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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022
 
OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                      to                      

Commission File Number 1-8957

ALASKA AIR GROUP, INC.
 
Delaware91-1292054
(State of Incorporation)(I.R.S. Employer Identification No.)
19300 International Boulevard,Seattle,WA98188
Telephone:(206)392-5040
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker SymbolName of each exchange on which registered
Common stock, $0.01 par value ALKNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filerAccelerated filer  Non-accelerated filer   
(Do not check if a smaller reporting company)
Smaller reporting company   Emerging growth company  

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes  No
 
The registrant has 126,091,824 common shares, par value $0.01, outstanding at April 30, 2022.

This document is also available on our website at http://investor.alaskaair.com.



ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022

 TABLE OF CONTENTS

As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2021. Please consider our forward-looking statements in light of those risks as you read this report.


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PART I 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions)March 31, 2022December 31, 2021
ASSETS  
Current Assets  
Cash and cash equivalents$628 $470 
Marketable securities2,262 2,646 
Total cash and marketable securities2,890 3,116 
Receivables - net658 546 
Inventories and supplies - net78 62 
Prepaid expenses and other current assets348 196 
Total Current Assets3,974 3,920 
Property and Equipment  
Aircraft and other flight equipment8,244 8,127 
Other property and equipment1,529 1,489 
Deposits for future flight equipment283 384 
 10,056 10,000 
Less accumulated depreciation and amortization3,814 3,862 
Total Property and Equipment - Net6,242 6,138 
Other Assets
Operating lease assets1,541 1,453 
Goodwill and intangible assets2,042 2,044 
Other noncurrent assets411 396 
Total Other Assets3,994 3,893 
Total Assets$14,210 $13,951 


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CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except share amounts)March 31, 2022December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current Liabilities  
Accounts payable$299 $200 
Accrued wages, vacation and payroll taxes367 457 
Air traffic liability1,643 1,163 
Other accrued liabilities659 625 
Deferred revenue1,038 912 
Current portion of operating lease liabilities272 268 
Current portion of long-term debt292 366 
Total Current Liabilities4,570 3,991 
Long-Term Debt, Net of Current Portion2,078 2,173 
Noncurrent Liabilities  
Long-term operating lease liabilities, net of current portion1,357 1,279 
Deferred income taxes509 578 
Deferred revenue1,394 1,446 
Obligation for pension and post-retirement medical benefits302 305 
Other liabilities363 378 
Total Noncurrent Liabilities3,925 3,986 
Commitments and Contingencies (Note 7)
Shareholders' Equity  
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding
  
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 135,437,808 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,087,864 shares; 2021 - 125,905,864 shares
1 1 
Capital in excess of par value503 494 
Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares
(674)(674)
Accumulated other comprehensive loss(292)(262)
Retained earnings4,099 4,242 
 3,637 3,801 
Total Liabilities and Shareholders' Equity$14,210 $13,951 

5


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31,
(in millions, except per share amounts)20222021
Operating Revenues  
Passenger revenue$1,511 $659 
Mileage Plan other revenue112 94 
Cargo and other58 44 
Total Operating Revenues1,681 797 
Operating Expenses
Wages and benefits606 493 
Variable incentive pay36 33 
Payroll Support Program grant wage offset (411)
Aircraft fuel, including hedging gains and losses347 203 
Aircraft maintenance135 81 
Aircraft rent73 62 
Landing fees and other rentals138 129 
Contracted services78 51 
Selling expenses58 33 
Depreciation and amortization102 97 
Food and beverage service41 23 
Third-party regional carrier expense42 30 
Other152 105 
Special items - fleet transition and related charges75 18 
Special items - restructuring charges 11 
Total Operating Expenses1,883 958 
Operating Loss(202)(161)
Non-operating Income (Expense)
Interest income7 7 
Interest expense(27)(32)
Interest capitalized2 3 
Other - net14 10 
Total Non-operating Expense(4)(12)
Loss Before Income Tax(206)(173)
Income tax benefit(63)(42)
Net Loss$(143)$(131)
Basic Loss Per Share:$(1.14)$(1.05)
Diluted Loss Per Share:$(1.14)$(1.05)
Shares used for computation:
Basic125.984 124.299 
Diluted125.984 124.299 

6


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
Three Months Ended March 31,
(in millions)20222021
Net Loss$(143)$(131)
Other comprehensive income (loss), net of tax
Marketable securities(40)(12)
Employee benefit plans1 6 
Interest rate derivative instruments9 6 
Total comprehensive loss, net$(173)$(131)




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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
(in millions)Common Stock OutstandingCommon StockCapital in Excess of Par ValueTreasury StockAccumulated Other Comprehensive LossRetained EarningsTotal
Balances at December 31, 2021125.906 $1 $494 $(674)$(262)$4,242 $3,801 
Net loss — — — — (143)(143)
Other comprehensive loss — — — (30)— (30)
Stock-based compensation — 13 — — — 13 
Stock issued under stock plans0.182 — (4)— — — (4)
Balances at March 31, 2022126.088 $1 $503 $(674)$(292)$4,099 $3,637 

(in millions)Common Stock OutstandingCommon StockCapital in Excess of Par ValueTreasury StockAccumulated Other Comprehensive LossRetained EarningsTotal
Balances at December 31, 2020124.217 $1 $391 $(674)$(494)$3,764 $2,988 
Net loss— — — — — (131)(131)
Other comprehensive loss— — — —  —  
Stock-based compensation— — 12 — — — 12 
CARES Act warrant issuance— — 8 — — — 8 
Stock issued under stock plans0.225 — (2)— — — (2)
Balance at March 31, 2021124.442 $1 $409 $(674)$(494)$3,633 $2,875 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31,
(in millions)20222021
Cash flows from operating activities:  
Net Loss$(143)$(131)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Depreciation and amortization102 97 
Stock-based compensation and other5 12 
Special items - fleet transition and related charges75 18 
Special items - restructuring charges 11 
Changes in certain assets and liabilities:
Changes in deferred tax provision(58)(39)
Increase in accounts receivable(112)(37)
Increase in air traffic liability480 224 
Increase in deferred revenue74 48 
Other - net(136)(36)
Net cash provided by operating activities287 167 
Cash flows from investing activities:  
Property and equipment additions:  
Aircraft and aircraft purchase deposits(207)(3)
Other flight equipment(24)(11)
Other property and equipment(57)(13)
Total property and equipment additions, including capitalized interest(288)(27)
Purchases of marketable securities(552)(1,243)
Sales and maturities of marketable securities880 732 
Other investing activities(1)(5)
Net cash provided by (used in) investing activities39 (543)
Cash flows from financing activities:  
Proceeds from issuance of debt 189 
Long-term debt payments(170)(115)
Other financing activities2 8 
Net cash provided by (used in) financing activities(168)82 
Net increase (decrease) in cash, cash equivalents, and restricted cash158 (294)
Cash, cash equivalents, and restricted cash at beginning of period494 1,386 
Cash, cash equivalents, and restricted cash at end of the period$652 $1,092 
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Three Months Ended March 31,
(in millions)20222021
Cash paid during the period for:
Interest (net of amount capitalized)$35 $50 
Income taxes  
Non-cash transactions:
Right-of-use assets acquired through operating leases158 75 
Reconciliation of cash, cash equivalents, and restricted cash at end of the period
Cash and cash equivalents628 1,076 
Restricted cash included in Prepaid expenses and other current assets24 16 
Total cash, cash equivalents, and restricted cash at end of the period$652 $1,092 



10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation
 
The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska. The Company conducts substantially all of its operations through these subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of March 31, 2022 and the results of operations for the three months ended March 31, 2022 and 2021. Such adjustments were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to the impacts of the coronavirus (COVID-19) pandemic on the Company's business, these estimates and assumptions require more judgment than they would otherwise given the uncertainty of the future demand for air travel, among other considerations. Further, due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment and other factors, operating results for the three months ended March 31, 2022 are not necessarily indicative of operating results for the entire year.

NOTE 2. FLEET TRANSITION

In the first quarter of 2022, the Company announced plans to accelerate the transition of mainline operations to an all-Boeing 737 fleet. It also announced new plans to transition its regional operations to an all-Embraer fleet, retiring the Q400 fleet. Under these plans, Alaska will accelerate the retirement of its 30 operating Airbus A320 aircraft, with all expected to exit the fleet by early 2023. Alaska also operates ten A321neo aircraft, and is evaluating options to remove them from its fleet by the end of 2023, subject to agreement with counterparties. Also by the end of 2023, Horizon will exit its Q400 fleet, which includes 25 owned and 7 leased aircraft in operation at March 31, 2022.

Valuation of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes indicate that the total carrying amount of an asset or asset group may not be recoverable. The decisions made by the Company to accelerate the retirement of the A320 and Q400 aircraft represented a significant adverse change in the extent in which those long-lived asset group would be used and an expectation that each asset group would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives. Indicators of impairment were not present for the A321neo aircraft as the majority of these aircraft have contractual lease return dates through 2029 to 2031, and are high-demand assets given their relative age and desirable technology.

For the purposes of recoverability testing, assets are grouped at the individual fleet level, which is the lowest level for which identifiable cash flows are available. The Company performed recoverability tests for the A320 and Q400 fleets, comparing the sum of estimated undiscounted future cash flows expected to be directly generated by each asset group to the asset group's carrying value. Future cash flows were estimated utilizing a combination of historical data, forecasted results, and anticipated use of the aircraft as of March 31, 2022. The analysis indicated the A320 fleet was recoverable and no impairment measurement was required. However, the Company will adjust the useful lives of the A320 aircraft and related assets to correspond with the anticipated cease-use date. The analysis indicated the Q400 fleet was not recoverable, and impairment measurement was required.

The Company evaluated the fair market value for the Q400 fleet using available market price information with adjustments based on quantitative and qualitative considerations. Based on this fair market value, the Company recorded an impairment charge of $70 million, reflecting the amount by which carrying value exceeded fair value of the owned Q400 aircraft. This amount is included within the "Special items - fleet transition and related charges" line within the consolidated statement of
11


operations. In conjunction with the impairment, the Company adjusted the useful lives of Q400 aircraft and related assets to correspond with the anticipated cease-use date.

The Company will continue to evaluate the need for further impairment or adjustments for owned and leased long-lived assets as fleet decisions evolve.

Other Special Items

In addition to the impairment described above, the Company recorded $5 million incremental expense to "Special items - fleet transition and related charges" within the condensed consolidated statement of operations. This includes adjustments related to the outstanding accrual for costs to return leased aircraft and a write-down of right of use assets for two A320 aircraft for which return to service work was initiated but was subsequently ceased.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue are passenger ancillary revenues such as bag fees, on-board food and beverage, and certain revenue from the frequent flyer program. Mileage Plan other revenue includes brand and marketing revenue from the co-branded credit card and other partners and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

In the first quarter of 2022, the Company amended its Mileage Plan co-branded credit card agreement with Bank of America. The amendment extended the term of the agreement into 2030 and resulted in modifications to the separately identifiable performance obligations.

The Company disaggregates revenue by segment in Note 9. The level of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

Passenger revenue recognized in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20222021
Passenger ticket revenue, including ticket breakage, net of taxes and fees$1,232 $525 
Passenger ancillary revenue91 50 
Mileage Plan passenger revenue188 84 
Total Passenger revenue$1,511 $659 

Mileage Plan Loyalty Program

Mileage Plan revenue included in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20222021
Passenger revenue$188 $84 
Mileage Plan other revenue112 94 
Total Mileage Plan revenue$300 $178 

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Cargo and Other

Cargo and other revenue included in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20222021
Cargo revenue$29 $27 
Other revenue29 17 
Total Cargo and other revenue$58 $44 

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $390 million and $136 million from the prior year-end air traffic liability balance for the three months ended March 31, 2022 and 2021.

Mileage Plan assets and liabilities

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had $108 million of such receivables as of March 31, 2022 and $64 million as of December 31, 2021. As demand for air travel remains unpredictable, the timing of recognition of mileage credits may differ from current assumptions.

The table below presents a roll forward of the total frequent flyer liability (in millions):
Three Months Ended March 31,
20222021
Total Deferred revenue balance at January 1$2,358 $2,277 
Travel miles and companion certificate redemption - Passenger revenue(176)(84)
Miles redeemed on partner airlines - Other revenue(9)(4)
Increase in liability for mileage credits issued259 136 
Total Deferred revenue balance at March 31$2,432 $2,325 
NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.

Fair Value of Financial Instruments on a Recurring Basis

As of March 31, 2022, total cost basis for all marketable securities was $2.3 billion. In the three months ended March 31, 2022, fair value of marketable securities declined by $57 million primarily due to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of available information as of March 31, 2022.
13



Fair values of financial instruments on the condensed consolidated balance sheet (in millions):
March 31, 2022December 31, 2021
Level 1Level 2TotalLevel 1Level 2Total
Assets
Marketable securities
U.S. government and agency securities$416 $ $416 $331 $ $331 
Equity mutual funds6  6 6  6 
Foreign government bonds 29 29  38 38 
Asset-backed securities 244 244  311 311 
Mortgage-backed securities 190 190  232 232 
Corporate notes and bonds 1,314 1,314  1,663 1,663 
Municipal securities 63 63  65 65 
Total Marketable securities422 1,840 2,262 337 2,309 2,646 
Derivative instruments
Fuel hedge - call options 203 203  81 81 
Interest rate swap agreements 6 6    
Total Assets$422 $2,049 $2,471 $337 $2,390 $2,727 
Liabilities
Derivative instruments
Interest rate swap agreements (2)(2) (9)(9)
Total Liabilities$ $(2)$(2)$ $(9)$(9)

The Company uses both the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts are determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end multiplied by the total notional value.

Activity and Maturities for Marketable Securities

Maturities for marketable securities (in millions):
March 31, 2022Cost BasisFair Value
Due in one year or less$628 $626 
Due after one year through five years1,651 1,597 
Due after five years 34 33 
Total$2,313 $2,256 

As of March 31, 2022, $6 million of total marketable securities do not have a maturity date and are therefore excluded from the total fair value of maturities for marketable securities above.

14


Fair Value of Other Financial Instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit. They are carried at cost, which approximates fair value.

The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.

Debt: To estimate the fair value of all fixed-rate debt as of March 31, 2022, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate debt is Level 2, as it is estimated using observable inputs, while the estimated fair value of $750 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt on the condensed consolidated balance sheet and the estimated fair value of long-term fixed-rate debt is as follows (in millions):
March 31, 2022December 31, 2021
Total fixed-rate debt$1,752 $1,821 
Estimated fair value$1,770 $1,919 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. Refer to Note 2 for discussion regarding impairment charges recorded during the three months ended March 31, 2022.

NOTE 5. LONG-TERM DEBT
 
Long-term debt obligations on the condensed consolidated balance sheet (in millions):
 March 31, 2022December 31, 2021
Fixed-rate notes payable due through 2029$150 $163 
Fixed-rate PSP notes payable due through 2031600 600 
Fixed-rate EETC payable due through 2025 & 20271,002 1,058 
Variable-rate notes payable due through 2029636 738 
Less debt issuance costs (18)(20)
Total debt2,370 2,539 
Less current portion292 366 
Long-term debt, less current portion$2,078 $2,173 
Weighted-average fixed-interest rate3.6 %3.7 %
Weighted-average variable-interest rate1.7 %1.3 %

Approximately $396 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at March 31, 2022, resulting in an effective weighted-average interest rate for the full debt portfolio of 3.3%.

During the three months ended March 31, 2022, the Company made scheduled debt payments of $170 million.
15



Debt Maturity

At March 31, 2022, long-term debt principal payments for the next five years and thereafter are as follows (in millions):
 Total
Remainder of 2022$201 
2023334 
2024240 
2025261 
2026176 
Thereafter1,176 
Total$2,388 

Bank Lines of Credit
 
Alaska has three credit facilities totaling $486 million as of March 31, 2022. One of the credit facilities for $150 million expires in March 2025 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. A second credit facility for $250 million expires in June 2024 and is secured by aircraft. Both facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for $86 million expires in June 2022 and is secured by aircraft.

Alaska has secured letters of credit against the third facility, but has no plans to borrow using either of the other two facilities. All credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. Alaska was in compliance with this covenant at March 31, 2022.

NOTE 6. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs for qualified defined-benefit plans include the following (in millions):
Three Months Ended March 31,
 20222021
Service cost$11 $13 
Pension expense included in Wages and benefits11 13 
Interest cost16 14 
Expected return on assets(32)(31)
Recognized actuarial loss2 9 
Pension expense included in Nonoperating Income (Expense)$(14)$(8)
16



NOTE 7. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of March 31, 2022 (in millions):
Aircraft Commitments(a)
Capacity Purchase Agreements (b)
Remainder of 2022$1,159 $133 
20231,781 182 
2024414 188 
2025111 194 
202647 195 
Thereafter275 740 
Total$3,787 $1,632 
(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management. Contractual commitments do not reflect the impact of the impending fleet transition. Option deliveries are excluded from minimum commitments until exercise.
(b)Includes all non-aircraft lease costs associated with capacity purchase agreements.

Aircraft Commitments
 
Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines. In March 2022, Alaska amended its aircraft purchase agreement with Boeing, adding the 737-8 and 737-10 models to its existing order book of 737-9 aircraft. The amended agreement also includes options to purchase additional aircraft with deliveries between 2024 and 2026. Details are outlined in the table below. Horizon also has commitments to purchase 12 Embraer E175 aircraft with deliveries between 2022 and 2025. Future minimum contractual payments for these aircraft reflect the expected delivery timing, but are also subject to change.

Firm OrdersOptionsTotal
Aircraft Type2022-20252024-20262022 - 2026
Boeing 737-81010
Boeing 737-9511162
Boeing 737-1064147
Embraer E1751212
Total7952131

Contingencies

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company believes the claims in this case are without factual and legal merit.

In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. On February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment, again without awarding injunctive relief against Alaska. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and holds an accrual for $22 million in Other accrued liabilities on the condensed consolidated balance sheets.

17


Alaska is seeking a conclusive U.S. Supreme Court ruling that the California laws on which the judgment is based are invalid as applied to airlines pursuant to the U.S. Constitution and provisions of federal law that were enacted to shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case. If appeal efforts are unsuccessful, compliance with California and other states' laws may have an adverse impact on the Company's operations and financial position.

Like other U.S. airlines, Alaska and Horizon are involved in other litigation around the application of state and local employment laws. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. The Company repurchased 7.6 million shares for $544 million under this program. In March 2020, subject to restrictions under the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, the Company suspended the share repurchase program indefinitely.
CARES Act Warrant Issuances
As additional taxpayer protection required under the Payroll Support Program (PSP) under the CARES Act, the Company granted the Treasury a total of 1,455,438 warrants to purchase ALK common stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020. These warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company's option, and have a five-year term.
The value of the warrants was estimated using a Black-Scholes option pricing model. The total fair value of all outstanding warrants was $30 million, recorded in stockholders' equity at issuance.
Total warrants outstanding are as follows as of March 31, 2022:
Number of shares of ALK common stockStrike Price
PSP 1928,127 31.61
CARES Act loan warrants427,080 31.61
PSP 2305,499 52.25
PSP 3221,812 66.39
Outstanding March 31, 20221,882,518 

Accumulated other comprehensive loss
Components of accumulated other comprehensive loss, net of tax (in millions):
Marketable SecuritiesEmployee Benefit PlanInterest Rate DerivativesTotal
Balance at December 31, 2021, net of tax effect of $83
$(4)$(252)$(6)$(262)
Reclassifications into earnings, net of tax impact of $0
2 1  3 
Change in value, net of tax impact of $10
(42) 9 (33)
Balance at March 31, 2022, net of tax effect of $93
$(44)$(251)$3 $(292)
Balance at December 31, 2020, net of tax effect of $160
$23 $(498)$(19)$(494)
Reclassifications into earnings, net of tax impact of $2
(4)6  (2)
Change in value, net of tax impact of $(2)
(8) 6 2 
Balance at March 31, 2021, net of tax effect of $160
$11 $(492)$(13)$(494)
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Earnings (Loss) Per Share (EPS)

EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, restricted stock units, and warrants, using the treasury-stock method. Loss per share is calculated by dividing net loss by the average number of basic shares outstanding. For the three months ended March 31, 2022 and March 31, 2021, anti-dilutive shares excluded from the calculation of EPS were not material.

NOTE 9. OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating airlines – Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon and SkyWest, under which Alaska receives all passenger revenues.

Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions. Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of three reportable operating segments:
Mainline - includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica, and Belize.
Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. and Canada under a CPA. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.
Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

The CODM makes resource allocation decisions for these reporting segments based on flight profitability data, aircraft type, route economics and other financial information.

The "Consolidating and Other" column reflects Air Group parent company activity, McGee Air Services, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is used by the Company's CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.

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Operating segment information is as follows (in millions):
Three Months Ended March 31, 2022
MainlineRegionalHorizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenues   
Passenger revenues$1,243 $268 $ $ $