Published: 2021-10-27 00:00:00 ET

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The accompanying unaudited condensed consolidated financial statements include the accounts of Spirit Airlines, Inc. (“Spirit”) and its consolidated subsidiaries (the "Company"). In August 2020, Spirit formed several new subsidiaries; Spirit Finance Cayman 1 Ltd. (“HoldCo 1”), Spirit Finance Cayman 2 Ltd. (“HoldCo 2”), Spirit IP Cayman Ltd. (“Spirit IP”) and Spirit Loyalty Cayman Ltd. (“Spirit Loyalty”). Each are Cayman Islands exempted companies incorporated with limited liability. Spirit IP and Spirit Loyalty are wholly-owned subsidiaries of HoldCo 2 (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes (as defined herein)). HoldCo 1 and HoldCo 2 are special purpose holding companies. HoldCo 2 is a wholly-owned direct subsidiary of HoldCo 1 (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes). HoldCo 1 is a wholly-owned subsidiary of Spirit (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes). As a result, our financial statements are presented on a consolidated basis.

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, 2020 filed with the Securities and Exchange Commission on February 10, 2021.

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.

Since its initial onset in early 2020, the impact of the COVID-19 pandemic has evolved and continues to be fluid. As a result, the Company's financial and operational outlook remains subject to change. The Company continues to monitor the impacts of the pandemic on its operations and financial condition, and to adjust its mitigation and operational strategies.

Capacity Reductions

At the onset of the COVID-19 pandemic in March 2020, in response to government restrictions on travel and drastically reduced consumer demand, the Company began to significantly reduce capacity each month with the largest capacity reduction in May 2020 at approximately 94%, year over year, and smaller capacity reductions of 20.8% and 20.1% in the holiday months of November and December, respectively. Through early 2021, the Company continued to operate at reduced capacity levels although to a lesser extent than noted at the height of the pandemic during mid-2020. Through 2021, the Company has continually added back capacity such that since mid-2021, it was nearly back to the capacity levels it was operating at prior to the pandemic.

The COVID-19 pandemic and its effects continue to evolve, with developments including:

•Fluctuations in the rate of infections during 2021;

•Infections from the more recently identified Delta variant;

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•The emergency use authorization issued by the U.S. Food and Drug Administration for COVID-19 vaccines;

•The requirement, effective January 26, 2021, that all U.S. inbound international travelers provide a negative COVID-19 test prior to flying;

•Increases in the availability of COVID-19 vaccines resulting in expanded eligibility to more groups of people to receive the vaccine;

•The approval of the Pfizer-BioNTech COVID-19 vaccine for persons aged 16 years and over;

•The requirement, effective November 8, 2021, that all inbound international travelers, that are a non-U.S. citizen and a nonimmigrant (not a U.S. citizen, U.S. national, lawful permanent resident, or traveling to the United States on an immigrant visa) provide evidence of being fully vaccinated against COVID-19.

In addition, the President has signed an Executive Order to require all federal executive branch workers to be fully vaccinated against COVID-19. The President also signed an Executive Order directing that this standard be extended to employees of contractors that do business with the federal government. However, the Company does not have any such contracts with the federal government, therefore, is not currently subject to the Executive order. While the Company currently estimates that air travel demand will continue to fluctuate in the upcoming months as the effects of COVID-19 continue to develop, it expects that air travel demand will continue to gradually recover in the remainder of 2021 and into 2022. However, the situation continues to be fluid and actual capacity adjustments may be different than what the Company currently expects. Refer to Note 4, Revenue, for discussion of the impact of COVID-19 on the Company's air traffic liability, credit shells and refunds.

COVID-19 Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act was a relief package intended to assist many aspects of the American economy, including providing the airline industry with up to $25 billion in grants to be used for employee salaries, wages and benefits and up to $25 billion in secured loans.

On April 20, 2020, the Company entered into a Payroll Support Program ("PSP") Agreement with the United States Department of the Treasury ("Treasury"), pursuant to which the Company received a total of $344.4 million, used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through September 30, 2020. Of that amount, $73.3 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP, the Company issued to Treasury warrants pursuant to a warrant agreement to purchase up to 520,797 shares of the Company’s common stock at a strike price of $14.08 per share (the closing price for the shares of the Company's common stock on April 9, 2020) with a fair value of $3.9 million. The Company registered the resale of the warrants pursuant to the warrant agreement with Treasury in September and October 2020. The remaining amount of $267.2 million, net of related costs, is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statement of operations in 2020.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law which extended the PSP portion of the CARES Act through March 31, 2021 ("PSP2") and provided an additional $15 billion to fund the PSP2 for employees of passenger air carriers. The Company entered into the PSP2 payroll support program agreement with the Treasury on January 15, 2021. During the first and second quarters of 2021, the Company received a total of $212.1 million through the PSP2, used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through March 31, 2021. Of that amount, $33.6 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP2, the Company issued to Treasury warrants pursuant to a warrant agreement to purchase up to 137,753 shares of the Company’s common stock at a strike price of $24.42 per share (the closing price for the shares of the Company's common stock on December 24, 2020) with a fair value of $2.8 million. The Company registered the resale of the warrants pursuant to the warrant agreement with Treasury in May 2021. The remaining amount of $175.6 million, net of related costs, is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statement of operations.

In connection with the Company's participation in the PSP2, the Company is subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through March 31, 2022;

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•Limits on executive compensation through October 1, 2022;

•Restrictions from conducting involuntary furloughs or reducing pay rates and benefits until March 31, 2021;

•Requirements to maintain certain levels of scheduled services through March 1, 2022;

•Reporting requirements; and

•A recall of all employees that were involuntarily furloughed or terminated between October 1, 2020 and the date the carrier enters into the new payroll support agreement with the Treasury. Such employees, if returning to work, must be compensated for lost pay and benefits between December 1, 2020 and the date of such new payroll support agreement.

The CARES Act also provided an employee retention credit (“CARES Employee Retention credit”) which was a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages through December 31, 2020. The Company qualified for the credit beginning on April 1, 2020 and received additional credits for qualified wages through December 31, 2020.

The Consolidated Appropriations Act extended and expanded the availability of the CARES Employee Retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 ("ARP"), enacted on March 11, 2021, extended and expanded the availability of the CARES Employee Retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This legislation amended the employee retention credit to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. The Company expects to receive $37.5 million related to the employee retention credit for the first and second quarters of 2021. The Company did not qualify for the employee retention credit for the third quarter of 2021. During the nine months ended September 30, 2021, the Company recorded the $37.5 million related to the CARES Employee Retention credit within special credits on the Company’s condensed consolidated statement of operations. Refer to Note 5, Special Credits, for additional information.

ARP also authorized Treasury to provide additional assistance to passenger air carriers that received financial assistance under PSP2 ("PSP3"). Under the ARP, Treasury provided up to $14 billion to fund the PSP3 for employees of passenger air carriers. The Company entered into the PSP3 payroll support program agreement with the Treasury on April 29, 2021. During the second quarter of 2021, the Company received a total of $197.9 million through the PSP3, to be used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through September 30, 2021. Of that amount, $29.4 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP3, the Company issued to Treasury warrants pursuant to a warrant agreement to purchase up to 80,539 shares of the Company’s common stock at a strike price of $36.45 (the closing price for the shares of the Company's common stock on March 10, 2021) per share with a fair value of $1.5 million. The Company registered the resale of the warrants pursuant to the warrant agreement with Treasury in June 2021. The remaining amount of $167.0 million, net of related costs, is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statement of operations. Total warrants issued in connection with the PSP, PSP2 and PSP3 represent less than 1% of the outstanding shares of the Company's common stock as of September 30, 2021.

In connection with the Company's participation in the PSP3, the Company is subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through September 30, 2022;

•Limits on executive compensation through April 1, 2023;

•Restrictions from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2021, or the date on which all PSP funding has been expended; and

•Reporting requirements.

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Finally, the CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of September 30, 2021, the Company had deferred $23.2 million in social security tax payments. The deferred amounts are recorded within other current liabilities and within deferred gains and other long-term liabilities on the Company’s condensed consolidated balance sheet.

Income Taxes

The Company's effective tax rate for the nine months ended September 30, 2021 was 10.1% compared to 34.7% for the nine months ended September 30, 2020. The decrease in tax rate, as compared to the prior year period, is primarily due to a $56.1 million discrete federal tax benefit recorded during the nine months ended September 30, 2020 related to the passage of the CARES Act. The 2020 discrete federal tax benefit reflects the impact of the CARES Act which allowed for carryback of net operating losses generated at a 21% tax rate to recover taxes paid at a 35% tax rate. In addition, the Company had an unfavorable permanent tax adjustment recorded during the nine months ended September 30, 2021, related to the repurchase of a portion of the Company's 4.75% convertible notes due 2025. Excluding the impact from the unfavorable permanent tax adjustment, the Company's effective tax rate for the nine months ended September 30, 2021 would have been 21.1%. While the Company expects its tax rate to be fairly consistent in the near term, it will tend to vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income. Discrete items particular to a given year may also affect our effective tax rates.

Balance Sheet, Cash Flow and Liquidity

Since the onset of the COVID-19 pandemic in the U.S. in the first quarter of 2020, the Company has taken several actions to increase liquidity and strengthen its financial position. During the twelve months ended December 31, 2020, these actions included the private offering of $850 million of the 8.00% senior secured notes, the public offering of $175.0 million in the Company's 4.75% convertible notes due 2025, the public offering of 20,125,000 shares of the Company's voting common stock for which it received net proceeds of $192.4 million, the issuance and sale of 9,000,000 shares of the Company's voting common stock through its ATM Program for which it received net proceeds of $156.7 million and the execution of a revolving credit facility with a total commitment of $180.0 million as of December 31, 2020. During the first quarter of 2021, the Company entered into an amendment to this revolving credit facility which extended the maturity to March 30, 2024 and increased the commitment amount to $240.0 million. During the second quarter of 2021, the revolving credit facility was paid down in full and $240.0 million remained undrawn and available as of September 30, 2021. During the nine months ended September 30, 2021, the Company further improved its liquidity and financial position through the public offering of $500.0 million in 1.00% convertible notes due 2026, the issuance of 10,594,073 shares of the Company's voting common stock for which it received net proceeds of $370.8 million, the extinguishment of $146.8 million in principal amount of the Company's 4.75% convertible notes due 2025 and the extinguishment of $340.0 million in principal amount of the Company's 8.00% senior secured notes. Refer to Note 12, Debt and Other Obligations and Note 13, Equity for additional information. As a result of these actions, as of September 30, 2021, the Company had $1,879.6 million of liquidity comprised of unrestricted cash and cash equivalents, short-term investment securities and funds available under its revolving credit facility due in 2024.

For purposes of assessing its liquidity needs, the Company estimates that air travel demand will continue to recover in the remainder of 2021 and into 2022. The Company believes the actions taken since the onset of the COVID-19 pandemic address its future liquidity needs, but it may implement further discretionary changes and other cost reduction and liquidity preservation and/or enhancement measures, as needed, to address the volatility and quickly changing dynamics of passenger demand and the impact of revenue changes, regulatory and public health directives, prevailing government policy and financial market conditions.

Workforce Actions

In 2020, in response to the COVID-19 pandemic, the Company worked with unionized employees and the related unions to create voluntary leave programs for pilots, flight attendants and other unionized employee groups. The Company also created voluntary leave programs for certain non-unionized employee groups. Due to the high level of support and acceptance of the voluntary programs offered, the total number of Team Members involuntarily terminated in 2020 was reduced by more than 95%. As required by the PSP2, during the first quarter of 2021, the Company offered to rehire all eligible Team Members who were involuntarily terminated during 2020. For the three and nine months ended September 30, 2021, the Company recorded $0.6 million and $2.0 million in special charges within special credits on the Company’s condensed consolidated statement of operations related to the rehiring of Team Members under its involuntary employee separation program. In addition, in response to increased air travel demand, during the first quarter of 2021, the Company requested the voluntary return to work of certain Team Members on leave under the Company's voluntary leave programs. As of September 30, 2021, all Team Members

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Recently Adopted Accounting Pronouncements

Convertible Instruments and Contracts

In August 2020, the FASB issued ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity." This new standard simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments. It eliminates the treasury stock method for convertible instruments and requires application of the “if-converted” method for certain agreements. In addition, the standard eliminates the beneficial conversion and cash conversion accounting models that require separate accounting for embedded conversion features and the recognition of a debt discount and related amortization to interest expense of those embedded features.

The Company elected to early adopt this standard effective January 1, 2021 using the modified retrospective approach transition method. Therefore, the condensed consolidated financial statements for the three and nine months ended September 30, 2021 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy.

In connection with the adoption of this standard, the Company recognized a cumulative effect adjustment, net of tax, of $6.1 million to retained earnings on the Company's condensed consolidated balance sheet as of January 1, 2021. This adjustment was primarily driven by the derecognition of interest expense related to the accretion of the debt discount associated with the embedded conversion option recorded in the prior period as required under the legacy guidance. In addition, the Company reclassified $75.6 million, less related tax of $17.1 million and issuance costs of $2.9 million, from additional paid-in-capital ("APIC") to long-term debt and finance leases on the Company's condensed consolidated balance sheet as of January 1, 2021. The reclassification was recorded in order to combine the two legacy units of account into a single instrument classified as a liability since bifurcation of the instrument into two units of account is no longer required under the new standard. Under this new guidance, the Company will no longer incur interest expense related to the accretion of the debt discount associated with the embedded conversion option.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), "Simplifying the Accounting for Income Taxes." This new standard simplifies various aspects related to the accounting for income taxes. The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and modifies existing guidance to improve consistent application of Topic 740. The Company adopted this standard effective January 1, 2021 with no material impact to its condensed consolidated financial statements.

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    Operating revenues is comprised of passenger revenues, which includes fare and non-fare revenues, and other revenues. The following table shows disaggregated operating revenues for the three and nine months ended September 30, 2021 and 2020.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Operating revenues:
Fare			$	421,015					$	164,432					$	964,993					$	549,648
Non-fare			486,217						228,312						1,239,081						727,463
Total passenger revenues			907,232						392,744						2,204,074						1,277,111
Other			15,399						9,178						39,145						34,421
Total operating revenues			$	922,631					$	401,922					$	2,243,219					$	1,311,532

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 September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
DOT—Domestic			$	801,766					$	382,630					$	1,980,762					$	1,217,102
DOT—Latin America			120,865						19,292						262,457						94,430
Total			$	922,631					$	401,922					$	2,243,219					$	1,311,532

The Company defers the amount for award travel obligation 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 a result of the COVID-19 pandemic, the Company experienced significantly increased customer requests for credit shells, or customer travel funds held by the Company that can be redeemed for future travel, and refunds beginning in the second half of March 2020 and continuing to varying degrees through 2021 primarily due to flight cancellations and a change in the Company's flight cancellation and refund policy. In addition, beginning on July 30, 2021 and continuing through August 9, 2021, the Company experienced significant irregular operations due to a series of overlapping challenges, primarily adverse weather and airport staffing shortages, leading to severe crew dislocations. The total value of refunds issued during the three and nine months ended September 30, 2021 was $91.8 million and $167.1 million, respectively. The total value of refunds issued during the three and nine months ended September 30, 2020 was $29.8 million and $150.7 million, respectively.

The Company expects that the level of requests for credit shells and refunds in the upcoming months will decrease with some fluctuation as the effects of COVID-19 continue to evolve. In addition, in response to COVID-19, during 2020 and early 2021, the Company increased the expiration period on some of its credit shells from 60 days to up to 12 months or longer and waived change and cancellation fees for Guests who booked travel through the first quarter of 2021. On July 28, 2021, the Company began issuing credit shells with an expiration period of 90 days. Credit shells issued prior to July 28, 2021 will expire on December 31, 2021. As of September 30, 2021 and December 31, 2020, the Company had ATL balances of $447.5 million and $402.0 million, respectively. Substantially all of the Company's ATL, including the balance of credit shells, is expected to be recognized within 12 months of the respective balance sheet date.

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For credit shells that the Company estimates are not likely to be used prior to expiration (“breakage”), the Company recognizes the associated value proportionally during the period over which the remaining credit shells may be used. Breakage estimates are based on the Company's historical information about customer behavior as well as assumptions about customers' future travel behavior. Assumptions used to generate breakage estimates can be impacted by several factors including, but not limited to, changes to the Company's ticketing policies, changes to the Company’s refund, exchange, and credit shell policies, and economic or governmental regulation factors. Given the unprecedented amount of cancellations in the past year and the related increase in credit shells provided, the Company expects additional variability in the amount of breakage revenue recorded in future periods, as the estimates of the portion of those funds that will expire unused may differ from historical experience.

Loyalty Programs

The Company 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. In January 2021, the Company launched a new, more expansive frequent flyer program, “Free Spirit Program”, with extended point expiration, additional benefits based on status tiers, and other changes.

The Company operates the Spirit Saver$ ClubTM (the "Spirit Saver$ ClubTM" formerly known as the $9 Fare ClubTM), which is a subscription-based loyalty program that allows members access to unpublished, extra-low fares as well as discounted prices on bags, exclusive offers on hotels, rental cars and other travel necessities. Also in January 2021, the benefits of the Spirit Saver$ ClubTM were expanded to include discounts on seats, shortcut boarding and security, and "Flight Flex" flight modification product.

The Company's frequent flyer program generates customer loyalty by rewarding customers with points to travel on Spirit. Customers earn redeemable points for every dollar spent on Spirit. Customers can also earn points through participating companies such as the co-branded Spirit credit card. Points are redeemable by customers in future periods for air travel on Spirit.

To reflect the points earned, the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) points earned with travel and (2) points sold to co-branded credit card partner. Passenger ticket sales earning points provide customers with points earned and air transportation. The Company values each performance obligation on a standalone basis.

The Company defers revenue for the points when earned and recognizes loyalty travel awards in passenger revenue as the points are redeemed and services are provided. The Company records the air transportation portion of the passenger ticket sales in air traffic liability and recognizes passenger revenue when transportation is provided or if the ticket goes unused, at the date of scheduled travel.

Customers may earn points based on their spending with the Company's co-branded credit card company with which the Company has an agreement to sell points. The contract to sell points under this agreement has multiple performance obligations, as discussed below.

The Company's co-branded credit card agreement provides for joint marketing where cardholders earn points for making purchases using co-branded cards. During 2020, the Company extended its agreement with the administrator of the FREE SPIRIT affinity credit card program to extend through March 31, 2024. The Company accounts for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered. The value is allocated based on the relative selling prices of those products and services, which generally consists of (i) points to be awarded, (ii) airline benefits and (iii) advertising and marketing efforts. The Company determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number of points awarded and number of points redeemed, (2) the estimated stand-alone selling price of the award travel obligation and airline benefits, and (3) advertising and marketing efforts. Based on the terms of the program, the Company updated its estimates of the allocation of future revenues to the performance obligations described above. The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the condensed consolidated balance sheet and recognizes loyalty travel awards in passenger revenue as the points are used for

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During the three and nine months ended September 30, 2021, the Company recorded $86.4 million and $342.2 million, respectively, net of related costs, within special credits on the Company’s condensed consolidated statements of operations related to the grant component of the PSP2 and PSP3 agreements with the Treasury.

In addition, during the first and second quarter of 2021, the Company recorded $37.5 million related to the CARES Act Employee Retention credit within special credits on the Company’s condensed consolidated statements of operation. During the third quarter of 2021, the Company did not qualify for the employee retention credit. These special credits were partially offset by $0.6 million and $2.0 million in special charges recorded during the three and nine months ended September 30, 2021, respectively. The $0.6 million and $2.0 million were 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 and PSP3.

During the three and nine months ended September 30, 2020, the Company recorded $142.9 million and $266.8 million within special credits on the Company’s condensed consolidated statements of operations related to the grant component of the PSP agreement with the Treasury.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

 

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands, except per-share amounts)
Numerator
Net income (loss)			$	14,774					$	(99,140)					$	(385,410)					$	(271,396)
Interest on convertible debt, net of income taxes			259						N/A						N/A						N/A
Net income after assumed conversions for diluted earnings per share			$	15,033					N/A						N/A						N/A
Denominator
Weighted-average shares outstanding, basic			108,403						92,731						103,851						80,330
Effect of dilutive shares (1)			2,632						—						—						—
Adjusted weighted-average shares outstanding, diluted			111,035						92,731						103,851						80,330
Earnings (loss) per share
Basic earnings (loss) per common share			$	0.14					$	(1.07)					$	(3.71)					$	(3.38)
Diluted earnings (loss) per common share			$	0.14					$	(1.07)					$	(3.71)					$	(3.38)

(1) Includes the effect of dilutive shares related to the convertible debt due in 2025, restricted stock awards, performance share awards and warrants issued.

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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.

As of September 30, 2021, the Company had a fleet consisting of 168 A320 family aircraft. As of September 30, 2021, the Company had 63 aircraft financed under operating leases with lease term expirations between 2023 and 2039. In addition, the Company owned 105 aircraft of which 33 were purchased off lease and were unencumbered as of September 30, 2021. As of September 30, 2021, the Company also had 11 spare engines financed under operating leases with lease term expiration dates ranging from 2022 to 2033 and owned 20 spare engines unencumbered, of which 18, as of September 30, 2021, 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 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

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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 September 30, 2021, 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. As a result of COVID-19, the Company is currently operating its aircraft at lower utilization levels. If the Company continues flying its aircraft at lower utilization levels beyond its current projections, the timing of future maintenance events may change such that the Company will be required to accrue lease return costs and/or record reserves against its maintenance deposits earlier than it would have expected and such amounts could be significant. 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.

During the nine months ended September 30, 2021, the Company took delivery of eight aircraft under direct operating leases, three aircraft under sale-leaseback transactions, two engines purchased with cash and five engines under direct, short-term, operating leases. In addition, the Company purchased four previously leased aircraft and two previously leased engines.

As of September 30, 2021, 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.

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 September 30, 2021. 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 Leases						Operating Leases
												Aircraft and Spare Engine Leases						Property Facility Leases												Total Operating and Finance Lease Obligations
						(in thousands)
remainder of 2021 (1)						$	215					$	61,042					$	1,249											$	62,506
2022						842						240,576						4,771												246,189
2023						465						234,875						4,788												240,128
2024						215						222,266						3,028												225,509
2025						117						204,024						1,126												205,267
2026 and thereafter						39						1,502,219						143,139												1,645,397
Total minimum lease payments						$	1,893					$	2,465,002					$	158,101											$	2,624,996
Less amount representing interest						111						714,250						133,635												847,996
Present value of minimum lease payments						$	1,782					$	1,750,752					$	24,466											$	1,777,000
Less current portion						779						146,781						3,538												151,098
Long-term portion						$	1,003					$	1,603,971					$	20,928											$	1,625,902

(1) Includes $0.9 million of aircraft rent payment deferrals due to COVID-19 which are recorded in other current liabilities within the Company's condensed consolidated balance sheets.

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 $3.1 million for the remainder of 2021, $0.6 million for 2022 and none for 2023 and beyond. During 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to facility rents and other airport service contracts at certain locations. Also during 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to certain aircraft and engine leases. The Company elected to apply the practical expedient issued by the Financial Accounting Standards Board in April 2020 which allows companies to treat a lease concession related to COVID-19 as though enforceable rights and obligations for the concessions existed regardless of whether those enforceable rights and obligations explicitly exist in the lease agreement. Amounts deferred as of September 30, 2021 are recorded in accrued rent within other current liabilities on the Company's condensed consolidated balance sheet.

The table below presents information for lease costs related to the Company's finance and operating leases:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Finance lease cost
Amortization of leased assets			$	194					$	169					$	539					$	439
Interest of lease liabilities			23						29						72						167
Operating lease cost
Operating lease cost (1)			56,991						51,122						161,764						149,345
Short-term lease cost (1)			7,638						7,181						21,729						20,779
Variable lease cost (1)			45,387						32,895						134,047						88,278
Total lease cost			$	110,233					$	91,396					$	318,151					$	259,008

(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed consolidated statements of operations.

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Aircraft-Related Commitments and Financing Arrangements

The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of September 30, 2021, the Company's total firm aircraft orders consisted of 123 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. Out of these 123 aircraft, the Company has 3 aircraft scheduled for delivery in the remainder of 2021 and 17 aircraft scheduled for delivery in 2022.

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 September 30, 2021, the Company is committed to purchase 17 PW1100G-JM spare engines, with deliveries through 2027. In addition, the Company has an agreement in place for one V2500 SelectTwo spare engine to be financed under a direct, short-term lease from a third-party lessor with delivery scheduled in 2021. As of September 30, 2021, purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $158.6 million for the remainder of 2021, $898.9 million in 2022, $905.6 million in 2023, $993.7 million in 2024, $1,068.5 million in 2025, and $2,243.6 million in 2026 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 September 30, 2021, the Company has agreements in place for 38 A320neos and A321neos to be financed through direct leases with third-party lessors with deliveries scheduled from 2021 through 2024. As of September 30, 2021, the Company had secured financing for 20 aircraft, scheduled for delivery from Airbus from 2021 through 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 September 30, 2021, 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 September 30, 2021, 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 $2.2 million for the remainder of 2021, $60.6 million in 2022, $137.4 million in 2023, $206.5 million in 2024, $235.0 million in 2025, and $2,178.5 million in 2026 and beyond.

Interest commitments related to the secured debt financing of 72 delivered aircraft as of September 30, 2021 are $20.0 million for the remainder of 2021, $71.7 million in 2022, $61.0 million in 2023, $49.8 million in 2024, $42.4 million in 2025, and $96.1 million in 2026 and beyond. As of September 30, 2021, interest commitments related to the Company's 8.00% senior secured notes, convertible debt financing, unsecured term loans and revolving credit facility are $13.9 million for the remainder of 2021, $48.5 million in 2022, $48.5 million in 2023, $48.5 million in 2024, $45.5 million in 2025, and $19.9 million in 2026 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 and other miscellaneous subscriptions and services as of September 30, 2021: $7.0 million for the remainder of 2021, $23.6

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million in 2022, $20.9 million in 2023, $17.3 million in 2024, $17.3 million in 2025, and $35.6 million in 2026 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

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.

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 September 30, 2021 and December 31, 2020, 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$ ClubTM memberships as of September 30, 2021 and December 31, 2020, was $588.4 million and $423.7 million, respectively.

Employees

The Company has 5 union-represented employee groups that together represented approximately 81% of all employees as of September 30, 2021. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of September 30, 2021.

Employee Groups

Representative

Amendable Date

Percentage of Workforce

Pilots

Air Line Pilots Association, International ("ALPA")

February 2023

28%

Flight Attendants

Association of Flight Attendants ("AFA-CWA")

September 2021

46%

Dispatchers

Professional Airline Flight Control Association ("PAFCA")

October 2023

1%

Ramp Service Agents

International Association of Machinists and Aerospace Workers ("IAMAW")

June 2020

3%

Passenger Service Agents

Transport Workers Union of America ("TWU")

NA

3%

In February 2020, the IAMAW notified the Company, as required by the Railway Labor Act, that it intended to submit proposed changes to the collective bargaining agreement covering the Company's ramp service agents which became amendable in June 2020. The parties have been actively engaged in negotiations for an amended agreement since April 2021. On September 28, 2021, the Company filed an “Application for Mediation Services” with the National Mediation Board (NMB). The IAMAW and the Company were able to reach a tentative agreement with the assistance of the NMB on October 16, 2021. The Company's ramp service agents will be voting shortly whether to ratify the tentative agreement. The Company expects to have the results of this vote on or about November 4, 2021.

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. As of September 30, 2021, the Company continued to negotiate with the TWU.

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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:

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 September 30, 2021 and December 31, 2020 were as follows:

			September 30, 2021												December 31, 2020												Fair Value Level Hierarchy
			Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
			(in millions)
8.00% senior secured notes			$	510.0					$	530.8					$	850.0					$	886.0					Level 3
Fixed-rate term loans			1,204.9						1,243.0						1,301.9						1,362.9						Level 3
Unsecured term loans			136.3						145.8						73.3						83.1						Level 3
2015-1 EETC Class A			311.6						326.0						322.6						323.4						Level 2
2015-1 EETC Class B			60.0						61.5						64.0						62.5						Level 2
2015-1 EETC Class C			80.9						80.7						86.6						77.8						Level 2
2017-1 EETC Class AA			200.3						205.6						214.4						207.4						Level 2
2017-1 EETC Class A			66.8						66.8						71.5						68.8						Level 2
2017-1 EETC Class B			55.8						55.8						60.6						56.2						Level 2
2017-1 EETC Class C			85.5						85.0						85.5						76.3						Level 2
4.75% convertible notes due 2025			28.2						64.1						175.0						380.3						Level 2
1.00% convertible notes due 2026			500.0						472.6						—						—						Level 2
Revolving credit facilities			—						—						275.1						275.1						Level 3
Total long-term debt			$	3,240.3					$	3,337.7					$	3,580.5					$	3,859.8

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Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2021 and December 31, 2020 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 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 September 30, 2021, the Company had a $35.0 million standby letter of credit secured by 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.

Short-term Investment Securities

Short-term investment securities at September 30, 2021 and December 31, 2020 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.

Assets Held for Sale

The Company's assets held for sale consist of rotable aircraft parts. When long-lived assets are identified as held for sale and the required criteria are met, the Company reclassifies the assets from property and equipment to prepaid expenses and other current assets on the Company's condensed consolidated balance sheets and discontinues depreciation. The assets are measured at the lower of the carrying amount or fair value less cost to sell and a loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less cost to sell. Such valuations include estimations of fair values and incremental direct costs to transact a sale. The fair value measurements for the Company's held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources. As of September 30, 2021 and December 31, 2020, the Company had $2.3 million in assets held for sale recorded within prepaid expenses and other current assets in the Company's condensed consolidated balance sheets. The balance of the Company's held-for-sale assets remained the same during the nine months ended September 30, 2021, as the Company had no purchases, sales nor realized and unrealized losses or gains related to these assets during this period.

    Assets and liabilities measured at gross fair value on a recurring basis are summarized below:

			Fair Value Measurements as of September 30, 2021
			Total						Level 1						Level 2						Level 3
			(in millions)
Cash and cash equivalents			$	1,533.2					$	1,533.2					$	—					$	—
Restricted cash			55.4						55.4						—						—
Short-term investment securities			106.4						106.4						—						—
Assets held for sale			2.3						—						—						2.3
Total assets			$	1,697.3					$	1,695.0					$	—					$	2.3
Total liabilities			$	—					$	—					$	—					$	—

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			Fair Value Measurements as of December 31, 2020
			Total						Level 1						Level 2						Level 3
			(in millions)
Cash and cash equivalents			$	1,789.7					$	1,789.7					$	—					$	—
Restricted cash			71.4						71.4						—						—
Short-term investment securities			106.3						106.3						—						—
Assets held for sale			2.3						—						—						2.3
Total assets			$	1,969.7					$	1,967.4					$	—					$	2.3
Total liabilities			$	—					$	—					$	—					$	—

The Company had no transfers of assets or liabilities between any of the above levels during the nine months ended September 30, 2021 and the year ended December 31, 2020.

As of September 30, 2021, the Company had outstanding public and non-public debt instruments. During the nine months ended September 30, 2021, the Company incurred debt through unsecured term loans and the 1.00% convertible senior notes due 2026 described below.

Unsecured term loans

In connection with the Company's participation in the PSP2, the Company received a total of $212.1 million during the first and second quarter of 2021, used exclusively to pay for salaries, wages and benefits for the Company's Team Members through March 31, 2021. Of that amount, $33.6 million is in the form of a low-interest 10-year unsecured term loan. Interest on this loan is payable semi-annually at a rate of 1.0% in years 1 through 5 and a rate of the Secured Overnight Financing Rate plus 2.0% in years 6 through 10. The note is prepayable at any time, without penalty, at the Company’s option and has principal due at maturity in 2031.

In connection with the Company's participation in the PSP3, the Company received a total of $197.9 million during the second quarter of 2021, used exclusively to pay for salaries, wages and benefits for the Company's Team Members through September 30, 2021. Of that amount, $29.4 million is in the form of a low-interest 10-year unsecured term loan. Interest on this loan is payable semi-annually at a rate of 1.0% in years 1 through 5 and a rate of the Secured Overnight Financing Rate plus 2.0% in years 6 through 10. The note is prepayable at any time, without penalty, at the Company’s option and has principal due at maturity in 2031.

The Company has concluded that no terms exist within the contract that would require a short-term classification of the debt instrument within the Company’s condensed consolidated balance sheet at the inception of the loan. Therefore, the debt has been recorded at face value and classified within long-term debt and finance leases in the Company’s condensed consolidated balance sheets.

Revolving credit facility due in 2024

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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 $240.0 million. As of December 31, 2020, the Company had drawn $180.0 million on the revolving credit facility. During the second quarter of 2021, the Company paid down the revolving credit facility in full leaving $240.0 million undrawn and available as of September 30, 2021. Any amounts drawn on this facility are included in long-term debt and finance leases, less current maturities on the Company's condensed consolidated balance sheets. During the first quarter of 2021, the maturity date of the facility was extended for two additional years. The final maturity of the facility is March 30, 2024.

Revolving credit facility due in 2021

During the fourth quarter of 2018, the Company entered into a revolving credit facility for up to $160.0 million secured by the collateral assignment of certain of the Company's rights under the purchase agreement with Airbus, related to Airbus A320neo aircraft scheduled to be delivered at the time. The maximum borrowing capacity of the facility decreased with the deliveries of the related aircraft. As of December 31, 2020, the Company had drawn the then maximum borrowing capacity of $95.1 million, included in current maturities of long-term debt and finance leases on the Company's condensed consolidated balance sheets. The revolving credit facility matured on March 30, 2021 and as such, there is no outstanding amount as of September 30, 2021.

Convertible senior notes due 2025

On May 12, 2020, the Company completed the public offering of $175.0 million aggregate principal amount of 4.75% convertible senior notes due 2025 ("convertible notes due 2025"). After taking into account the extinguishment of debt discussed below, as of September 30, 2021, the if-converted value exceeds the principal amount of the convertible notes by $29.8 million and $40.6 million, using the average stock price for the three and nine ended September 30, 2021, respectively. Since the notes are currently convertible in accordance with the terms of the indenture governing such notes, the Company had $28.2 million recorded within current maturities of long-term debt and finance leases on its condensed consolidated balance sheets as of September 30, 2021 related to its convertible senior notes due 2025.

Noteholders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; and (4) at any time from, and including, February 18, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. As of September 30, 2021, the notes may be converted by noteholders through December 31, 2021. No notes were converted during the nine months ended September 30, 2021, with the exception of the loss on extinguishment of debt discussed below.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. The initial conversion rate is 78.4314 shares of voting common stock per $1,000 principal amount of convertible notes (equivalent to an initial conversion price of approximately $12.75 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

Convertible senior notes due 2026

On April 30, 2021, the Company completed the public offering of $500.0 million aggregate principal amount of 1.00% convertible senior notes due 2026 ("convertible notes due 2026"). The convertible notes due 2026 will bear interest at the rate of 1.00% per year and will mature on May 15, 2026. Interest on the notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. Since the notes are currently not convertible, in accordance with the terms of the indenture governing such notes, the Company had $487.2 million recorded within long-term debt, net of debt issuance costs of $12.8 million, on its condensed consolidated balance sheets as of September 30, 2021 related to its 1.00% convertible notes due 2026.

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Noteholders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls such notes for redemption; and (5) at any time from, and including, February 17, 2026 until the close of business on the second scheduled trading day immediately before the maturity date. As of September 30, 2021, the notes did not qualify for conversion by noteholders through December 31, 2021.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. However, upon conversion of any notes, the conversion value, which will be determined over an observation period consisting of 40 trading days, will be paid in cash up to at least the principal amount of the notes being converted. The initial conversion rate is 20.3791 shares of voting common stock per $1,000 principal amount of convertible notes (equivalent to an initial conversion price of approximately $49.07 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

The notes will be redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after May 15, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price for a specified period of time. However, the Company may not redeem less than all of the outstanding notes unless at least $150.0 million aggregate principal amount of notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.

Extinguishment of Debt

During the second quarter of 2021, the Company used a portion of the net proceeds generated from the issuance of its 1.00% convertible notes due 2026 to repurchase $146.8 million aggregate principal amount of its 4.75% convertible notes due 2025 for $440.7 million, which included a premium of $290.7 million and accrued and unpaid interest of $3.2 million. In connection with this debt extinguishment, the Company recorded $295.2 million within loss on extinguishment of debt on its condensed consolidated statement of operations for the nine months ended September 30, 2021. This amount includes the $290.7 million in premiums paid to early extinguish the debt and $4.5 million for the write off of related deferred financing costs.

In addition, during the second quarter of 2021, the Company used net proceeds from a registered direct placement of its common stock to holders of its 4.75% convertible notes due 2025 to redeem $340.0 million principal amount of its 8.00% senior secured notes for $368.7 million, which included a premium of $27.2 million and accrued and unpaid interest of $1.5 million. In connection with this debt extinguishment, the Company recorded $36.4 million within loss on extinguishment of debt on its condensed consolidated statement of operation for the nine months ended September 30, 2021. This amount includes the $27.2 million in premiums paid to early extinguish the debt, $6.1 million for the write-off of related deferred financing costs and $3.1 million for the write-off of the related original issuance discount. Refer to Note 13, Equity for additional information on the common stock offering completed in the second quarter of 2021.

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Long-term debt is comprised of the following:

						As of												As of
						September 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
						(in millions)												(weighted-average interest rates)
8.00% senior secured notes due 2025						$	510.0					$	850.0					8.00		%				8.00		%
Fixed-rate loans due through 2032						1,204.9						1,301.9						3.36		%				3.36		%
Unsecured term loans due in 2031						136.3						73.3						1.00		%				1.00		%
Fixed-rate class A 2015-1 EETC due through 2028						311.6						322.6						4.10		%				4.10		%
Fixed-rate class B 2015-1 EETC due through 2024						60.0						64.0						4.45		%				4.45		%
Fixed-rate class C 2015-1 EETC due through 2023						80.9						86.6						4.93		%				4.93		%
Fixed-rate class AA 2017-1 EETC due through 2030						200.3						214.4						3.38		%				3.38		%
Fixed-rate class A 2017-1 EETC due through 2030						66.8						71.5						3.65		%				3.65		%
Fixed-rate class B 2017-1 EETC due through 2026						55.8						60.6						3.80		%				3.80		%
Fixed-rate class C 2017-1 EETC due through 2023						85.5						85.5						5.11		%				5.11		%
Convertible notes due 2025						28.2						175.0						4.75		%				4.75		%
Convertible notes due 2026						500.0						—						1.00		%				N/A
Revolving credit facility due in 2021						—						95.1						N/A						1.55		%
Revolving credit facility due in 2024						—						180.0						N/A						2.15		%
Long-term debt						$	3,240.3					$	3,580.5
Less current maturities						207.5						383.5
Less unamortized discounts, net						58.3						131.4
Total						$	2,974.5					$	3,065.6

During the three and nine months ended September 30, 2021, the Company made scheduled principal payments of $45.6 million and $416.3 million on its outstanding debt obligations, respectively. During the three and nine months ended September 30, 2020, the Company made scheduled principal payments of $58.6 million and $208.0 million on its outstanding debt obligations, respectively.

At September 30, 2021, long-term debt principal payments for the next five years and thereafter are as follows:

						September 30, 2021
						(in millions)
remainder of 2021						$	53.6
2022						192.0
2023						335.5
2024						221.0
2025						725.3
2026 and beyond						1,712.9
Total debt principal payments						$	3,240.3

Interest Expense

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Interest expense related to long-term debt and finance leases consists of the following:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
8.00% senior secured notes (1)			10,461						$	2,518					41,436						$	2,518
Fixed-rate term loans			10,522						11,061						32,171						32,298
Unsecured term loans			344						169						824						226
Class A 2015-1 EETC			3,212						3,438						9,665						10,390
Class B 2015-1 EETC			671						760						2,039						2,308
Class C 2015-1 EETC			997						1,138						3,051						3,485
Class AA 2017-1 EETC			1,734						1,849						5,248						5,604
Class A 2017-1 EETC			625						666						1,892						2,020
Class B 2017-1 EETC			546						603						1,659						1,870
Class C 2017-1 EETC			1,104						1,104						3,275						3,288
Convertible notes (2)			1,585						5,883						5,412						9,021
Revolving credit facilities			—						1,403						1,733						4,017
Finance leases			23						29						72						169
Commitment and other fees			612						110						1,644						555
Amortization of deferred financing costs			3,273						2,704						10,056						7,336
Total			$	35,709					$	33,435					$	120,177					$	85,105

(1) Includes $0.3 million and $1.0 million of accretion and $10.2 million and $40.4 million of interest expense for the three and nine months ended September 30, 2021, respectively.

(2) Includes $3.8 million and $5.8 million of accretion for the three and nine months ended September 30,2020, respectively, and $2.1 million and $3.2 million of interest expense for the three and nine months ended September 30, 2020, respectively. In connection with the adoption of ASU 2020-06, effective January 1, 2021, the Company derecognized the interest expense related to the accretion of the debt discount recorded in prior periods. Refer to Note 3, Recent Accounting Developments, for further information on the adoption of ASU No. 2020-06.

Warrants

In connection with the Company's participation in the PSP2 agreement with the Treasury, during the nine months ended September 30, 2021, the Company issued to the Treasury warrants pursuant to a warrant agreement to purchase up to 137,753 shares of the Company's common stock at a strike price of $24.42 per share (the closing price for the shares of the Company's common stock on December 24, 2020). Additionally, in connection with the Company's participation in the PSP3 agreement with the Treasury, during the nine months ended September 30, 2021, the Company issued to the Treasury warrants pursuant to a warrant agreement to purchase up to 80,539 shares of the Company's common stock at a strike price of $36.45 (the closing price for the shares of the Company's common stock on March 10, 2021) per share. The warrant agreements set out the Company’s obligations to issue warrants in connection with disbursements under the PSP2 and PSP3 and to file a resale shelf registration statement for the warrants and the underlying shares of common stock; prospectus supplements for which were filed in May 2021 and June 2021, respectively. The Company has also granted the Treasury certain demand and piggyback registration rights with respect to the warrants and the underlying common stock. The warrants include adjustments for below market issuances, payment of dividends and other customary anti-dilution provisions. The warrants are transferable and have no voting rights. The warrants expire in five years from the date of issuance and at the Company's option, may be settled on a "net cash" or "net shares" basis. Refer to Note 2, Impact of COVID-19, for further information on the PSP2 and PSP3 agreements with Treasury. The 137,753 warrants issued in connection with the PSP2 agreement and the 80,539 warrants issued in connection with the PSP3 agreement, together with the 520,797 warrants issued in connection with the PSP agreement, represent less than 1% of the outstanding shares of the Company's common stock as of September 30, 2021.

The Company concluded that the PSP, PSP2, and PSP3 warrant agreements are derivative contracts classified within equity, at fair value upon issuance, within the Company’s condensed consolidated balance sheet. Equity-classified contracts are initially measured at fair value and subsequent changes in fair value are not recognized as long as the contract continues to be

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classified in equity. As of September 30, 2021, the Company had recorded $4.3 million, net of issuance cost, in APIC related to the fair value of warrants issued in connection with the Company's participation in the PSP2 and PSP3 programs.

Common Stock Offering

On April 30, 2021, the Company completed the registered direct placement of 10,594,073 shares of the Company's voting common stock at an offering price of $35.05 per share for which it received net proceeds of $370.8 million. The Company used substantially all of the net proceeds to redeem $340.0 million aggregate principal amount of its 8.00% senior secured notes at a redemption price equal to 108.0%, plus accrued and unpaid interest on the principal amount being redeemed. For additional information on this extinguishment of debt, refer to Note 12, Debt and Other Obligations.

Series A Preferred Stock Purchase Rights

On March 29, 2020, the Board of Directors of the Company declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of common stock of the Company. The dividend was paid on April 9, 2020 to holders of record as of the close of business on that date. The Board of Directors adopted the Rights Agreement to reduce the likelihood that a potential acquirer would gain (or seek to influence or change) control of the Company by open market accumulation or other tactics without paying an appropriate premium for the Company’s shares. In general terms and subject to certain exceptions, it works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with each other) that acquires 10% or more of the outstanding common stock of the Company without the approval of the Board of Directors. These Rights expired on March 29, 2021.

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