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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________________________________
Form 10-Q
_______________________________________________________________________
(Mark One)
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: 001-35186
_______________________________________________________________________
SPIRIT AIRLINES, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Delaware38-1747023
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2800 Executive WayMiramarFlorida33025
(Address of principal executive offices)(Zip Code)

(954) 447-7920
(Registrant’s telephone number, including area code) 
____________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of exchange on which registeredTrading Symbol
Common Stock, $0.0001 par valueNew York Stock ExchangeSAVE

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 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
(Do not check if a smaller reporting company)Emerging growth company
If an emerging growth company, indicate by check mark 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 by Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the close of business on April 29, 2022:
Class Number of Shares
Common Stock, $0.0001 par value 108,618,703

1


Table of Contents
INDEX
 
 Page No.

2


PART I. Financial Information
ITEM 1.UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Spirit Airlines, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)

 
 Three Months Ended March 31,
20222021
Operating revenues:
Passenger$949,744 $450,335 
Other17,571 10,944 
Total operating revenues967,315 461,279 
Operating expenses:
Salaries, wages and benefits
305,890 245,692 
Aircraft fuel368,585 142,930 
Landing fees and other rents82,936 72,108 
Depreciation and amortization76,191 74,312 
Aircraft rent66,044 54,782 
Maintenance, materials and repairs45,515 29,903 
Distribution35,351 23,642 
Loss on disposal of assets11,552 1,117 
Special charges (credits)15,563 (176,938)
Other operating171,156 96,261 
Total operating expenses1,178,783 563,809 
Operating income (loss)(211,468)(102,530)
Other (income) expense:
Interest expense37,880 44,806 
Capitalized interest(5,262)(4,732)
Interest income(467)(4,371)
Other (income) expense417 (52)
Total other (income) expense32,568 35,651 
Income (loss) before income taxes(244,036)(138,181)
Provision (benefit) for income taxes(49,333)(25,860)
Net loss$(194,703)$(112,321)
Basic loss per share$(1.79)$(1.15)
Diluted loss per share$(1.79)$(1.15)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
1



Spirit Airlines, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in thousands)
Three Months Ended March 31,
20222021
Net loss$(194,703)$(112,321)
Unrealized gain (loss) on short-term investment securities and cash and cash equivalents, net of deferred taxes of $(78) and $2
(267)7 
Interest rate derivative loss reclassified into earnings, net of taxes of $14 and $13
37 45 
Other comprehensive income (loss)$(230)$52 
Comprehensive loss$(194,933)$(112,269)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

2


Spirit Airlines, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
March 31, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$1,247,913 $1,333,507 
Restricted cash95,400 95,400 
Short-term investment securities106,013 106,313 
Accounts receivable, net160,672 128,828 
Aircraft maintenance deposits, net14,940 10,726 
Income tax receivable37,890 37,890 
Prepaid expenses and other current assets166,634 129,827 
Total current assets1,829,462 1,842,491 
Property and equipment:
Flight equipment4,382,247 4,356,523 
Ground property and equipment407,698 384,928 
Less accumulated depreciation(937,386)(884,858)
3,852,559 3,856,593 
Operating lease right-of-use assets2,044,306 1,950,520 
Pre-delivery deposits on flight equipment489,214 484,821 
Long-term aircraft maintenance deposits34,796 38,166 
Deferred heavy maintenance, net324,282 330,062 
Other long-term assets37,098 37,372 
Total assets$8,611,717 $8,540,025 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$47,422 $44,952 
Air traffic liability558,303 382,317 
Current maturities of long-term debt, net and finance leases294,003 208,948 
Current maturities of operating leases164,814 158,631 
Other current liabilities546,733 480,754 
Total current liabilities1,611,275 1,275,602 
Long-term debt, net and finance leases, less current maturities2,801,759 2,975,823 
Operating leases, less current maturities1,835,306 1,751,351 
Deferred income taxes325,761 375,472 
Deferred gains and other long-term liabilities116,240 47,742 
Shareholders’ equity:
Common stock11 11 
Additional paid-in-capital1,135,872 1,131,826 
Treasury stock, at cost(77,411)(75,639)
Retained earnings863,666 1,058,369 
Accumulated other comprehensive loss(762)(532)
Total shareholders’ equity1,921,376 2,114,035 
Total liabilities and shareholders’ equity$8,611,717 $8,540,025 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3


Spirit Airlines, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)

 Three Months Ended March 31,
20222021
Operating activities:
Net loss$(194,703)$(112,321)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Losses reclassified from other comprehensive income 51 58 
Share-based compensation 4,046 4,254 
Allowance for doubtful accounts (recoveries) (170)
Amortization of deferred gains, losses and debt issuance costs3,421 3,509 
Depreciation and amortization76,191 74,312 
Accretion of 8.00% senior secured notes
261 434 
Amortization of debt discount2,538  
Deferred income tax expense (benefit)(49,647)(26,869)
Loss on disposal of assets11,552 1,117 
Changes in operating assets and liabilities:
Accounts receivable, net(31,844)(57,256)
Aircraft maintenance deposits, net(844)1,755 
Long-term deposits and other assets(35,339)4,998 
Prepaid income taxes (303)
Deferred heavy maintenance, net(17,698)(10,466)
Income tax receivable 109,988 
Accounts payable(5,188)3,202 
Air traffic liability175,986 107,206 
Other liabilities80,568 83,042 
Other194 158 
Net cash provided by operating activities19,545 186,648 
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Investing activities:
Purchase of available-for-sale investment securities(26,749)(20,692)
Proceeds from the maturity and sale of available-for-sale investment securities26,500 20,500 
Pre-delivery deposits on flight equipment, net of refunds(5,858)(52,738)
Capitalized interest(4,172)(4,342)
Assets under construction for others (797)
Purchase of property and equipment(47,340)(39,437)
Net cash used in investing activities(57,619)(97,506)
Financing activities:
Proceeds from issuance of long-term debt 25,338 
Proceeds from issuance of warrants 2,146 
Payments on debt obligations(44,338)(135,925)
Payments on finance lease obligations(210)(189)
Reimbursement for assets under construction for others 586 
Repurchase of common stock(1,772)(1,307)
Debt issuance costs(1,200)(2,444)
Net cash used by financing activities(47,520)(111,795)
Net increase (decrease) in cash, cash equivalents, and restricted cash(85,594)(22,653)
Cash, cash equivalents, and restricted cash at beginning of period (1)1,428,907 1,861,124 
Cash, cash equivalents, and restricted cash at end of period (1) $1,343,313 $1,838,471 
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest$25,781 $40,206 
Income taxes paid (received), net$303 $(109,056)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$67,089 $61,378 
Financing cash flows for finance leases $18 $24 
Non-cash transactions:
Capital expenditures funded by operating lease borrowings $129,213 $82,745 
(1) The sum of cash and cash equivalents and restricted cash on the Company's condensed consolidated balance sheets equals cash, cash equivalents, and restricted cash in our statement of cash flows.
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5


Spirit Airlines, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited, in thousands)
Three Months Ended March 31, 2021
Common StockAdditional Paid-In-CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance at December 31, 2020$10 $799,549 $(74,124)$1,524,878 $(618)$2,249,695 
Effect of ASU No. 2020-06 implementation
— (55,590)— 6,060 — (49,530)
Share-based compensation— 4,254 — — — 4,254 
Repurchase of common stock— — (1,307)— — (1,307)
Changes in comprehensive income— — — — 52 52 
Issuance of warrants— 2,146 — — — 2,146 
Net loss— — — (112,321)— (112,321)
Balance at March 31, 2021$10 $750,359 $(75,431)$1,418,617 $(566)$2,092,989 


Three Months Ended March 31, 2022
Common StockAdditional Paid-In-CapitalTreasury StockRetained Earnings Accumulated Other Comprehensive Income (Loss)Total
Balance at December 31, 2021$11 $1,131,826 $(75,639)$1,058,369 $(532)$2,114,035 
Share-based compensation— 4,046 — — — 4,046 
Repurchase of common stock— — (1,772)— — (1,772)
Changes in comprehensive income— — — — (230)(230)
Net loss— — — (194,703)— (194,703)
Balance at March 31, 2022$11 $1,135,872 $(77,411)$863,666 $(762)$1,921,376 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6


Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Spirit Airlines, Inc. (“Spirit”) and its consolidated subsidiaries (the "Company").

These unaudited condensed consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the audited annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 8, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect both the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

The interim results reflected in the unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year. The air transportation business is subject to significant seasonal fluctuations as demand is generally greater in the second and third quarters of each year. However, beginning in early 2020, as a result of the COVID-19 pandemic, demand has not always been in line with such trends. The air transportation business is volatile and highly affected by economic cycles and trends.


2. Merger

On February 5, 2022, Spirit Airlines entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Frontier Group Holdings, Inc., a Delaware corporation (“Frontier”), and Top Gun Acquisition Corp., a Delaware corporation and a direct, wholly owned subsidiary of Frontier (“Merger Sub”), pursuant to which and subject to the terms and conditions therein, Merger Sub will merge with and into Spirit Airlines, with Spirit Airlines continuing as the surviving entity (the “Merger”). As a result of the Merger, each existing share of Spirit Airlines’ common stock will be converted into the right to receive (i) $2.13 in cash, without interest and (ii) 1.9126 shares of Frontier’s common stock (“Frontier Common Stock”), par value $0.001 per share. Upon consummation of the Merger, existing shareholders of Spirit Airlines will own approximately 48.5% of the outstanding shares of Frontier on a fully diluted basis.

Completion of the Merger is subject to the satisfaction or waiver of certain closing conditions, including, among other things, (1) approval of the Merger Agreement by Spirit Airlines’ stockholders, (2) receipt of applicable regulatory approvals, including approvals from the U.S. Federal Communications Commission (“FCC”), U.S. Federal Aviation Administration (“FAA”) and the U.S. Department of Transportation (“DOT”) and the expiration or early termination of the statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other required regulatory approvals; (3) the absence of any law or order prohibiting the consummation of the transactions; (4) the effectiveness of the registration statement to be filed by Frontier and Spirit Airlines with the SEC pursuant to the Merger Agreement; (5) the authorization and approval for listing on NASDAQ of the shares of Frontier Common Stock to be issued to holders of Spirit Airlines’ common stock in the Merger; and (6) the absence of any material adverse effect (as defined in the Merger Agreement) on either Spirit Airlines or Frontier.

The Merger Agreement contains certain customary termination rights for Spirit Airlines and Frontier, including, without limitation, a right for either party to terminate if the Merger is not consummated on or before February 5, 2023, subject to certain extensions if needed to obtain regulatory approvals. Upon the termination of the Merger Agreement under specified circumstances, Spirit Airlines will be required to pay Frontier a breakup fee of $94.2 million. The Merger Agreement also provides the methodology by which certain expenses will be borne.

On April 5, 2022, the Company announced that it received an unsolicited proposal from JetBlue Airways (JetBlue) to acquire all of the outstanding shares of Spirit Airlines’ common stock in an all-cash transaction for $33.00 per share. After consulting with financial and legal advisors, the Company's Board of Directors determined that JetBlue’s proposal could
7


reasonably be likely to lead to a "Superior Proposal" as defined in the merger agreement with Frontier and evaluated the proposal in accordance with the terms of the merger agreement.

On May 2, 2022, the Company announced that its Board of Directors, in consultation with outside financial and legal advisors, unanimously determined that the unsolicited proposal received from JetBlue does not constitute a "Superior Proposal" due to an unacceptable level of deal completion risk. The Company will continue to advance toward completing the transaction with Frontier, which is expected to close in the second half of 2022. The transaction is subject to customary closing conditions, including completion of the ongoing regulatory review process and approval of the Company's stockholders.


3. Revenue
    
Operating revenues are comprised of passenger revenues, which includes fare and non-fare revenues, and other revenues. The following table shows disaggregated operating revenues for the three months ended March 31, 2022 and 2021.
Three Months Ended March 31,
20222021
(in thousands)
Operating revenues:
Fare$418,418 $174,287 
Non-fare531,326 276,048 
Total passenger revenues949,744 450,335 
Other17,571 10,944 
Total operating revenues$967,315 $461,279 

The Company is managed as a single business unit that provides air transportation for passengers. Operating revenues by geographic region as defined by the Department of Transportation ("DOT") are summarized below:
Three Months Ended March 31,
20222021
(in thousands)
DOT—Domestic$827,054 $408,693 
DOT—Latin America140,261 52,586 
Total$967,315 $461,279 
The Company defers the amount for award travel obligations as part of loyalty deferred revenue within air traffic liability ("ATL") on the Company's condensed consolidated balance sheets and recognizes loyalty travel awards in passenger revenues as points are used for travel or expire unused.

As of March 31, 2022 and December 31, 2021, the Company had ATL balances of $558.3 million and $382.3 million, respectively. Substantially all of the Company's ATL is expected to be recognized within 12 months of the respective balance sheet date.

Loyalty Programs

The Company operates the Spirit Saver$ Club® , which is a subscription-based loyalty program that allows members access to unpublished, extra-low fares as well as discounted prices on bags and seats, exclusive offers on hotels, rental cars and other travel necessities, shortcut boarding and security, and "Flight Flex" flight modification product. The Company also operates the Free Spirit loyalty program, which attracts members and partners and builds customer loyalty for the Company by offering a variety of awards, benefits and services. Free Spirit loyalty program members earn and accrue points for dollars spent on Spirit for flights and other non-fare services as well as services from non-air partners such as retail merchants, hotels or car rental companies or by making purchases with credit cards issued by partner banks and financial services providers. Points earned and accrued by Free Spirit loyalty program members can be redeemed for travel awards such as free (other than taxes and government-imposed fees), discounted or upgraded travel.
8




4. Loss on Disposal

During the three months ended March 31, 2022, the Company recorded $11.6 million in loss on disposal of assets in the condensed consolidated statement of operations. This loss on disposal primarily consisted of $6.6 million related to the impairment of one spare engine which was damaged beyond economic repair and $4.3 million related to the loss on three aircraft sale leaseback transactions completed during the first quarter of 2022.

During the three months ended March 31, 2021, the Company recorded $1.1 million in loss on disposal of assets in the condensed consolidated statement of operations related to the sale of auxiliary power units ("APUs") and disposal of excess and obsolete inventory.


5. Special Charges (Credits)

During the three months ended March 31, 2022, the Company recorded $11.1 million within special charges (credits) on the Company's condensed consolidated statements of operations, in legal, advisory and other fees related to the Merger Agreement with Frontier executed during the first quarter of 2022. In addition, as part of the Merger Agreement, the Company implemented an employee retention bonus program. The target retention bonus will be paid to the Company's employees upon the successful close of the merger. In the event the merger fails or is abandoned, 50% of the target retention bonus will be paid to the Company's employees at the termination date of the merger. During the three months ended March 31, 2022, the Company recorded $4.5 million within special charges (credits) on the Company's condensed consolidated statements of operations, related to the Company's retention bonus program.

During the three months ended March 31, 2021, the Company recorded $156.5 million, net of related costs, within special credits on the Company’s condensed consolidated statements of operations related to the grant component of the PSP2 agreement with the Treasury. These funds were used exclusively to pay for salaries, wages and benefits for the Company's Team Members through March 31, 2021.

In addition, during the three months ended March 31, 2021, the Company recorded $21.3 million related to the CARES Act Employee Retention credit within special credits on the Company’s condensed consolidated statements of operation. These special credits were partially offset by $0.8 million in special charges recorded during the three months ended March 31, 2021. The $0.8 million was related to salaries, wages and benefits paid to rehired employees, previously terminated with the Company's involuntary employee separation program, in compliance with the restrictions of PSP2.


6. Loss per Share

The following table sets forth the computation of basic and diluted loss per common share:
 
 Three Months Ended March 31,
 20222021
(in thousands, except per-share amounts)
Numerator
Net loss$(194,703)$(112,321)
Denominator
Weighted-average shares outstanding, basic108,581 97,775 
Effect of dilutive shares  
Adjusted weighted-average shares outstanding, diluted108,581 97,775 
Loss per share
Basic loss per common share$(1.79)$(1.15)
Diluted loss per common share$(1.79)$(1.15)
Anti-dilutive common stock equivalents excluded from the diluted loss per share calculation are not material.

9



7. Short-term Investment Securities

The Company's short-term investment securities are classified as available-for-sale and generally consist of U.S. Treasury and U.S. government agency securities with contractual maturities of 12 months or less. These securities are stated at fair value within current assets on the Company's condensed consolidated balance sheets. Realized gains and losses on sales of investments, if any, are reflected in non-operating income (expense) in the condensed consolidated statements of operations.

As of March 31, 2022 and December 31, 2021, the Company had $106.0 million and $106.3 million in short-term available-for-sale investment securities, respectively. During the three months ended March 31, 2022, these investments earned interest income at a weighted-average fixed rate of approximately 0.2%. For the three months ended March 31, 2022, an unrealized loss of $262 thousand, net of deferred taxes of $77 thousand, was recorded within accumulated other comprehensive income ("AOCI") related to these investment securities. For the three months ended March 31, 2021, an unrealized gain of $7 thousand, net of deferred taxes of $2 thousand was recorded within AOCI related to these investment securities. For the three months ended March 31, 2022 and March 31, 2021, the Company had no realized gains or losses as the Company did not sell any of these securities during these periods. As of March 31, 2022 and December 31, 2021, $305 thousand and $43 thousand, net of tax, respectively, remained in AOCI, related to these instruments.


8. Accrued Liabilities

Other current liabilities as of March 31, 2022 and December 31, 2021 consist of the following:
March 31, 2022December 31, 2021
(in thousands)
Salaries, wages and benefits$140,017 $142,893 
Federal excise and other passenger taxes and fees payable122,107 77,409 
Airport obligations94,505 85,772 
Fuel62,355 55,103 
Aircraft maintenance46,768 39,178 
Interest payable26,080 24,526 
Aircraft and facility lease obligations18,240 23,049 
Other36,661 32,824 
Other current liabilities$546,733 $480,754 


9.Leases

The Company leases aircraft, engines, airport terminals, maintenance and training facilities, aircraft hangars, commercial real estate, and office and computer equipment, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, enplaned passengers, and airports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on the Company's condensed consolidated balance sheets as a right-of-use asset and lease liability. Lease terms are generally 8 years to 18 years for aircraft and up to 99 years for other leased equipment and property.
During the three months ended March 31, 2022, the Company took delivery of three aircraft under sale leaseback transactions and one spare engine purchased with cash. As of March 31, 2022, the Company had a fleet consisting of 176 A320 family aircraft. As of March 31, 2022, the Company had 70 aircraft financed under operating leases with lease term expirations between 2023 and 2040. In addition, the Company owned 105 aircraft of which 33 were purchased off lease and were unencumbered as of March 31, 2022. The Company also had one aircraft recorded as a failed sale leaseback. The related finance obligation is recorded within long-term debt in the Company's condensed consolidated balance sheets. Refer to Note 12, Debt and Other Obligations for additional information. The related asset is recorded within flight equipment in the Company's condensed consolidated balance sheets. As of March 31, 2022, the Company also had 12 spare engines financed under operating leases with lease term expiration dates ranging from 2022 to 2033 and owned 21 spare engines, all of which, as of March 31, 2022, were pledged as collateral under the Company's revolving credit facility maturing in 2024.
Some of the Company’s aircraft and engine master lease agreements provide that the Company pays maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. A
10


majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed, time-based contractual amounts. Maintenance reserve payments that are probable of being recovered when the Company performs qualifying maintenance are recorded in aircraft maintenance deposits on the Company's condensed consolidated balance sheets. Fixed maintenance reserve payments that are not probable of being recovered are considered lease payments and are included in the right-of-use asset and lease liability. Maintenance reserve payments that are based on a utilization measure and are not probable of being recovered are considered variable lease payments that are recognized when they are probable of being incurred and are not included in the right-of-use asset and lease liability.
Some of the master lease agreements do not require that the Company pay maintenance reserves so long as the Company's cash balance does not fall below a certain level. As of March 31, 2022, the Company was in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis. Aircraft rent expense also includes maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable lease return condition obligations.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of the lease agreements are fixed for the term of the lease. The lease agreements contain standard termination events, including termination upon a breach of the Company's obligations to make rental payments and upon any other material breach of the Company's obligations under the leases, and standard maintenance and return condition provisions. These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as either fixed or variable lease payments (depending on the nature of the lease return condition) when it is probable that such amounts will be incurred. When determining probability and estimated cost of lease return obligations, there are various other factors that need to be considered such as the contractual terms of the lease, the ability to swap engines or other aircraft components, current condition of the aircraft, the age of the aircraft at lease expiration, utilization of engines and other components, the extent of repairs needed at return, return locations, current configuration of the aircraft and cost of repairs and materials at the time of return. Management assesses the factors listed above and the need to accrue lease return costs throughout the lease as facts and circumstances warrant an assessment. The Company expects lease return costs and unrecoverable maintenance deposits will increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft. Upon a termination of the lease due to a breach by the Company, the Company would be liable for standard contractual damages, possibly including damages suffered by the lessor in connection with remarketing the aircraft or while the aircraft is not leased to another party.
As of March 31, 2022, the Company's finance lease obligations primarily relate to the lease of computer equipment used by the Company's flight crew and office equipment. Payments under these finance lease agreements are fixed for terms ranging from 4 to 5 years. Finance lease assets are recorded within property and equipment and the related liabilities are recorded within long-term debt and finance leases in the Company's condensed consolidated balance sheets.
During the fourth quarter of 2019, the Company purchased an 8.5-acre parcel of land for $41.0 million and entered into a 99-year lease agreement for the lease of a 2.6-acre parcel of land, in Dania Beach, Florida, where the Company is building its new headquarters campus. During January 2022, the Company began building its new headquarters campus with an expected completion during the fourth quarter 2023. In connection with the lease agreement, the Company is also expected to build a 200-unit residential building. The 8.5-acre parcel of land is capitalized within ground property and equipment on the Company's condensed consolidated balance sheets. The 99-year lease was determined to be an operating lease and is recorded within operating lease right-of-use asset and operating lease liability on the Company's condensed consolidated balance sheets. Operating lease commitments related to this lease are included in the table below within property facility leases.
The following table provides details of the Company's future minimum lease payments under finance lease liabilities and operating lease liabilities recorded on the Company's condensed consolidated balance sheets as of March 31, 2022. The table does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
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Finance LeasesOperating Leases
Aircraft and Spare Engine LeasesProperty Facility LeasesOtherTotal
Operating and Finance Lease Obligations
(in thousands)
Remainder of 2022$631 $199,747 $4,153 $118 $204,649 
2023465 260,628 5,548 13 266,654 
2024215 248,019 3,810  252,044 
2025117 229,777 1,192  231,086 
202639 203,517 964  204,520 
2027 and thereafter 1,660,329 142,174  1,802,503 
Total minimum lease payments$1,467 $2,802,017 $157,841 $131 $2,961,456 
Less amount representing interest72 826,808 133,060 1 959,941 
Present value of minimum lease payments$1,395 $1,975,209 $24,781 $130 $2,001,515 
Less current portion761 160,378 4,306 130 165,575 
Long-term portion$634 $1,814,831 $20,475 $ $1,835,940 
Commitments related to the Company's noncancellable short-term operating leases not recorded on the Company's condensed consolidated balance sheets are expected to be $4.5 million for the remainder of 2022 and none for 2023 and beyond.
The table below presents information for lease costs related to the Company's finance and operating leases:
Three Months Ended March 31,
20222021
(in thousands)
Finance lease cost
Amortization of leased assets$188 $168 
Interest of lease liabilities18 24 
Operating lease cost
Operating lease cost (1)
63,251 52,141 
Short-term lease cost (1)
10,257 7,015 
Variable lease cost (1)
48,694 38,149 
Total lease cost$122,408 $97,497 
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed consolidated statements of operations.
The table below presents lease terms and discount rates related to the Company's finance and operating leases:
March 31, 2022March 31, 2021
Weighted-average remaining lease term
Operating leases14.0 years13.2 years
Finance leases2.3 years2.4 years
Weighted-average discount rate
Operating leases5.62 %6.06 %
Finance leases4.71 %5.52 %


10. Commitments and Contingencies

Aircraft-Related Commitments and Financing Arrangements
12


The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of March 31, 2022, the Company's total firm aircraft orders consisted of 117 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. Out of these 117 aircraft, the Company has 14 aircraft scheduled for delivery in the remainder of 2022 and 17 aircraft scheduled for delivery in 2023.

During the third quarter of 2021, the Company entered into an Engine Purchase Support Agreement which requires the Company to purchase a certain number of spare engines in order to maintain a contractual ratio of spare engines to aircraft in the fleet. As of March 31, 2022, the Company is committed to purchase 15 PW1100G-JM spare engines, with deliveries through 2027. As of March 31, 2022, purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $727.3 million for the remainder of 2022, $906.9 million in 2023, $999.4 million in 2024, $1,060.7 million in 2025, $1,349.9 million in 2026, and $872.8 million in 2027 and beyond. During the third quarter of 2019, the United States announced its decision to levy tariffs on certain imports from the European Union, including commercial aircraft and related parts. These tariffs include aircraft and other parts that the Company is already contractually obligated to purchase including those reflected above. In June 2021, the United States Trade Representative announced that the United States and European Union had agreed to suspend reciprocal tariffs on large civilian aircraft for five years, pending discussions to resolve their trade dispute.

In addition to the aircraft purchase agreement, as of March 31, 2022, the Company has agreements in place for 40 A320neos and A321neos to be financed through direct leases with third-party lessors with deliveries scheduled from the remainder of 2022 through 2024. As of March 31, 2022, the Company had secured financing for 14 aircraft, scheduled for delivery from Airbus through the remainder of 2022, which will be financed through sale leaseback transactions. The contractual purchase amounts for these aircraft are included within the purchase commitments above. As of March 31, 2022, the Company did not have financing commitments in place for the remaining 103 Airbus aircraft on firm order through 2027. However, the Company has a financing letter of agreement with Airbus which provides backstop financing for a majority of the aircraft included in the A320 NEO Family Purchase Agreement signed in the fourth quarter of 2019. The agreement provides a standby credit facility in the form of senior secured mortgage debt financing.
As of March 31, 2022, aircraft rent commitments for future aircraft deliveries to be financed under direct leases from third-party lessors and sale leaseback transactions are expected to be approximately $30.2 million for the remainder of 2022, $124.9 million in 2023, $202.3 million in 2024, $231.2 million in 2025, $231.2 million in 2026, and $1,954.2 million in 2027 and beyond.
Interest commitments related to the secured debt financing of 73 delivered aircraft as of March 31, 2022 are $56.7 million for the remainder of 2022, $64.6 million in 2023, $53.3 million in 2024, $45.8 million in 2025, $38.3 million in 2026, and $90.3 million in 2027 and beyond. As of March 31, 2022, interest commitments related to the Company's 8.00% senior secured notes, convertible debt financing, unsecured term loans and revolving credit facility are $37.9 million for the remainder of 2022, $48.5 million in 2023, $48.5 million in 2024, $45.5 million in 2025, $5.9 million in 2026, and $14.0 million in 2027 and beyond. For principal commitments related to the Company's debt financing, refer to Note 12, Debt and Other Obligations.
The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system, construction commitments related to its new headquarters campus and other miscellaneous subscriptions and services as of March 31, 2022: $29.6 million for the remainder of 2022, $21.1 million in 2023, $17.4 million in 2024, $17.4 million in 2025, $16.8 million in 2026, and $18.8 million in 2027 and thereafter. During the first quarter of 2018, the Company entered into a contract renewal with its reservation system provider which expires in 2028.
 
Litigation and Assessments
The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. The Company believes the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on its financial position, liquidity or results of operations. In making a determination regarding accruals, using available information, the Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings and assessments to which the Company is a party and records a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of the Company's defenses, and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from the Company's current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to the Company's consolidated results of operations, liquidity, or financial condition.
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Following an audit by the Internal Revenue Service (IRS) related to the collection of federal excise taxes on optional passenger seat selection charges covering the period of the second quarter 2018 through the fourth quarter 2020, on March 31, 2022, the Company was assessed $34.9 million. The Company believes a loss in this matter is not probable and has not recognized a loss contingency.
Credit Card Processing Arrangements
The Company has agreements with organizations that process credit card transactions arising from the purchase of air travel, baggage charges, and other ancillary services by customers. As is standard in the airline industry, the Company's contractual arrangements with credit card processors permit them, under certain circumstances, to retain a holdback or other collateral, which the Company records as restricted cash, when future air travel and other future services are purchased via credit card transactions. The required holdback is the percentage of the Company's overall credit card sales that its credit card processors hold to cover refunds to customers if the Company fails to fulfill its flight obligations.
The Company's credit card processors do not require the Company to maintain cash collateral provided that the Company satisfies certain liquidity and other financial covenants. Failure to meet these covenants would provide the processors the right to place a holdback resulting in a commensurate reduction of unrestricted cash. As of March 31, 2022 and December 31, 2021, the Company's credit card processors were holding back no remittances.
The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and Spirit Saver$ Club® memberships as of March 31, 2022 and December 31, 2021, was $632.6 million and $371.8 million, respectively.
Employees
The Company has 5 union-represented employee groups that together represented approximately 80% of all employees as of March 31, 2022. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of March 31, 2022.
Employee GroupsRepresentative
Amendable Date (1)
Percentage of Workforce
PilotsAir Line Pilots Association, International ("ALPA")February 202327%
Flight AttendantsAssociation of Flight Attendants ("AFA-CWA")September 202147%
DispatchersProfessional Airline Flight Control Association ("PAFCA")October 20231%
Ramp Service AgentsInternational Association of Machinists and Aerospace Workers ("IAMAW")November 20263%
Passenger Service AgentsTransport Workers Union of America ("TWU")February 20272%
(1) Subject to standard early opener provisions.

The Company's passenger service agents are represented by the TWU, but the representation applies only to the Company's Fort Lauderdale station where the Company has direct employees in the passenger service classification. The Company and the TWU began meeting in late October 2018 to negotiate an initial collective bargaining agreement. During February 2022, the Company reached a tentative agreement with the TWU. The Company's passenger service agents ratified the five-year agreement on February 21, 2022.

In February 2021, the Company entered into a Letter of Agreement with the AFA-CWA to change the amendable date of the collective bargaining agreement from May 4, 2021 to September 1, 2021. All other terms of the collective bargaining agreement remained the same. In June 2021, the AFA-CWA notified the Company, as required by the Railway Labor Act, that it intends to submit proposed changes to the collective bargaining agreement covering the Company’s flight attendants. The Company and the AFA-CWA began the negotiation sessions on September 27, 2021. As of March 31, 2022, the Company continued to negotiate with the AFA-CWA.


11.Fair Value Measurements

Under ASC 820, "Fair Value Measurements and Disclosures," disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:
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Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of the Company’s financial assets and liabilities.
Long-Term Debt
The estimated fair value of the Company's secured notes, term loan debt agreements and revolving credit facilities have been determined to be Level 3 as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 long-term debt. The estimated fair value of the Company's publicly and non-publicly held EETC debt agreements and the Company's convertible notes has been determined to be Level 2 as the Company utilizes quoted market prices in markets with low trading volumes to estimate the fair value of its Level 2 long-term debt.
    The carrying amounts and estimated fair values of the Company's long-term debt at March 31, 2022 and December 31, 2021 were as follows:
March 31, 2022December 31, 2021Fair Value Level Hierarchy
 Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(in millions)
8.00% senior secured notes
$510.0 $504.8 $510.0 $530.4 Level 3
Fixed-rate term loans1,190.9 1,168.7 1,223.5 1,262.6 Level 3
Unsecured term loans136.3 132.7 136.3 146.4 Level 3
2015-1 EETC Class A 300.6 294.0 300.6 311.1 Level 2
2015-1 EETC Class B 56.0 54.9 56.0 56.4 Level 2
2015-1 EETC Class C75.2 73.3 75.2 74.0 Level 2
2017-1 EETC Class AA193.3 184.8 200.3 203.3 Level 2
2017-1 EETC Class A64.4 60.4 66.8 65.8 Level 2
2017-1 EETC Class B53.4 48.9 55.8 53.6 Level 2
2017-1 EETC Class C85.5 83.5 85.5 84.1 Level 2
4.75% convertible notes due 2025
28.2 55.7 28.2 55.6 Level 2
1.00% convertible notes due 2026
500.0 448.4 500.0 432.5 Level 2
Total long-term debt$3,193.8 $3,110.1 $3,238.2 $3,275.8 

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2022 and December 31, 2021 are comprised of liquid money market funds and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions.
Restricted Cash

Restricted cash is comprised of cash held in an account subject to account control agreements or otherwise pledged as collateral against the Company's letters of credit and is categorized as a Level 1 instrument. As of March 31, 2022, the Company had $85.0 million in standby letters of credit secured by $75.0 million of restricted cash, of which $27.0 million had been drawn upon for issued letters of credit. In addition, the Company had $20.4 million of restricted cash held in accounts subject to control agreements to be used for the payment of interest and fees on the 8.00% senior secured notes.
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Short-term Investment Securities

Short-term investment securities at March 31, 2022 and December 31, 2021 are classified as available-for-sale and generally consist of U.S. Treasury and U.S. government agency securities with contractual maturities of 12 months or less. The Company's short-term investment securities are categorized as Level 1 instruments, as the Company uses quoted market prices in active markets when determining the fair value of these securities. For additional information, refer to Note 7, Short-term Investment Securities.

Derivative Liability

As a result of the settlement terms stipulated by the Merger Agreement, as of the Merger Agreement date, the convertible notes due 2026 no longer qualify for the derivative accounting scope exception provided under ASC 815. As such, the Company was required to bifurcate the fair value of the conversion option of the convertible notes due 2026 as a derivative liability as of the Merger Agreement date with subsequent changes in fair value recorded in earnings.

As of February 5, 2022, the Company recorded the fair value of the embedded derivative of $49.5 million as a derivative liability within deferred gains and other long-term liabilities and a debt discount within long-term debt and finance leases, less current maturities on its condensed consolidated balance sheets. The fair value of the derivative liability was estimated as the difference in value of the traded price of the convertible notes, including the conversion option and the value of the convertible notes in the absence of the conversion option (the debt component). The debt component was estimated using a discounted cash flow analysis with a yield calibrated to the traded price of the convertible notes. The fair value of the derivative liability has been determined to be Level 2 as observable inputs were used to determine the fair value of derivative liability. For additional information, refer to Note 12, Debt and Other Obligations.


    Assets and liabilities measured at gross fair value on a recurring basis are summarized below:
 Fair Value Measurements as of March 31, 2022
 TotalLevel
1
Level
2
Level
3
(in millions)
Cash and cash equivalents$1,247.9 $1,247.9 $ $ 
Restricted cash95.4 95.4   
Short-term investment securities106.0 106.0   
Assets held for sale2.5   2.5 
Total assets$1,451.8 $1,449.3 $ $2.5 
Derivative liability$48.6 $ $48.6 $ 
Total liabilities$48.6 $ $48.6 $ 

 Fair Value Measurements as of December 31, 2021
 TotalLevel
1
Level
2
Level
3
(in millions)
Cash and cash equivalents$1,333.5 $1,333.5 $ $ 
Restricted cash95.4 95.4   
Short-term investment securities106.3 106.3   
Assets held for sale2.5   2.5 
Total assets$1,537.7 $1,535.2 $ $2.5 
Total liabilities$ $ $ $ 
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The Company had no transfers of assets or liabilities between any of the above levels during the three months ended March 31, 2022 and the year ended December 31, 2021.

The Company's Valuation Group, which reports to the Chief Financial Officer, is made up of individuals from the Company's Treasury and Corporate Accounting departments. The Valuation Group is responsible for the execution of the Company's valuation policies and procedures. The Valuation Group compares the results of the Company's internally developed valuation methods with counterparty reports at each balance sheet date, assesses the Company's valuation methods for accurateness and identifies any needs for modification.


12. Debt and Other Obligations

As of March 31, 2022, the Company had outstanding public and non-public debt instruments.

Revolving credit facility due in 2024

On March 30, 2020, the Company entered into a revolving credit facility for $110.0 million, with an option to increase the overall commitment amount up to $350 million with the consent of any participating lenders and subject to borrowing base availability. In the second quarter of 2020, the commitment was increased to $180.0 million and during the first quarter of 2021, the commitment was further increased to $