Alaska Airlines and Horizon Air 2012 Annual Report Download - page 161

NOTE 9. COMMITMENTS AND CONTINGENCIES
Future minimum fixed payments for commitments as of December 31, 2012 (in millions):
Aircraft
Leases
Facility
Leases
Aircraft
Commitments
Capacity
Purchase
Agreements
Engine
Maintenance
2013 .......................... $142 $ 47 $ 372 $17 $ 32
2014 .......................... 126 42 332 18 26
2015 .......................... 104 31 254 18 9
2016 .......................... 82 22 204 18 —
2017 .......................... 51 18 322 19 —
Thereafter ...................... 80 129 1,488 8 —
Total .......................... $585 $289 $2,972 $98 $ 67
Lease Commitments
At December 31, 2012, the Company had lease
contracts for 63 aircraft, which have remaining
noncancelable lease terms ranging from 2013 to
2021. Of these aircraft, 14 are non-operating
(i.e. not in the Company’s fleet) and subleased
to third-party carriers. In 2012, the Company
entered into an agreement to sell and leaseback
three B737-700 aircraft. The lease terms were
less than two years and qualify as operating
leases. The sale of the aircraft resulted in a gain
of $3 million, which was deferred and is being
amortized over the life of the leases to aircraft
rent expense on the consolidated statement of
operations. The majority of airport and terminal
facilities are also leased. Rent expense was
$275 million, $275 million, and $295 million, in
2012, 2011, and 2010, respectively.
Aircraft Commitments
In 2012, the Company entered into a new
agreement and modified existing agreements
with Boeing to acquire 50 new B737 aircraft. As
of December 31, 2012, the Company is
committed to purchasing 71 B737 aircraft,
including 34 B737-900ER aircraft and 37 B737
MAX aircraft, with deliveries in 2013 through
2022. In addition, the Company has options to
purchase an additional 69 B737 aircraft and ten
Q400 aircraft.
Capacity Purchase Agreements (CPAs)
At December 31, 2012, Alaska had CPAs with
three carriers, including the Company’s wholly-
owned subsidiary, Horizon. Beginning January 1,
2011, Horizon sold 100% of its capacity under a
CPA with Alaska. On May 14, 2011, SkyWest
Airlines, Inc. began flying certain routes under a
CPA with Alaska. In addition, Alaska has a CPA
with PenAir to fly certain routes in the state of
Alaska. Under these agreements, Alaska pays
the carriers an amount which is based on a
determination of their cost of operating those
flights and other factors intended to approximate
market rates for those services. Future payments
(excluding Horizon) are based on minimum levels
of flying by the third-party carriers, which could
differ materially due to variable payments based
on actual levels of flying and certain costs
associated with operating flights such as fuel.
Engine Maintenance
The Company had power-by-the-hour
maintenance agreements for all B737-400,
B737-700 and B737-900 engines at
December 31, 2012. These agreements transfer
risk to third-party service providers and fix the
amount the Company pays per flight hour in
exchange for maintenance and repairs under a
predefined maintenance program. Future
payments are based on minimum flight hours.
Accordingly, payments could differ materially
based on actual flight hours.
Contingencies
The Company is a party to routine litigation
matters incidental to its business and with
respect to which no material liability is expected.
Management believes the ultimate disposition of
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ŠForm 10-K