The Alaska Air Group has announced in its filing that two of the three Boeing 737-MAX 9 aircraft that were originally scheduled for delivery in 2019 have been shifted to 2020 in light of the recent MAX grounding, based on the best estimate of the expected delivery dates.
Two Bombardier Q400 aircraft (above) that were previously removed from the operating fleet will be returning to revenue service. The expect changes are expected to occur in late 2019.
The Group also updated and outlined its fleet plans in the filing below:
The Alaska Air Groups, Inc. quarterly report to the United States Securities and Exchange Commission:
At June 30, 2019, the Company had operating leases for 10 Boeing 737 (B737), 62 Airbus, and 9 Bombardier Q400 aircraft. Additionally, the Company operates 32 Embraer 175 (E175) aircraft through its capacity purchase arrangement with SkyWest Airlines, Inc. (SkyWest). Remaining lease terms for these aircraft extend up to 12 years, with options to extend, subject to negotiation at the end of the term. As extension is not certain, and rates are highly likely to be renegotiated, the extended term is only capitalized when it is reasonably determinable. While aircraft rent is primarily fixed, certain leases contain rental adjustments throughout the lease term which would be recognized as variable expense as incurred. Variable lease expense for aircraft was $1 million and $2 million for the three and six months ended June 30, 2019, respectively.
Capacity purchase agreements with aircraft (CPA aircraft)
At June 30, 2019, Alaska had CPAs with three carriers, including the Company’s wholly-owned subsidiary, Horizon. Horizon sells 100% of its capacity under a CPA with Alaska. Alaska also has CPAs with SkyWest to fly certain routes in the Lower 48 and Canada, and with Peninsula Aviation Services, Inc., (PenAir) to fly certain routes in the state of Alaska. Under these agreements, Alaska pays the carriers an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. As Horizon is a wholly-owned subsidiary, intercompany leases between Alaska and Horizon have not been recognized under the standard. The agreement with PenAir does not contain a leasing arrangement, resulting in no asset or liability recognized.
Remaining lease terms for CPA aircraft range from 8 years to 11 years. Financial arrangements of the CPAs include a fixed component, representing the costs to operate each aircraft and is capitalized under the new lease accounting standard. CPAs also include variable rent based on actual levels of flying, which is expensed as incurred. Variable lease expense for CPA aircraft for the three and six months ended June 30, 2019 was not material.
As of June 30, 2019, the Company has one scheduled lease delivery of an A321neo aircraft remaining in 2019, valued at $52 million. We also had three scheduled lease deliveries of E175 aircraft in 2021 to be operated by SkyWest. Subsequent to June 30, 2019, the Company canceled these aircraft deliveries through an amendment to the capacity purchase agreement. All future lease contracts have remaining non-cancelable lease terms ranging from 2019 to 2033.
Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines.
As of June 30, 2019, the Company had commitments to purchase 32 Boeing 737 MAX 9 aircraft, with deliveries in the remainder of 2019 through 2023. Future minimum contractual payments for these aircraft have been updated to reflect the most current anticipated delivery timing for Boeing 737 MAX 9 aircraft, which has been delayed as a result of the grounding order mandated by the FAA on March 13, 2019.
The Company also has commitments to purchase five E175 aircraft with deliveries in the remainder of 2019 through 2021 and has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2023 through 2025. In addition, the Company has options to purchase 37 B737 MAX aircraft from 2021 through 2024 and 30 E175 aircraft from 2021 through 2023. The Company also has the option to increase capacity flown by SkyWest with eight additional E175 aircraft with deliveries from 2021 to 2022.
As of June 30, 2019, we have firm orders to purchase or lease 41 aircraft. We also have cancelable purchase commitments for 30 Airbus A320neo with deliveries from 2023 through 2025. We could incur a loss of pre-delivery payments and credits as a cancellation fee. We also have options to acquire 37 B737 aircraft with deliveries from 2021 through 2024 and 30 E175 aircraft with deliveries from 2021 through 2023. In addition to the 32 E175 aircraft currently operated by SkyWest in our regional fleet, we have options in future periods to add regional capacity by E175 aircraft.
The following table summarizes expected fleet activity by year as of June 30, 2019, and are subject to change: