 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 521 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. See Part I, Item 2, “Properties” of this report for additional information.
In 2015, United entered into amendments to the CPA with SkyWest Airlines, Inc. (“SkyWest”), a wholly-owned subsidiary of SkyWest, Inc., to operate an
additional 25 new 76-seat Embraer S.A. (“Embraer”) E175 aircraft under the United Express brand. SkyWest will purchase all of these 76-seat aircraft directly
from the manufacturer with deliveries in 2016 and 2017.
In 2015, United also entered into amendments to the CPA with Mesa Air Group, Inc. and Mesa Airlines, Inc. (“Mesa”), a wholly-owned subsidiary of Mesa Air
Group, Inc., pursuant to which Mesa will operate under the United Express brand new Embraer E175 aircraft, 15 of which have delivered or are scheduled to
deliver in 2016. United will assign its purchase obligations to Mesa with respect to 10 Embraer E175 aircraft at the time of each aircraft’s delivery, subject to
certain conditions. Mesa will purchase the remaining five aircraft directly from Embraer; however, United has agreed that United will, under certain
conditions, purchase these five aircraft directly from Embraer.
In 2015, United entered into a new Embraer ERJ 145 CPA with Champlain Enterprises, Inc. operating as CommutAir, pursuant to which CommutAir will
operate under the United Express brand 40 used Embraer ERJ145 aircraft that are currently being operated by a different carrier operating under the United
Express brand, with transfers that started in December 2015 and will continue through 2017.
In 2014 and 2015, United entered into amendments to a contract with Shuttle America Corporation (“Shuttle America”), a wholly-owned subsidiary of
Republic Airways Holdings, for Shuttle America to operate 40 new Embraer E175 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 forty 76-seat Embraer E175 aircraft with remaining deliveries
from 2016 through 2017, although United has the right to acquire the aircraft under certain circumstances and lease the aircraft to Shuttle America. These 40
aircraft are in addition to United’s other 113 Embraer E175 aircraft that are currently being operated or will in the future be operated by different United
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Source: United Continental Holdings, Inc., 10-K, February 18, 2016 Powered by Morningstar® Document Research℠
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