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Spirit AirlinesUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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 No. 001-35186
Spirit Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2800 Executive Way
Miramar
Florida
(Address of principal executive offices)
38-1747023
(I.R.S. Employer
Identification No.)
33025
(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 Class
Trading Symbol
Name of Each Exchange on Which Registered
Voting Common Stock, $0.0001 par value
Non-Voting Common Stock, $0.0001 par value
SAVE
SAVE
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
☒
☐
Accelerated filer
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 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $3.2 billion computed by reference to the last sale price of the common stock on the New York
Stock Exchange on June 30, 2019, the last trading day of the registrant’s most recently completed second fiscal quarter. Shares held by each executive officer, director and by certain persons that own 10
percent or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares of each registrant's classes of common stock outstanding as of the close of business on January 28, 2020:
Class
Common Stock, $0.0001 par value per share
Number of Shares
68,455,011
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the registrant's 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated herein. The Proxy
Statement will be filed within 120 days of the registrant's fiscal year ended December 31, 2019.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
__________________________________________________
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ITEM 1. BUSINESS
Overview
PART I
Spirit Airlines, headquartered in Miramar, Florida, offers affordable travel to value-conscious customers. Our all-Airbus fleet is one of the youngest and most fuel efficient
in the United States. We currently serve more than 600 daily flights to 77 destinations in 16 countries throughout the United States, Latin America and the Caribbean. Our stock
trades under the symbol "SAVE" on the New York Stock Exchange ("NYSE").
Our ultra low-cost carrier, or ULCC, business model allows us to compete principally by offering customers unbundled base fares that remove components traditionally
included in the price of an airline ticket. By offering customers unbundled base fares, we give customers the power to save by paying only for the Á La SmarteTM options they
choose, such as checked and carry-on bags, advance seat assignments, priority boarding and refreshments. We record revenue related to these options as non-fare passenger
revenue, which is recorded within passenger revenues in our statements of operations.
Our History and Corporate Information
We were founded in 1964 as Clippert Trucking Company, a Michigan corporation. We began air charter operations in 1990 and renamed ourselves Spirit Airlines, Inc. in
1992. In 1994, we reincorporated in Delaware, and in 1999 we relocated our headquarters to Miramar, Florida.
Our mailing address and executive offices are located at 2800 Executive Way, Miramar, Florida 33025, and our telephone number at that address is (954) 447-7920. We
are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or Exchange Act, and, in accordance therewith, file
periodic reports, proxy statements and other information with the Securities and Exchange Commission or SEC. Such periodic reports, proxy statements and other information
are available on the SEC's website at http://www.sec.gov. We also post on the Investor Relations page of our website, www.spirit.com, a link to our filings with the SEC, our
Corporate Governance Guidelines and Code of Business Conduct and Ethics, which applies to all directors and all our employees, and the charters of our Audit, Compensation,
Finance, Safety, Security and Operations and Nominating and Corporate Governance committees. Our filings with the SEC are posted as soon as reasonably practical after they
are filed electronically with the SEC. Please note that information contained on our website is not incorporated by reference in, or considered to be a part of, this report.
Our Business Model
Our ULCC business model provides customers low, unbundled base fares with a range of optional services, allowing customers the freedom to choose only the options
they value. The success of our model is driven by our low-cost structure, which permits us to offer low base fares while maintaining high profit margins.
We are focused on value-conscious travelers who pay for their own travel, and our business model is designed to deliver what our customers want: low fares and a great
experience. We use low fares to address underserved markets, which helps us to increase passenger volume and load factors on the flights we operate. We also have high-density
seating configurations on our aircraft and a simplified onboard product designed to lower costs. High passenger volumes and load factors help us sell more ancillary products
and services, which in turn allows us to reduce the base fare we offer even further. We strive to be recognized by our customers and potential customers as the low-fare leader in
the markets we serve.
We compete based on total price. We believe that we and our customers benefit when we allow our customers to know the total price of their travel by breaking out the
cost of optional products or services. We allow our customers to see all available options and their respective prices prior to purchasing a ticket, and this full transparency
illustrates that our total price, including options selected, is lower on average than other airlines.
Through branded campaigns, we educate the public on how our unbundled pricing model works and show them how it provides a choice on how they spend their money
and saves them money compared to other airlines. We show our commitment to delivering the best value in the sky by continuing to make improvements to the customer
experience, including a freshly updated cabin interior with ergonomically-designed seats and self bag-tagging in most airports to reduce check-in processing time.
Our Strengths
We believe we compete successfully in the airline industry by leveraging the following demonstrated business strengths:
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Ultra Low-Cost Structure. Our unit operating costs are among the lowest of all airlines operating in the United States. We believe this unit cost advantage helps protect
our market position and enables us to offer some of the lowest base fares in our markets, sustain among the highest operating margins in our industry and support continued
growth. Our operating costs per available seat mile ("CASM") of 7.97 cents in 2019 were significantly lower than those of the major domestic network carriers and among the
lowest of the domestic low-cost carriers. We achieve these low unit operating costs in large part due to:
•
•
high aircraft utilization;
high-density seating configurations on our aircraft along with a simplified onboard product designed to lower costs;
• minimal hub-and-spoke network inefficiencies;
•
•
•
•
•
•
highly productive workforce;
opportunistic outsourcing of operating functions;
operating a single-fleet type of Airbus A320-family aircraft that is one of the youngest and most fuel efficient in the United States and operated by common flight
crews;
reduced sales, marketing and distribution costs through direct-to-consumer marketing;
efficient flight scheduling, including minimal ground times between flights; and
a company-wide business culture that is keenly focused on driving costs lower.
Innovative Revenue Generation. We execute our innovative, unbundled pricing strategy to generate significant non-ticket revenue, which allows us to lower base fares
and enables our passengers to identify, select and pay for only the products and services they want to use. In implementing our unbundled strategy, we have grown non-ticket
revenue per passenger flight segment from approximately $5 in 2006 to $56 in 2019 by:
•
•
•
charging for checked and carry-on baggage;
passing through all distribution-related expenses;
charging for premium seats and advance seat selection;
• maintaining consistent ticketing policies, including service charges for changes and cancellations;
•
•
•
•
generating subscription revenue from our $9 Fare Club low-fare subscription service;
deriving brand-based revenues from proprietary services, such as our FREE SPIRIT affinity credit card program;
offering third-party travel products (travel packages), such as hotel rooms, ground transportation (rental and hotel shuttle products) and attractions (show or theme park
tickets) packaged with air travel on our website; and
selling third-party travel insurance through our website.
Resilient Business Model and Customer Base. By focusing on price-sensitive travelers, we have maintained profitability during volatile economic periods because we are
not highly dependent on premium-fare business traffic. We believe our growing customer base is more resilient than the customer bases of most other airlines because our low
fares and unbundled service offering appeal to price-sensitive travelers.
Well Positioned for Growth. We have developed a substantial network of destinations in profitable U.S. domestic niche markets, targeted growth markets in the
Caribbean and Latin America and high-volume routes flown by price-sensitive travelers. In the United States, we also have grown into large markets that, due to higher fares,
have priced out those more price-sensitive travelers. We seek to balance growth between large domestic markets, large leisure destinations and opportunities in the Caribbean
and Latin America according to current economic and industry conditions.
Experienced International Operator. We believe we have substantial experience in foreign aviation, security and customs regulations, local ground operations and flight
crew training required for successful international and overwater flight operations. All of our aircraft are certified for overwater operations. We believe we compete favorably
against other low-cost carriers because we have been conducting international flight operations since 2003 and have developed substantial experience in complying with the
various regulations and business practices in the international markets we serve. During 2019, 2018 and 2017, no revenue from any one foreign country represented greater than
4% of our total passenger revenue. We attribute operating revenues by geographic region based upon the origin and destination of each passenger flight segment.
Financial Strength Achieved with Focus on Cost Discipline. We believe our ULCC business model has delivered strong financial results in both favorable and more
difficult economic times. We have generated these results by:
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•
•
•
keeping a consistent focus on maintaining low unit operating costs;
ensuring our sourcing arrangements with key third parties are regularly benchmarked against the best industry standards;
generating and maintaining an adequate level of liquidity to insulate against volatility in key cost inputs, such as fuel, and in passenger demand that may occur as a
result of changing general economic conditions.
Route Network
As of December 31, 2019, our route network included 319 markets served by 75 airports throughout the United States, Latin America and the Caribbean.
Below is a route map of our current network, which includes seasonal routes and routes announced as of January 29, 2020 for which service has not yet started:
Our network expansion targets underserved and/or overpriced markets. We employ a rigorous process to identify opportunities to deploy new aircraft where we believe
they will be most profitable. To monitor the profitability of each route, we analyze weekly and monthly profitability reports as well as near-term forecasting.
Competition
The airline industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, total price, flight schedules, aircraft type, passenger
amenities, number of routes served from a city, customer service, safety record and reputation, code-sharing relationships and frequent flyer programs and redemption
opportunities. We typically compete in markets served by traditional network airlines, and other low-cost carriers and ULCCs, and, to a lesser extent, regional airlines.
As of December 31, 2019, our top two largest network overlaps are with Southwest Airlines and American Airlines at approximately 62% and 44% of our markets,
respectively. Our principal competitors on domestic routes are Southwest Airlines, Delta Air Lines, American Airlines and United Airlines. Our principal competitors to our
markets in the Caribbean and Latin
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America are JetBlue Airways, American Airlines, Southwest Airlines and United Airlines. Our principal competitive advantage is our relative cost advantage which allows us to
offer low base fares profitably. In 2019, our unit operating costs were among the lowest in the U.S. airline industry. In difficult economic or competitive environments, we
believe our low unit costs coupled with our relatively stable non-ticket revenues allow us to price our fares at levels where we can be profitable while our primary competitors
cannot.
The airline industry is particularly susceptible to price discounting because, once a flight is scheduled, airlines incur only nominal incremental costs to provide service to
passengers occupying otherwise unsold seats. The expenses of a scheduled aircraft flight do not vary significantly with the number of passengers carried and, as a result, a
relatively small change in the number of passengers or in pricing could have a disproportionate effect on an airline’s operating and financial results. Price competition occurs on
a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent flyer initiatives. Airlines typically use discount
fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize TRASM. The prevalence of discount fares can be
particularly acute when a competitor has excess capacity that it is unable to fill at higher rates. A key element to our competitive strategy is to maintain very low unit costs in
order to permit us to compete successfully in price-sensitive markets.
Seasonality
Our business is subject to significant seasonal fluctuations. We generally expect demand to be greater in the second and third quarters each year due to more vacation
travel during these periods, as compared to the rest of the year. The air transportation business is also volatile and highly affected by economic cycles and trends.
Distribution
The majority of our tickets are sold through direct channels, including online via www.spirit.com, our call center and our airport ticket counters, with www.spirit.com being
the primary channel. We also partner with a number of third parties to distribute our tickets, including online and traditional travel agents and electronic global distribution
systems.
Customers
We believe our customers are primarily leisure travelers who are paying for their own ticket and who make their purchase decision based largely on price. By maintaining
a low cost structure, we can successfully sell tickets at low fares while maintaining a strong profit margin.
Customer Service
We are committed to taking care of our customers. We believe focusing on customer service in every aspect of our operations, including personnel, flight equipment, in-
flight and ancillary amenities, on-time performance, flight completion ratios, and baggage handling, will strengthen customer loyalty and attract new customers. We proactively
aim to improve our operations to ensure further improvement in customer service.
Our online booking process allows our customers to see all available options and their prices prior to purchasing a ticket. We maintain a campaign that illustrates our total
prices are lower, on average, than those of our competitors, even when options are included.
Fleet
We fly only Airbus A320 family aircraft, which provides us significant operational and cost advantages compared to airlines that operate multiple aircraft types. By
operating a single aircraft type, we avoid the incremental costs of training crews across multiple types. Flight crews are entirely interchangeable across all of our aircraft, and
maintenance, spare parts inventories and other operational support remains highly simplified compared to those airlines with more complex fleets. Due to this commonality
among Airbus single-aisle aircraft, we can retain the benefits of a fleet comprised of a single type of aircraft while still having the flexibility to match the capacity and range of
the aircraft to the demands of each route.
As of December 31, 2019, we had a fleet of 145 Airbus single-aisle aircraft, which are commonly referred to as “A320 family” aircraft. A320 family aircraft include the
A319, A320 and A321 models, which have broadly common design and equipment but differ most notably in fuselage length, service range and seat capacity. Within the A320
family of aircraft, models using existing engine technology may carry the suffix “ceo,” denoting the “current engine option,” while models equipped with new-generation
engines may carry the suffix “neo,” denoting the “new engine option.” As of December 31, 2019, our fleet consisted of 31 A319ceos, 64 A320ceos, 20 A320neos and 30
A321ceos, and the average age of the fleet was 5.9 years. As of December 31, 2019, we owned 91 of our aircraft, of which 37 aircraft are financed through fixed-rate long-term
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debt with 7 to 12 year terms, 27 aircraft are financed through enhanced equipment trust certificates ("EETCs"), and 27 aircraft were purchased off lease and are currently
unencumbered. Refer to “Notes to the Financial Statements—13. Debt and Other Obligations” for information regarding our debt financing and “Notes to the Financial
Statements—4. Special Charges” for information regarding our aircraft purchased off lease. As of December 31, 2019, we had 52 aircraft financed under operating leases and 2
aircraft financed under finance leases with lease term expirations between 2020 and 2037. In addition, as of December 31, 2019, we had 9 spare engines financed under
operating leases and owned 14 spare engines.
On December 20, 2019, we entered into an A320 NEO Family Purchase Agreement with Airbus S.A.S. ("Airbus") for the purchase of 100 new Airbus A320neo family
aircraft, with options to purchase up to 50 additional aircraft. This agreement includes a mix of Airbus A319, A320 and A321 aircraft with such aircraft scheduled for delivery
through 2027. As of December 31, 2019, our firm aircraft orders consisted of 135 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with
deliveries expected through 2027. In addition, we had 12 direct operating leases for A320neos with third-party lessors, with deliveries expected through 2021. As of
December 31, 2019, spare engine orders consisted of one V2500 SelectTwo engine with IAE and four PurePower PW 1100G-JM engines with Pratt & Whitney scheduled for
delivery from 2020 through 2023. The firm aircraft orders provide for capacity growth as well as the flexibility to add to, or replace, the aircraft in our present fleet. We may
elect to supplement these deliveries by additional acquisitions from the manufacturer or in the open market if demand conditions merit. We also may adjust or defer deliveries,
or change models of aircraft in our delivery stream, from time to time, as a means to match our future capacity with anticipated demand and growth trends.
Consistent with our ULCC business model, each of our aircraft is configured with a high density seating configuration, which helps us maintain a lower unit cost and pass
savings to our customers. Our high density seating configuration accommodates more passengers than those of our competitors when comparing the same type of aircraft.
Maintenance and Repairs
We have a Federal Aviation Administration ("FAA") mandated and approved maintenance program, which is administered by our technical services department. Our
maintenance technicians undergo extensive initial and ongoing training to ensure the safety of our aircraft. For the second year in a row, we have achieved the FAA's highest
award for Technical Training, the Diamond Award of Excellence. This award is only achieved if 100% of technicians receive the FAA's Aircraft Maintenance Technician
("AMT") Certificate of Training.
Aircraft maintenance and repair consists of routine and non-routine maintenance, and work performed is divided into three general categories: line maintenance, heavy
maintenance and component service. Line maintenance consists of routine daily and weekly scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly
and overnight checks, and any diagnostics and routine repairs and any unscheduled items on an as needed basis. Line maintenance events are currently serviced by in-house
mechanics supplemented by contract labor and are primarily completed at airports we currently serve. Heavy airframe maintenance checks consist of a series of more complex
tasks that can take from one to four weeks to accomplish and typically are required approximately every 24 to 36 months. Heavy engine maintenance is performed
approximately every six years and includes a more complex scope of work. Due to our relatively small fleet size and projected fleet growth, we believe outsourcing all of our
heavy maintenance activity, such as engine servicing, heavy airframe maintenance checks, major part repair and component service repairs is more economical. Outsourcing
eliminates the substantial initial capital requirements inherent in heavy aircraft maintenance. We have entered into a long-term flight hour agreement for the majority of our
current fleet with IAE and Pratt & Whitney for our engine overhaul services and with Lufthansa Technik on an hour-by-hour basis for component services. We outsource our
heavy airframe maintenance to FAA-qualified maintenance providers.
Our recent maintenance expenses have been lower than what we expect to incur in the future because of the relatively young age of our aircraft fleet. Our maintenance
costs are expected to increase as the scope of repairs increases with the increasing age of our fleet. As our aircraft age, scheduled scope of work and frequency of unscheduled
maintenance events is likely to increase like any maturing fleet. Our aircraft utilization rate could decrease with the increase in aircraft maintenance.
In 2017, we opened a 126,000-square-foot maintenance hangar facility, adjacent to the airfield at the Detroit Metropolitan Wayne County Airport, which allows us to
fulfill the maintenance requirements of our growing fleet and will reduce dependence on third-party facilities and contract line maintenance. Please see “-Properties-Ground
Facilities.”
Employees
Our business is labor intensive, with labor costs representing approximately 26.0%, 24.2% and 23.4% of our total operating costs for 2019, 2018 and 2017, respectively.
As of December 31, 2019, we had 2,390 pilots, 4,179 flight attendants, 68 dispatchers, 304 ramp service agents, 270 passenger service agents, 778 maintenance personnel, 214
airport agents/other and 735 employees in administrative roles for a total of 8,938 employees. As of December 31, 2019, approximately 81% of our
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employees were represented by five labor unions. On an average full-time equivalent basis, for the full year 2019, we had 8,077 employees, compared to 7,110 in 2018.
FAA regulations require pilots to have commercial licenses with specific ratings for the aircraft to be flown and be medically certified as physically fit to fly. FAA and
medical certifications are subject to periodic renewal requirements, including recurrent training and recent flying experience. Mechanics, quality-control inspectors and
dispatchers must be certificated and qualified for specific aircraft. Flight attendants must have initial and periodic competency training and qualification. Training programs are
subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection
must also meet experience standards prescribed by FAA regulations. All safety-sensitive employees are subject to pre-employment, random and post-accident drug testing.
The Railway Labor Act, or RLA, governs our relations with labor organizations. Under the RLA, our collective bargaining agreements do not expire, but instead become
amendable as of a stated date. If either party wishes to modify the terms of any such agreement, they must notify the other party in the manner agreed to by the parties. Under
the RLA, after receipt of such notice, the parties must meet for direct negotiations. If no agreement is reached, either party may request the National Mediation Board, or NMB,
to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process. It is not unusual for those processes to last for many months,
and even several years. If no agreement is reached in mediation, the NMB in its discretion may declare at some time that an impasse exists. If an impasse is declared, the NMB
proffers binding arbitration to the parties. Either party may decline to submit to arbitration. If arbitration is rejected by either party, a 30-day “cooling off” period commences.
During that period (or after), a Presidential Emergency Board, or PEB, may be established, which examines the parties’ positions and recommends a solution. The PEB process
lasts for 30 days and is followed by another “cooling off” period of 30 days. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress,
the labor organization and the airline each may resort to “self-help,” including, for the labor organization, a strike or other labor action, and for the airline, the imposition of any
or all of its proposed amendments and the hiring of new employees to replace any striking workers. Congress and the President have the authority to prevent “self-help” by
enacting legislation that, among other things, imposes a settlement on the parties. The table below sets forth our employee groups and status of the collective bargaining
agreements.
Employee Groups
Pilots
Flight Attendants
Dispatchers
Representative
Air Line Pilots Association, International (ALPA)
Association of Flight Attendants (AFA-CWA)
Professional Airline Flight Control Association (PAFCA)
Amendable Date
February 2023
May 2021
October 2023
Ramp Service Agents
International Association of Machinists and Aerospace Workers (IAMAW)
June 2020
Passenger Service Agents
Transport Workers Union of America (TWU)
NA
In February 2018, the pilot group voted to approve the current five-year agreement. In connection with the current agreement, we incurred a one-time ratification incentive
of $80.2 million, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. These amounts were recorded in special charges within
operating expenses in the statement of operations for the year ended December 31, 2018. For additional information, refer to “Notes to the Financial Statements—4. Special
Charges.”
In March 2016, under the supervision of the NMB, we reached a tentative agreement for a five-year contract with our flight attendants and in May 2016, the flight
attendants voted to approve the new five-year contract.
Our dispatchers are represented by the PAFCA. In June 2018, we commenced negotiations with PAFCA for an amended agreement with our dispatchers. In October 2018,
we reached a tentative agreement for a new five-year agreement, which was ratified by the PAFCA members in October 2018.
In July 2014, certain ramp service agents directly employed by us voted to be represented by the IAMAW. In May 2015, we entered into a five-year interim collective
bargaining agreement with the IAMAW, covering material economic terms. In June 2016, we reached an agreement on the remaining terms of the collective bargaining
agreement, which is amendable in June 2020.
Our passenger service agents voted to be represented by the TWU, but the representation only applies to our Fort Lauderdale station where we have direct employees in
the passenger service classification. We began meeting with the TWU in late October 2018 to negotiate an initial collective bargaining agreement. As of December 31, 2019, we
continued to negotiate with the TWU.
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We focus on hiring highly productive employees and, where feasible, designing systems and processes around automation and outsourcing in order to maintain our low-
cost base.
Safety and Security
We are committed to the safety and security of our passengers and employees. We strive to comply with or exceed health and safety regulation standards. In pursuing
these goals, we maintain an active aviation safety program. All of our personnel are expected to participate in the program and take an active role in the identification, reduction
and elimination of hazards.
Our ongoing focus on safety relies on training our employees to proper standards and providing them with the tools and equipment they require so they can perform their
job functions in a safe and efficient manner. Safety in the workplace targets several areas of our business, including: flight operations, maintenance, in-flight, dispatch and
station operations. The Transportation Security Administration, or TSA, is charged with aviation security for both airlines and airports. We maintain active, open lines of
communication with the TSA at all of our locations to ensure proper standards for security of our personnel, customers, equipment and facilities are exercised throughout our
business.
Insurance
We maintain insurance policies we believe are customary in the airline industry and as required by the Department of Transportation ("DOT"). The policies principally
provide liability coverage for public and passenger injury; damage to property; loss of or damage to flight equipment; fire and extended coverage; war risk (terrorism); directors’
and officers’ liability; advertiser and media liability; cyber risk liability; fiduciary; and workers’ compensation and employer’s liability. Renewing coverage could result in a
change in premium and more restrictive terms. Although we currently believe our insurance coverage is adequate, there can be no assurance that the amount of such coverage
will not be changed or that we will not be forced to bear substantial losses from accidents.
Management Information Systems
We have continued our commitment to technology improvements to support our ongoing operations and initiatives. During 2017, we completed the migration of critical
operating and sales systems into a state-of-the-art data center facility in South Florida, implemented a new customer mobile application, deployed all new self-service kiosks,
and improved the customer experience on our website. During 2018, we invested in the development of a regionally diverse cloud infrastructure and further network
improvements.
In 2019, we began the process of upgrading our enterprise accounting software. This project was suspended in the third quarter of 2019 and we have elected to re-evaluate
and pursue the optimal solution. In addition, we implemented a new website built on a more stable codebase which provides for a better user experience. In addition, we
invested in improving the stability of our mobile application.
Throughout 2020, we will continue to migrate critical business applications into the cloud infrastructure, allowing us to take increasing advantage of the analytics and
automation functions. These improvements provide further opportunities to increase business intelligence and flexibility, improve business continuity, mitigate disaster
scenarios and enhance data security. We intend to continue to invest resources in cyber security to protect our data, operations and our customers' privacy.
Foreign Ownership
Under DOT regulations and federal law, we must be controlled by U.S. citizens. In order to qualify, at least 75% of our stock must be voted by U.S. citizens, and our
president and at least two-thirds of our board of directors and senior management must be U.S. citizens.
We believe we are currently in compliance with such foreign ownership rules.
Government Regulation
Operational Regulation
The airline industry is heavily regulated, especially by the federal government. Two of the primary regulatory authorities overseeing air transportation in the United States
are the DOT and the FAA. The DOT has jurisdiction over economic and consumer issues affecting air transportation, such as competition, route authorizations, advertising and
sales practices, baggage liability and disabled passenger transportation, reporting of mishandled bags, tarmac delays and responding to customer complaints among other areas.
In August 2019, the DOT issued a Final Statement of Enforcement Priorities Regarding Service Animals, to highlight its intended enforcement focus pending issuance of a new
rule. In January 2020, the DOT issued a Notice
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of Proposed Rulemaking to seek comment on proposed amendments to its Nondiscrimination on the Basis of Disability in Air Travel regulations regarding transportation of
service animals. In 2016, Congress passed a law requiring airlines to refund checked bag fees for delayed bags if they are not delivered to the passenger within a specified
number of hours. Though the DOT has been collecting information from carriers and other interested parties and organizations from which to develop a final rule, as of January
2020, a rule has not been issued. Additional rules, including disabled passenger rules, may be issued in 2020. See “Risk Factors—Restrictions on or increased taxes applicable to
charges for ancillary products and services paid by airline passengers and burdensome consumer protection regulations or laws which could harm our business, results of
operations and financial condition."
The DOT has authority to issue certificates of public convenience and necessity required for airlines to provide air transportation. We hold a DOT certificate of public
convenience and necessity authorizing us to engage in scheduled air transportation of passengers, property and mail within the United States, its territories and possessions and
between the United States and all countries that maintain a liberal aviation trade relationship with the United States (known as “open skies” countries). We also hold DOT
certificates to engage in air transportation to certain other countries with more restrictive aviation policies.
The FAA is responsible for regulating and overseeing matters relating to air carrier flight operations, including airline operating certificates, aircraft certification and
maintenance and other matters affecting air safety, including rest periods and work hours for all airlines certificated under Part 121 of the Federal Aviation Regulations. The
FAA requires each commercial airline to obtain and hold an FAA air carrier certificate. This certificate, in combination with operations specifications issued to the airline by the
FAA, authorizes the airline to operate at specific airports using aircraft approved by the FAA. As of December 31, 2019, we had FAA airworthiness certificates for all of our
aircraft, we had obtained the necessary FAA authority to fly to all of the cities we currently serve, and all of our aircraft had been certified for overwater operations. Any new or
revised operational regulations in the future could result in further increased costs. We believe we hold all necessary operating and airworthiness authorizations, certificates and
licenses and are operating in compliance with applicable DOT and FAA regulations, interpretations and policies.
International Regulation
All international service is subject to the regulatory requirements of the foreign government involved. We currently offer international service to Aruba, Colombia, Costa
Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru and St. Maarten, as well as Puerto Rico and the U.S.
Virgin Islands. If we decide to increase our routes to additional international destinations, we will be required to obtain necessary authority from the DOT and the applicable
foreign government. We are also required to comply with overfly regulations in countries that lay along our routes but which we do not serve.
International service is also subject to Customs and Border Protection, or CBP, immigration and agriculture requirements and the requirements of equivalent foreign
governmental agencies. Like other airlines flying international routes, from time to time we may be subject to civil fines and penalties imposed by CBP if unmanifested or
illegal cargo, such as illegal narcotics, is found on our aircraft. These fines and penalties, which in the case of narcotics are based upon the retail value of the seizure, may be
substantial. We have implemented a comprehensive security program at our airports to reduce the risk of illegal cargo being placed on our aircraft, and we seek to cooperate
actively with CBP and other U.S. and foreign law enforcement agencies in investigating incidents or attempts to introduce illegal cargo.
Security Regulation
The TSA was created in 2001 with the responsibility and authority to oversee the implementation, and ensure the adequacy of security measures at airports and other
transportation facilities. Funding for passenger security is provided in part by a per enplanement ticket tax (passenger security fee). Prior to and for the first half of 2014, this fee
was $2.50 per passenger flight segment, subject to a maximum of $5 per one-way trip. Effective July 1, 2014, the security fee was set at a flat rate of $5.60 each way. On
December 19, 2014, the law was amended to limit a round-trip fee to $11.20. In addition, in the past, the TSA has assessed an Aviation Security Infrastructure Fee, or ASIF, on
each airline. This fee was eliminated by the TSA effective October 1, 2014. We cannot forecast what additional security and safety requirements may be imposed in the future or
the costs or revenue impact that would be associated with complying with such requirements.
Environmental Regulation
We are subject to various federal, state and local laws and regulations relating to the protection of the environment and affecting matters such as aircraft engine emissions,
aircraft noise emissions and the discharge or disposal of materials and chemicals, which laws and regulations are administered by numerous state and federal agencies. The
Environmental Protection Agency, or EPA, regulates operations, including air carrier operations, which affect the quality of air in the United States. We
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believe the aircraft in our fleet meet all emission standards issued by the EPA. Concern about climate change and greenhouse gases may result in additional regulation or
taxation of aircraft emissions in the United States and abroad.
Federal law recognizes the right of airport operators with special noise problems to implement local noise abatement procedures so long as those procedures do not
interfere unreasonably with interstate and foreign commerce and the national air transportation system. These restrictions can include limiting nighttime operations, directing
specific aircraft operational procedures during takeoff and initial climb, and limiting the overall number of flights at an airport.
Other Regulations
We are subject to certain provisions of the Communications Act of 1934, as amended, and are required to obtain an aeronautical radio license from the Federal
Communications Commission, or FCC. To the extent we are subject to FCC requirements, we will take all necessary steps to comply with those requirements. We are also
subject to state and local laws and regulations at locations where we operate and the regulations of various local authorities that operate the airports we serve.
Future Regulations
The U.S. and foreign governments may consider and adopt new laws, regulations, interpretations and policies regarding a wide variety of matters that could directly or
indirectly affect our results of operations. We cannot predict what laws, regulations, interpretations and policies might be considered in the future, nor can we judge what
impact, if any, the implementation of any of these proposals or changes might have on our business.
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ITEM 1A. RISK FACTORS
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") which are subject to the “safe harbor” created by those sections. Forward-looking
statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of
historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-
looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no
obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Additional risks or uncertainties (i) that are not
currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial
condition, or future results. You should carefully consider the risks described below and the other information in this report. If any of the following risks materialize, our
business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. References in this report to “Spirit,”
“we,” “us,” “our,” or the “Company” shall mean Spirit Airlines, Inc., unless the context indicates otherwise.
We operate in an extremely competitive industry.
Risks Related to Our Industry
We face significant competition with respect to routes, fares and services. Within the airline industry, we compete with traditional network airlines, other low-cost airlines
and regional airlines on many of our routes. Competition in most of the destinations we presently serve is intense, sometimes due to the large number of carriers in those
markets. Furthermore, other airlines may begin service or increase existing service on routes where we currently face little competition. Most of our competitors are larger than
us and have significantly greater financial and other resources than we do.
The airline industry is particularly susceptible to price discounting because once a flight is scheduled, airlines incur only nominal additional costs to provide service to
passengers occupying otherwise unsold seats. Increased fare or other price competition has, and may continue to, adversely affect our revenue generation. Moreover, many other
airlines have begun to unbundle services by charging separately for services such as baggage and advance seat selection. This unbundling and other cost reducing measures
could enable competitor airlines to reduce fares on routes that we serve. Beginning in 2015, and continuing through 2019, more widespread availability of low fares, including
from legacy network carriers, coupled with an increase in domestic capacity led to dramatic changes in pricing behavior in many U.S. markets. Many domestic carriers began
matching lower cost airline pricing, either with limited or unlimited inventory.
Airlines increase or decrease capacity in markets based on perceived profitability, market share objectives, competitive considerations and other reasons. Decisions by our
competitors that increase overall industry capacity, or capacity dedicated to a particular domestic or foreign region, market or route, could have a material adverse impact on our
business. If a traditional network airline were to successfully develop a low-cost structure, compete with us on price or if we were to experience increased competition from
other low-cost carriers, our business could be materially adversely affected.
Many of the traditional network airlines in the United States have on one or more occasions initiated bankruptcy proceedings in attempts to restructure their debt and other
obligations and reduce their operating costs. They also have completed large mergers that have increased their scale and share of the travel market. The mergers between AMR
Corporation and US Airways Group, Inc., between Delta Air Lines and Northwest Airlines, between United Airlines and Continental Airlines, between Southwest Airlines and
AirTran Airways, and between Alaska Airlines and Virgin America, have created five large airlines, with substantial national and international networks which creates a more
challenging competitive environment for smaller airlines like us. In the future, there may be additional consolidation in our industry. Any business combination could
significantly alter industry conditions and competition within the airline industry, which could have an adverse effect on our business.
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Our growth and the success of our ULCC business model could stimulate competition in our markets through our competitors’ development of their own ULCC strategies,
new pricing policies designed to compete with ULCCs or new market entrants. Any such competitor may have greater financial resources and access to less expensive sources
of capital than we do, which could enable them to operate their business with a lower cost structure, or enable them to operate with lower-marginal revenues without substantial
adverse effects, than we can. If these competitors adopt and successfully execute a ULCC business model, we could be materially adversely affected. In 2015, Delta Air Lines
began to market and sell a "Basic Economy" product which was designed in part to provide its customers with a low base fare similar to Spirit. In 2017, American Airlines and
United Airlines announced their own "Basic Economy" product, and other airlines like Alaska Airlines and beginning in late 2019, JetBlue, have followed suit.
The extremely competitive nature of the airline industry could prevent us from attaining the level of passenger traffic or maintaining the level of fares or revenues related
to ancillary services required to sustain profitable operations in new and existing markets and could impede our growth strategy, which could harm our operating results. Due to
our relatively small size, we are susceptible to a fare war or other competitive activities in one or more of the markets we serve, which could have a material adverse effect on
our business, results of operations and financial condition.
Our low-cost structure is one of our primary competitive advantages, and many factors could affect our ability to control our costs.
Our low-cost structure is one of our primary competitive advantages. However, we have limited control over many of our costs. For example, we have limited control over
the price and availability of aircraft fuel, aviation insurance, airport costs and related infrastructure taxes, the cost of meeting changing regulatory requirements and our cost to
access capital or financing. In addition, the compensation and benefit costs applicable to a significant portion of our employees are established by the terms of our collective
bargaining agreements. We cannot guarantee we will be able to maintain a cost advantage over our competitors. If our cost structure increases and we are no longer able to
maintain a sufficient cost advantage over our competitors, it could have a material adverse effect on our business, results of operations and financial condition.
The airline industry is heavily influenced by the price and availability of aircraft fuel. Continued volatility in fuel costs or significant disruptions in the supply of fuel,
including hurricanes and other events affecting the Gulf Coast in particular, could materially adversely affect our business, results of operations and financial
condition.
Aircraft fuel costs represented 29.8%, 31.6% and 27.3% of our total operating expenses for 2019, 2018 and 2017, respectively. As such, our operating results are
significantly affected by changes in the availability and the cost of aircraft fuel, especially aircraft fuel refined in the U.S. Gulf Coast region, on which we are highly dependent.
Both the cost and the availability of aircraft fuel are subject to many meteorological, economic and political factors and events occurring throughout the world, which we can
neither control nor accurately predict. For example, a major hurricane making landfall along the Gulf Coast could disrupt oil production, refinery operations and pipeline
capacity in that region, possibly resulting in significant increases in the price of aircraft fuel and diminished availability of aircraft fuel supply. Any disruption to oil production,
refinery operations, or pipeline capacity in the Gulf Coast region could have a disproportionate impact on our operating results compared to other airlines that have more
diversified fuel sources. Fuel prices also may be affected by geopolitical and macroeconomic conditions and events that are outside of our control, including volatility in the
relative strength of the U.S. dollar, the currency in which oil is denominated. Instability within major oil producing regions, such as the Middle East and Venezuela, changes in
demand from major petroleum users such as China, and secular increases in competing energy sources are examples of these trends.
Aircraft fuel prices have been subject to high volatility, fluctuating substantially over the past several years. For example, our fuel prices spiked at a high of $3.32 per
gallon, in the second quarter of 2012, fell as low as $1.22 per gallon in the first quarter of 2016 and remained at over $2.00 per gallon throughout 2019. We cannot predict the
future availability, price volatility or cost of aircraft fuel. Due to the large proportion of aircraft fuel costs in our total operating cost base, even a relatively small increase or
decrease in the price of aircraft fuel can have a significant negative impact on our operating costs or revenues and on our business, results of operations and financial condition.
The International Maritime Organization ("IMO") has set January 1, 2020 as the implementation date for ships to comply with its new low-sulfur fuel oil requirements. It
is uncertain how the availability and price of jet fuel around the world will be affected by the implementation of the IMO 2020 Regulations. Increased costs and/or decreased
supply of jet fuel may be material and could adversely affect the results of our operations and financial condition.
Fuel derivative activity, if any, may not reduce fuel costs.
From time to time, we may enter into fuel derivative contracts in order to mitigate the risk to our business from future volatility in fuel prices. Our derivatives may
generally consist of United States Gulf Coast jet fuel swaps ("jet fuel swaps") and
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United States Gulf Coast jet fuel options ("jet fuel options"). Both jet fuel swaps and jet fuel options can be used at times to protect the refining risk between the price of crude
oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. As of December 31, 2019, we had no outstanding jet fuel derivatives, and we have not
engaged in fuel derivative activity since 2015. There can be no assurance that we will be able to enter into fuel derivative contracts in the future if we are required or choose to
do so. Our liquidity and general level of capital resources impacts our ability to hedge our fuel requirements. Even if we are able to hedge portions of our future fuel
requirements, we cannot guarantee that our derivative contracts will provide sufficient protection against increased fuel costs or that our counterparties will be able to perform
under our derivative contracts, such as in the case of a counterparty’s insolvency. Furthermore, our ability to react to the cost of fuel, absent hedging, is limited because we set
the price of tickets in advance of incurring fuel costs. Our ability to pass on any significant increases in aircraft fuel costs through fare increases could also be limited. In the
event of a reduction in fuel prices compared to our hedged position, if any, our hedged positions could counteract the cost benefit of lower fuel prices and may require us to post
cash margin collateral. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends and Uncertainties Affecting Our Business
—Aircraft Fuel.”
Restrictions on or increased taxes applicable to charges for ancillary products and services paid by airline passengers and burdensome consumer protection
regulations or laws could harm our business, results of operations and financial condition.
During 2019, 2018 and 2017, we generated non-ticket revenues of $1,943.7 million, $1,618.9 million and $1,280.2 million, respectively. Our non-ticket revenues are
generated from charges for, among other things, baggage, bookings through certain of our distribution channels, advance seat selection, itinerary changes and loyalty programs.
The DOT has rules governing many facets of the airline-consumer relationship, including, for instance, price advertising, tarmac delays, bumping of passengers from flights,
ticket refunds and the carriage of disabled passengers. If we are not able to remain in compliance with these rules, the DOT may subject us to fines or other enforcement action,
including requirements to modify our passenger reservations system, which could have a material adverse effect on our business. The U.S. Congress and Federal administrative
agencies have investigated the increasingly common airline industry practice of unbundling the pricing of certain products and services. If new taxes are imposed on non-ticket
revenues, or if other laws or regulations are adopted that make unbundling of airline products and services impermissible, or more cumbersome or expensive, our business,
results of operations and financial condition could be harmed. Congressional and other government scrutiny may also change industry practice or public willingness to pay for
ancillary services. See also “—We are subject to extensive regulation by the FAA, DOT, TSA and other U.S. and foreign governmental agencies, compliance with which could
cause us to incur increased costs and adversely affect our business and financial results.”
The airline industry is particularly sensitive to changes in economic conditions. Adverse economic conditions would negatively impact our business, results of
operations and financial condition.
Our business and the airline industry in general are affected by many changing economic conditions beyond our control, including, among others:
changes and volatility in general economic conditions, including the severity and duration of any downturn in the U.S. or global economy and financial markets;
changes in consumer preferences, perceptions, spending patterns or demographic trends, including any increased preference for higher-fare carriers offering higher
amenity levels, and reduced preferences for low-fare carriers offering more basic transportation;
higher levels of unemployment and varying levels of disposable or discretionary income;
depressed housing and stock market prices; and
lower levels of actual or perceived consumer confidence.
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These factors can adversely affect, and from time to time have adversely affected, our results of operations, our ability to obtain financing on acceptable terms and our
liquidity. Unfavorable general economic conditions, such as higher unemployment rates, a constrained credit market, housing-related pressures and increased focus on reducing
business operating costs can reduce spending for price-sensitive leisure and business travel. For many travelers, in particular the price-sensitive travelers we serve, air
transportation is a discretionary purchase that they may reduce or eliminate from their spending in difficult economic times. The overall decrease in demand for air
transportation in the United States in 2008 and 2009 resulting from record high fuel prices and the economic recession required us to take significant steps to reduce our
capacity, which reduced our revenues. Unfavorable economic conditions could also affect our ability to raise prices to counteract the effect of
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increased fuel, labor or other costs, resulting in a material adverse effect on our business, results of operations and financial condition.
The airline industry faces ongoing security concerns and related cost burdens, furthered by threatened or actual terrorist attacks or other hostilities that could
significantly harm our industry and our business.
The terrorist attacks of September 11, 2001 and their aftermath negatively affected the airline industry. The primary effects experienced by the airline industry included:
substantial loss of revenue and flight disruption costs caused by the grounding of all commercial air traffic in or headed to the United States by the FAA for days after
the terrorist attacks;
increased security and insurance costs;
increased concerns about future terrorist attacks;
airport shutdowns and flight cancellations and delays due to security breaches and perceived safety threats; and
significantly reduced passenger traffic and yields due to the subsequent dramatic drop in demand for air travel.
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Since September 11, 2001, the Department of Homeland Security and the TSA have implemented numerous security measures that restrict airline operations and increase
costs, and are likely to implement additional measures in the future. For example, following the widely publicized attempt of an alleged terrorist to detonate plastic explosives
hidden underneath his clothes on a Northwest Airlines flight on Christmas Day in 2009, passengers became subject to enhanced random screening, which included pat-downs,
explosive detection testing and body scans. Enhanced passenger screening, increased regulation governing carry-on baggage and other similar restrictions on passenger travel
may further increase passenger inconvenience and reduce the demand for air travel. In addition, increased or enhanced security measures have tended to result in higher
governmental fees imposed on airlines, resulting in higher operating costs for airlines, which we may not be able to pass on to consumers in the form of higher prices. Any
future terrorist attacks or attempted attacks, even if not made directly on the airline industry, or the fear of such attacks or other hostilities (including elevated national threat
warnings or selective cancellation or redirection of flights due to terror threats) would likely have a material adverse effect on our business, results of operations and financial
condition and on the airline industry in general.
Airlines are often affected by factors beyond their control, including: air traffic congestion at airports; air traffic control inefficiencies; major construction or
improvements at airports; adverse weather conditions, such as hurricanes or blizzards; increased security measures; new travel related taxes or the outbreak of
disease, any of which could harm our business, operating results and financial condition.
Like other airlines, our business is affected by factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, major construction
or improvements at airports at which we operate, adverse weather conditions, increased security measures, new travel related taxes, the outbreak of disease, new regulations or
policies from the presidential administration and Congress. Factors that cause flight delays frustrate passengers and increase costs, which in turn could adversely affect
profitability. The federal government currently controls all U.S. airspace, and airlines are completely dependent on the FAA to operate that airspace in a safe, efficient and
affordable manner. The air traffic control system, which is operated by the FAA, faces challenges in managing the growing demand for U.S. air travel. U.S. and foreign air-
traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes resulting in delays. A significant
portion of our operations is concentrated in markets such as South Florida, the Caribbean, Latin America and the Northeast and northern Midwest regions of the United States,
which are particularly vulnerable to weather, airport traffic constraints and other delays. Adverse weather conditions and natural disasters, such as hurricanes affecting southern
Florida and the Caribbean (such as Hurricanes Irma and Maria in September 2017 and Hurricane Dorian in August 2019) as well as southern Texas (such as Hurricane Harvey
in August 2017), winter snowstorms or earthquakes (such as the September 2017 earthquakes in Mexico City, Mexico and the December 2019 and January 2020 earthquakes in
Puerto Rico) can cause flight cancellations, significant delays and facility disruptions. For example, during 2017, the timing and location of Hurricanes Irma and Maria produced
a domino effect on our operations resulting in approximately 1,400 flight cancellations and numerous flight delays, which resulted in an adverse effect on our results of
operations. Cancellations or delays due to adverse weather conditions or natural disasters, air traffic control problems or inefficiencies, breaches in security or other factors may
affect us to a greater degree than other, larger airlines that may be able to recover more quickly from these events, and therefore could harm our business, results of operations
and financial condition to a greater degree than other air carriers. Because of our high utilization, point-to-point network, operational disruptions can have a disproportionate
impact on our ability to recover. In addition, many airlines reaccommodate their disrupted passengers on other airlines at prearranged rates under flight interruption manifest
agreements. We have been unsuccessful in procuring any of these agreements with our
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peers, which makes our recovery from disruption more challenging than for larger airlines that have these agreements in place. Similarly, outbreaks of pandemic or contagious
diseases, such as Ebola, measles, avian flu, severe acute respiratory syndrome (SARS), H1N1 (swine) flu, Zika virus and Coronavirus, could result in significant decreases in
passenger traffic and the imposition of government restrictions in service and could have a material adverse impact on the airline industry. Any increases in travel related taxes
could also result in decreases in passenger traffic. Any general reduction in airline passenger traffic could have a material adverse effect on our business, results of operations
and financial condition. Moreover, U.S. federal government shutdowns may cause delays and cancellations or reductions in discretionary travel due to longer security lines,
including as a result of furloughed government employees, or reductions in staffing levels, including air traffic controllers. U.S. government shutdowns may also impact our
ability to take delivery of aircraft and commence operations in new domestic stations. Any extended shutdown like the one in January 2019 may have a negative impact on our
operations and financial results.
Restrictions on or litigation regarding third-party membership discount programs could harm our business, operating results and financial condition.
We generate a relatively small but growing portion of our revenue from commissions, revenue share and other fees paid to us by third-party merchants for customer click-
throughs, distribution of third-party promotional materials and referrals arising from products and services of the third-party merchants that we offer to our customers on our
website. Some of these third-party referral-based offers are for memberships in discount programs or similar promotions made to customers who have purchased products from
us, and for which we receive a payment from the third-party merchants for every customer that accepts the promotion. Certain of these third-party membership discount
programs have been the subject of consumer complaints, litigation and regulatory actions alleging that the enrollment and billing practices involved in the programs violate
various consumer protection laws or are otherwise deceptive. Any private or governmental claim or action that may be brought against us in the future relating to these third-
party membership programs could result in our being obligated to pay damages or incurring legal fees in defending claims. These damages and fees could be disproportionate to
the revenues we generate through these relationships. In addition, customer dissatisfaction or a significant reduction in or termination of the third-party membership discount
offers on our website as a result of these claims could have a negative impact on our brand, and have a material adverse effect on our business, results of operations and financial
condition.
We face competition from air travel substitutes.
In addition to airline competition from traditional network airlines, other low-cost airlines and regional airlines, we also face competition from air travel substitutes. On
our domestic routes, we face competition from some other transportation alternatives, such as bus, train or automobile. In addition, technology advancements may limit the
demand for air travel. For example, video teleconferencing and other methods of electronic communication may reduce the need for in-person communication and add a new
dimension of competition to the industry as travelers seek lower-cost substitutes for air travel. If we are unable to adjust rapidly in the event the basis of competition in our
markets changes, it could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Our Business
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our business, results of operations and financial
conditions.
Our business is labor intensive, with labor costs representing approximately 26.0%, 24.2% and 23.4% of our total operating costs for 2019, 2018 and 2017, respectively.
As of December 31, 2019, approximately 81% of our workforce was represented by labor unions. We cannot assure that our labor costs going forward will remain competitive
because in the future our labor agreements may be amended or become amendable and new agreements could have terms with higher labor costs; one or more of our competitors
may significantly reduce their labor costs, thereby reducing or eliminating our comparative advantages as to one or more of such competitors; or our labor costs may increase in
connection with our growth. We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize.
Relations between air carriers and labor unions in the United States are governed by the RLA. Under the RLA, collective bargaining agreements generally contain
“amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date
through a multi-stage and usually lengthy series of bargaining processes overseen by the NMB. This process continues until either the parties have reached agreement on a new
collective bargaining agreement, or the parties have been released to “self-help” by the NMB. In most circumstances, the RLA prohibits strikes; however, after release by the
NMB, carriers and unions are free to engage in self-help measures such as lockouts and strikes.
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During 2017, we experienced operational disruption from pilot-related work action which adversely impacted our results. We obtained a temporary restraining order to
enjoin further illegal labor action. In January 2018, under the guidance of the NMB assigned mediators, the parties reached a tentative agreement. In February 2018, the pilot
group voted to approve the current five-year agreement with us. In connection with the current agreement, we incurred a one-time ratification incentive of $80.2 million,
including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. These amounts were recorded in special charges within operating expenses in the
statement of operations for the year ended 2018.
In March 2016, under the supervision of the NMB, we reached a tentative agreement for a five-year contract with our flight attendants. In May 2016, we entered into a
five-year agreement with our flight attendants, which becomes amendable May 2021.
Our dispatchers are represented by the PAFCA. In June 2018, we commenced negotiations with PAFCA for an amended agreement with our dispatchers. In October 2018,
PAFCA and the Company reached a tentative agreement for a new five-year agreement, which was ratified by the PAFCA members in October 2018.
In July 2014, certain ramp service agents directly employed by us voted to be represented by the IAMAW. In May 2015, we entered into a five-year interim collective
bargaining agreement with the IAMAW, including material economic terms. In June 2016, we reached an agreement on the remaining terms of the collective bargaining
agreement with the IAMAW, which is amendable in June 2020.
In June 2018, our passenger service agents voted to be represented by the TWU, but the representation applies only to the our Fort Lauderdale station where we have
direct employees in the passenger service classification. We began meeting with the TWU in late October 2018 to negotiate an initial collective bargaining agreement. As of
December 31, 2019, we continued to negotiate with the TWU.
If we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their CBAs, we may be subject to work
interruptions or stoppages, such as the strike by our pilots in June 2010 and the operational disruption from pilot-related work action experienced in 2017. A strike or other
significant labor dispute with our unionized employees is likely to adversely affect our ability to conduct business. Any agreement we do reach could increase our labor and
related expenses.
The Patient Protection and Affordable Care Act was enacted in 2010. Under the current administration, this law may be repealed in its entirety or certain aspects may be
changed or replaced. If the law is repealed or significantly modified or if new healthcare legislation is passed, such action could significantly increase cost of the healthcare
benefits provided to our U.S. employees. In addition, the failure to comply materially with such existing and new laws, rules and regulations could adversely affect our business,
results of operations and financial conditions.
We have a significant amount of aircraft-related fixed obligations that could impair our liquidity and thereby harm our business, results of operations and financial
condition.
The airline business is capital intensive and, as a result, many airline companies are highly leveraged. As of December 31, 2019, our 145 aircraft fleet consisted of 52
aircraft financed under operating leases, 2 aircraft financed under finance leases, 64 aircraft financed under debt arrangements, and 27 aircraft purchased off lease and currently
unencumbered. In 2019 and 2018, we paid the lessors rent of $181.0 million and $214.0 million, respectively. In connection with our aircraft and engines, in 2019, we received
maintenance deposits, net of payments, of $22.5 million and in 2018, we received maintenance deposits, net of payments, of $14.0 million. As of December 31, 2019, we had
future aircraft and spare engine operating lease obligations of approximately $1.8 billion. In 2019 and 2018, we made scheduled principal payments of $246.8 million and
$137.3 million on our outstanding debt obligations, respectively. As of December 31, 2019, we had future principal debt obligations of $2.2 billion, of which $222.1 million is
due in 2020. In addition, we have significant obligations for aircraft and spare engines that we have ordered from Airbus, International Aero Engines AG, or IAE, and Pratt &
Whitney for delivery over the next several years. Our ability to pay the fixed costs associated with our contractual obligations will depend on our operating performance, cash
flow and our ability to secure adequate financing, which will in turn depend on, among other things, the success of our current business strategy, fuel price volatility, weakening
or improvement in the U.S. economy, as well as general economic and political conditions and other factors that are beyond our control. The amount of our aircraft related fixed
obligations and related need to obtain financing could have a material adverse effect on our business, results of operations and financial condition and could:
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require a substantial portion of cash flow from operations for operating lease and maintenance deposit payments, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures and other general corporate purposes;
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limit our ability to make required pre-delivery deposit payments, or PDPs, including those payable to our aircraft and engine manufacturers for our aircraft and spare
engines on order;
limit our ability to obtain additional financing to support our expansion plans and for working capital and other purposes on acceptable terms or at all;
• make it more difficult for us to pay our other obligations as they become due during adverse general economic and market industry conditions because any related
decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled payments;
•
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reduce our flexibility in planning for, or reacting to, changes in our business and the airline industry and, consequently, place us at a competitive disadvantage to our
competitors with fewer fixed payment obligations; and
cause us to lose access to one or more aircraft and forfeit our rent deposits if we are unable to make our required aircraft lease rental and debt payments and our lessors
or lenders exercise their remedies under the lease and debt agreements, including cross default provisions in certain of our leases and mortgages.
A failure to pay our operating lease, debt and other fixed cost obligations or a breach of our contractual obligations could result in a variety of adverse consequences,
including the exercise of remedies by our creditors and lessors. In such a situation, it is unlikely that we would be able to cure our breach, fulfill our obligations, make required
lease or debt payments or otherwise cover our fixed costs, which would have a material adverse effect on our business, results of operations and financial condition.
We are highly dependent upon our cash balances and operating cash flows.
As of December 31, 2019, we had access to lines of credit from our physical fuel delivery and derivative counterparties and our purchase credit card issuer aggregating
$75.1 million and an unsecured standby letter of credit facility of $35.0 million. In addition, we have a revolving credit facility for up to $160 million on which we had drawn
$160.0 million as of December 31, 2019. For additional information, refer to "Notes to the Financial Statements—13. Debt and Other Obligations." These credit facilities are not
adequate to finance our operations, and we will continue to be dependent on our operating cash flows and cash balances to fund our operations and to make scheduled payments
on our aircraft related fixed obligations. In addition, our credit card processors are entitled to withhold receipts from customer purchases from us, under certain circumstances.
Although our credit card processors currently do not have a right to hold back credit card receipts to cover repayment to customers, if we fail to maintain certain liquidity and
other financial covenants, their rights to holdback would be reinstated, which would result in a reduction of unrestricted cash that could be material. In addition, we are required
by some of our aircraft lessors to fund reserves in cash in advance for scheduled maintenance, and a portion of our cash is therefore unavailable until after we have completed
the scheduled maintenance in accordance with the terms of the operating leases. Based on the age of our fleet and our growth strategy, these maintenance deposits will increase
over the next few years before we receive any significant reimbursement for completed maintenance. If we fail to generate sufficient funds from operations to meet our
operating cash requirements or do not obtain a line of credit, other borrowing facility or equity financing, we could default on our operating lease and fixed obligations. Our
inability to meet our obligations as they become due would have a material adverse effect on our business, results of operations and financial condition.
A deterioration in worldwide economic conditions may adversely affect our business, operating results, financial condition, liquidity and ability to obtain financing or
access capital markets.
The general worldwide economy has in the past experienced downturns due to the effects of the European debt crisis, unfavorable U.S. economic conditions and slowing
growth in certain Asian economies, including general credit market crises, collateral effects on the finance and banking industries, energy price volatility, concerns about
inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions, geopolitical conflict, pandemic
risks, government constraints on international trade and liquidity concerns. The airline industry is particularly sensitive to changes in economic conditions, which affect
customer travel patterns and related revenues. A weak economy could reduce our bookings, and a reduction in discretionary spending could also decrease amounts our
customers are willing to pay. Unfavorable economic conditions can also impact the ability of airlines to raise fares to help offset increased fuel, labor and other costs. We
cannot accurately predict the effect or duration of any economic slowdown or the timing or strength of a subsequent economic recovery.
In addition, we have significant obligations for aircraft and spare engines that we have ordered from Airbus, IAE and Pratt & Whitney over the next several years, and we
will need to finance these purchases. We may not have sufficient liquidity or creditworthiness to fund the purchase of aircraft and engines, including payment of PDPs, or for
other working capital. Factors that affect our ability to raise financing or access the capital markets include market conditions in the airline industry,
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economic conditions, the perceived residual value of aircraft and related assets, the level and volatility of our earnings, our relative competitive position in the markets in which
we operate, our ability to retain key personnel, our operating cash flows and legal and regulatory developments. Regardless of our creditworthiness, at times the market for
aircraft purchase or lease financing has been very constrained due to such factors as the general state of the capital markets and the financial position of the major providers of
commercial aircraft financing.
Our liquidity and general level of capital resources impact our ability to hedge our fuel requirements.
From time to time, we may enter into fuel derivative contracts in order to mitigate the risk to our business from future volatility in fuel prices, refining risk between the
price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. As of December 31, 2019, we had no outstanding jet fuel derivatives and we
have not engaged in fuel derivative activity since 2015. There can be no assurance that we will be able to enter into fuel derivative contracts in the future if we are required or
choose to do so. In the past, we have not had and in the future we may not have sufficient creditworthiness or liquidity to post the collateral necessary to hedge our fuel
requirements. Even if we are able to hedge portions of our future fuel requirements, we cannot guarantee that our derivative contracts will provide any particular level of
protection against increased fuel costs or that our counterparties will be able to perform under our derivative contracts, such as in the case of a counterparty’s insolvency. In a
falling fuel price environment, we may be required to make cash payments to our counterparties which may impair our liquidity position and increase our costs.
We rely on maintaining a high daily aircraft utilization rate to implement our low-cost structure, which makes us especially vulnerable to flight delays or cancellations
or aircraft unavailability.
We maintain a high daily aircraft utilization rate. Our average daily aircraft utilization was 12.3 hours for 2019, 12.1 hours for 2018 and 11.6 hours for 2017. Aircraft
utilization is the average amount of time per day that our aircraft spend carrying passengers. Our revenue per aircraft can be increased by high daily aircraft utilization, which is
achieved in part by reducing turnaround times at airports so we can fly more hours on average in a day. Aircraft utilization is reduced by delays and cancellations from various
factors, many of which are beyond our control, including air traffic congestion at airports or other air traffic control problems, adverse weather conditions, increased security
measures or breaches in security, international or domestic conflicts, terrorist activity, or other changes in business conditions. A significant portion of our operations are
concentrated in markets such as South Florida, the Caribbean, Latin America and the Northeast and northern Midwest regions of the United States, which are particularly
vulnerable to weather, airport traffic constraints and other delays. In addition, pulling aircraft out of service for unscheduled and scheduled maintenance, the occurrence of
which will increase as our fleet ages, may materially reduce our average fleet utilization and require that we seek short-term substitute capacity at increased costs. Due to the
relatively small size of our fleet and high daily aircraft utilization rate, the unavailability of aircraft and resulting reduced capacity could have a material adverse effect on our
business, results of operations and financial condition.
Our maintenance costs will increase as our fleet ages, and we will periodically incur substantial maintenance costs due to the maintenance schedules of our aircraft
fleet.
As of December 31, 2019, the average age of our aircraft was approximately 5.9 years. Our relatively new aircraft require less maintenance now than they will in the
future. Our fleet will require more maintenance as it ages and our maintenance and repair expenses for each of our aircraft will be incurred at approximately the same intervals.
For our leased aircraft, we expect that the final heavy maintenance events will be amortized over the remaining lease term rather than until the next estimated heavy
maintenance event, because we account for heavy maintenance under the deferral method. This will result in significantly higher depreciation and amortization expense related
to heavy maintenance in the last few years of the leases as compared to the costs in earlier periods. Moreover, because our current fleet was acquired over a relatively short
period, significant maintenance that is scheduled on each of these planes is occurring at roughly the same time, meaning we will incur our most expensive scheduled
maintenance obligations, known as heavy maintenance, across our present fleet around the same time. These more significant maintenance activities result in out-of-service
periods during which our aircraft are dedicated to maintenance activities and unavailable to fly revenue service. In addition, the terms of some of our lease agreements require us
to pay maintenance reserves to the lessor in advance of the performance of major maintenance, resulting in our recording significant prepaid deposits on our balance sheet.
Depending on their recoverability, these maintenance reserves may be classified as supplemental rent. We expect scheduled and unscheduled aircraft maintenance expenses to
increase over the next several years. Any significant increase in maintenance and repair expenses would have a material adverse effect on our business, results of operations and
financial condition.
Our lack of marketing alliances could harm our business.
Many airlines, including the domestic traditional network airlines (American, Delta and United) have marketing alliances with other airlines, under which they market and
advertise their status as marketing alliance partners. These alliances, such as OneWorld, SkyTeam and Star Alliance, generally provide for code-sharing, frequent flyer program
reciprocity, coordinated
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scheduling of flights to permit convenient connections and other joint marketing activities. Such arrangements permit an airline to market flights operated by other alliance
members as its own. This increases the destinations, connections and frequencies offered by the airline and provides an opportunity to increase traffic on that airline’s segment
of flights connecting with alliance partners. We currently do not have any alliances with U.S. or foreign airlines. Our lack of marketing alliances puts us at a competitive
disadvantage to traditional network carriers who are able to attract passengers through more widespread alliances, particularly on international routes, and that disadvantage may
result in a material adverse effect on our passenger traffic, business, results of operations and financial condition.
We are subject to extensive and increasing regulation by the FAA, DOT, TSA and other U.S. and foreign governmental agencies, compliance with which could cause
us to incur increased costs and adversely affect our business and financial results.
Airlines are subject to extensive and increasing regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs. In
the last several years, Congress has passed laws, and the DOT, FAA and TSA have issued regulations, relating to the operation of airlines that have required significant
expenditures. We expect to continue to incur expenses in connection with complying with government regulations. Additional laws, regulations, taxes and increased airport rates
and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce the demand for air travel. If adopted, these measures
could have the effect of raising ticket prices, reducing revenue and increasing costs.
DOT has been aggressive in enforcing regulations for violations of the tarmac delay rules, passenger with disability rules, advertising rules and other consumer
protection rules that could increase the cost of airline operations or reduce revenues. Additional rules on providing scheduling, fare and fee information to travel agents and
metasearch sites may be issued in the future. In December 2019, the DOT issued a Notice of Proposed Rulemaking ("NPRM") to address access to lavatories on single-aisle
aircraft. We expect the DOT to issue an Advance Notice of Proposed Rulemaking ("ANPRM") soliciting comment and gathering updated information on the costs and benefits
of requiring airlines to increase the size of lavatories on new single-aisle aircraft to be equivalent to that currently found on twin-aisle aircraft. Other additional disability rules
may be proposed in the future.
In October 2018, Congress passed the FAA Reauthorization Act of 2018, which extends FAA funds through fiscal year 2023. The legislation contains provisions which
could have effects on our results of operations and financial condition. Among other provisions, the new law requires the DOT to lift the payment cap on denied boarding
compensation, create new requirements for the treatment of disabled passengers, and treble the maximum civil penalty for damage to wheelchairs and other assistive devices or
for injuring a disabled passenger. Under the Act, the FAA is required to issue rules establishing minimum dimensions for passenger seats, including seat pitch, width and length.
The Act also establishes new rest requirements for flight attendants and requires, within one year, that the FAA issue an order mandating installation of a secondary cockpit
barrier on each new aircraft.
We cannot assure that these and other laws or regulations enacted in the future will not harm our business. In addition, the TSA mandates the federalization of certain
airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on
airlines. We cannot forecast what additional security and safety requirements may be imposed in the future or the costs or revenue impact that would be associated with
complying with such requirements.
Our ability to operate as an airline is dependent on our maintaining certifications issued to us by the DOT and the FAA. The FAA has the authority to issue mandatory
orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of aircraft parts that
have failed or may fail in the future. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, our aircraft, for any reason, could
negatively affect our business and financial results. Federal law requires that air carriers operating large aircraft be continuously “fit, willing and able” to provide the services for
which they are licensed. Our “fitness” is monitored by the DOT, which considers factors such as unfair or deceptive competition, advertising, baggage liability and disabled
passenger transportation. While the DOT has seldom revoked a carrier's certification for lack of fitness, such an occurrence would render it impossible for us to continue
operating as an airline. The DOT may also institute investigations or administrative proceedings against airlines for violations of regulations.
The U.S. government is under persistent pressure to implement cost cutting and efficiency initiatives. In addition, the U.S. government has recently and may in the
future experience delays in the completion of its budget process which could delay funding for government departments and agencies that regulate or otherwise are tied to the
aviation industry, including the DOT and FAA. To the extent that any such initiatives or budgeting delays affect the operations of these government
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departments and agencies, including by forcing mandatory furloughs of government employees, our operations and results of operations could be materially adversely affected.
International routes are regulated by treaties and related agreements between the United States and foreign governments. Our ability to operate international routes is
subject to change because the applicable arrangements between the United States and foreign governments may be amended from time to time. Our access to new international
markets may be limited by our ability to obtain the necessary certificates to fly the international routes. In addition, our operations in foreign countries are subject to regulation
by foreign governments and our business may be affected by changes in law and future actions taken by such governments, including granting or withdrawal of government
approvals and restrictions on competitive practices. We are subject to numerous foreign regulations based on the large number of countries outside the United States where we
currently provide service. If we are not able to comply with this complex regulatory regime, our business could be significantly harmed. Please see “Business — Government
Regulation.”
Changes in legislation, regulation and government policy have affected, and may in the future have a material adverse effect on our business.
Changes in, and uncertainty with respect to, legislation, regulation and government policy at the local, state or federal level have affected, and may in the future
significantly impact, our business and the airline industry. For example, the Tax Cuts and Jobs Act, enacted on December 22, 2017, limits deductions for borrowers for net
interest expense on debt. Specific legislative and regulatory proposals that could have a material impact on us in the future include, but are not limited to, infrastructure renewal
programs; changes to immigration policy; modifications to international trade policy, including withdrawing from trade agreements and imposing tariffs; changes to financial
legislation, including the partial or full repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act; public company reporting
requirements; environmental regulation and antitrust enforcement. Any such changes may make it more difficult and/or more expensive for us to obtain new aircraft or engines
and parts to maintain existing aircraft or engines or make it less profitable or prevent us from flying to or from some of the destinations we currently serve.
To the extent that any such changes have a negative impact on us or the airline industry, including as a result of related uncertainty, these changes may materially and
adversely impact our business, financial condition, results of operations and cash flows.
Any tariffs imposed on commercial aircraft and related parts imported from outside the United States may have a material adverse effect on our fleet, business,
financial condition and our results of operations.
Certain of the products and services that we purchase, including our aircraft and related parts, are sourced from suppliers located in foreign countries, and the
imposition of new tariffs, or any increase in existing tariffs, by the U.S. government on the importation of such products or services could materially increase the amounts we
pay for them. In early October 2019, the World Trade Organization ruled that the United States could impose $7.5 billion in retaliatory tariffs in response to illegal European
Union subsidies to Airbus. On October 18, 2019, the United States imposed these tariffs on certain imports from the European Union, including a 10% tariff on new commercial
aircraft. These tariffs apply to aircraft that we are already contractually obligated to purchase. These tariffs are under continuing review and at any time could be increased,
decreased, eliminated or applied to a broader range of products we use. The imposition of these tariffs may substantially increase the cost of, among other things, imported new
Airbus aircraft and parts required to service our Airbus fleet, which in turn could have a material adverse effect on our business, financial condition and/or results of operations.
We may also seek to postpone or cancel delivery of certain aircraft currently scheduled for delivery, and we may choose not to purchase as many aircraft as we intended in the
future. Any such action could have a material adverse effect on the size of our fleet, business, financial condition and/or results of operations.
We may not be able to implement our growth strategy.
Our growth strategy includes acquiring additional aircraft, increasing the frequency of flights and size of aircraft used in markets we currently serve, and expanding the
number of markets we serve where our low cost structure would likely be successful. Effectively implementing our growth strategy is critical for our business to achieve
economies of scale and to sustain or increase our profitability. We face numerous challenges in implementing our growth strategy, including our ability to:
• maintain profitability;
•
acquire delivery positions of and/or financing for new or used aircraft;
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access airports located in our targeted geographic markets where we can operate routes in a manner that is consistent with our cost strategy;
acquire new and used aircraft in accordance with our intended delivery schedule, and obtain sufficient spare parts or related support services from our suppliers on a
timely basis;
gain access to international routes;
access sufficient gates and other services at airports we currently serve or may seek to serve; and
• maintain efficient utilization and capacity of our existing aircraft.
Our growth is dependent upon our ability to maintain a safe and secure operation and requires additional personnel, equipment and facilities. An inability to hire and retain
personnel, timely secure the required equipment and facilities in a cost-effective manner, efficiently operate our expanded facilities or obtain the necessary regulatory approvals
may adversely affect our ability to achieve our growth strategy, which could harm our business. In addition, expansion to new markets may have other risks due to factors
specific to those markets. We may be unable to foresee all of the existing risks upon entering certain new markets or respond adequately to these risks, and our growth strategy
and our business may suffer as a result. In addition, our competitors may reduce their fares and/or offer special promotions to deter our entry into a new market or to stop our
growth into existing markets or new markets. We cannot assure you that we will be able to profitably expand our existing markets or establish new markets.
Some of our target growth markets in the Caribbean and Latin America include countries with less developed economies that may be vulnerable to unstable economic and
political conditions, such as significant fluctuations in gross domestic product, interest and currency exchange rates, high inflation, civil disturbances, government instability,
nationalization and expropriation of private assets and the imposition of taxes or other charges by governments. The occurrence of any of these events in markets served by us
and the resulting instability may adversely affect our ability to implement our growth strategy.
In 2008, in response to record high fuel prices and rapidly deteriorating economic conditions, we modified our growth plans by terminating our leases for seven aircraft.
We incurred significant expenses relating to our lease terminations, and have incurred additional expenses to acquire new aircraft in place of those under the terminated leases as
we expanded our network. We may in the future determine to reduce further our future growth plans from previously announced levels, which may impact our business strategy
and future profitability.
We rely heavily on technology and automated systems to operate our business and any failure of these technologies or systems or failure by their operators could
harm our business.
We are highly dependent on technology and automated systems to operate our business and achieve low operating costs. These technologies and systems include our
computerized airline reservation system, flight operations system, financial planning, management and accounting system, telecommunications systems, website, maintenance
systems and check-in kiosks. The performance and reliability of our technology are critical to our ability to operate and compete effectively. In 2015, our Board of Directors
approved a significant technology upgrade initiative meant to address our aging IT infrastructure. This initiative has and will continue to upgrade, replace, and enhance multiple
older and outdated legacy systems and hardware. The execution of our strategic plans could be negatively affected by (i) our ability to timely and effectively implement,
transition, and maintain related information technology systems and infrastructure; (ii) our ability to effectively balance our investment of incremental operating expenses and
capital expenditures related to our strategies against the need to effectively control cost; and (iii) our dependence on third parties with respect to our ability to implement our
strategic plans. We cannot assure you that our security measures, change control procedures, and disaster recovery plans will be adequate to prevent disruptions or delays.
Disruption in or changes to these systems could result in an interruption to our operations or loss of important data. Any of the foregoing could result in a material adverse effect
on our business, reputation, results of operations and financial condition.
In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and
deliver flight information with a high degree of reliability. Substantially all of our tickets are issued to passengers as electronic tickets. We depend on our reservation system,
which is hosted and maintained under a long-term contract by a third-party service provider, to be able to issue, track and accept these electronic tickets. If our reservation
system fails or experiences interruptions, and we are unable to book seats for any period of time, we could lose a significant amount of revenue as customers book seats on
competing airlines. We have experienced short duration reservation system outages from time to time and may experience similar outages in the future. For example, in
November 2010, we experienced a significant service outage with our third-party reservation service provider on the day before Thanksgiving, one of the industry’s busiest
travel days and in August 2013, we experienced a 13-hour outage that affected our sales and customer service response times. We also rely on third-party service providers of
our other automated systems for
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technical support, system maintenance and software upgrades. If our automated systems are not functioning or if the current providers were to fail to adequately provide
technical support or timely software upgrades for any one of our key existing systems, we could experience service disruptions, which could harm our business and result in the
loss of important data, increase our expenses and decrease our revenues. In the event that one or more of our primary technology or systems’ vendors goes into bankruptcy,
ceases operations or fails to perform as promised, replacement services may not be readily available on a timely basis, at competitive rates or at all and any transition time to a
new system may be significant.
In addition, our automated systems cannot be completely protected against events that are beyond our control, including natural disasters, cyber attacks, disruption of
electrical grid or telecommunications failures. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from
other airlines. We have implemented security measures and change control procedures and have disaster recovery plans; however, we cannot assure you that these measures are
adequate to prevent disruptions. Disruption in, changes to or a breach of, these systems could result in a disruption to our business and the loss of important data. Moreover, in
the event of system outages or interruptions, we may not be able to recover from our information technology and software providers all or any portion of the costs or business
losses we may incur. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.
We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks.
Our business employs systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers,
employees, suppliers and others, including personal identification information, credit card data and other confidential information. Security breaches could expose us to a risk of
loss or misuse of this information, litigation and potential liability. Although we take steps to secure our management information systems, and although auditors review and
approve the security configurations and management processes of these systems, including our computer systems, intranet and internet sites, email and other
telecommunications and data networks, the security measures we have implemented may not be effective, and our systems may be vulnerable to theft, loss, damage and
interruption from a number of potential sources and events, including unauthorized access or security breaches, natural or man-made disasters, cyber attacks, computer viruses,
power loss, or other disruptive events. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber attacks. Attacks may
be targeted at us, our customers and suppliers, or others who have entrusted us with information. In addition, attacks not targeted at us, but targeted solely at suppliers, may
cause disruption to our computer systems or a breach of the data that we maintain on customers, employees, suppliers and others.
Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and
engage third-party experts and consultants, or costs incurred in connection with the notifications to employees, suppliers or the general public as part of our notification
obligations to the various governments that govern our business. Advances in computer capabilities, new technological discoveries, or other developments may result in the
breach or compromise of technology used by us to protect transaction or other data. In addition, data and security breaches can also occur as a result of non-technical issues,
including breaches by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Our
reputation, brand and financial condition could be adversely affected if, as a result of a significant cyber event or other security issues: our operations are disrupted or shut
down; our confidential, proprietary information is stolen or disclosed; we incur costs or are required to pay fines in connection with stolen customer, employee or other
confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other
costs.
Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation.
In the processing of our customer transactions, we receive, process, transmit and store a large volume of identifiable personal data, including financial data such as credit
card information. This data is increasingly subject to legislation and regulation, such as the California Consumer Privacy Act and the Fair Accurate Credit Transparency Act and
Payment Card Industry legislation, typically intended to protect the privacy of personal data that is collected, processed and transmitted. More generally, we rely on consumer
confidence in the security of our system, including our website on which we sell the majority of our tickets. Our business, results of operations and financial condition could be
adversely affected if we are unable to comply with existing privacy obligations or legislation or regulations are expanded to require changes in our business practices.
We may not be able to maintain or grow our non-ticket revenues.
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Our business strategy includes expanding our portfolio of ancillary products and services. There can be no assurance that passengers will pay for additional ancillary
products and services or that passengers will continue to choose to pay for the ancillary products and services we currently offer. Further, regulatory initiatives could adversely
affect ancillary revenue opportunities. Failure to maintain our non-ticket revenues would have a material adverse effect on our results of operations and financial condition.
Furthermore, if we are unable to maintain and grow our non-ticket revenues, we may not be able to execute our strategy to continue to lower base fares to address an
underserved market. Please see “—Restrictions on or increased taxes applicable to charges for ancillary products and services paid by airline passengers and burdensome
consumer protection regulations or laws could harm our business, results of operations and financial condition.”
Our inability to expand or operate reliably or efficiently out of our key airports where we maintain a large presence could have a material adverse effect on our
business, results of operations and financial condition.
We are highly dependent on markets served from airports where we maintain a large presence. Our results of operations may be affected by actions taken by governmental
or other agencies or authorities having jurisdiction over our operations at airports, including, but not limited to:
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increases in airport rates and charges;
limitations on take-off and landing slots, airport gate capacity or other use of airport facilities;
termination of our airport use agreements, some of which can be terminated by airport authorities with little notice to us;
increases in airport capacity that could facilitate increased competition;
international travel regulations such as customs and immigration;
increases in taxes;
changes in the law that affect the services that can be offered by airlines in particular markets and at particular airports;
restrictions on competitive practices;
the adoption of statutes or regulations that impact customer service standards, including security standards; and
the adoption of more restrictive locally-imposed noise regulations or curfews.
In general, any changes in airport operations could have a material adverse effect on our business, results of operations and financial condition.
We rely on third-party service providers to perform functions integral to our operations.
We have entered into agreements with third-party service providers to furnish certain facilities and services required for our operations, including ground handling,
catering, passenger handling, engineering, maintenance, refueling, reservations and airport facilities as well as administrative and support services. We are likely to enter into
similar service agreements in new markets we decide to enter, and there can be no assurance that we will be able to obtain the necessary services at acceptable rates.
Although we seek to monitor the performance of third parties that provide us with our reservation system, ground handling, catering, passenger handling, engineering,
maintenance services, refueling and airport facilities, the efficiency, timeliness and quality of contract performance by third-party service providers are often beyond our control,
and any failure by our service providers to perform their contracts may have an adverse impact on our business and operations. For example, in 2008, our call center provider
went bankrupt. Though we were able to quickly switch to an alternative vendor, we experienced a significant business disruption during the transition period and a similar
disruption could occur in the future if we changed call center providers or if an existing provider ceased to be able to serve us. We expect to be dependent on such third-party
arrangements for the foreseeable future.
We rely on third-party distribution channels to distribute a portion of our airline tickets.
We rely on third-party distribution channels, including those provided by or through global distribution systems, or GDSs, conventional travel agents and online travel
agents, or OTAs, to distribute a portion of our airline tickets, and we expect in the future to rely on these channels to an increasing extent to collect ancillary revenues. These
distribution channels are more
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expensive and at present have less functionality in respect of ancillary revenues than those we operate ourselves, such as our call centers and our website. Certain of these
distribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we will need to successfully manage our
distribution costs and rights, and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. Negotiations with key
GDSs and OTAs designed to manage our costs, increase our distribution flexibility, and improve functionality could be contentious, could result in diminished or less favorable
distribution of our tickets, and may not provide the functionality we require to maximize ancillary revenues. Any inability to manage our third-party distribution costs, rights and
functionality at a competitive level or any material diminishment in the distribution of our tickets could have a material adverse effect on our competitive position and our
results of operations. Moreover, our ability to compete in the markets we serve may be threatened by changes in technology or other factors that may make our existing third-
party sales channels impractical, uncompetitive, or obsolete.
We rely on a single service provider to manage the majority of our fuel supply.
As of December 31, 2019, we had a single fuel service contract with World Fuel Services Corporation to manage the majority of the sourcing and contracting of our fuel
supply. A failure by this provider to fulfill its obligations could have a material adverse effect on our business, results of operations and financial condition.
Our reputation and business could be materially adversely affected in the event of an emergency, accident or similar incident involving our aircraft.
We are exposed to potential significant losses in the event that any of our aircraft is subject to an emergency, accident, terrorist incident or other similar incident, and
significant costs related to passenger claims, repairs or replacement of a damaged aircraft and its temporary or permanent loss from service. There can be no assurance that we
will not be affected by such events or that the amount of our insurance coverage will be adequate in the event such circumstances arise and any such event could cause a
substantial increase in our insurance premiums. Please see “—Increases in insurance costs or significant reductions in coverage could have a material adverse effect on our
business, financial condition and results of operations.” In addition, any future aircraft emergency, accident or similar incident, even if fully covered by insurance or even if it
does not involve our airline, may create a public perception that our airline or the equipment we fly is less safe or reliable than other transportation alternatives, or could cause
us to perform time consuming and costly inspections on our aircraft or engines which could have a material adverse effect on our business, results of operations and financial
condition.
Negative publicity regarding our customer service or otherwise could have a material adverse effect on our business.
In the past, we have experienced a relatively high number of customer complaints related to, among other things, our customer service and reservations and ticketing
systems. In particular, we generally experience a higher volume of complaints when we make changes to our unbundling policies, such as charging for baggage. In addition, in
2009, we entered into a consent order with the DOT for our procedures for bumping passengers from oversold flights and our handling of lost or damaged baggage. Under the
consent order, we were assessed a civil penalty of $375,000, of which we were required to pay $215,000 based on an agreement with the DOT and not having similar violations
in the year after the date of the consent order. Further, media reports about incidents on our aircraft unrelated to customer complaints could negatively impact our reputation and
our operations. If we do not meet our customers' expectations with respect to reliability and service, customers could decide not to fly with us, which would materially adversely
affect our business and reputation.
We depend on a limited number of suppliers for our aircraft and engines.
One of the elements of our business strategy is to save costs by operating a single-family aircraft fleet - currently Airbus A320-family, single-aisle aircraft, powered by
engines manufactured by IAE and Pratt & Whitney. If any of Airbus, IAE, or Pratt & Whitney become unable to perform its contractual obligations, or if we are unable to
acquire or lease aircraft or engines from these or other owners, operators or lessors on acceptable terms, we would have to find other suppliers for a similar type of aircraft or
engine. If we have to lease or purchase aircraft from another supplier, we would lose the significant benefits we derive from our current single fleet composition. We may also
incur substantial transition costs, including costs associated with retraining our employees, replacing our manuals and adapting our facilities and maintenance programs. Our
operations could also be harmed by the failure or inability of aircraft, engine and parts suppliers to provide sufficient spare parts or related support services on a timely basis,
particularly in connection with new-generation introductory technology. Our business would be significantly harmed if a design defect or mechanical problem with any of the
types of aircraft, engines or components currently on order or that we operate were discovered that would halt or delay our aircraft delivery stream or that would ground any of
our aircraft while the defect or problem was corrected, assuming it could be corrected at all. Since the addition of A320neo aircraft in 2016, we have experienced introductory
issues with the new-generation PW1100G-JM engines, designed and manufactured by Pratt & Whitney, which has resulted in diminished service availability of such aircraft.
We continuously work with Pratt & Whitney to secure support and relief in connection with possible engine related operation disruptions. Due in
26
part to issues involving the new engine, we renegotiated certain aspects of our aircraft delivery schedule in prior years. We originally had four A320neos scheduled for delivery
in 2018 of which two were converted to A320ceo aircraft, and delivered in 2017, and the remaining two were deferred until 2019. In January 2018, we also amended our 2019
order to convert five of our 2019 A320neo aircraft to A320ceo aircraft. As of December 31, 2019, we operated 20 A320neo aircraft with PW 1100G-JM engines. We cannot be
certain that the new generation PW1100G-JM issues will be adequately corrected or if the defect will require the grounding of any of our A320neos. These types of events, if
appropriate design or mechanical modifications cannot be implemented, could materially adversely affect our business, results of operations and financial condition. Moreover,
the use of our aircraft could be suspended or restricted by regulatory authorities in the event of actual or perceived mechanical or design problems. Our business would also be
significantly harmed if the public began to avoid flying with us due to an adverse perception of the types of aircraft, engines or components that we operate stemming from
safety concerns or other problems, whether real or perceived, or in the event of an accident involving those types of aircraft, engines or components. Carriers that operate a more
diversified fleet are better positioned than we are to manage such events.
Reduction in demand for air transportation, or governmental reduction or limitation of operating capacity, in the domestic U.S., Caribbean or Latin American
markets could harm our business, results of operations and financial condition.
A significant portion of our operations are conducted to and from the domestic U.S., Caribbean or Latin American markets. Our business, results of operations and
financial condition could be harmed if we lost our authority to fly to these markets, by any circumstances causing a reduction in demand for air transportation, or by
governmental reduction or limitation of operating capacity, in these markets, such as adverse changes in local economic or political conditions, negative public perception of
these destinations, unfavorable weather conditions, public health concerns or terrorist related activities. Furthermore, our business could be harmed if jurisdictions that currently
limit competition allow additional airlines to compete on routes we serve. Many of the countries we serve are experiencing either economic slowdowns or recessions, which
may translate into a weakening of demand and could harm our business, results of operations and financial condition.
Increases in insurance costs or significant reductions in coverage could have a material adverse effect on our business, financial condition and results of operations.
We carry insurance for third-party liability, passenger liability, property damage and all-risk coverage for damage to our aircraft. As a result of the September 11, 2001
terrorist attacks, aviation insurers significantly reduced the amount of insurance coverage available to commercial air carriers for liability to persons other than employees or
passengers for claims resulting from acts of terrorism, war or similar events (war risk insurance). Accordingly, our insurance costs increased significantly and our ability to
continue to obtain certain types of insurance remains uncertain. While the price of commercial insurance has declined since the period immediately after the terrorist attacks, in
the event commercial insurance carriers further reduce the amount of insurance coverage available to us, or significantly increase its cost, we would be adversely affected. We
currently maintain commercial airline insurance with several underwriters. However, there can be no assurance that the amount of such coverage will not be changed, or that we
will not bear substantial losses from accidents. We could incur substantial claims resulting from an accident in excess of related insurance coverage that could have a material
adverse effect on our results of operations and financial condition. Renewing coverage may result in higher premiums and more restrictive terms. Our business, results of
operations and financial condition could be materially adversely affected if we are unable to obtain adequate insurance.
Failure to comply with applicable environmental regulations could have a material adverse effect on our business, results of operations and financial condition.
We are subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those
relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water and the management of hazardous substances, oils and waste materials.
Compliance with all environmental laws and regulations can require significant expenditures and any future regulatory developments in the United States and abroad could
adversely affect operations and increase operating costs in the airline industry. For example, climate change legislation was previously introduced in Congress and such
legislation could be re-introduced in the future by Congress and state legislatures, and could contain provisions affecting the aviation industry, compliance with which could
result in the creation of substantial additional costs to us. Similarly, the Environmental Protection Agency issued a rule that regulates larger emitters of greenhouse gases. Future
operations and financial results may vary as a result of such regulations. Compliance with these regulations and new or existing regulations that may be applicable to us in the
future could increase our cost base and could have a material adverse effect on our business, results of operations and financial condition.
There is also an increasing international focus on climate change, carbon emissions and environmental regulation. Members of the International Civil Aviation
Organization ("ICAO") have been negotiating a global agreement in greenhouse
27
gas emissions for the aviation industry. In October 2016, the ICAO adopted the Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA"), which is a
global, market-based emissions offset program designed to encourage carbon-neutral growth beyond 2020. Further, in June 2018 the ICAO adopted standards pertaining to the
collection and sharing of information in international aviation emissions beginning in 2019. We are a participant in the CORSIA program. The CORSIA will increase operating
costs for Spirit and other U.S. airlines that operate internationally. The CORSIA is expected to be implemented in phases, with information sharing beginning in 2019 and phase
I beginning in 2021. Certain details are still being developed and the impact cannot be fully predicted. Compliance with CORSIA could significantly increase our operating
costs beginning in 2020 and beyond. The potential impact of CORSIA or other emissions-related requirements on our costs will ultimately depend on a number of factors,
including baseline emissions, the price of emission allowances or offsets that we would need to acquire, the efficiency of our fleet and the number of flights subject to these
requirements. These costs have not been completely defined and could fluctuate.
Governmental authorities in several U.S. and foreign cities are also considering or have already implemented aircraft noise reduction programs, including the imposition
of nighttime curfews and limitations on daytime take-offs and landings. We have been able to accommodate local noise restrictions imposed to date, but our operations could be
adversely affected if locally-imposed regulations become more restrictive or widespread.
If we are unable to attract and retain qualified personnel or fail to maintain our company culture, our business, results of operations and financial condition could be
harmed.
Our business is labor intensive. We require large numbers of pilots, flight attendants, maintenance technicians and other personnel. The airline industry has from time to
time experienced a shortage of qualified personnel, particularly with respect to pilots and maintenance technicians. In addition, we may face high employee turnover. We may
be required to increase wages and/or benefits in order to attract and retain qualified personnel. If we are unable to hire, train and retain qualified employees, our business could
be harmed and we may be unable to implement our growth plans.
In addition, as we hire more people and grow, we believe it may be increasingly challenging to continue to hire people who will maintain our company culture. Our
company culture, which we believe is one of our competitive strengths, is important to providing high-quality customer service and having a productive, accountable workforce
that helps keep our costs low. As we continue to grow, we may be unable to identify, hire or retain enough people who meet the above criteria, including those in management
or other key positions. Our company culture could otherwise be adversely affected by our growing operations and geographic diversity. If we fail to maintain the strength of our
company culture, our competitive ability and our business, results of operations and financial condition could be harmed.
Our business, results of operations and financial condition could be materially adversely affected if we lose the services of our key personnel.
Our success depends to a significant extent upon the efforts and abilities of our senior management team and key financial and operating personnel. In particular, we
depend on the services of our senior management team. Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager, or other key
employee without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business, results of operations and
financial condition. We do not maintain key-person life insurance on our management team.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board
members.
As a public company, we incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also have
incurred and will continue to incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act and
related rules implemented or to be implemented by the SEC and the New York Stock Exchange. The expenses incurred by public companies generally for reporting and
corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities
more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and
regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as our executive officers
and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock,
fines, sanctions and other regulatory action and potentially civil litigation.
We are required to assess our internal control over financial reporting on an annual basis, and any future adverse findings from such assessment could result in a loss
of investor confidence in our financial reports, significant expenses
28
to remediate any internal control deficiencies, and ultimately have an adverse effect on the market price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, our management is required to report on, and our independent registered public accounting firm
is required to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our
internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Annually, we perform activities that include
reviewing, documenting and testing our internal control over financial reporting. During the performance of these activities, we may encounter problems or delays in completing
the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In connection with the attestation process by our
independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a
favorable attestation. In addition, if we fail to maintain the adequacy of our internal control over financial reporting we will not be able to conclude on an ongoing basis that we
have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could
suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported
financial information. This could harm our operating results and lead to a decline in our stock price. Additionally, ineffective internal control over financial reporting could
expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the New York Stock Exchange, regulatory investigations, civil or
criminal sanctions and class action litigation.
The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.
The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:
•
•
•
announcements concerning our competitors, the airline industry or the economy in general;
strategic actions by us or our competitors, such as acquisitions or restructurings;
increased price competition;
• media reports and publications about the safety of our aircraft or the aircraft type we operate;
•
•
•
•
•
•
•
•
new regulatory pronouncements and changes in regulatory guidelines;
changes in the price of aircraft fuel;
announcements concerning the availability of the type of aircraft we use;
general and industry-specific economic conditions;
changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations;
sales of our common stock or other actions by investors with significant shareholdings;
trading strategies related to changes in fuel or oil prices; and
general market, political and economic conditions.
The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies. These types of
broad market fluctuations may adversely affect the trading price of our common stock.
In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities.
Any similar litigation against us could result in substantial costs, divert management’s attention and resources and harm our business or results of operations.
29
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading
volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of
the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these
analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to
decline.
Our anti-takeover provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult to remove our board of directors and
management and may discourage or delay “change of control” transactions, which could adversely affect the price of our common stock. These provisions include, among
others:
•
•
•
•
•
our board of directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new
board of directors at an annual meeting;
actions to be taken by our stockholders may only be effected at an annual or special meeting of our stockholders and not by written consent;
special meetings of our stockholders can be called only by the Chairman of the Board or by our corporate secretary at the direction of our board of directors;
advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an
annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors
or otherwise attempting to obtain control of our company; and
our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair
the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.
Our corporate charter and bylaws include provisions limiting voting by non-U.S. citizens and specifying an exclusive forum for stockholder disputes.
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our amended and restated certificate of incorporation and amended and restated
bylaws restrict voting of shares of our common stock by non-U.S. citizens. The restrictions imposed by federal law currently require that no more than 25% of our stock be
voted, directly or indirectly, by persons who are not U.S. citizens, and that our president and at least two-thirds of the members of our board of directors and senior management
be U.S. citizens. Our amended and restated bylaws provide that the failure of non-U.S. citizens to register their shares on a separate stock record, which we refer to as the
“foreign stock record,” would result in a suspension of their voting rights in the event that the aggregate foreign ownership of the outstanding common stock exceeds the foreign
ownership restrictions imposed by federal law.
Our amended and restated bylaws further provide that no shares of our common stock will be registered on the foreign stock record if the amount so registered would
exceed the foreign ownership restrictions imposed by federal law. If it is determined that the amount registered in the foreign stock record exceeds the foreign ownership
restrictions imposed by federal law, shares will be removed from the foreign stock record in reverse chronological order based on the date of registration therein, until the
number of shares registered therein does not exceed the foreign ownership restrictions imposed by federal law. As of December 31, 2019, we believe we were in compliance
with the foreign ownership rules.
As of December 31, 2019, there are no shares of non-voting common stock outstanding. When shares of non-voting common stock are outstanding, the holders of such
stock may convert such shares, on a share-for-share basis, in the order reflected on our foreign stock record as shares of common stock are sold or otherwise transferred by non-
U.S. citizens to U.S. citizens.
Our amended and restated certificate of incorporation also specifies that the Court of Chancery of the State of Delaware shall be the exclusive forum for substantially all
disputes between us and our stockholders.
We do not intend to pay cash dividends for the foreseeable future.
30
We have never declared or paid cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the further development and
expansion of our business and fund share repurchases under programs approved by our Board of Directors. We do not intend to pay cash dividends in the foreseeable future.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital
requirements, restrictions contained in current or future financing instruments, business prospects and such other factors as our Board of Directors deems relevant. The timing of
any share repurchases under share repurchase programs will depend upon market conditions, our capital allocation strategy and other factors.
31
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Aircraft
As of December 31, 2019, we operated a fleet of 145 aircraft as detailed in the following table:
Aircraft Type
A319
A320ceo
A320neo
A321
Seats
145
174 - 182
182
228
Average Age (years)
Number of Aircraft
Number Owned
Number Leased
13.3
5.2
1.2
3.0
5.9
31
64
20
30
145
23
36
2
30
91
8
28
18
—
54
On December 20, 2019, we entered into an A320 NEO Family Purchase Agreement with Airbus for the purchase of 100 new Airbus A320neo family aircraft, with options
to purchase up to 50 additional aircraft. This agreement includes a mix of Airbus A319, A320 and A321 aircraft with such aircraft scheduled for delivery through 2027. As of
December 31, 2019, our firm aircraft orders consisted of 135 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through
2027. In addition, we had 12 direct operating leases for A320neos with third-party lessors, with deliveries expected through 2021. We also have one spare engine order for a
V2500 SelectTwo engine with IAE and four spare engine orders for PurePower PW 1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from
2020 through 2023.
Ground Facilities
We lease all of our facilities at each of the airports we serve, with the exception of our aircraft maintenance hangar in Detroit, which we own and operate on leased land.
Our leases for terminal passenger service facilities, which include ticket counter and gate space, operations support areas and baggage service offices, generally have a term
ranging from month-to-month to 16 years, and contain provisions for periodic adjustments of lease rates. We also are responsible for maintenance, insurance and other facility-
related expenses and services. We also have entered into use agreements at the airports we serve that provide for the non-exclusive use of runways, taxiways and other airfield
facilities. Landing fees paid under these agreements are based on the number of landings and weight of the aircraft.
As of December 31, 2019, Ft. Lauderdale/Hollywood International Airport (FLL) remained our single largest airport served, with approximately 12% of our capacity
operating from FLL during 2019. We operate primarily out of Terminal 4 at FLL. We currently use up to ten gates simultaneously at Terminal 3 and Terminal 4. We have
preferential access to six of the Terminal 4 gates, preferential access to four of the Terminal 3 gates, common use access to the remaining four Terminal 4 gates, and common
use access to the remaining Terminal 3 gates. Other airports through which we conduct significant operations include Orlando International Airport (MCO), McCarran
International Airport (LAS), Detroit Metropolitan Wayne County Airport (DTW), Baltimore/Washington International Airport (BWI), and Chicago O'Hare International Airport
(ORD).
Our largest maintenance facility is a hangar currently located at DTW. This hangar is owned and operated on leased land. The lease with the airport authority expires in
September 2032. We also conduct additional maintenance operations in leased facilities in Fort Lauderdale, Florida; Chicago, Illinois; Atlantic City, New Jersey; Dallas, Texas;
Houston, Texas; Las Vegas, Nevada; Orlando, Florida; Atlanta, Georgia; Myrtle Beach, South Carolina; Fort Myers, Florida; and Philadelphia, Pennsylvania.
Our principal executive offices and headquarters are located in a leased facility at 2800 Executive Way, Miramar, Florida 33025, consisting of approximately 56,000
square feet. The lease for this facility expires in January 2025. In January 2014, we expanded our principal executive offices and headquarters by leasing an additional facility
located at 2844 Corporate Way, Miramar, Florida 33025, consisting of approximately 15,000 square feet. The lease for this facility expires in January 2025. In March 2018, we
added approximately 26,000 square feet of office space at 2877-2899 N Commerce Parkway, Miramar, FL 33025 to further support the corporate headquarters. The lease on this
space expires on June 30, 2021.
On December 18, 2019, we purchased an 8.5-acre parcel of land and entered into a 99-year lease agreement for the lease of a 2.6-acre parcel of land, in Dania Beach,
Florida, where we intend to build a new headquarters campus. In connection with
32
the lease agreement, we are expected to build a 200-unit residential building. Construction of the headquarters campus is expected to commence mid-year 2020 and be
completed in approximately two years.
ITEM 3. LEGAL PROCEEDINGS
We are subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. We
believe the ultimate outcome of pending lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on our financial position,
liquidity, or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
33
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Price of our common stock
Our common stock is listed and traded on the NYSE under the symbol "SAVE." The following table shows, for the periods indicated, the high and low closing per share
sales prices for our common stock.
PART II
Fiscal year ended December 31, 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal year ended December 31, 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
48.26 $
36.99
39.61
49.27
64.59
34.98
36.13
43.83
$
63.06 $
51.55
58.30
55.05
41.37
45.95
36.03
33.10
As of January 28, 2020, there were approximately 85 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of stockholders represented by the holders.
The information under the caption “Equity Compensation Plan Information” in our 2020 Proxy Statement is incorporated herein by reference.
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Any future determination as to the declaration and
payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results,
contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Our Repurchases of Equity Securities
The following table reflects our repurchases of our common stock during the fourth quarter of 2019. Repurchases of equity securities during the period include
repurchases made from employees who received restricted stock. All employee stock repurchases were made at the election of each employee pursuant to an offer to repurchase
by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy tax withholding requirements.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under Plans or
Programs
— $
—
—
—
—
—
—
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
—
39.39
38.48
39.34
— $
2,004
114
2,118 $
34
Period
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
During the first three quarters of 2019, we repurchased 89 thousand shares for a total of $5.4 million. Repurchases of equity securities during this period include
repurchases made from employees who received restricted stock awards.
Stock Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on the NASDAQ Composite Index and the
NYSE ARCA Airline Index for the period beginning on December 31, 2014 and ending on December 31, 2019. The graph assumes an investment of $100 in our stock and the
two indices, respectively, on December 31, 2014, and further assumes the reinvestment of all dividends. Stock price performance, presented for the period from December 31,
2014 to December 31, 2019, is not necessarily indicative of future results.
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
Spirit
NYSE ARCA Airline Index
NASDAQ Composite Index
$
$
$
100.00 $
100.00 $
100.00 $
52.73 $
84.74 $
107.11 $
35
76.55 $
108.90 $
116.72 $
59.34 $
115.64 $
151.41 $
76.63 $
90.89 $
147.16 $
53.33
111.56
201.22
ITEM 6. SELECTED FINANCIAL DATA
You should read the following selected historical financial and operating data below in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the financial statements, related notes and other financial information included in this annual report. The selected financial data in this section
are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes included in this annual report.
We derived the selected statements of operations data for the years ended December 31, 2019, 2018 and 2017 and the balance sheet data as of December 31, 2019 and
2018 from our audited financial statements included in this annual report. We derived the selected statements of operations data for the years ended December 31, 2016 and
2015 and the balance sheet data as of December 31, 2017, 2016 and 2015 from our audited financial statements not included in this annual report. Our historical results are not
necessarily indicative of the results to be expected in the future.
Operating revenues:
Passenger (1)
Other (1)
Total operating revenue
Operating expenses:
Aircraft fuel (2)
Salaries, wages and benefits
Landing fees and other rents
Depreciation and amortization
Aircraft rent
Distribution
Maintenance, materials and repairs
Loss on disposal of assets
Special charges (3)
Other operating
Total operating expenses
Operating income
Other (income) expense:
Interest expense (4)
Capitalized interest (5)
Interest income
Other expense
Special charges, non-operating (6)
Total other expense (income)
Income before income taxes
Provision (benefit) for income taxes (7)
Net income
Earnings Per Share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2019
2018
2017
2016
2015
(in thousands, except share and per-share data)
$
3,757,605
$
3,260,015
$
2,572,887
$
2,257,801
$
72,931
3,830,536
993,478
865,019
256,275
225,264
182,609
153,770
143,575
17,350
717
491,432
3,329,489
501,047
101,350
(12,471)
(25,133)
875
—
64,621
436,426
101,171
63,019
3,323,034
939,324
719,635
214,677
176,727
177,641
137,001
129,078
9,580
88,921
379,536
2,972,120
350,914
83,777
(9,841)
(19,107)
752
90,357
145,938
204,976
49,227
335,255
$
155,749
$
70,665
2,643,552
62,220
2,320,021
615,581
527,959
180,655
140,152
205,852
113,472
110,439
4,168
12,629
347,820
2,258,727
384,825
57,302
(13,793)
(8,736)
366
—
35,139
349,686
(65,836)
415,522 $
447,553
472,471
151,679
101,136
201,675
96,895
98,587
4,187
37,189
267,191
1,878,563
441,458
41,654
(12,705)
(5,276)
528
—
24,201
417,257
153,774
263,483
$
4.90
4.89
$
$
2.28
2.28
$
$
6.00
5.99
$
$
3.75
3.74
$
$
$
$
$
1,169,338
972,125
2,141,463
461,447
377,508
131,077
73,908
211,531
86,576
80,448
1,604
673
207,569
1,632,341
509,122
20,382
(11,553)
(2,125)
15
—
6,719
502,403
185,183
317,220
4.39
4.38
68,428,528
68,558,629
68,248,931
68,430,832
69,220,750
69,376,930
70,343,935
70,507,596
72,207,725
72,426,060
(1)
(2)
Amounts prior to 2016 do not reflect the adoption of ASU No. 2014-09 (ASU 2014-09), "Revenue from Contracts with Customers," completed in the first quarter of 2018.
Aircraft fuel expense is the sum of (i) “into-plane fuel cost,” which includes the cost of jet fuel and certain other charges such as fuel taxes and oil, (ii) realized gains and losses related to fuel
derivative contracts, if any, and (iii) unrealized gains and losses related to fuel derivative contracts, if any. The following table summarizes the components of aircraft fuel expense for the periods
presented:
36
Into-plane fuel cost
Realized losses (gains) related to fuel derivatives contracts, net
Unrealized losses (gains) related to fuel derivative contracts, net
Aircraft fuel expense
2019
2018
2017
2016
2015
Year Ended December 31,
(in thousands)
$
$
993,478
—
—
993,478
$
$
939,324
—
—
939,324
$
$
615,581
—
—
615,581
$
$
447,533
—
—
447,533
$
$
454,747
10,580
(3,880)
461,447
(3)
(4)
(5)
(6)
(7)
Special charges include: (i) for 2015, $0.7 million related to restructuring charges for outsourcing of ramps and passenger services; (i) for 2016, $37.2 million related to lease termination charges
recognized in connection with the purchase of 7 aircraft formerly financed under operating lease agreements; (iii) for 2017, $12.6 million related to lease termination charges recognized in
connection with the purchase of one engine and one aircraft formerly financed under operating lease agreements; (iv) for 2018, $88.7 million related to the ratification incentive payment made in
connection with the new collective bargaining agreement with our pilots; (v) for 2019, $0.7 million related to the write-off of aircraft related credits resulting from the exchange of credits negotiated
under the new purchase agreement with Airbus. Please see "Notes to Financial Statements—4. Special Charges" for further discussion.
Interest expense in 2015, 2016, 2017, 2018 and 2019 primarily relates to interest related to financing of purchasing aircraft.
Interest attributable to funds used to finance the acquisition of new aircraft, including PDPs is capitalized as an additional cost of the related asset. In 2015, 2016, 2017, 2018, and 2019, capitalized
interest primarily represents interest related to the financing of purchased aircraft.
In 2018, special charges, non-operating of $90.4 million represents interest related to an aircraft purchase agreement for the acquisition of 14 A319 aircraft previously operated under operating
leases. The contract was deemed a lease modification which resulted in a change of classification from operating leases to finance leases. Please see "Notes to Financial Statements—4. Special
Charges" for further discussion.
During the twelve months ended December 31, 2017, we recorded a non-recurring income tax benefit of $196.7 million ($2.84 and $2.84 per basic and diluted share, respectively) due to the
enactment of the Tax Cuts and Jobs Act of 2017.
The following table presents balance sheet data for the periods presented:
Balance Sheet Data:
Cash and cash equivalents
Short-term investment securities
Total assets (8) (9) (10)
Long-term debt and finance leases, including current portion
Shareholders' equity (9)
As of December 31,
2019
2018
2017
2016
2015
(in thousands)
$
978,957 $
105,321
7,043,412
2,219,305
2,261,332
$
1,004,733
102,789
5,165,457
2,188,331
1,928,504
800,849 $
100,937
4,145,800
1,502,928
1,762,574
700,900 $
100,155
3,153,629
981,713
1,385,184
803,632
—
2,530,545
646,330
1,225,310
(8)
(9)
(10)
Prior period amounts have been reclassified to conform to ASU No. 2015-17 (ASU 2015-17), "Income Taxes" issued in November 2015.
Amounts prior to 2016 do not reflect the adoption of ASU No. 2014-09 (ASU 2014-09), "Revenue from Contracts with Customers," completed in the first quarter of 2018.
Amounts prior to 2019 do not reflect the adoption of ASU No. 2016-02, "Leases (Topic 842)," completed in the first quarter of 2019.
37
Operating Statistics (unaudited) (A)
Average aircraft
Aircraft at end of period
Average daily aircraft utilization (hours)
Average stage length (miles)
Block hours
Departures
Passenger flight segments (thousands)
Revenue passenger miles (RPMs) (thousands)
Available seat miles (ASMs) (thousands)
Load factor (%)
Fare revenue per passenger flight segment ($)
Non-ticket revenue per passenger flight segment ($)
Total revenue per passenger segment ($)
Average yield (cents)
Total operating revenue per ASM (TRASM) (cents)
CASM (cents)
Adjusted CASM (cents) (B)
Adjusted CASM ex fuel (cents) (C)
Fuel gallons consumed (thousands)
Average fuel cost per gallon ($)
2019
2018
2017
2016
2015
Year Ended December 31,
135.2
145
12.3
1,002
607,055
227,041
34,537
118.9
128
12.1
1,032
526,343
192,845
29,312
103.6
112
11.6
999
438,728
165,449
24,183
86.2
95
12.4
979
389,914
149,514
21,618
72.7
79
12.7
987
337,956
128,902
17,921
35,245,285
41,783,001
30,623,379
36,502,982
24,605,512
29,592,819
21,581,611
17,995,311
25,494,645
21,246,156
84.4
54.63
56.28
110.91
10.87
9.17
7.97
7.93
5.55
470,939
2.11
83.9
58.14
55.23
113.37
10.85
9.10
8.14
7.87
5.30
412,256
2.28
83.1
56.38
52.94
109.32
10.74
8.93
7.63
7.59
5.51
343,709
1.79
84.7
55.42
51.90
107.32
10.75
9.10
7.37
7.21
5.45
302,781
1.48
84.7
65.25
54.24
119.49
11.90
10.08
7.68
7.69
5.50
255,008
1.81
(A)
(B)
See “Glossary of Airline Terms” elsewhere in this annual report for definitions of terms used in this table.
Reconciliation of CASM to Adjusted CASM:
Year Ended December 31,
2019
2018
2017
2016
2015
(in
millions)
Per
ASM
(in
millions)
Per
ASM
(in
millions)
Per ASM
(in
millions)
Per
ASM
(in
millions)
Per ASM
7.97
8.14
7.63
7.37
7.68
$
—
— $
—
— $
—
— $
—
— $
(3.9)
(0.02)
17.4
0.04
0.7
—
9.6
88.9
0.03
0.24
4.2
0.01
12.6
0.04
4.2
37.2
0.02
0.15
1.6
0.7
0.01
—
CASM (cents)
Less:
Unrealized
losses (gains)
related to
fuel
derivative
contracts
Loss on
disposal of
assets
Special
charges
Supplemental
rent
adjustments
related to
lease
modifications
(0.5)
—
—
—
(4.1)
(0.01)
—
—
—
Adjusted CASM
(cents)
7.93
7.87
7.59
7.21
(C)
Excludes aircraft fuel expense, loss on disposal of assets, special charges and supplemental rent adjustments related to lease modifications.
38
—
7.69
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included
elsewhere in this annual report. Our discussion and analysis of fiscal year 2019 compared to fiscal year 2018 is included herein. Unless expressly stated otherwise, for
discussion and analysis of fiscal year 2017 items and fiscal year 2018 compared to fiscal year 2017, please refer to Item 7 of Part II, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the United States
Securities and Exchange Commission on February 13, 2019 and is incorporated herein by reference.
2019 Year in Review
The year 2019 marks our thirteenth consecutive year of profitability. In 2019, we increased our capacity by 14.5%, as we grew our fleet of Airbus single-aisle aircraft
from 128 to 145 aircraft, launched service to 54 new markets and added 7 new destinations: Austin, Texas; Nashville, Tennessee; Burbank, California; Charlotte-Douglas, North
Carolina; Indianapolis, Indiana; Raleigh-Durham, North Carolina; Sacramento, California.
During 2019, we earned net income of $335.3 million ($4.89 per share, diluted), compared to net income of $155.7 million ($2.28 per share, diluted) in 2018. The
increase in earnings was primarily driven by a 15.1% increase in our traffic and a 0.2% increase in average yield, year over year. In addition, we recorded special charges in
2018 that contributed to the increase in earnings year over year. During 2018, we recorded $90.4 million in special charges, non-operating and $88.9 million in special charges,
operating. Refer to “Notes to the Financial Statements—4. Special Charges" for additional information.
For the year ended December 31, 2019, we achieved an operating profit margin of 13.1% on $3,830.5 million in operating revenues. Our traffic grew by 15.1% as we
continued to address our value-conscious customers with ultra-low fares. Our operating yield increased by 0.2%, year over year. TRASM in 2019 was 9.17 cents, an increase of
0.8% compared to the prior year. However, total revenue per passenger flight segment decreased 2.2%, year over year, from $113.37 to $110.91 reflecting a shorter average
stage length, as compared to the prior year period. Fare revenue per passenger flight segment decreased 6.0% partially offset by a 1.9% increase in non-ticket revenue per
passenger flight segment, as compared to the prior year. In addition to the stage length, the decrease in fare revenue per passenger flight segment was driven by lower fares and
competitive pricing during the period. The increase in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fee, higher seat
revenue and higher bag revenue per passenger flight segment, as compared to the prior year.
Our operating cost structure is a primary area of focus and is at the core of our ULCC business model. Our unit operating costs continue to be among the lowest of any
airline in the United States. During 2019, our adjusted CASM ex-fuel increased by 4.7% to 5.55 cents. The increase on a per-ASM basis was primarily due to increases in other
operating expense per ASM, salaries, wages and benefits expense per ASM and depreciation and amortization expense per ASM.
During 2019, we took delivery of 4 new aircraft financed under secured debt arrangements, 6 aircraft under sale-leaseback transactions and 7 aircraft under direct operating
leases. In addition, we purchased 5 previously leased aircraft. In addition, we took delivery of 4 engines through cash purchases and purchased 2 previously leased engines. As
of December 31, 2019, our 145 Airbus A320-family aircraft fleet was comprised of 31 A319ceos, 64 A320ceos, 20 A320neos and 30 A321ceos of which 64 aircraft are
financed through secured debt, 52 are financed under operating leases, 2 are financed under finance leases, and 27 are unencumbered. As of December 31, 2019, our aircraft
orders consisted of 147 A320 family aircraft scheduled for delivery through 2027.
Operating Revenues
Our operating revenues are comprised of passenger revenues and other revenues.
Passenger revenues
Fare revenues. Tickets sold are initially deferred within air traffic liability on the Company's balance sheet. Passenger fare revenues are recognized at time of departure
when transportation is provided. All tickets sold by the Company are nonrefundable. An unused ticket expires at the date of scheduled travel and is recognized as revenue at the
date of scheduled travel. Passenger revenues reported prior to the adoption of ASU 2014-09 are now reported as fare revenues within passenger
39
revenues in our disaggregated revenue table within “Notes to the Financial Statements— 3. Revenue Disaggregation."
Non-fare revenues. Our most significant non-fare revenues include revenues generated from air travel-related services paid for baggage, passenger usage fees, advance
seat selection, itinerary changes, and loyalty programs. The adoption of ASU 2014-09 impacted the classification of these ancillary items since they are deemed part of the
single performance obligation of providing passenger transportation. These ancillary items are now recognized in non-fare revenues within passenger revenues in our
disaggregated revenue table within “Notes to the Financial Statements— 3. Revenue Disaggregation." The majority of our passenger non-fare revenues are recognized at time of
departure when transportation is provided.
Passenger revenues are recognized once the related flight departs. Accordingly, the value of tickets and non-fare revenues sold in advance of travel is included under our
current liabilities as “air traffic liability,” or ATL, until the related air travel is provided. Revenue generated from the FREE SPIRIT credit card affinity program and other
loyalty programs are recognized in accordance with the criteria as set forth in Accounting Standards Update ASU 2014-09.
Other revenues
Other revenues primarily consist of the marketing component of the sale of frequent flyer miles to our credit card partner and commissions revenue from the sale of
various items such as hotels and rental cars.
Substantially all of our revenues are denominated in U.S. dollars. We recognize revenues net of certain taxes and airport passenger fees, which are collected by us on
behalf of airports and governmental agencies and remitted to the applicable governmental entity or airport on a periodic basis. These taxes and fees include U.S. federal
transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These items are collected from customers at the time they
purchase their tickets, but are not included in our revenues. Upon collection from the customer, we record a liability within other current liabilities on our balance sheets and
relieve the liability when payments are remitted to the applicable governmental agency or airport.
Operating Expenses
Our operating expenses consist of the following line items.
Aircraft Fuel. Aircraft fuel expense includes the cost of jet fuel, related federal taxes, fueling into-plane fees and transportation fees. It also includes realized and
unrealized gains and losses arising from activity on our fuel derivatives, if any.
Salaries, Wages and Benefits. Salaries, wages and benefits expense includes the salaries, hourly wages, bonuses and equity compensation paid to employees for their
services, as well as the related expenses associated with employee benefit plans and employer payroll taxes.
Landing Fees and Other Rents. Landing fees and other rents include both fixed and variable facilities expenses, such as the fees charged by airports for the use or lease of
airport facilities, overfly fees paid to other countries and the monthly rent paid for our headquarters facility.
Depreciation and Amortization. Depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements. It also includes the
amortization of capitalized software costs and heavy maintenance. Under the deferral method, the cost of our heavy maintenance is capitalized and amortized on a straight-line
or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term.
Aircraft Rent. Aircraft rent expense consists of all minimum lease payments under the terms of our aircraft and spare engine lease agreements recognized on a straight-line
basis. Aircraft rent expense also includes supplemental rent. Supplemental rent is made up of maintenance reserves paid to aircraft lessors in advance of the performance of
major maintenance activities that are not probable of being reimbursed and probable and estimable return condition obligations. Prior to the adoption of Topic 842 that became
effective for the Company on January 1, 2019, aircraft rent expense was net of the amortization of gains and losses on sale leaseback transactions on our flight equipment. Refer
to “Notes to the Financial Statements—14. Leases and Prepaid Maintenance Deposits” for information regarding the Company's accounting policy on sale-leaseback
transactions after the adoption of Topic 842. As of December 31, 2019, 52 of our 145 aircraft and 9 of our 23 spare engines are financed under operating leases.
40
Distribution. Distribution expense includes all of our direct costs, including the cost of web support, our third-party call center, travel agent commissions and related GDS
fees and credit card transaction fees, associated with the sale of our tickets and other products and services.
Maintenance, Materials and Repairs. Maintenance, materials and repairs expense includes parts, materials, repairs and fees for repairs performed by third-party vendors
and in-house mechanics required to maintain our fleet. It excludes direct labor cost related to our own mechanics, which is included under salaries, wages and benefits. It also
excludes the amortization of heavy maintenance expenses, which we defer under the deferral method of accounting and amortize as a component of depreciation and
amortization expense.
Loss on Disposal of Assets. Loss on disposal of assets includes the net losses on the disposal of our fixed assets. In addition, subsequent to the adoption of Topic 842 that
became effective for the Company on January 1, 2019, it includes net losses or gains resulting from our aircraft and engine sale-leaseback transactions.
Special Charges. Special charges include lease termination charges, ratification incentive payouts related to the new collective bargaining agreements with our pilots and
dispatchers and the write-off of aircraft related credits.
Other Operating Expenses. Other operating expenses include airport operations expense and fees charged by third-party vendors for ground handling services and food
and liquor supply service expenses, passenger re-accommodation expense, the cost of passenger liability and aircraft hull insurance, all other insurance policies except for
employee related insurance, travel and training expenses for crews and ground personnel, professional fees, personal property taxes and all other administrative and operational
overhead expenses. No individual item included in this category represented more than 5% of our total operating expenses.
Other (Income) Expense
Interest Expense. Interest expense in 2019 and 2018 was primarily related to the financing of purchased aircraft.
Capitalized Interest. The Company capitalizes the interest that is primarily attributable to the outstanding PDP balances as a percentage of the related debt on which
interest is incurred. Capitalized interest represents interest cost incurred during the acquisition period of a long-term asset and is the amount which theoretically could have been
avoided had we not paid PDPs for the related aircraft or engines. Capitalization of interest ceases when the asset is ready for service. Capitalized interest for 2019 and 2018
primarily related to the interest incurred on long-term debt.
Interest Income. For 2019, interest income represents interest income earned on cash, cash equivalents and short-term investments. For 2018, interest income represents
interest income earned on cash, cash equivalents, short-term investments and on funds required to be held in escrow in accordance with the terms of our Series 2017-1 EETC.
Other Expense. Other expense primarily includes realized gains and losses related to foreign currency transactions.
Special Charges, Non-operating. We had no special charges, non-operating in 2019. For 2018, special charges, non-operating represents interest related to an aircraft
purchase agreement for the acquisition of 14 A319 aircraft previously operated under operating leases. The contract was deemed a lease modification which resulted in a change
of classification from operating leases to finance leases, until the purchase date of the aircraft. Please see "Notes to Financial Statements—4. Special Charges" for further
discussion.
Income Taxes
We account for income taxes using the asset and liability method. We record a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred taxes are recorded based on differences between the financial
statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. In assessing the realizability of the deferred tax assets, we consider whether
it is more likely than not that some or all of the deferred tax assets will be realized. In evaluating the ability to utilize our deferred tax assets, we consider all available evidence,
both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis.
Trends and Uncertainties Affecting Our Business
We believe our operating and business performance is driven by various factors affecting airlines and their markets, trends affecting the broader travel industry and trends
affecting the specific markets and customer base that we target. The following key factors may affect our future performance.
41
Ability to Execute our Growth Strategy. Over recent years, we have pursued a high-growth strategy, which we expect to continue. Execution of such a strategy requires us
to effectively deploy new flying into our network, as new routes or increased frequency of existing routes develop. New flying may not perform as well as expected or may
result in a competitive reaction. Moreover, our growth strategy depends on the timely delivery of aircraft and engines in accordance with the intended delivery schedule in
accordance with the applicable agreement. Delivery delays, as we have experienced from time to time in recent years, may cause us to scale back our growth, unless we are able
to replace delayed aircraft in the secondary market or otherwise. Finally, our growth strategy relies in part on our ability to obtain additional facilities in airports, some of which
are constrained, as well as additional flight crew, maintenance, and other personnel. We expect to experience an increase in our compensation expense to attract and retain
qualified personnel.
Ability to Maintain or Grow Capacity. We pursue a high-growth strategy that expands revenue and maintains lower cost due to economies of scale and lower initial
expense for aircraft and labor. Execution of such a strategy depends on the ability to maintain efficient utilization of existing capacity and the timely delivery of new aircraft and
engines. In recent years, we have experienced aircraft operational reliability and delivery delays particularly regarding our A320neo aircraft. The new generation aircraft provide
fuel burn and other efficiencies, as compared to the older A320ceo aircraft, and the ability to serve additional markets with greater operating range. However, ongoing or
expanded reliability and delivery issues could materially impact our operations, costs and net results.
Competition. The airline industry is highly competitive. The principal competitive factors in the airline industry are fare pricing, total price, flight schedules, aircraft type,
passenger amenities, number of routes served from a city, customer service, safety record, reputation, code-sharing relationships, frequent flyer programs and redemption
opportunities. Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent flyer
initiatives. Airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods in efforts to maximize unit revenue. The
prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell.
Beginning in 2015, and continuing into 2019, the airline industry saw greater and more persistent price discounting than in the preceding several years. In addition,
significant airline capacity increases in certain major cities exerted strong downward price pressure in those markets. Finally, beginning in mid-2015 network carriers began
matching low-cost carrier and ULCC pricing on portions of their marginal unsold capacity, particularly in their key hub markets. We expect the discounting trend to continue for
the foreseeable future.
Moreover, the network carriers have developed a fare-class pricing approach, in which a portion of available seats may be sold at or near ULCC prices, but without most
product features available to their passengers paying at higher fare levels on the same flight. Broad fare discounting may have the effect of diluting the profitability of revenues
of high-cost carriers but the fare-class approach may allow network carriers to continue offering a competitive price to ULCCs on some flights or routes, while maintaining
higher pricing to their traditional constituencies of corporate and less price-sensitive travelers. Refer to “Risk Factors—Risks Related to Our Industry—We operate in an
extremely competitive industry."
Seasonality and Volatility. Our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business
is subject to significant seasonal fluctuations. We generally expect demand to be greater in the second and third quarters compared to the rest of the year. The air transportation
business is also volatile and highly affected by economic cycles and trends. Consumer confidence and discretionary spending, fear of terrorism or war, weakening economic
conditions, fare initiatives, fluctuations in fuel prices, labor actions, changes in governmental regulations on taxes and fees, weather and other factors have resulted in significant
fluctuations in revenues and results of operations in the past. We believe demand for business travel historically has been more sensitive to economic pressures than demand for
low-price travel. Finally, a significant portion of our operations are concentrated in markets such as South Florida, the Caribbean, Latin America and the Northeast and northern
Midwest regions of the United States, which are particularly vulnerable to weather, airport traffic constraints and other delays.
Aircraft Fuel. Fuel costs represents one of our largest operating expenses, as it does for most airlines. Fuel costs have been subject to wide price fluctuations in recent
years. Fuel availability and pricing are also subject to refining capacity, periods of market surplus and shortage and demand for heating oil, gasoline and other petroleum
products, as well as meteorological, economic and political factors and events occurring throughout the world, which we can neither control nor accurately predict. We source a
significant portion of our fuel from refining resources located in the southeast United States, particularly facilities adjacent to the Gulf of Mexico. Gulf Coast fuel is subject to
volatility and supply disruptions, particularly in hurricane season when refinery shutdowns have occurred, or when the threat of weather-related disruptions has caused Gulf
Coast fuel prices to spike above other regional sources. Our fuel hedging practices are dependent upon many factors, including our assessment of market conditions for fuel, our
access to the capital necessary to support margin requirements, the pricing of hedges and other derivative products in the market, our overall appetite for risk and applicable
regulatory policies. As of December 31, 2019, we
42
had no outstanding jet fuel derivatives and we have not engaged in fuel derivative activity since 2015. As of December 31, 2019, we purchased a majority of our aircraft fuel
under a single fuel service contract. The cost and future availability of jet fuel cannot be predicted with any degree of certainty.
Labor. The airline industry is heavily unionized. The wages, benefits and work rules of unionized airline industry employees are determined by collective bargaining
agreements, or CBAs. Relations between air carriers and labor unions in the United States are governed by the RLA. Under the RLA, CBAs generally contain “amendable
dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-
stage and usually lengthy series of bargaining processes overseen by the NMB. This process continues until either the parties have reached agreement on a new CBA, or the
parties have been released to “self-help” by the NMB. In most circumstances, the RLA prohibits strikes; however, after release by the NMB, carriers and unions are free to
engage in self-help measures such as strikes and lockouts.
We have five union-represented employee groups comprising approximately 81% of our employees at December 31, 2019. Our pilots are represented by the Air Line
Pilots Association, International, or ALPA, our flight attendants are represented by the Association of Flight Attendants, or AFA-CWA, our dispatchers are represented by the
Professional Airline Flight Control Association, or PAFCA, our ramp service agents are represented by the International Association of Machinists and Aerospace Workers, or
IAMAW, and our passenger service agents are represented by the Transport Workers Union, or TWU. Conflicts between airlines and their unions can lead to work slowdowns
or stoppages.
During 2017, we experienced operational disruption from pilot-related work action which adversely impacted our results. We obtained a temporary restraining order to
enjoin further illegal labor action. In January 2018, under the guidance of the NMB assigned mediators, the parties reached a tentative agreement and in February 2018, the pilot
group voted to approve the current five-year agreement with the Company. In connection with this agreement, we incurred a one-time ratification incentive of $80.2 million,
including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. These amounts were recorded in special charges within operating expenses in the
statement of operations for the year ended December 31, 2018. For further information, refer to “Notes to the Financial Statements—4. Special Charges.”
In March 2016, with the help of the NMB, we reached a tentative agreement for a five-year contract with our flight attendants. In May 2016, the flight attendants voted to
approve the new five-year contract with the Company.
Our dispatchers are represented by the PAFCA. In June 2018, we commenced negotiations with PAFCA for an amended agreement with our dispatchers. In October 2018,
we reached a tentative agreement for a new five-year agreement with our dispatchers, which was ratified by the PAFCA members in October 2018.
In July 2014, certain ramp service agents directly employed by the Company voted to be represented by the IAMAW. In May 2015, we entered into a five-year interim
collective bargaining agreement with the IAMAW, covering material economic terms. In June 2016, with the help of the IAMAW, we reached an agreement on the remaining
terms of the collective bargaining agreement, which is amendable in June 2020.
Our passenger service agents are represented by the TWU, but the representation applies only to the Fort Lauderdale station where we have direct employees in the
passenger service classification. We began meeting with the TWU in late October 2018 to negotiate an initial collective bargaining agreement. As of December 31, 2019, we
continued to negotiate with the TWU.
We believe the five-year term of our CBAs is valuable in providing stability to our labor costs and provide us with competitive labor costs compared to other U.S.-based
low-cost carriers. If we are unable to reach agreement with any of our unionized work groups in current or future negotiations regarding the terms of their CBAs, we may be
subject to work interruptions or stoppages, such as the strike by our pilots in June 2010. A strike or other significant labor dispute with our unionized employees is likely to
adversely affect our ability to conduct business. Any agreement we do reach could increase our labor and related expenses.
In 2010, the Patient Protection and Affordable Care Act was passed into law. Under the current administration, this law may be repealed in its entirety or certain aspects
may be changed or replaced. If the law is repealed or modified or if new legislation is passed, such action could potentially increase our operating costs, with healthcare costs
increasing at a higher rate than our employee headcount.
Maintenance Expense. Maintenance expense grew through 2019 and 2018 mainly as a result of a growing fleet and the gradual increase of required maintenance for the
older aircraft in our fleet. As the fleet ages, we expect that maintenance costs will increase in absolute terms. The amount of total maintenance costs and related amortization of
heavy maintenance (included in depreciation and amortization expense) is subject to many variables such as future utilization rates, average stage length, the
43
interval between heavy maintenance events, the size and makeup of the fleet in future periods and the level of unscheduled maintenance events and their actual costs.
Accordingly, we cannot reliably quantify future maintenance expenses for any significant period of time. However, we believe, based on our scheduled maintenance events,
maintenance expense and maintenance-related amortization expense in 2020 will be approximately $266 million. In addition, we expect to capitalize approximately $100
million of costs for heavy maintenance during 2020.
As a result of a majority of our fleet being acquired over a relatively short period of time, heavy maintenance scheduled on certain aircraft will overlap, meaning we
will incur our most expensive scheduled maintenance obligations on certain aircraft at roughly the same time. These more significant maintenance activities will result in out-of-
service periods during which our aircraft will be dedicated to maintenance activities and unavailable to fly revenue service. When accounting for maintenance expense under the
deferral method, heavy maintenance is amortized over the shorter of either the remaining lease term or the next estimated heavy maintenance event. As a result, deferred
maintenance events occurring closer to the end of the lease term will generally have shorter amortization periods than those occurring earlier in the lease term. This will create
higher depreciation and amortization expense specific to any aircraft related to heavy maintenance during the final years of the lease as compared to earlier periods.
Maintenance Reserve Obligations. The terms of some of our aircraft lease agreements require us to post deposits for future maintenance, also known as maintenance
reserves, to the lessor in advance of and as collateral for the performance of major maintenance events, resulting in our recording significant prepaid deposits on our balance
sheet. As a result, the cash costs of scheduled major maintenance events are paid in advance of the recognition of the maintenance event in our results of operations.
Critical Accounting Policies and Estimates
The following discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. For a detailed
discussion of our significant accounting policies, refer to “Notes to Financial Statements—1. Summary of Significant Accounting Policies.”
Critical accounting policies are defined as those policies that reflect significant judgments or estimates about matters both inherently uncertain and material to our
financial condition or results of operations.
Loyalty Mileage Credits earned with Co-branded credit card. Customers may earn mileage credits based on their spending with our co-branded credit card company with
which we have an agreement to sell mileage credits. The contract to sell mileage credits under this agreement has multiple performance obligations. The agreement provides for
joint marketing and we account 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) travel miles to be awarded, (ii) licensing of
brand and access to member lists and (iii) advertising and marketing efforts. We 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 miles awarded and number of miles redeemed, (2) ETV for the award travel obligation,
(3) licensing of brand and access to member lists and (4) advertising and marketing efforts.
We defer the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the balance sheet and recognize loyalty travel awards
in passenger revenue as the mileage credits are used for travel. Revenue allocated to the remaining performance obligations, primarily marketing components, is recorded in
other revenue as miles are delivered. During the year ended December 31, 2019 and 2018, total cash sales from this agreement were $48.1 million and $39.2 million,
respectively, which are allocated to travel and other performance obligations.
Aircraft Maintenance Deposits. Some of our aircraft and engine master lease agreements provide that we pay maintenance reserves to aircraft lessors to be held as
collateral in advance of our performance of major maintenance activities. These lease agreements generally provide that maintenance reserves are reimbursable to us upon
completion of the maintenance event. A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, and are
used solely to collateralize the lessor for maintenance time run off the aircraft until the completion of the maintenance of the aircraft.
Maintenance reserve payments are reflected as aircraft maintenance deposits in the accompanying balance sheets. We make certain assumptions to determine the
recoverability of maintenance deposits. These assumptions are based on various
44
factors such as the estimated time between the maintenance events and the utilization of the aircraft is estimated before it is returned to the lessor. When it is not probable we
will recover amounts currently on deposit with a lessor, such amounts are expensed as supplemental rent.
Supplemental rent is made up of maintenance reserves paid to aircraft lessors that are not probable of being reimbursed and probable and estimable return condition
obligations. We expensed $4.8 million and $3.4 million of supplemental rent recorded within aircraft rent during 2019 and 2018, respectively. These amounts include $0.5
million and $1.3 million of paid maintenance reserves expensed as supplemental rent during 2019 and 2018, respectively. As of December 31, 2019 and 2018, we had aircraft
maintenance deposits of $170.6 million and $245.6 million, respectively, on our balance sheets.
Leased Aircraft Return Costs. Our aircraft lease agreements often contain provisions that require us to return aircraft airframes and engines to the lessor in a certain
condition or pay an amount to the lessor based on the airframe and engine's actual return condition. Lease return costs include all costs that would be incurred at the return of the
aircraft, including costs incurred to repair the airframe and engines to the required condition as stipulated by the lease. Lease return costs are recognized beginning when it is
probable that such costs will be incurred and they can be estimated. When costs become both probable and estimable, they are accrued as a component of supplemental rent,
through the remaining lease term.
When determining the need to accrue lease return costs, there are various factors which need to be considered such as the contractual terms of the lease agreement, current
condition of the aircraft, the age of the aircraft at lease expiration, projected number of hours run on the engine at the time of return, and the number of projected cycles run on
the airframe at the time of return, among others. In addition, typically near the lease return date, the lessors may allow reserves to be applied as return condition consideration or
pass on certain return provisions if they do not align with their current plans to remarket the aircraft. As a result of the different factors listed above, management assesses the
need to accrue lease return costs periodically throughout the year or whenever facts and circumstances warrant an assessment. Lease return costs will generally be estimable
closer to the end of the lease term but may be estimable earlier in the lease term depending on the contractual terms of the lease agreement and the timing of maintenance events
for a particular aircraft.
Results of Operations
In 2019, we generated operating revenues of $3,830.5 million and operating income of $501.0 million resulting in a 13.1% operating margin and net income of $335.3
million. In 2018, we generated operating revenues of $3,323.0 million and operating income of $350.9 million resulting in a 10.6% operating margin and net income of $155.7
million. Operating revenues increased, year over year, mainly as a result of a 15.1% increase in traffic. Increased operations resulted in higher operating expenses across the
board with the exception of special charges, which decreased year over year.
As of December 31, 2019, our cash and cash equivalents was $979.0 million, a decrease of $25.8 million compared to the prior year. Cash and cash equivalents is driven
by cash from our operating activities offset by cash used to fund PDPs and capital expenditures. In addition to cash and cash equivalents, as of December 31, 2019, we had
$105.3 million in short-term investment securities.
Operating Revenues
Operating revenues:
Fare (thousands)
Non-fare (thousands)
Passenger (thousands)
Other (thousands)
Total operating revenue (thousands)
Total operating revenue per ASM (TRASM) (cents)
Fare revenue per passenger flight segment
Non-ticket revenue per passenger flight segment
Total revenue per passenger flight segment
Year Ended 2019
% change 2019
versus 2018
Year Ended 2018
$
$
$
$
1,886,855
1,870,750
3,757,605
72,931
3,830,536
9.17
54.63
56.28
110.91
10.7%
20.2%
15.3%
15.7%
15.3%
0.8%
(6.0)%
1.9%
(2.2)%
$
$
$
$
1,704,107
1,555,908
3,260,015
63,019
3,323,034
9.10
58.14
55.23
113.37
Operating revenues increased by $507.5 million, or 15.3%, to $3,830.5 million in 2019 compared to 2018, primarily due to an increase in traffic of 15.1%, and a slight
increase in average yield of 0.2%, year over year.
TRASM for 2019 was 9.17 cents, an increase of 0.8% compared to 2018. This increase was primarily a result of a 0.2% increase in operating yields and a load factor
increase of 50 basis points, year over year.
45
Total revenue per passenger flight segment decreased 2.2% from $113.37 in 2018 to $110.91 in 2019. Fare revenue per passenger flight segment decreased 6.0% and non-
ticket revenue per passenger flight segment increased 1.9%. The decrease in fare revenue per passenger flight segment was driven by a shorter average stage length, lower fares
and competitive pricing during the period. The increase in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fee, higher seat
revenue and higher bag revenue per passenger flight segment, as compared to the prior year.
Operating Expenses
Since adopting our ULCC model, we have continuously sought to reduce our unit operating costs and have created one of the industry's lowest cost structures in the
United States. The table below presents our unit operating costs (CASM) and year-over-year changes.
Operating expenses:
Aircraft fuel
Salaries, wages and benefits
Landing fees and other rentals
Depreciation and amortization
Aircraft rent
Distribution
Maintenance, materials and repairs
Loss on disposal of assets
Special charges
Other operating expenses
Total operating expense
CASM
Adjusted CASM (1)
Adjusted CASM ex fuel (2)
Year Ended 2019
Change 2019 versus 2018
Year Ended 2018
CASM
Per-ASM
Change
Percent change
CASM
2.38¢
(0.19)¢
2.07
0.61
0.54
0.44
0.37
0.34
0.04
—
1.18
7.97
7.93
5.55
0.10
0.02
0.06
(0.05)
(0.01)
(0.01)
0.01
(0.24)
0.14
(0.17)
0.06
0.25
(7.4)%
5.1
3.4
12.5
(10.2)
(2.6)
(2.9)
NM
NM
13.5
(2.1)
0.8
4.7
2.57¢
1.97
0.59
0.48
0.49
0.38
0.35
0.03
0.24
1.04
8.14
7.87
5.30
(1)Reconciliation of CASM to Adjusted CASM:
Year Ended December 31,
2019
2018
(in millions)
Per ASM
(in millions)
Per ASM
CASM (cents)
Less:
Loss on disposal of assets
Special charges
Supplemental rent adjustments related to lease
modifications
Adjusted CASM (cents)
$
17.4
0.7
(0.5)
7.97
0.04 $
—
—
7.93
9.6
88.9
—
8.14
0.03
0.24
—
7.87
(2)
Excludes aircraft fuel expense, loss on disposal of assets, special charges and supplemental rent adjustments related to lease modifications.
Operating expenses increased by $357.4 million, or 12.0%, in 2019 primarily due to an increase in operations as reflected by a 14.5% growth in capacity and a 15.1%
increase in traffic.
Our adjusted CASM ex fuel for 2019 increased by 4.7% as compared to 2018. The increase on a per-ASM basis was primarily due to increases in other operating expense
per ASM, salaries, wages and benefits expense per ASM and depreciation and amortization expense per ASM.
46
Aircraft fuel expenses includes both into-plane expense (as defined below) and realized and unrealized net gains or losses from fuel derivatives, if any. Into-plane fuel
expense is defined as the price that we generally pay at the airport, including taxes and fees. Into-plane fuel prices are affected by the global oil market, refining costs,
transportation taxes and fees, which can vary by region in the United States and other countries where we operate. Into-plane fuel expense approximates cash paid to the supplier
and does not reflect the effect of any fuel derivatives. We had no activity related to fuel derivative instruments during 2019 and 2018.
Aircraft fuel expense increased by 5.8% from $939.3 million in 2018 to $993.5 million in 2019. The increase was due to a 14.2% increase in fuel gallons consumed
primarily driven by a 15.3% increase in block hours. The increase related to fuel gallons consumed was partially offset by a 7.5% decrease in fuel price per gallon.
The elements of the changes in aircraft fuel expense are illustrated in the following table:
Fuel gallons consumed
Into-plane fuel cost per gallon
Aircraft fuel expense (per statements of operations)
Year Ended December 31,
2019
2018
(in thousands, except per
gallon amounts)
470,939
412,256
2.11 $
2.28
993,478 $
939,324
$
$
Percent
Change
14.2 %
(7.5)%
5.8 %
Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption and is impacted by both the price of crude oil as well as increases or decreases in
refining margins associated with the conversion of crude oil to jet fuel.
Labor costs in 2019 increased by $145.4 million, or 20.2%, compared to 2018. The increase was primarily driven by a 20.3% increase in our pilot and flight attendant
workforce resulting from an increase to our aircraft fleet of 17 aircraft in 2019. On a per-ASM basis, labor costs increased due to increased headcount, year over year, as well as
higher pay rates received by our pilots in connection with the collective bargaining agreement that became effective on March 1, 2018 and which provides for annual increases
on each anniversary of the effective date. In addition, overtime pay and 401(k) expense increased. These increases were partially offset by lower bonus expense, as compared to
the prior year, due to lower metric performance, year over year.
Landing fees and other rents for 2019 increased by $41.6 million, or 19.4%, compared to 2018 primarily due to a 17.7% increase in departures. On both a dollar and per-
ASM basis, landing fees and other rents increased due to an increase in facility rent, landing fees and station baggage rent due to real estate expansions in existing stations, the
addition of new stations and rate increases at some of our existing stations.
Depreciation and amortization increased by $48.5 million, or 27.5%, compared to the prior year. The increase in depreciation expense on both a dollar and per-ASM basis
was primarily due to the purchase of 4 new aircraft, 5 previously leased aircraft, 4 new engines and 2 previously leased engines during 2019.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of
depreciation and amortization expense in the statements of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy
maintenance costs was $63.4 million and $41.3 million for the year ended December 31, 2019 and 2018, respectively. The increase in amortization of heavy maintenance was
primarily due to the timing of maintenance events which resulted in a greater number of maintenance events in the current year, as compared to the prior year. This increase in
heavy maintenance amortization was the primary driver of the per-ASM increase in depreciation and amortization expense, year over year. As our fleet continues to age, we
expect that the amount of deferred heavy maintenance events will increase and will result in an increase in the amortization of those costs. If heavy maintenance events were
amortized within maintenance, materials and repairs expense in the statements of operations, our maintenance, materials and repairs expense would have been $206.9
million and $170.4 million for the year ended December 31, 2019 and 2018, respectively.
Aircraft rent expense in 2019 increased by $5.0 million, or 2.8%, compared to 2018. The increase in aircraft rent expense primarily relates to the delivery of 13 aircraft
under operating leases offset by the purchase of 5 aircraft off lease during 2019 and the purchase of 14 aircraft off lease during the second quarter of 2018. On a per-ASM basis,
aircraft rent expense also decreased due to a change in the composition of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and
purchased aircraft (for which depreciation expense is recorded under depreciation and amortization).
47
During the twelve months ended December 31, 2019, we have taken delivery of four new purchased aircraft, which increased capacity but had no effect on aircraft rent expense,
as these assets were purchased and are being depreciated over their useful life.
Distribution expense increased by $16.8 million, or 12.2%, in 2019, compared to 2018. The increase on a dollar basis was primarily due to increased sales volume. On a
per-ASM basis, distribution costs decreased due to a decrease in sales from third-party travel agents, which are more expensive than selling directly through our website or call
center.
The following table shows our distribution channel usage:
Website
Third-party travel agents
Call center
Year Ended December 31,
2019
2018
Change
66.6%
67.1%
26.8
6.6
27.1
5.8
(0.5)
(0.3)
0.8
Maintenance, materials and repairs expense increased by $14.5 million, or 11.2%, in 2019, as compared to 2018 . The increase in maintenance costs on a dollar basis was
due to routine and ongoing maintenance on a growing fleet. On a per unit-basis, maintenance costs decreased slightly as the timing and mix of maintenance events resulted in
fewer maintenance events, as compared to 2018. We expect maintenance expense, on a dollar basis, to increase as our fleet continues to grow and age, resulting in the need for
additional and more frequent repairs over time.
Loss on disposal of assets totaled $17.4 million for the year ended 2019. This loss consisted of $13.4 million related to the disposal of excess and obsolete inventory, $3.1
million related to the write-down of certain held-for-sale assets to fair value less cost to sell and $2.4 million related to the write-off of certain unrecoverable costs previously
capitalized with a project to upgrade our enterprise accounting software. This project was suspended in the third quarter of 2019 and we have elected to re-evaluate and pursue
the optimal solution. Refer to "Notes to Financial Statements - 19. Fair Value Measurements" for information regarding our held-for-sale assets. These losses on disposal were
partially offset by a $1.5 million gain on sale-leaseback transactions for 6 aircraft delivered during the twelve months ended December 31, 2019. Refer to "Notes to Financial
Statements - 14. Leases and Prepaid Maintenance Deposits" for information regarding the Company's accounting policy on sale-leaseback transactions. Loss on disposal of
assets for the year ended 2018 primarily consisted of a $5.2 million loss resulting from the sale of 6 used engines and $4.4 million related to the disposal of excess and obsolete
inventory.
Special charges for the year ended ended 2019 consisted of a $0.7 million write-off of aircraft related credits resulting from the exchange of credits negotiated under the
new purchase agreement with Airbus executed during the fourth quarter of 2019. Special charges for the year ended 2018 primarily consisted of $88.7 million recognized in
connection with the pilot collective bargaining agreement that became effective on March 1, 2018. The total amount includes a one-time ratification incentive of $80.2 million,
including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. For additional information, refer to "Notes to Financial Statements—4. Special
Charges."
Other operating expenses in 2019 increased by $111.9 million, or 29.5%, compared to 2018 primarily due to an increase in overall operations. As compared to the prior
year period, we increased departures by 17.7% and had 17.8% more passenger flight segments, which drove increases in variable operating expenses. In addition, we had higher
passenger reaccommodation expense, year over year, due to multiple storm-related flight disruptions during the second and third quarters of 2019 as well as other operational
challenges. On a per-ASM basis, the increase in passenger reaccommodation and ground handling expense were the main drivers of the increase in other operating expense, as
compared to the prior year period.
48
Other (Income) Expense
Other (income) expense, net decreased from $145.9 million in 2018 to $64.6 million in 2019 primarily due to $90.4 million of interest expense recorded in 2018 within
special charges, non-operating related to an aircraft purchase agreement for the acquisition of 14 A319 aircraft previously operated under operating leases. The contract was
deemed a lease modification which resulted in a change of classification from operating leases to finance leases. Refer to “Notes to Financial Statements—4. Special Charges"
for further discussion. In addition, the decrease in other (income) expense was attributed to an increase in interest income of $6.0 million, as we earned higher interest income on
our cash, cash equivalents and short-term investments due to an increase in our average cash balance and higher interest rates, as compared to the prior year. The decrease in
special charges, non-operating and increase in interest income were partially offset by an increase in interest expense of $17.6 million which primarily consisted of interest
related to the financing of purchased aircraft. As of December 31, 2019 and 2018, we had 64 and 60 purchased aircraft financed through secured long-term debt arrangements,
respectively. Refer to “Notes to Financial Statements—13. Debt and Other Obligations” for additional information.
Income Taxes
In 2019, our effective tax rate was 23.2% compared to 24.0% in 2018. While we expect our 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.
49
Quarterly Financial Data (unaudited)
March 31, 2018 June 30, 2018
September 30,
2018
December 31,
2018
March 31,
2019
June 30, 2019
September 30,
2019
December 31,
2019
Three Months Ended
(in thousands, except share and per-share amounts)
Operating revenues:
Fare
Non-fare
Total passenger revenues
Other revenues
Total operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted average shares
outstanding:
Basic
Diluted
$
$
$
$
$
$
342,695 $
346,446
689,141 $
14,997
704,138 $
(38,797)
(44,922) $
439,549 $
396,801
836,350 $
15,421
851,771 $
108,521
11,254 $
476,660 $
411,296
887,956 $
16,374
904,330 $
145,125
97,480 $
445,203 $
401,365
846,568 $
16,227
862,795 $
136,065
91,937 $
416,345 $
421,720
838,065 $
17,731
855,796 $
87,804
56,076 $
515,696 $
478,734
994,430 $
18,526
1,012,956 $
163,938
114,501 $
493,376 $
479,977
973,353 $
18,615
991,968 $
124,681
83,464 $
(0.66) $
(0.66) $
0.16 $
0.16 $
1.43 $
1.42 $
1.35 $
1.34 $
0.82 $
0.82 $
1.67 $
1.67 $
1.22 $
1.22 $
461,438
490,319
951,757
18,059
969,816
124,624
81,214
1.19
1.18
68,222,396
68,222,396
68,251,241
68,310,287
68,254,165
68,502,822
68,267,372
68,687,272
68,379,707
68,515,454
68,439,261
68,620,330
68,441,899
68,544,690
68,452,317
68,553,114
Interim results 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. The air transportation business is also volatile and highly affected
by economic cycles and trends.
50
Other operating statistics
Aircraft at end of period
Average daily Aircraft utilization (hours)
Average stage length (miles)
Departures
Passenger flight segments (thousands)
Revenue passenger miles (RPMs) (thousands)
Available seat miles (ASMs) (thousands)
Load factor (%)
Fare revenue per passenger flight segment ($)
Non-ticket revenue per passenger flight segment ($)
Total operating revenue per ASM (TRASM) (cents)
CASM (cents)
Adjusted CASM (cents) (1)
Adjusted CASM ex fuel (cents) (2)
Fuel gallons consumed (thousands)
Average fuel cost per gallon ($)
(1) Reconciliation of CASM to Adjusted CASM:
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
Three Months Ended
118
12.0
1,025
44,982
6,537
119
12.6
1,051
49,404
7,554
121
12.4
1,033
50,386
7,856
128
11.5
1,019
48,073
7,365
133
12.2
1,029
52,175
7,820
135
12.8
1,004
58,517
8,953
136
12.5
979
59,314
9,004
145
11.7
998
57,035
8,760
6,813,519
7,961,128
8,408,764
9,515,842
8,241,771
9,579,448
7,606,962
8,998,928
8,133,030
9,157,488
9,057,574
8,897,193
9,829,044
10,775,878
10,686,246
10,491,833
81.0
52.42
55.29
8.37
8.84
7.76
5.33
95,003
2.15
83.7
58.19
54.57
8.95
7.81
7.76
5.17
86.0
60.67
54.44
9.44
7.93
7.92
5.22
84.5
60.45
56.70
9.59
8.08
8.04
5.49
82.7
53.24
56.20
8.71
7.81
7.79
5.46
85.0
57.60
55.54
9.40
7.88
7.86
5.41
84.8
54.80
55.37
9.28
8.12
8.03
5.66
84.8
52.68
58.03
9.24
8.06
8.01
5.67
106,144
109,515
101,595
109,828
122,447
122,072
116,591
2.32
2.36
2.26
2.09
2.16
2.08
2.10
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
(in
millions)
Per ASM
(in
millions)
Per ASM
(in
millions)
Per ASM
(in
millions) Per ASM
(in
millions) Per ASM
(in
millions) Per ASM
(in
millions) Per ASM
(in
millions) Per ASM
Three Months Ended
CASM (cents)
Less:
Loss on disposal of
assets
Special charges (credits)
Supplemental rent
adjustments related to
lease modifications
0.8
89.2
—
Adjusted CASM (cents)
8.84
0.01
1.06
—
7.76
4.6
0.2
—
7.81
7.93
8.08
7.81
7.88
8.12
0.05
—
1.1
0.01
(0.7)
(0.01)
3.0
0.3
0.03
—
1.9
0.02
1.6
13.4
0.13
0.01
—
—
—
—
—
—
—
—
(4.3)
(0.04)
7.76
7.92
8.04
7.79
7.86
8.03
8.06
—
0.01
0.04
8.01
0.5
0.7
3.8
(2) Excludes aircraft fuel expense, loss on disposal of assets, special charges (credits) and supplemental rent adjustments related to lease modifications.
51
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash provided by operations and capital from debt financing. Primary uses of liquidity are for working capital needs,
capital expenditures, aircraft and engine pre-delivery deposit payments ("PDPs") and debt obligations. Our total cash at December 31, 2019 was $979.0 million, a decrease of
$25.8 million from December 31, 2018. In addition to cash and cash equivalents, as of December 31, 2019, we had $105.3 million in short-term investment securities.
Currently, one of our largest capital expenditure needs is funding the acquisition costs of our aircraft. Aircraft are acquired through debt financing, cash purchases, direct
leases or sale leaseback transactions. During the twelve months ended December 31, 2019, we purchased 4 aircraft through debt financing transactions and made $337.8 million
in debt payments (principal, interest and fees) on our outstanding debt obligations. The debt entered into in the current year has maturity dates ranging from 2030 to 2031 and
interest rates ranging from 2.85% to 3.93%. During 2019, we entered into 6 sale leaseback transactions. In addition, during the twelve months ended December 31, 2019, we
took delivery of 7 aircraft financed through direct operating leases, and purchased 5 aircraft previously financed under operating leases. We also purchased 4 spare engines
through cash purchases and purchased 2 engines previously financed under an operating lease.
Under our agreements with Airbus for aircraft, and International Aero Engines AG ("IAE") and Pratt & Whitney for engines, we are required to pay PDPs relating to
future deliveries at various times prior to each delivery date. During 2019, we paid $102.1 million in PDPs, net of refunds, and $10.8 million of capitalized interest for future
deliveries of aircraft and spare engines. As of December 31, 2019, we had $291.9 million of pre-delivery deposits on flight equipment, including capitalized interest, on our
balance sheet.
During the fourth quarter of 2018, we entered into a revolving credit facility for up to $160 million secured by the collateral assignment of certain of our rights under our
purchase agreement with Airbus. As of December 31, 2019, collateralized amounts were related to 34 Airbus A320neo aircraft scheduled to be delivered between January 2020
and December 2021. The final maturity of the facility is December 30, 2020 with final payment due in January 2021. As of December 31, 2019, we had drawn $160.0 million on
the facility of which $50.0 million is included in current maturities of long-term debt and finance leases and $110.0 million is included within long-term debt and finance leases,
less current maturities on the Company's balance sheets. The revolving credit facility bears variable interest based on LIBOR.
As of December 31, 2019, we had secured debt financing for three aircraft, scheduled for delivery in 2020. In addition, we secured financing for 12 aircraft to be leased
directly from third-party lessors, scheduled for delivery in 2020 through 2021. As of December 31, 2019, we did not have financing commitments in place for the remaining 132
Airbus firm aircraft orders, scheduled for delivery through 2027. However, we have signed 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. The agreement provides a standby credit facility in the form of senior secured mortgage debt
financing. Future aircraft deliveries may be paid in cash, leased or otherwise financed based on market conditions, our prevailing level of liquidity, and capital market
availability.
As of December 31, 2019, we were compliant with our credit card processing agreements, and not subject to any credit card holdbacks. The maximum potential exposure
to cash holdbacks by our credit card processors, based upon advance ticket sales and $9 Fare Club memberships, as of December 31, 2019 and December 31, 2018, was $342.3
million and $321.0 million, respectively.
Net Cash Flows Provided By Operating Activities. Operating activities in 2019 provided $409.2 million in cash compared to $506.5 million provided in 2018. Cash
provided by operating activities decreased, year over year, primarily due to $140.4 million in cash used by other liabilities in 2019 compared to $74.0 million in cash provided
by other liabilities in 2018. Also contributing to the decrease was a $69.8 million income tax refund received during 2018 as compared to a $21.0 million income tax receivable
recorded during 2019. These decreases in cash were offset by higher net income, year over year.
Operating activities in 2018 provided $506.5 million in cash compared to $425.2 million provided in 2017. The increase is primarily due to a $90.4 million increase in
special charges, non-operating recorded for the twelve months ended December 31, 2018. The increase is also due to a $69.8 million income tax refund during 2018 and an
increase in deferred income tax expense. These increases were partially offset by a decrease in deferred heavy maintenance, net.
Net Cash Flows Used In Investing Activities. During 2019, investing activities used $314.8 million, compared to $783.7 million used in 2018. This decrease was mainly
driven by a decrease in the purchase of property and equipment, year over year, as well as a decrease in PDPs paid, net of refunds, driven by timing of future aircraft deliveries.
52
During 2018, investing activities used $783.7 million, compared to $792.0 million used in 2017. The decrease was mainly driven by fewer purchases of property and
equipment, year over year, as well as increased proceeds received from the sale of property and equipment. The decrease was partially offset by paid PDPs, net of refunds,
driven by timing of future aircraft deliveries.
Net Cash Used In/Provided By Financing Activities. During 2019, financing activities used $120.2 million. We received $225.9 million primarily related to the debt
financing of 4 aircraft delivered during 2019. In addition, we paid $246.8 million in debt principal payment obligations and $96.5 million in finance lease obligations. The
payments on finance lease obligations are primarily related to an aircraft purchase agreement for the purchase of four A320ceo aircraft which were previously financed under
operating leases. Refer to "Notes to Financial Statements - 14. Leases and Prepaid Maintenance Deposits" for more information on these four aircraft.
During 2018, financing activities provided $481.1 million. We received $832.1 million in connection with the 2015-1C and 2017-1C EETCs and the debt financing
of 14 aircraft delivered during 2018. In addition, we paid $137.3 million in debt principal payment obligations and $205.7 million in finance lease obligations. The payments on
finance lease obligations are primarily related to an aircraft purchase agreement for the purchase of 14 A319 aircraft which we previously financed under operating leases. For
additional information, refer to "Notes to Financial Statements - 4. Special Charges."
Commitments and Contractual Obligations
Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of December 31,
2019, our firm aircraft orders consisted of 135 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. In
addition, we had 12 direct operating leases for A320neos with third-party lessors, with deliveries expected through 2021.
On December 20, 2019, we entered into an A320 NEO Family Purchase Agreement with Airbus for the purchase of 100 new Airbus A320neo family aircraft, with options
to purchase up to 50 additional aircraft. This agreement includes a mix of Airbus A319neo, A320neo and A321neo aircraft with such aircraft scheduled for delivery through
2027. We also have one spare engine order for a V2500 SelectTwo engine with IAE and four spare engine orders for PurePower PW 1100G-JM engines with Pratt & Whitney.
Spare engines are scheduled for delivery from 2020 through 2023. As of December 31, 2019, committed expenditures for these aircraft and spare engines, including estimated
amounts for contractual price escalations and aircraft PDPs, are expected to be $988.0 million in 2020, $744.8 million in 2021, $123.7 million in 2022, $491.6 million in 2023,
$1,002.5 million in 2024, and $3,605.4 million in 2025 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 we are already contractually obligated to purchase
including those reflected above. The imposition of these tariffs may substantially increase the cost of new Airbus aircraft and parts required to service our Airbus fleet. For
further discussion on this topic, please refer to "Risk Factors - Risks Related to Our Business - Any tariffs imposed on commercial aircraft and related parts imported from
outside the United States may have a material adverse effect on our fleet, business, financial condition and our results of operations."
We have significant obligations for aircraft and spare engines as 52 of our aircraft are financed under operating leases, 2 of our aircraft are financed under finance leases
and 9 of our spare engines are financed under operating leases. These leases expire between 2020 and 2037. Aircraft rent payments were $181.0 million and $214.0 million for
2019 and 2018, respectively.
We have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines, payment of debt, and lease arrangements. The
following table discloses aggregate information about our contractual obligations as of December 31, 2019 and the periods in which payments are due (in millions):
Total
2020
2021 - 2022
2023 - 2024
Long-term debt (1)
$
2,214 $
222 $
442 $
506 $
Interest and fee commitments (2)
Finance and operating lease obligations
Flight equipment purchase obligations
Other (3)
Total future payments on contractual obligations $
431
2,042
6,955
134
78
242
988
22
136
394
868
34
99
346
1,494
28
11,776 $
1,552 $
1,874 $
2,473 $
2025 and
beyond
1,044
118
1,060
3,605
50
5,877
53
(1)
Includes principal only associated with senior term loans, fixed-rate loans, Class A, Class B, and Class C Series 2015-1 EETCs, Class AA, Class A, Class B, and Class
C Series 2017-1 EETCs, and our revolving credit facility. Refer to “Notes to the Financial Statements—13. Debt and Other Obligations.”
(2) Related to senior term loans, fixed-rate loans, and Class A, Class B, and Class C Series 2015-1 EETCs, and Class AA, Class A, Class B, and Class C Series 2017-1
(3)
EETCs. Includes interest accrued as of December 31, 2019 related to our variable-rate revolving credit facility.
Primarily related to our reservation system and other miscellaneous subscriptions and services. Refer to “Notes to the Financial Statements—18. Commitments and
Contingencies.”
Some of our master lease agreements require that we pay maintenance reserves to aircraft lessors to be held as collateral in advance of our required performance of major
maintenance activities. Some maintenance reserve payments are fixed contractual amounts, while others are based on utilization.
As of December 31, 2019, we had secured debt financing for three aircraft to be delivered in 2020. In addition, as of December 31, 2019, we had secured financing
for 12 aircraft to be leased directly from third-party lessors, scheduled for delivery in 2020 through 2021. We did not have financing commitments in place for the remaining
132 Airbus aircraft currently on firm order, which are scheduled for delivery through 2027. However, we have signed 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. The agreement provides a standby credit facility in the form of
senior secured mortgage debt financing.
As of December 31, 2019, principal and interest commitments related to the future secured debt financing of 3 aircraft to be delivered in 2020 are approximately $9.6
million in 2020, $12.9 million in 2021, $13.0 million in 2022, $13.0 million in 2023, $13.1 million in 2024, and $83.3 million in 2025 and beyond. As of December 31, 2019,
aircraft rent commitments for future aircraft deliveries to be financed under direct leases from third-party lessors are expected to be approximately $6.0 million in 2020, $34.9
million in 2021, $44.1 million in 2022, $44.1 million in 2023, $44.1 million in 2024, and $356.1 million in 2025 and beyond. These future commitments are not included in the
table above.
Off-Balance Sheet Arrangements
During the fourth quarter of 2018, we entered into a revolving credit facility for up to $160 million secured by the collateral assignment of certain of our rights under our
agreements with Airbus. As of December 31, 2019, collateralized amounts were related to 34 Airbus A320neo aircraft scheduled to be delivered between January 2020 and
December 2021. The final maturity of the facility is December 30, 2020 with final payment due in January 2021. As of December 31, 2019, we had drawn $160.0 million on the
facility which is included in current maturities of long-term debt and finance leases and long-term debt and finance leases, less current maturities on our balance sheet.
As of December 31, 2019, we had lines of credit related to corporate credit cards of $33.6 million from which we had drawn $4.6 million.
As of December 31, 2019, we had lines of credit with counterparties for both physical fuel delivery and derivatives in the amount of $41.5 million. As of December 31,
2019, we had drawn $25.3 million on these lines of credit for physical fuel delivery. We are required to post collateral for any excess above the lines of credit if the derivatives
are in a net liability position and make periodic payments in order to maintain an adequate undrawn portion for physical fuel delivery. As of December 31, 2019, we did not hold
any derivatives.
As of December 31, 2019, we had $9.2 million in uncollateralized surety bonds and a $35.0 million unsecured standby letter of credit facility, representing an off balance-
sheet commitment, of which $23.3 million had been drawn upon for issued letters of credit.
54
Set forth below is a glossary of industry terms:
GLOSSARY OF AIRLINE TERMS
“Adjusted CASM” means operating expenses, excluding unrealized gains or losses related to fuel derivative contracts, out of period fuel federal excise tax, loss on
disposal of assets, special charges and supplemental rent adjustments related to lease modifications, divided by ASMs.
“Adjusted CASM ex fuel” means operating expenses excluding aircraft fuel expense, loss on disposal of assets, special charges and supplemental rent adjustments related
to lease modifications, divided by ASMs.
“AFA-CWA” means the Association of Flight Attendants-CWA.
“Air traffic liability” or “ATL” means the value of tickets sold in advance of travel.
“ALPA” means the Air Line Pilots Association, International.
“ASIF” means an Aviation Security Infrastructure Fee assessed by the TSA on each airline.
“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown, also referred to as "capacity."
“Average aircraft” means the average number of aircraft in our fleet as calculated on a daily basis.
“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft.
“Average fuel cost per gallon” means total aircraft fuel expense divided by the total number of fuel gallons consumed.
“Average stage length” represents the average number of miles flown per flight.
“Average yield” means average operating revenue earned per RPM, calculated as total revenue divided by RPMs, also referred to as "passenger yield."
“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate
arrival at the destination.
“CASM” or “unit costs” means operating expenses divided by ASMs.
“CBA” means a collective bargaining agreement.
“CBP” means United States Customs and Border Protection.
“DOT” means the United States Department of Transportation.
“EPA” means the United States Environmental Protection Agency.
"EETC" means enhanced equipment trust certificate.
“FAA” means the United States Federal Aviation Administration.
“Fare revenue per passenger flight segment” means total fare passenger revenue divided by passenger flight segments.
“FCC” means the United States Federal Communications Commission.
"FLL Airport" means the Fort Lauderdale Hollywood International Airport.
“GDS” means Global Distribution System (e.g., Amadeus, Galileo, Sabre and Worldspan).
"IAMAW" means the International Association of Machinists and Aerospace Workers.
“Into-plane fuel cost per gallon” means into-plane fuel expense divided by number of fuel gallons consumed.
“Into-plane fuel expense” represents the cost of jet fuel and certain other charges such as fuel taxes and oil.
55
“Load factor” means the percentage of aircraft seats actually occupied on a flight (RPMs divided by ASMs).
“NMB” means the National Mediation Board.
"Non-ticket revenue" means total non-fare passenger revenue and other revenue.
“Non-ticket revenue per passenger flight segment” means total non-fare passenger revenue and other revenue divided by passenger flight segments.
“OTA” means Online Travel Agent (e.g., Orbitz and Travelocity).
"PAFCA" means the Professional Airline Flight Control Association.
“Passenger flight segments” means the total number of passengers flown on all flight segments.
“PDP” means pre-delivery deposit payment.
“Revenue passenger mile” or “RPM” means one revenue passenger transported one mile. RPMs equals revenue passengers multiplied by miles flown, also referred to as
"traffic."
“RLA” means the United States Railway Labor Act.
“Total operating revenue per ASM,” “TRASM” or “unit revenue” means operating revenue divided by ASMs.
“TWU” means the Transport Workers Union of America.
“TSA” means the United States Transportation Security Administration.
“ULCC” means “ultra low-cost carrier.”
56
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk-Sensitive Instruments and Positions
We are subject to certain market risks, including commodity prices (specifically aircraft fuel) and interest rates. We purchase the majority of our jet fuel at prevailing
market prices and seek to manage market risk through execution of our hedging strategy and other means. We have market-sensitive instruments in the form of fixed-rate debt
instruments. We do not hold any derivative financial instruments. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity
analysis provided below does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to
mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel. Our results of operations can vary materially due to changes in the price and availability of aircraft fuel. Aircraft fuel expense for the years ended
December 31, 2019, 2018 and 2017 represented approximately 29.8%, 31.6% and 27.3% of our operating expenses, respectively. Volatility in aircraft fuel prices or a shortage
of supply could have a material adverse effect on our operations and operating results. We source a significant portion of our fuel from refining resources located in the
southeast United States, particularly facilities adjacent to the Gulf of Mexico. Gulf Coast fuel is subject to volatility and supply disruptions, particularly during hurricane season
when refinery shutdowns have occurred, or when the threat of weather related disruptions has caused Gulf Coast fuel prices to spike above other regional sources. Gulf Coast Jet
indexed fuel is the basis for a substantial majority of our fuel consumption. Based on our annual fuel consumption, a hypothetical 10% increase in the average price per gallon of
aircraft fuel would have increased into-plane aircraft fuel cost for 2019 by $99.3 million.
Interest Rates. We have market risk associated with our short-term investment securities, which had a fair market value of $105.3 million and $102.8 million as
of December 31, 2019 and December 31, 2018, respectively.
Fixed-Rate Debt. As of December 31, 2019, we had $2,053.6 million outstanding in fixed-rate debt related to the purchase of 34 Airbus A320 aircraft and 30 Airbus A321
aircraft, which had a fair value of $2,143.0 million. As of December 31, 2018, we had $2,099.2 million outstanding in fixed-rate debt related to the purchase of 30 Airbus A320
aircraft and 30 Airbus A321 aircraft, which had a fair value of $2,034.2 million.
Variable-Rate Debt. As of December 31, 2019, we had $160.0 million outstanding in variable-rate long-term debt, which had a fair value of $160.0 million. As of
December 31, 2018, we had $135.3 million outstanding in variable-rate long-term debt, which had a fair value of $135.3 million. A hypothetical increase of 100 basis points in
average annual interest rates would have increased the annual interest expense on our variable-rate long-term debt by $1.6 million in 2019.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Statements of Operations
Statements of Comprehensive Income
Balance Sheets
Statements of Cash Flows
Statements of Shareholders’ Equity
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
58
Page
59
60
61
62
63
64
91
Operating revenues:
Passenger
Other
Total operating revenues
Operating expenses:
Aircraft fuel
Salaries, wages and benefits
Landing fees and other rents
Depreciation and amortization
Aircraft rent
Distribution
Maintenance, materials and repairs
Loss on disposal of assets
Special charges
Other operating
Total operating expenses
Operating income
Other (income) expense:
Interest expense
Capitalized interest
Interest income
Other expense
Special charges, non-operating
Total other (income) expense
Income before income taxes
Provision (benefit) for income taxes
Net income
Basic earnings per share
Diluted earnings per share
Spirit Airlines, Inc.
Statements of Operations
(In thousands, except per-share data)
See accompanying Notes to Financial Statements.
59
Year Ended December 31,
2019
2018
2017
$
3,757,605 $
3,260,015 $
2,572,887
72,931
63,019
70,665
3,830,536
3,323,034
2,643,552
993,478
865,019
256,275
225,264
182,609
153,770
143,575
17,350
717
939,324
719,635
214,677
176,727
177,641
137,001
129,078
9,580
88,921
491,432
379,536
615,581
527,959
180,655
140,152
205,852
113,472
110,439
4,168
12,629
347,820
3,329,489
2,972,120
2,258,727
501,047
350,914
384,825
101,350
(12,471)
(25,133)
875
—
64,621
83,777
(9,841)
(19,107)
752
90,357
145,938
57,302
(13,793)
(8,736)
366
—
35,139
436,426
101,171
204,976
49,227
349,686
(65,836)
$
$
$
335,255 $
155,749 $
415,522
4.90 $
4.89 $
2.28 $
2.28 $
6.00
5.99
Spirit Airlines, Inc.
Statements of Comprehensive Income
(In thousands)
Net income
Unrealized gain (loss) on short-term investment securities and cash and cash equivalents, net of
deferred taxes of $38, $44, and ($41)
Interest rate derivative loss reclassified into earnings, net of taxes of $76, $75, and $372
Other comprehensive income (loss)
Comprehensive income
Year Ended December 31,
2019
2018
2017
335,255
$
155,749 $
415,522
167
239
406
335,661
$
$
30
241
271
156,020
$
$
(82)
(37)
(119)
415,403
$
$
$
See accompanying Notes to Financial Statements.
60
Spirit Airlines, Inc.
Balance Sheets
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investment securities
Accounts receivable, net
Aircraft maintenance deposits, net
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment:
Flight equipment
Ground property and equipment
Less accumulated depreciation
Operating lease right-of-use assets
Pre-delivery deposits on flight equipment
Long-term aircraft maintenance deposits
Deferred heavy maintenance, net
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable
Air traffic liability
Current maturities of long-term debt and finance leases
Current maturities of operating leases
Other current liabilities
Total current liabilities
Long-term debt and finance leases, less current maturities
Operating leases, less current maturities
Deferred income taxes
Deferred gains and other long-term liabilities
Shareholders’ equity:
Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2019 and 2018,
respectively; 70,148,386 and 69,871,535 issued and 68,455,011 and 68,269,567 outstanding as of December 31, 2019
and 2018, respectively
Additional paid-in-capital
Treasury stock, at cost: 1,693,375 and 1,601,968 as of December 31, 2019 and 2018, respectively
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Financial Statements.
61
December 31, 2019
December 31, 2018
$
978,957 $
1,004,733
105,321
73,807
102,906
21,013
103,439
102,789
47,660
106,901
—
83,383
1,385,443
1,345,466
3,730,751
291,998
(492,447)
3,530,302
1,369,555
291,930
67,682
361,603
36,897
3,257,215
191,661
(332,864)
3,116,012
—
236,775
138,738
249,010
79,456
7,043,412 $
5,165,457
43,601 $
315,408
258,852
120,662
373,521
1,112,044
1,960,453
1,218,014
469,292
22,277
7
379,380
(72,455)
1,955,187
(787)
2,261,332
7,043,412 $
39,320
291,981
163,557
—
339,677
834,535
2,024,774
—
355,141
22,503
7
371,225
(67,016)
1,625,481
(1,193)
1,928,504
5,165,457
$
$
$
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
Losses reclassified from other comprehensive income
Share-based compensation
Allowance for doubtful accounts (recoveries)
Amortization of deferred gains, losses and debt issuance costs
Depreciation and amortization
Deferred income tax expense (benefit)
Loss on disposal of assets
Lease termination costs
Special charges, non-operating
Changes in operating assets and liabilities:
Accounts receivable, net
Aircraft maintenance deposits, net
Long-term deposits and other assets
Deferred heavy maintenance, net
Income tax receivable
Prepaid income taxes
Accounts payable
Air traffic liability
Other liabilities
Other
Net cash provided by operating activities
Investing activities:
Purchase of available-for-sale investment securities
Proceeds from the maturity and sale of available-for-sale investment securities
Proceeds from sale of property and equipment
Pre-delivery deposits on flight equipment, net of refunds
Capitalized interest
Assets under construction for others
Purchase of property and equipment
Net cash used in investing activities
Financing activities:
Proceeds from issuance of long-term debt
Proceeds from stock options exercised
Payments on debt obligations
Payments on finance lease obligations
Reimbursement for assets under construction for others
Repurchase of common stock
Debt issuance costs
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest
Income taxes paid (received), net
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases (1)
Financing cash flows for finance leases (1)
Non-cash transactions:
Capital expenditures funded by finance lease borrowings
Spirit Airlines, Inc.
Statements of Cash Flows
(In thousands)
Year Ended December 31,
2019
2018
2017
$
335,255
$
155,749
$
415,522
315
8,154
—
8,654
225,264
115,689
17,350
—
—
(26,147)
22,453
14,999
(175,957)
(21,013)
1,431
569
23,429
(140,402)
(822)
409,221
(122,410)
120,830
—
(102,102)
(10,774)
(7,936)
(192,437)
(314,829)
225,891
1
(246,783)
(96,547)
5,618
(5,439)
(2,909)
(120,168)
(25,776)
1,004,733
315
11,021
(11)
8,819
176,727
46,303
9,580
—
90,357
1,674
14,019
(4,803)
(190,381)
69,844
—
15,317
28,270
74,038
(375)
506,463
(124,430)
122,947
11,400
(177,424)
(8,729)
(501)
(606,971)
(783,708)
832,099
51
(137,275)
(205,720)
501
(1,162)
(7,365)
481,129
203,884
800,849
978,957
$
1,004,733
$
80,254
5,843
$
$
65,123
(73,489)
$
$
191,004
674
—
—
335
8,522
(53)
7,944
140,152
(492)
4,168
12,629
—
(8,134)
(37,930)
(50,951)
(78,237)
(69,844)
—
6,030
43,527
31,672
380
425,240
(107,246)
105,906
—
(149,477)
(12,305)
—
(628,881)
(792,003)
629,725
45
(102,313)
(425)
—
(46,580)
(13,740)
466,712
99,949
700,900
800,849
37,902
5,826
—
—
45,608
$
987
$
1,370
$
$
$
$
$
$
Capital expenditures funded by operating lease borrowings (1)
—
(1) The Company adopted ASU No. 2016-02, "Leases (Topic 842)," utilizing the modified retrospective adoption method with an effective date of January 1, 2019. Therefore, the financial statements for 2019 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.
569,948
$
—
See accompanying Notes to Financial Statements.
62
Balance at December 31, 2016
Share-based compensation
Repurchase of common stock
Proceeds from options exercised
Retirement of treasury stock
Changes in comprehensive income
Net income
Balance at December 31, 2017
Share-based compensation
Repurchase of common stock
Proceeds from options exercised
Changes in comprehensive income
Net income
Balance at December 31, 2018
Effect of ASU No. 2016-02 implementation
(refer to Note 2)
Share-based compensation
Repurchase of common stock
Proceeds from options exercised
Changes in comprehensive income
Net income
Balance at December 31, 2019
$
$
$
$
Spirit Airlines, Inc.
Statements of Shareholders’ Equity
(In thousands)
Common Stock
Additional Paid-In
Capital
Treasury Stock
7 $
551,004
$
(218,692)
Retained Earnings
1,054,210
$
Accumulated Other
Comprehensive Income
(Loss)
$
(1,345)
$
Total
1,385,184
8,522
(46,580)
45
—
(119)
415,522
—
—
—
—
—
—
7
—
—
—
—
—
7
—
—
—
—
—
—
7
8,522
—
45
(199,418)
—
—
—
(46,580)
—
199,418
—
—
—
—
—
—
—
415,522
—
—
—
—
(119)
—
$
360,153
$
(65,854)
$
1,469,732
$
(1,464)
$
1,762,574
11,021
—
51
—
—
—
(1,162)
—
—
—
—
—
—
—
155,749
—
—
—
271
—
11,021
(1,162)
51
271
155,749
$
371,225
$
(67,016)
$
1,625,481
$
(1,193)
$
1,928,504
—
8,154
—
1
—
—
—
—
(5,439)
—
—
—
(5,549)
—
—
—
—
335,255
—
—
—
—
406
—
(5,549)
8,154
(5,439)
1
406
335,255
$
379,380
$
(72,455)
$
1,955,187
$
(787)
$
2,261,332
See accompanying Notes to Financial Statements.
63
1. Summary of Significant Accounting Policies
Basis of Presentation
Notes to Financial Statements
Spirit Airlines, Inc. ("Spirit" or the "Company") headquartered in Miramar, Florida, is an ultra low-cost, low-fare airline that provides affordable travel opportunities
principally throughout the domestic United States, the Caribbean and Latin America. The Company manages operations on a system-wide basis due to the interdependence of its
route structure in the various markets served. As only one service is offered (i.e., air transportation), management has concluded there is only one reportable segment.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the Company's management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company's estimates and assumptions are based on
historical experience and changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical
accounting policies and estimates are defined as those that both (i) are most important to the portrayal of the Company's financial condition and results and (ii) require
management's most subjective judgments. The Company's most critical accounting policies and estimates are described below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of less than three months at the date of acquisition to be cash equivalents. Investments included in
this category primarily consist of cash and money market funds. Cash and cash equivalents are stated at cost, which approximates fair value.
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 twelve months or less. These securities are stated at fair value within current assets on the Company's balance sheet. For all short-term investments, at
each reset period or upon reinvestment, the Company accounts for the transaction as proceeds from the maturity of short-term investment securities for the security relinquished,
and purchase of short-term investment securities for the security purchased, in the Company's statements of cash flows. Realized gains and losses on sales of investments, if any,
are reflected in non-operating income (expense) in the statements of operations. Unrealized gains and losses on investment securities are reflected as a component of
accumulated other comprehensive income.
Accounts Receivable
Accounts receivable primarily consist of amounts due from credit card processors associated with the sales of tickets and amounts due from the Internal Revenue Service
related to federal excise fuel tax. The Company records an allowance for doubtful accounts for amounts not expected to be collected. The Company estimates the allowance
based on historical write-offs as well as aging trends. The allowance for doubtful accounts was immaterial as of December 31, 2019 and 2018.
In addition, the provision for doubtful accounts and write-offs for 2019, 2018 and 2017 were each immaterial.
Income Tax Receivable
Income tax receivable consists of amounts due from tax authorities for recovery of income taxes paid in prior periods.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation of operating property and equipment is computed using the
straight-line method applied to each unit of property. Residual values for new aircraft, new engines, major spare rotable parts, avionics and assemblies are generally estimated to
be 10%. Property under finance leases and related obligations are initially recorded at an amount equal to the present value of future minimum lease payments computed using
the Company's incremental borrowing rate or, when known, the interest rate implicit in the lease. Amortization of property under finance leases is on a straight-line basis over
the lease term and is included in depreciation and amortization expense.
64
The depreciable lives used for the principal depreciable asset classifications are:
Notes to Financial Statements—(Continued)
Aircraft, engines and flight simulators
Spare rotables and flight assemblies
Other equipment and vehicles
Internal use software
Finance leases
Leasehold improvements
Buildings
Estimated Useful Life
25 years
7 to 15 years
5 to 7 years
3 to 10 years
Lease term or estimated useful life of the asset
Lesser of lease term or estimated useful life of the
improvement
Lesser of lease term or 30 years
As of December 31, 2019, the Company had 91 aircraft, 14 spare engines and 1 flight simulator capitalized within flight equipment with depreciable lives of 25 years. As
of December 31, 2019, the Company had 52 aircraft financed through operating leases and 2 aircraft financed through finance leases with lease terms from 8 to 18 years. In
addition, the Company had 9 spare engines financed through operating leases with lease terms from 2 to 14 years.
The following table illustrates the components of depreciation and amortization expense:
Depreciation
Amortization of heavy maintenance
Amortization of capitalized software
Total depreciation and amortization
Year Ended December 31,
2019
2018
2017
(in thousands)
$ 155,326 $ 129,412 $
83,154
63,364
41,286
6,574
6,029
53,855
3,143
$ 225,264 $ 176,727 $ 140,152
The Company capitalizes certain internal and external costs associated with the acquisition and development of internal-use software for new products, and enhancements
to existing products, that have reached the application development stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services
utilized in developing or obtaining internal-use software, and labor cost for employees who are directly associated with, and devote time, to internal-use software projects.
Capitalized computer software, included as a component of ground and other equipment in the accompanying balance sheets, net of amortization, was $13.0 million and $13.7
million at December 31, 2019 and 2018, respectively.
The Company records amortization of capitalized software on a straight-line basis within depreciation and amortization expense in the accompanying statements of
operations. The Company placed in service internal-use software of $5.9 million, $12.0 million and $1.4 million, during the years ended 2019, 2018 and 2017, respectively.
Operating Lease Right-of-Use Asset and Liabilities
The Company adopted Topic 842 utilizing the modified retrospective adoption method with an effective date of January 1, 2019. This standard requires all lessees to
recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, for all leases with a term greater than 12 months.
Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease
payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over
the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, the Company's leases generally do not
provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at
lease commencement. The Company uses publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. The Company
has options to extend certain of its operating leases for an additional period of time and options to early terminate several of its operating leases. The lease term consists of the
noncancellable period of the lease, periods covered by options to extend the lease if the Company is reasonably certain to exercise the option, periods covered by an option to
terminate the lease if the Company is reasonably certain not to exercise the option and periods covered by an option to extend or not terminate the lease in which the exercise of
the option is controlled by the lessor. The Company's lease agreements do not contain any residual
65
Notes to Financial Statements—(Continued)
value guarantees. The Company has elected to not separate non-lease components from the associated lease component for all underlying classes of assets with lease and non-
lease components.
The Company elected not to apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less) but instead recognize these lease
payments in income on a straight-line basis over the lease term. The Company elected this accounting policy for all classes of underlying assets. In addition, in accordance with
Topic 842, variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a lease liability or right-of-use
asset.
Prior to the adoption of Topic 842, gains and losses on sale-leaseback transactions were generally deferred and recognized in income over the lease term. Under Topic
842, gains and losses on sale-leaseback transactions, subject to adjustment for off-market terms, are recognized immediately and recorded within loss on disposal of assets on
the Company's statements of operations.
Pre-Delivery Deposits on Flight Equipment
The Company is required to make pre-delivery deposit payments ("PDPs") towards the purchase price of each new aircraft and engine prior to the scheduled delivery
date. These deposits are initially classified as pre-delivery deposits on flight equipment on the Company's balance sheets until the aircraft or engine is delivered, at which time
the related PDPs are deducted from the final purchase price of the aircraft or engine and are reclassified to flight equipment on the Company's balance sheets.
In addition, the Company capitalizes the interest that is attributable to the outstanding PDP balances as a percentage of the related debt on which interest is incurred.
Capitalized interest represents interest cost incurred during the acquisition period of a long-term asset, and is the amount which theoretically could have been avoided had the
Company not paid PDPs for the related aircraft or engines.
Related interest is capitalized and included within pre-delivery deposits on flight equipment through the acquisition period until delivery is taken of the aircraft or engine
and the asset is ready for service. Once the aircraft or engine is delivered, the capitalized interest is also reclassified into flight equipment on the Company's balance sheets along
with the related PDPs as they are included in the cost of the aircraft or engine. Capitalized interest for 2019, 2018 and 2017 is primarily related to the interest incurred on long-
term debt.
Measurement of Asset Impairments
The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the
undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their estimated
fair value. In making these determinations, the Company uses certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated,
undiscounted future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be
used in the Company’s operations, and estimated salvage values.
Passenger Revenues
Fare revenues. Tickets sold are initially deferred within air traffic liability on the Company's balance sheet. Passenger fare revenues are recognized at time of departure
when transportation is provided. All tickets sold by the Company are nonrefundable. An unused ticket expires at the date of scheduled travel and is recognized as revenue at the
date of scheduled travel. As of December 31, 2019 and 2018, the Company had air traffic liability ("ATL") balances of $315.4 million and $292.0 million, respectively. As of
December 31, 2019, all of the ATL balance as of December 31, 2018 has been recognized. The balance of the Company's ATL as of December 31, 2019 is expected to be
recognized within 12 months.
The Company adopted ASU 2014-09 on January 1, 2018 utilizing the full retrospective method of adoption. Passenger revenues reported prior to the adoption of ASU
2014-09 are now reported as fare revenues within passenger revenues in the Company's disaggregated revenue table within Note 3, Revenue Disaggregation.
Non-fare revenues. The adoption of ASU 2014-09 impacted the classification of certain ancillary items such as bags, seats and other travel-related fees, since they are
deemed part of the single performance obligation of providing passenger transportation. These ancillary items are now recognized in non-fare revenues within passenger
revenues, at the time of departure, in the Company's disaggregated revenue table within Note 3, Revenue Disaggregation.
66
The following table summarizes the primary components of the Company's non-fare revenue and the revenue recognition method utilized for each service or product:
Notes to Financial Statements—(Continued)
Non-fare revenue
Recognition method
2019
2018
2017
Year Ended December 31,
Baggage
Passenger usage fee
Advance seat selection
Other
Non-fare revenue
Time of departure
Time of departure
Time of departure
(in thousands)
$ 734,243 $ 620,154 $ 488,434
669,177
531,459
228,876
180,012
238,454
224,283
411,742
131,821
177,495
$ 1,870,750 $ 1,555,908 $ 1,209,492
Changes and cancellations. Customers may elect to change or cancel their itinerary prior to the date of departure. For changes, a service charge is recognized at time of
departure of newly scheduled travel and is deducted from the face value of the original purchase price of the ticket, and the original ticket becomes invalid. For cancellations, a
service charge is assessed and the amount remaining after deducting the service charge is called a credit shell which generally expires 60 days from the date the credit shell is
created and which can be used towards the purchase of a new ticket and the Company’s other service offerings. Both the service charge and credit shell amounts are recorded as
deferred revenue and amounts expected to expire unused are estimated based on historical experience. Estimating the amount of credits that will go unused involves some level
of subjectivity and judgment. However, given the relatively short period of time to expiration, this does not have a significant impact on the Company's financial statements.
Other Revenues
Other revenues primarily consist of the marketing component of the sale of frequent flyer miles to the Company's credit card partner and commissions revenue from the
sale of various items such as hotels and rental cars.
Frequent Flyer Program
The Company's frequent flyer program generates customer loyalty by rewarding customers with mileage credits to travel on Spirit. When traveling, customers earn
redeemable mileage credits for each mile flown on Spirit. Customers can also earn mileage credits through participating companies such as the co-branded Spirit credit card.
Mileage credits are redeemable by customers in future periods for air travel on Spirit.
To reflect the mileage credits earned, the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1)
mileage credits earned with travel and (2) mileage credits sold to co-branded credit card partner.
The adoption of ASU 2014-09 eliminated the incremental cost method for frequent flyer program accounting, which required the Company to re-value and record a
liability associated with customer flight miles earned with travel as part of the Company’s frequent flyer program with a relative fair value. Upon adoption of ASU 2014-09 on
January 1, 2018, the Company recorded an increase to its air traffic liability of $12.4 million.
Passenger ticket sales earning mileage credits. Passenger ticket sales earning mileage credits provide customers with (1) mileage credits earned and (2) air transportation.
The Company values each performance obligation on a standalone basis. To value the mileage credits earned, the Company considers the quantitative value a passenger receives
by redeeming miles for a ticket rather than paying cash, which is referred to as equivalent ticket value ("ETV").
The Company defers revenue for the mileage credits when earned and recognizes loyalty travel awards in passenger revenue as the miles 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.
Sale of mileage credits. Customers may earn mileage credits based on their spending with the Company's co-branded credit card company with which the Company has
an agreement to sell mileage credits. The contract to sell mileage credits under this agreement has multiple performance obligations, as discussed below.
67
Notes to Financial Statements—(Continued)
The Company's co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards. During
2015, the Company extended its agreement with the administrator of the FREE SPIRIT affinity credit card program to extend through 2022. 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) travel miles to be awarded, (ii) licensing of brand and access to member lists 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 miles awarded and number of miles redeemed, (2) ETV for the award travel obligation, (3) licensing of brand and access to
member lists and (4) advertising and marketing efforts.
The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the balance sheet and recognizes loyalty
travel awards in passenger revenue as the mileage credits are used for travel. Revenue allocated to the remaining performance obligations, primarily marketing components, is
recorded in other revenue over time as miles are delivered. Total unrecognized revenue from future FREE SPIRIT award redemptions and the sale of mileage credits was $29.8
million and $27.4 million at December 31, 2019 and 2018, respectively. The current portion of this balance is recorded within air traffic liability and the long-term portion of
this balance is recorded within deferred gains and other long-term liabilities in the accompanying balance sheets.
The following table illustrates total cash proceeds received from the sale of mileage credits and the portion of such proceeds recognized in non-ticket revenue
immediately as marketing component:
Year Ended
December 31, 2019
December 31, 2018
December 31, 2017
Consideration received
from credit card mile
programs
Portion of proceeds
recognized immediately
as marketing
component
$
(in thousands)
48,136 $
39,194
49,453
37,151
30,353
37,960
Mileage breakage. For mileage credits that the Company estimates are not likely to be redeemed ("breakage"), the Company recognizes the associated value
proportionally during the period in which the remaining mileage credits are redeemed. Management uses statistical models to estimate breakage based on historical redemption
patterns. A change in assumptions as to the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits or the estimated
fair value of mileage credits expected to be redeemed could have an impact on revenues in the year in which the change occurs and in future years.
Current activity of frequent flyer program. Mileage credits are combined in one homogeneous pool and are not separately identifiable. As such, revenue is comprised of
miles that were part of the frequent flyer deferred revenue balance at the beginning of the period as well as miles that were issued during the period.
Airframe and Engine Maintenance
The Company accounts for heavy maintenance and major overhaul under the deferral method whereby the cost of heavy maintenance and major overhaul is deferred and
amortized until the earlier of the end of the useful life of the related asset, the end of the remaining lease term or the next scheduled heavy maintenance event.
Amortization of heavy maintenance and major overhaul costs charged to depreciation and amortization expense was $63.4 million, $41.3 million and $53.9 million for the
years ended 2019, 2018 and 2017, respectively. During the years ended 2019, 2018 and 2017, the Company deferred $176.0 million, $190.5 million and $78.2 million,
respectively, of costs for heavy maintenance. At December 31, 2019 and 2018, the Company had deferred heavy maintenance balance of $504.2 million and $366.3 million, and
accumulated heavy maintenance amortization of $142.6 million and $117.3 million, respectively.
The Company outsources certain routine, non-heavy maintenance functions under contracts that require payment on a utilization basis, such as flight hours. Costs incurred
for maintenance and repair under flight hour maintenance contracts, where labor and materials price risks have been transferred to the service provider, are expensed based on
contractual payment terms. All other costs for routine maintenance of the airframes and engines are charged to expense as performed.
The table below summarizes the components of the Company’s maintenance cost:
68
Notes to Financial Statements—(Continued)
Flight hour-based maintenance expense
Non-flight hour-based maintenance expense
Total maintenance, materials and repairs
Year Ended December 31,
2019
2018
2017
(in thousands)
$ 78,253 $ 68,039 $ 54,802
65,322
61,039
55,637
$ 143,575 $ 129,078 $ 110,439
Leased Aircraft Return Costs
The Company's aircraft lease agreements often contain provisions that require the Company to return aircraft airframes, engines and other aircraft components to the
lessor in a certain condition or pay an amount to the lessor based on the airframe and engine's actual return condition. Lease return costs include all costs that would be incurred
at the return of the aircraft, including costs incurred to repair the airframe and engines to the required condition as stipulated by the lease. Lease return costs are recognized
beginning when it is probable that such costs will be incurred and they can be estimated.
When determining the need to accrue lease return costs, there are various probability and estimated cost, there are various factors which need to be considered such as
the contractual terms of the lease agreement, current condition of the aircraft, the age of the aircraft at lease expiration, projected number of hours run on the engine at the time
of return, and the number of projected cycles run on the airframe at the time of return, among others. Management assesses the need to accrue lease return costs periodically
throughout the year or whenever facts and circumstances warrant an assessment. Lease return costs will generally be estimable closer to the end of the lease term but may be
estimable earlier in the lease term depending on the contractual terms of the lease agreement and the timing of maintenance events for a particular aircraft.
Aircraft Maintenance Deposits
Some of the Company's aircraft and engine master lease agreements provide that the Company pay 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. These lease agreements generally provide that
maintenance reserves are reimbursable to the Company upon completion of the maintenance event. 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 December 31, 2019, the Company is in full compliance with such
requirements and does not anticipate having to pay reserves related to these master leases in the future.
Maintenance reserve payments are reflected as aircraft maintenance deposits in the accompanying balance sheets. The Company makes certain assumptions to
determine the recoverability of maintenance deposits. These assumptions are based on various factors such as the estimated time between the maintenance events, the date the
aircraft is due to be returned to the lessor, the cost of future maintenance events and the utilization of the aircraft is estimated before it is returned to the lessor. When it is not
probable the Company will recover amounts currently on deposit with a lessor, such amounts are expensed as supplemental rent.
Aircraft Fuel
Aircraft fuel expense includes jet fuel and associated into-plane costs, taxes, and oil, and realized and unrealized gains and losses associated with fuel derivative contracts,
if any.
Advertising
The Company expenses advertising and the production costs of advertising as incurred. Marketing and advertising expenses of $6.3 million, $6.3 million and $5.1 million
for the years ended 2019, 2018 and 2017, respectively, were recorded within distribution expense in the statements of operations.
Income Taxes
The Company accounts for income taxes using the asset and liability method. The Company records a valuation allowance to reduce the deferred tax assets reported if,
based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will be not realized. As of December 31, 2019 and 2018, the
Company recorded a valuation allowance of $1.7 million and $0.3 million, respectively. For additional information, refer to Note 17, Income Taxes.
Stock-Based Compensation
69
Notes to Financial Statements—(Continued)
The Company recognizes cost of employee services received in exchange for awards of equity instruments based on the fair value of each instrument at the date of grant.
For the majority of awards, compensation expense is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for
an award. Certain awards have performance conditions that must be achieved prior to vesting and are expensed based on the expected achievement at each reporting period. The
Company has issued and outstanding restricted stock awards, stock option awards and performance share awards. Restricted stock awards are valued at the fair value of the
shares on the date of grant. The fair value of share option awards is estimated on the date of grant using the Black-Scholes valuation model. The fair value of performance share
awards based on a market condition is estimated through the use of a Monte Carlo simulation model. The fair value of performance share awards based on a performance
condition is based on the fair value of the shares on the date of grant. The performance share awards based on a performance condition are evaluated at each report date and
adjustments are made to stock-based compensation expense based on the number of shares deemed probable of issuance upon vesting. For additional information, refer to Note
11, Stock-Based Compensation.
Cash Flow Presentation
In the Company's Form 10-Q for the period ending September 30, 2019 and filed on October 23, 2019, the Company had a typographical error on the Company's
Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and the Liquidity Section of the Company's Management Discussion and Analysis as the
amounts listed under the captions for "Pre-delivery deposits on flight equipment, net of refunds" and "Purchase of property and equipment" were interchanged. These amounts
have been corrected in the Company's Statements of Cash Flows for the year ended December 31, 2019 filed herein.
Concentrations of Risk
The Company’s business may be adversely affected by increases in the price of aircraft fuel, the volatility of the price of aircraft fuel, or both. Aircraft fuel, one of the
Company’s largest expenditures, represented approximately 30%, 32% and 27% of total operating expenses in 2019, 2018 and 2017, respectively.
The Company’s operations are largely concentrated in the southeast United States with Fort Lauderdale being the highest volume fueling point in the system. Gulf Coast
Jet indexed fuel is the basis for a substantial majority of the Company’s fuel consumption. Any disruption to the oil production or refinery capacity in the Gulf Coast, as a result
of weather or any other disaster, or disruptions in supply of jet fuel, dramatic escalations in the costs of jet fuel and/or the failure of fuel providers to perform under fuel
arrangements for other reasons could have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s operations will continue to be vulnerable to weather conditions (including hurricane season or snow and severe winter weather), which could disrupt
service or create air traffic control problems. These events may result in decreased revenue and/or increased costs.
Due to the relatively small size of the Company's fleet and high utilization rate, the unavailability of aircraft and resulting reduced capacity could have a material adverse
effect on the Company’s business, results of operations and financial condition.
As of December 31, 2019, the Company had five union-represented employee groups that together represented approximately 81% of all employees. A strike or other
significant labor dispute with the Company’s unionized employees is likely to adversely affect the Company’s ability to conduct business. Additional disclosures are included in
Note 18, Commitments and Contingencies.
2. Recent Accounting Developments
Recently Adopted Accounting Pronouncements
Leases
The Company adopted ASU No. 2016-02, "Leases (Topic 842)," effective January 1, 2019. The Company adopted Topic 842 utilizing the modified retrospective adoption
method with an effective date of January 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment
of: (1) whether any of the Company's contracts are or contain leases, (2) lease classification and (3) initial direct costs. Therefore, the financial statements for 2019 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.
This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, for all leases with a term
greater than 12 months. The adoption of the new lease standard had a significant impact on the Company's balance sheets due to the
70
Notes to Financial Statements—(Continued)
recognition of $1.0 billion of right-of-use assets for operating leases, $128.1 million of current maturities of operating leases and $895.1 million of operating leases, less current
maturities. In addition, the Company recognized a $5.5 million cumulative effect adjustment, net of tax, to retained earnings. This adjustment was driven by the recognition of
unamortized deferred gains and losses related to aircraft sale-leaseback transactions entered into in prior periods. Prior to the adoption of Topic 842, gains and losses on sale-
leaseback transactions were generally deferred and recognized in income over the lease term. The accounting for finance leases is substantially unchanged. The adoption of
Topic 842 did not have a significant impact on the Company's lease classification or a material impact on its statements of operations and liquidity. Additionally, the adoption of
Topic 842 did not have a material impact on the Company’s debt-covenant compliance under its current agreements. Refer to Note 14, Leases and Prepaid Maintenance
Deposits for information regarding the Company's adoption of Topic 842 and the Company's undiscounted future lease payments and the timing of those payments.
Recently Issued Accounting Pronouncements Not Yet Adopted
Cloud Computing Arrangements
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." This new standard requires a customer in a cloud
computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40, "Accounting for Internal-
Use Software," to determine which implementation costs to capitalize as assets and amortize over the term of the hosting arrangement or expense as incurred. This standard is
effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020. Early adoption is permitted, including during an interim period.
The Company has elected not to early adopt. Entities have the option to apply this standard prospectively to all implementation costs incurred after the date of adoption or
retrospectively. The Company is evaluating this new standard, but does not expect it to have a significant impact on its financial statement presentation or results.
Accounting for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses." The standard requires the use of an "expected loss" model on certain types of
financial instruments. For accounts receivables, aircraft maintenance deposits and security deposits, recorded within other long-term assets on the Company's balance sheets, the
Company will be required to estimate lifetime expected credit losses. The standard also amends the impairment model for available-for-sale securities and requires estimated
credit losses to be recorded as allowances rather than as reductions to the amortized cost of the securities. As such, the Company will be required to recognize an allowance for
credit losses for its short-term available-for-sale investment securities with the exception of U.S. Treasury securities, which do not require an allowance for credit losses. This
standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020, with early adoption permitted. The Company has
elected not to early adopt. The Company does not expect the standard to have a material impact on its financial statements.
3. Revenue Disaggregation
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 twelve months ended December 31, 2019, 2018 and 2017.
Operating revenues:
Fare
Non-fare
Total passenger revenues
Other
Total operating revenues
Twelve Months Ended December 31,
2019
2018
(in thousands)
2017
$
$
1,886,855 $
1,704,107 $
1,870,750
3,757,605
72,931
1,555,908
3,260,015
63,019
3,830,536 $
3,323,034 $
1,363,395
1,209,492
2,572,887
70,665
2,643,552
71
Notes to Financial Statements—(Continued)
4. Special Charges
Special Charges, Operating
During the twelve months ended December 31, 2019, the Company recorded $0.7 million in special charges within operating expenses in the statement of operations
related to the write-off of aircraft related credits resulting from the exchange of credits negotiated under the new purchase agreement with Airbus S.A.S. ("Airbus") executed
during the fourth quarter of 2019. For additional information on the new purchase agreement with Airbus, refer to Note 18, Commitments and Contingencies.
During the twelve months ended December 31, 2018, the Company negotiated and amended the collective bargaining agreement with the Air Line Pilots Association,
International ("ALPA"), under the guidance of the National Mediation Board ("NMB"). In connection with the new agreement, the Company incurred a one-time ratification
incentive of $80.2 million, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. As a result, the Company recorded $88.7 million in
special charges within operating expenses in the statement of operations for the twelve months ended December 31, 2018. As of December 31, 2018, the Company had paid the
full ratification incentive related to the Company's new collective bargaining agreement with its pilots.
During the twelve months ended December 31, 2017, the Company purchased one engine and one aircraft which were previously financed under operating lease
agreements. The purchase price of the one engine and one aircraft was $8.1 million and $20.0 million, respectively, comprised of a cash payment of $3.8 million and $12.6
million, respectively, and the non-cash application of maintenance and security deposits held by the previous lessor of $4.3 million and $7.4 million, respectively. The Company
estimated the fair value of the engine and aircraft to be $3.1 million and $11.9 million, respectively, and has recorded the one purchased engine and one aircraft at fair value
within flight equipment on the balance sheets. The Company determined the valuation of the engine and aircraft based on a third-party appraisal considering the condition of the
engine and aircraft (a Level 3 measurement). The Company recognized $4.8 million and $7.9 million as a cost of terminating the lease within special charges on the statement of
operations, respectively, made up of the excess of the purchase price paid over the fair value of the engine and the aircraft, less other non-cash items of $0.2 million and $0.2
million, respectively.
Special Charges, Non-Operating
During the twelve months ended December 31, 2019, the Company had no special charges, non-operating within other (income) expense in the statement of operations.
During the twelve months ended December 31, 2018, the Company recorded $90.4 million, in special charges, non-operating within other (income) expense in the
statement of operations. During the first quarter of 2018, the Company entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft previously operated
under operating leases by the Company. The aggregate gross purchase price for the 14 aircraft was $285.0 million, and the price for each aircraft at the time of the sale
comprised a cash payment net of the amount of maintenance reserves and security deposits for such aircraft held by the applicable lessor pursuant to the lease for such aircraft.
The contract was deemed a lease modification which resulted in a change of classification from operating leases to finance leases for the 14 aircraft. During the first quarter of
2018, the finance lease assets were recorded at the lower of cost or fair value of the aircraft within flight equipment on the Company's balance sheets. During the second quarter
of 2018, the purchase of the 14 aircraft was completed and the obligation was accreted up to the net cash payment price with interest charges recognized in special charges, non-
operating in the statement of operations. The Company determined the valuation of the aircraft based on third-party appraisals considering the condition of the aircraft (a Level 3
measurement).
During the twelve months ended December 31, 2017, the Company had no special charges, non-operating.
72
5. Loss on Disposal of Assets
During the twelve months ended December 31, 2019, the Company recorded $17.4 million in loss on disposal of assets in the statement of operations. This loss on
disposal of assets consists of $13.4 million related to the disposal of excess and obsolete inventory, $3.1 million related to the write-down of certain held-for-sale assets to fair
value less cost to sell and $2.4 million related to the write-off of certain unrecoverable costs previously capitalized with a project to upgrade the Company's enterprise
accounting software. This project was suspended in the third quarter of 2019 and the Company has elected to re-evaluate and pursue an alternative solution. Refer to Note 19,
Fair Value Measurements for information regarding the Company's held-for-sale assets. These losses on disposal were partially offset by a $1.5 million gain on sale-leaseback
transactions for 6 aircraft delivered during the twelve months ended December 31, 2019. Refer to Note 14, Leases and Prepaid Maintenance Deposits for information regarding
the Company's accounting policy on sale-leaseback transactions.
During the twelve months ended December 31, 2018, the Company recorded $9.6 million in loss on disposal of assets in the statement of operations. During the twelve
months ended December 31, 2018, the Company sold 6 used engines for $11.4 million at a loss of $5.2 million. In addition, the Company wrote off $4.4 million related to the
disposal of excess and obsolete inventory.
During the twelve months ended December 31, 2017, the Company recorded $4.2 million in loss on disposal of assets in the statement of operations. This loss on
disposal of assets primarily consists of the disposal of excess and obsolete inventory.
6. Letters of Credit
As of December 31, 2019 and 2018, the Company had a $35.0 million and $35.0 million unsecured standby letter of credit facility, of which $23.3 million and $18.1
million had been drawn upon for issued letters of credit, respectively.
7. 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 it 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
December 31, 2019 and 2018, the Company was in compliance with such liquidity and other financial covenants in its credit card processing agreements, and the 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 $9 Fare Club memberships as of
December 31, 2019 and 2018, was $342.3 million and $321.0 million, respectively.
73
Notes to Financial Statements—(Continued)
8. 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 twelve months or less. These securities are stated at fair value within current assets on the Company's balance sheet. Realized gains and losses on sales
of investments, if any, are reflected in non-operating income (expense) in the statements of operations. Unrealized gains and losses on investment securities are reflected as a
component of accumulated other comprehensive income, ("AOCI").
As of December 31, 2019 and December 31, 2018, the Company had $105.3 million and $102.8 million in short-term available-for-sale investment securities, respectively.
During the twelve months ended December 31, 2019, 2018 and 2017, these investments earned interest income at a weighted-average fixed rate of approximately 2.3%, 1.6%
and 1.4% respectively. For the twelve months ended December 31, 2019 and December 31, 2018, an unrealized gain of $104 thousand and an unrealized gain of $30 thousand,
net of deferred taxes of $31 thousand and $44 thousand, respectively, was recorded within AOCI related to these investment securities. For the twelve months ended
December 31, 2019, a realized gain of $5 thousand was recorded within non-operating income (expense) in the statements of operations. For the twelve months ended
December 31, 2018 and 2017, the Company did not recognize any realized gains or losses related to these securities as the Company did not transact any sales of these securities
during these periods. As of December 31, 2019 and December 31, 2018, $104 thousand and $74 thousand, net of tax, respectively, remained in AOCI, related to these
instruments.
9. Accrued Liabilities
Accrued liabilities included in other current liabilities as of December 31, 2019 and 2018 consist of the following:
Salaries and wages
Airport obligations
Federal excise and other passenger taxes and fees payable
Aircraft maintenance
Fuel
Aircraft and facility lease obligations
Interest payable
Other
Other current liabilities
As of December 31,
2019
2018
(in thousands)
$
89,163 $
80,134
65,312
38,099
28,510
20,656
16,941
34,706
82,900
52,029
60,604
59,805
25,368
15,149
18,086
25,736
$
373,521 $
339,677
10. Common Stock and Preferred Stock
The Company’s amended and restated certificate of incorporation dated June 1, 2011, authorizes the Company to issue up to 240,000,000 shares of common stock,
$0.0001 par value per share, 50,000,000 shares of non-voting common stock, $0.0001 par value per share and 10,000,000 shares of preferred stock, $0.0001 par value per share.
All of the Company’s issued and outstanding shares of common stock and preferred stock are duly authorized, validly issued, fully paid and non-assessable. The Company’s
shares of common stock and non-voting common stock are not redeemable and do not have preemptive rights.
Common Stock
Dividend Rights. Holders of the Company’s common stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s board of
directors out of legally available funds ratably with shares of the Company’s non-voting common stock, subject to preferences that may be applicable to any then outstanding
preferred stock and limitations under Delaware law.
Voting Rights. Each holder of the Company’s common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the
election of directors. The Company’s stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are
able to elect all of the directors properly up for election at any given stockholders’ meeting.
74
Notes to Financial Statements—(Continued)
Liquidation. In the event of the Company’s liquidation, dissolution or winding up, holders of the Company's common stock will be entitled to share ratably with shares of
the Company’s non-voting common stock in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities
and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences. Holders of the Company’s common stock have no preemptive, conversion, subscription or other rights and there are no redemption or sinking
fund provisions applicable to the Company’s common stock. The rights, preferences and privileges of the holders of the Company’s common stock are subject to and may be
adversely affected by, the rights of the holders of shares of any series of the Company’s preferred stock that the Company may designate in the future.
Non-Voting Common Stock
Dividend Rights. Holders of the Company’s non-voting common stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s
board of directors out of legally available funds ratably with shares of the Company’s common stock, subject to preferences that may be applicable to any then outstanding
preferred stock and limitations under Delaware law.
Voting Rights. Shares of the Company’s non-voting common stock are not entitled to vote on any matters submitted to a vote of the stockholders, including the election of
directors, except to the extent required under Delaware law.
Conversion Rights. Shares of the Company’s non-voting common stock will be convertible on a share-for-share basis into common stock at the election of the holder
subject to the Company remaining in compliance with applicable foreign ownership limitations.
Liquidation. In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s non-voting common stock will be entitled to share ratably
with shares of the Company’s common stock in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other
liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences. Holders of the Company’s non-voting common stock have no preemptive, subscription or other rights, and there are no redemption or sinking
fund provisions applicable to the Company’s non-voting common stock. The rights, preferences and privileges of the holders of the Company’s non-voting common stock are
subject to and may be adversely affected by, the rights of the holders of shares of any series of the Company’s preferred stock that the Company may designate in the future.
As of December 31, 2019 and 2018, there were no shares of non-voting common stock outstanding.
Preferred Stock
The Company’s board of directors has the authority, without further action by the Company’s stockholders, to issue up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which
may be greater than the rights of common stock. The Company’s issuance of preferred stock could adversely affect the voting power of holders of common stock and the
likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying,
deferring or preventing a change of control of the Company or other corporate action. As of December 31, 2019 and 2018, there were no shares of preferred stock outstanding.
11. Stock-Based Compensation
The Company has stock plans under which directors, officers, key employees and consultants of the Company may be granted restricted stock awards, stock options,
performance share awards and other equity-based instruments as a means of promoting the Company’s long-term growth and profitability. The plans are intended to encourage
participants to contribute to, and participate in the success of the Company.
On December 16, 2014, the Company's Board of Directors approved the 2015 Incentive Award Plan, or 2015 Plan, which was subsequently approved by the Company's
stockholders on June 16, 2015. As of December 31, 2019 and December 31, 2018, 1,897,809 and 2,110,598 shares of the Company’s common stock, respectively, remained
available for future issuance under the 2015 Plan.
75
Notes to Financial Statements—(Continued)
Stock-based compensation cost amounted to $8.2 million, $11.0 million and $8.5 million for 2019, 2018 and 2017, respectively. During 2019, 2018 and 2017 there was a
$1.9 million, $2.6 million and $1.6 million tax benefit recognized in income related to stock-based compensation.
Restricted Stock and Restricted Stock Units
Restricted stock and restricted stock unit awards are valued at the fair value of the shares on the date of grant. Generally, granted shares and units vest over a three or four
year graded vesting period. Each restricted stock unit represents the right to receive one share of common stock upon vesting of such restricted stock unit. Vesting of restricted
stock units is based on time-based service conditions. In order to vest, the participant must still be employed by the Company, with certain contractual exclusions, at each
vesting event. Generally, within 30 days after vesting, the shares underlying the award will be issued to the participant. In the event a successor corporation in a change in
control situation fails to assume or substitute for the restricted stock units, the restricted stock units will automatically vest in full as of immediately prior to the consummation of
such change in control. In the event of death or permanent disability of a participant, the restricted stock units will automatically vest in full. Compensation expense is
recognized on a straight-line basis over the requisite service period.
A summary of the status of the Company’s restricted stock shares (restricted stock awards and restricted stock unit awards) as of December 31, 2019 and changes during
the year ended December 31, 2019 is presented below:
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Number of
Shares
Weighted-Average
Grant Date Fair Value
($)
297,797
148,120
(97,095)
(15,856)
332,966
47.95
53.41
48.97
53.00
49.84
There were 148,120 and 185,054 restricted stock shares granted during the years ended December 31, 2019 and December 31, 2018, respectively. As of December 31,
2019 and December 31, 2018, there was $10.0 million and $9.1 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock to be
recognized over 2.7 years and 2.5 years, respectively.
The weighted-average fair value of restricted stock granted during the years ended December 31, 2019, 2018 and 2017 was $53.41, $46.90 and $51.68, respectively. The
total fair value of restricted stock shares vested during the years ended December 31, 2019, 2018 and 2017 was $5.4 million, $6.5 million and $4.3 million, respectively.
Performance Share Awards
The Company grants certain senior-level executives performance stock units that vest based on either market and time-based service conditions or performance and time-
based service conditions as part of a long-term incentive plan, which are referred to herein as performance share awards. The number of shares of common stock underlying
each award is determined at the end of a three-year performance period. In order to vest, the senior level executive must still be employed by the Company, with certain
contractual exclusions, at the end of the performance period. Depending on the type of performance stock unit, at the end of the performance period, the percentage of the stock
units that will vest will be determined by ranking the Company’s total shareholder return compared to the total shareholder return of the peer companies identified in the plan or
by ranking the Company's adjusted operating margin percentage compared to the adjusted operating margin percentage of the peer company's identified in the plan. Based on
the level of performance, between 0% and 200% of the award may vest. Within 60 days after vesting, the shares underlying the award will be issued to the participant. In the
event of a change in control of the Company or the death or permanent disability of a participant, the payout of any award is limited to a pro-rated portion of such award based
upon a performance assessment prior to the change-in-control date or date of death or permanent disability.
The grant date fair value of the performance share awards based on total shareholder return (market condition) is determined through the use of a Monte Carlo simulation
model. The market condition requirements are reflected in the grant date fair value of the award, and the compensation expense, net of forfeitures, for the award is recognized
assuming that the requisite service is rendered regardless of whether the market conditions are achieved. Compensation expense is recognized on a straight-line basis over the
requisite service period. The Monte Carlo simulation model used for valuation of these awards utilizes multiple input variables that determine the probability of satisfying the
market condition requirements applicable to each award. The inputs utilized for the performance share awards based on total shareholder return are as follows:
76
Notes to Financial Statements—(Continued)
Expected volatility factor
Risk free interest rate
Expected term (in years)
Expected dividend yield
Weighted-Average at
Grant Date for Twelve
Months Ended
December 31, 2019
Weighted-Average at
Grant Date for Twelve
Months Ended
December 31, 2018
0.38
2.50 %
2.97
— %
0.39
2.11 %
2.96
— %
For grants awarded in 2019, 2018 and 2017, the volatility was based upon a weighted average historical volatility for the Company. The Company chose to use historical
volatility to value these awards because historical prices were used to develop the correlation coefficients between the Company and each of the peer companies within the peer
group in order to model stock price movements. The volatilities used were calculated as the remaining term of the performance period at the date of grant. The risk-free interest
rate was based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the remaining performance period. The Company does not
intend to pay dividends on its common stock in the foreseeable future. Accordingly, the Company used a dividend yield of zero in its model.
The following table summarizes the Company’s market condition performance share awards for the year ended December 31, 2019:
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Number of
Awards
Weighted-Average
Fair Value at Grant
Date ($)
82,907
50,293
(29,293)
(7,748)
96,159
53.92
70.77
56.84
57.15
61.58
The grant date fair value of the performance share awards based on operating margin (performance condition) is based on grant date stock price, in accordance with the
valuation of performance conditions applicable to this award type. The probability of payout for these awards is evaluated at each report date and adjustments are made to stock-
based compensation expense based on the number of shares deemed probable of issuance upon vesting.
The following table summarizes the Company’s performance condition performance share awards for the year ended December 31, 2019:
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019
Number of
Awards
Weighted-Average
Fair Value at Grant
Date ($)
41,454
24,861
(14,648)
(3,873)
47,794
49.81
60.11
55.50
52.10
53.24
As of December 31, 2019 and 2018, there was $4.4 million and $3.4 million, respectively, of total unrecognized compensation cost related to performance share awards
expected to be recognized over 1.73 years and 1.80 years, respectively.
Stock Appreciation Rights
During 2018, the Company issued stock appreciation awards to certain senior-level executives. These awards have a four-year service requisite period from January 1,
2018 through December 31, 2021 and a two-year performance period from January 1, 2018 through December 31, 2019. This is a market-condition performance award based on
the appreciation of the Company's stock price over the two-year performance period. Issuance of the award on January 1, 2018 represented a right to
77
Notes to Financial Statements—(Continued)
receive shares of the Company's common stock upon achievement of certain performance goals by the grant date of December 31, 2019. As performance goals stipulated by the
award were not achieved, these shares were not granted on December 31, 2019. During the twelve months ended December 31, 2019 and 2018, the Company recognized $0.7
million and $1.2 million of stock-based compensation cost related to the stock appreciation awards issued during 2018, respectively. On December 31, 2019, the Company
reversed the total expense of $1.9 million related to these awards as these awards were not granted. No further expense will be recognized related to these awards.
Treasury Stock
During the year ended December 31, 2019, 2018 and 2017, the Company repurchased 91 thousand, 28 thousand and 1.2 million shares, respectively, for $5.4 million, $1.2
million and $46.6 million, respectively. Repurchases made during the twelve months ended December 31, 2019 and 2018 include repurchases made from employees who
received restricted stock. Repurchases made during the twelve months ended December 31, 2017 include open market repurchases made under our stock repurchase program as
well as repurchases made from employees who received restricted stock. During the year ended December 31, 2019 and 2018, the Company did not retire any treasury shares.
During the year ended December 31, 2017, the Company retired 3.9 million treasury shares in a total aggregate amount of $199.4 million.
12. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per common share:
Numerator:
Net income (1)
Denominator:
Year Ended December 31,
2019
2018
2017
(in thousands, except per-share amounts)
$
335,255 $
155,749 $
415,522
Weighted-average shares outstanding, basic
Effect of dilutive stock awards
Adjusted weighted-average shares outstanding, diluted
68,429
68,249
130
182
68,559
68,431
69,221
156
69,377
Earnings per Share:
Basic earnings per common share (1)
Diluted earnings per common share (1)
$
$
4.90 $
4.89 $
2.28 $
2.28 $
6.00
5.99
Anti-dilutive weighted-average shares
143
145
85
(1) During the twelve months ended December 31, 2017, the Company recorded a non-recurring income tax benefit of $196.7 million ($2.84 and $2.84 per
basic and diluted share, respectively) due to the enactment of the Tax Cuts and Jobs Act of 2017. For additional information, refer to Note 17, Income Taxes.
13. Debt and Other Obligations
Long-term debt
As of December 31, 2019, the Company had outstanding non-public and public debt instruments. During 2019, the Company acquired additional debt through fixed-
rate term loans and a previously existing revolving credit facility described below.
Fixed-rate term loans
During 2019, the Company acquired additional debt under facility agreements, which as of December 31, 2019 provided $152.0 million of debt financing for 4 Airbus
A320 aircraft delivered during 2019. Each loan extended under the facility
78
agreements was funded on or near the delivery date of each aircraft and is secured by a first-priority security interest on the individual aircraft. Each loan has a term life of 11 to
12 years and amortizes on a mortgage-style basis, which requires quarterly principal and interest payments. Loans bear interest on a fixed-rate basis with interest rates ranging
between 2.85% and 3.93%. As of December 31, 2019, the Company has taken delivery of all 4 Airbus A320 aircraft financed through these facility agreements.
Notes to Financial Statements—(Continued)
Revolving credit facility
During the fourth quarter of 2018, the Company entered into a revolving credit facility for up to $160 million secured by the collateral assignment of certain of the
Company's rights under the purchase agreement with Airbus. As of December 31, 2019, collateralized amounts were related to 34 Airbus A320neo aircraft scheduled to be
delivered between January 2020 and December 2021. The final maturity of the facility is December 30, 2020 with final payment due in January 2021. As of December 31, 2019,
the Company had drawn $160.0 million on the facility of which $50.0 million is included in current maturities of long-term debt and finance leases and $110.0 million is
included within long-term debt and finance leases, less current maturities on the Company's balance sheets. The revolving credit facility bears variable interest based on LIBOR.
Long-term debt is comprised of the following:
As of
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
(in millions)
(weighted-average interest rates)
Fixed-rate senior term loans due through 2027
$
296.1 $
Fixed-rate junior term loans due through 2022
Fixed-rate loans due through 2030
Fixed-rate class A 2015-1 EETC due through 2028
—
778.2
382.4
31.1
625.1
4.02%
N/A
3.70%
4.10%
6.90%
3.88%
Fixed-rate class B 2015-1 EETC due through 2024
Fixed-rate class C 2015-1 EETC due through 2023
Fixed-rate class AA 2017-1 EETC due through 2030
Fixed-rate class A 2017-1 EETC due through 2030
Fixed-rate class B 2017-1 EETC due through 2026
Fixed-rate class C 2017-1 EETC due through 2023
Revolving credit facility due in 2021
Long-term debt
Less current maturities
Less unamortized discount, net
Total
348.6
378.6
4.10%
4.10%
72.0
80.0
4.45%
4.45%
98.1
109.5
4.93%
4.93%
228.4
242.5
3.38%
3.38%
76.1
70.6
85.5
160.0
80.8
83.7
85.5
135.3
3.65%
3.65%
3.80%
3.80%
5.11%
3.12%
5.11%
3.72%
$
2,213.6 $
2,234.5
214.0
162.8
40.4
47.7
$
1,959.2 $
2,024.0
The Company's debt financings are collateralized by first priority security interest in the individual aircraft being financed with the exception of the Company's revolving
credit facility secured by the Company's rights under the purchase agreement with Airbus related to certain A320neo aircraft. During the year ended December 31, 2019 and
2018, the Company made principal payments of $246.8 million and $137.3 million on its outstanding debt obligations, respectively.
At December 31, 2019, long-term debt principal payments for the next five years and thereafter are as follows:
79
Notes to Financial Statements—(Continued)
2020
2021
2022
2023
2024
2025 and beyond
Total debt principal payments
December 31, 2019
(in millions)
$
$
222.1
273.8
167.7
310.1
195.5
1,044.4
2,213.6
Interest Expense
Interest expense related to long-term debt and finance leases consists of the following:
Fixed-rate senior term loans
Fixed-rate junior term loans
Fixed-rate term loans
Class A 2015-1 EETC
Class B 2015-1 EETC
Class C 2015-1 EETC
Class AA 2017-1 EETC
Class A 2017-1 EETC
Class B 2017-1 EETC
Class C 2017-1 EETC
Revolving credit facility
Finance leases
Commitment fees and other
Amortization of deferred financing costs
Total
Year Ended December 31,
2019
2018
(in thousands)
$
15,225 $
1,811
25,828
14,894
3,377
5,117
7,887
2,843
2,870
4,367
5,792
408
2,217
8,714
$
101,350 $
16,869
2,475
19,615
16,138
3,781
3,575
6,026
2,172
2,420
2,478
793
104
262
7,069
83,777
As of December 31, 2019 and 2018, the Company had a line of credit for $33.6 million related to corporate credit cards. Respectively, the Company had drawn $4.6
million and $3.5 million as of December 31, 2019 and 2018, which is included in accounts payable.
As of December 31, 2019 and 2018, the Company had lines of credit with counterparties for derivatives and physical fuel delivery in the amount of $41.5 million. As of
December 31, 2019 and 2018, the Company had drawn $25.3 million and $23.0 million on these lines of credit for physical fuel delivery, which is included within other current
liabilities in the Company's balance sheets. The Company is required to post collateral for any excess above the lines of credit if the fuel derivatives are in a net liability position
and make periodic payments in order to maintain an adequate undrawn portion for physical fuel delivery. As of December 31, 2019 and 2018, the Company did not have any
outstanding fuel derivatives.
14. Leases and Aircraft Maintenance Deposits
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 leases 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 balance sheets as a
right-of-use asset and lease liability. Lease terms are generally 8 to 18 years for aircraft and up to 99 years for other leased equipment and property.
80
Notes to Financial Statements—(Continued)
As of December 31, 2019, the Company had a fleet consisting of 145 A320 family aircraft. As of December 31, 2019, the Company had 52 aircraft financed under
operating leases and 2 aircraft financed under finance leases with lease term expirations between 2020 and 2037. In addition, the Company owned 91 aircraft of which 27 were
purchased off lease and are currently unencumbered. As of December 31, 2019, the Company also had 9 spare engines financed under operating leases with lease term
expiration dates ranging from 2020 to 2027 and owned 14 spare engines of which 3 were purchased off lease and all 14 are currently unencumbered.
The Company adopted Topic 842 utilizing the modified retrospective adoption method with an effective date of January 1, 2019. Prior to the adoption of Topic 842, the
Company had entered into sale leaseback transactions with third-party aircraft lessors for the majority of its aircraft and engine leases. Upon adoption of Topic 842, the
Company recognized a $5.5 million cumulative effect adjustment, net of tax, to retained earnings driven by the recognition of unamortized deferred gains and losses related to
aircraft sale-leaseback transactions entered into in prior periods. Prior to the adoption of Topic 842, gains and losses on sale-leaseback transactions were generally deferred and
recognized in income over the lease term. Under Topic 842, gains and losses on sale-leaseback transactions, subject to adjustment for off-market terms, are recognized
immediately and recorded within loss on disposal of assets on the Company's statements of operations.
Total rent expense for all leases charged to operations for the years ended 2019, 2018 and 2017 was $345.0 million, $312.0 million and $309.8 million, respectively. Total
rental expense charged to operations for aircraft and engine operating leases for the years ended December 31, 2019, 2018 and 2017 was $182.6 million, $177.6 million and
$205.9 million, respectively.
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. Maintenance reserve payments that are substantively and contractually related to the
maintenance of the leased asset are accounted for as aircraft maintenance deposits to the extent they are expected to be recoverable. 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.
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.
These lease agreements generally provide that maintenance reserves are reimbursable to the Company upon completion of the maintenance event. 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 December 31,
2019, the Company is in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
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. Management assesses 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.
Supplemental rent is made up of maintenance reserves paid to aircraft lessors that are not probable of being reimbursed and probable and estimable return condition
obligations. The Company expensed $4.8 million, $3.4 million and $8.4 million of supplemental rent recorded within aircraft rent during 2019, 2018 and 2017, respectively.
These amounts include $0.5 million, $1.3 million and $0.4 million of paid maintenance reserves expensed as supplemental rent during 2019, 2018 and 2017, respectively. As of
December 31, 2019, the Company had $170.6 million of aircraft maintenance deposits ($102.9 million in aircraft maintenance deposits and $67.7 million in long-term aircraft
maintenance deposits) on the Company's balance sheets.
During the twelve months ended December 31, 2019, the Company took delivery of 4 aircraft under secured debt arrangements, 6 aircraft under sale-leaseback
transactions and 7 aircraft under direct operating leases. In addition, the Company purchased 5 previously leased aircraft. The Company also purchased 4 new engines and
purchased 2 previously leased engines.
81
Notes to Financial Statements—(Continued)
In June 2019, the Company entered into an aircraft sale agreement to acquire four A320 aircraft previously operated by the Company under operating leases. The contract
was deemed a lease modification, which resulted in a change of classification from operating leases to finance leases for the four aircraft. During the third quarter of 2019, the
purchase of the four aircraft was completed for an aggregate purchase price of $141.3 million and the related interest in the amount of $0.3 million was recognized within
interest expense on the Company's statement of operations for the year ended December 31, 2019. These aircraft were recorded within flight equipment on the Company's
balance sheets.
On December 31, 2019, the Company entered into an aircraft sale agreement to acquire two A319 aircraft previously operated by the Company under operating leases.
The contract was deemed a lease modification, which resulted in a change of classification from operating leases to finance leases for the two aircraft. The Company recorded a
finance lease obligation of $44.1 million calculated as the present value of the remaining lease payments, including the final payment to purchase the aircraft and included
within current maturities of long-term debt and finance leases on the Company's balance sheets as of December 31, 2019. In addition, the Company recorded finance lease assets
of $48.4 million which include related amounts previously recorded as maintenance reserves and security deposits and included within flight equipment on the Company's
balance sheets as of December 31, 2019. In January 2020, the purchase of the two aircraft was completed and the aircraft were recorded within flight equipment on the
Company's balance sheets.
The remainder of the Company's finance lease obligations 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 3 to 5 years. Accounting for finance leases is substantially unchanged under Topic 842. Finance lease
assets are recorded within property and equipment and the related liabilities are recorded within current maturities of long-term debt and finance leases leases and long-term debt
and finance leases, less current maturities on the Company's balance sheets.
On December 18, 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 intends to build a new headquarters campus. In connection with the lease agreement, the Company is 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 balance sheet as of December 31, 2019. The 99-
year lease was determined to be an operating lease. As of December 31, 2019, the Company recorded an operating lease right-of-use asset of $14.6 million and related operating
lease liability of $9.3 million for this lease. Construction of the headquarters campus is expected to commence mid-year 2020 and take approximately two years to complete. As
of December 31, 2019, the Company estimates the total construction related outlay for the project will be approximately $200 million to $250 million. 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 balance sheets as of December 31, 2019. The table does not include commitments that are contingent on events or other factors that are currently uncertain and
unknown.
Finance Leases
Aircraft
and Spare Engine
Leases
Operating Leases
Property Facility
Leases
(in thousands)
Total Operating
and Finance
Lease
Obligations
Other
$
44,980 $
192,937 $
3,544 $
517 $
606
578
202
—
—
192,539
193,616
181,667
159,668
921,721
3,532
3,221
2,570
2,046
138,696
—
—
—
—
—
241,978
196,677
197,415
184,439
161,714
1,060,417
2020
2021
2022
2023
2024
2025 and thereafter
Total minimum lease payments
$
46,366 $
1,842,148 $
153,609 $
517 $
2,042,640
Less amount representing interest
285
526,760
130,825
13
657,883
Present value of minimum lease
payments
Less current portion
Long-term portion
$
$
46,081 $
1,315,388 $
22,784 $
504 $
1,384,757
44,796
117,861
2,297
504
165,458
1,285 $
1,197,527 $
20,487 $
— $
1,219,299
Commitments related to the Company's noncancellable short-term operating leases not recorded on the Company's balance sheets are expected to be $0.6 million for
2020 and none for 2021 and beyond.
82
The table below presents information for lease costs related to the Company's finance and operating leases:
Notes to Financial Statements—(Continued)
Finance lease cost
Amortization of leased assets
Interest of lease liabilities
Operating lease cost
Operating lease cost (1)
Short-term lease cost (1)
Variable lease cost (1)
Total lease cost
$
$
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's statements of operations.
The table below presents lease-related terms and discount rates as of December 31, 2019:
Weighted-average remaining lease term
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
15. Financial Instruments and Risk Management
Year ended December 31. 2019
(in thousands)
998
674
179,959
5,144
140,417
327,192
December 31, 2019
13.0 years
0.1 years
5.86%
2.46%
As part of the Company’s risk management program, the Company from time to time uses a variety of financial instruments to reduce its exposure to fluctuations in the
price of jet fuel and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.
16. Defined Contribution 401(k) Plan
The Company sponsors three defined contribution 401(k) plans, Spirit Airlines, Inc. Employee Retirement Savings Plan (first plan), Spirit Airlines, Inc. Pilots’ Retirement
Savings Plan (second plan) and Spirit Airlines, Inc. Puerto Rico Retirement Savings Plan (third plan). The first plan is for all employees that are not covered by the pilots’
collective bargaining agreement, who have at least 60 days of service and have attained the age of 21.
The second plan is for the Company’s pilots, and contains the same service requirements as the first plan. Prior to March 1, 2018, the Company matched 100% of the
pilot's contribution, up to 9% of the individual pilot's annual compensation. Beginning on March 1, 2018, the Company contributed 11% of the individual pilot's annual
compensation, regardless of the pilot's contributions to the plan. The Company's contribution will increase by 1% on an annual basis each March until 2022 at which time the
contribution will be 15%.
The third plan is for all Company employees residing in Puerto Rico and was adopted on April 16, 2012. It contains the same service requirements as the first and second
plans.
Employer contributions made to all plans were $51.1 million, $36.7 million and $19.6 million in 2019, 2018 and 2017, respectively, and were included within salaries,
wages and benefits in the accompanying statements of operations.
83
17. Income Taxes
Significant components of the provision for income taxes from continuing operations are as follows:
Notes to Financial Statements—(Continued)
Current:
Federal
State and local
Foreign
Total current expense (benefit)
Deferred:
Federal
State and local
Total deferred expense (benefit)
Total income tax expense (benefit)
Year Ended December 31,
2019
2018
2017
(in thousands)
$
(22,429) $
(2,178) $
(68,601)
1,218
6,693
(14,518)
106,703
8,986
115,689
410
4,692
2,924
42,246
4,057
46,303
515
2,742
(65,344)
(9,349)
8,857
(492)
$
101,171 $
49,227 $
(65,836)
The income tax provision differs from that computed at the federal statutory corporate tax rate as follows:
Expected provision at federal statutory tax rate
State tax expense, net of federal benefit
Revaluation of deferred taxes
Other
Total income tax expense (benefit)
Year Ended December 31,
2019
2018
2017
21.0 %
1.8 %
(2.1)%
2.5 %
23.2 %
21.0%
1.7%
—%
1.3%
24.0%
35.0 %
1.7 %
(56.3)%
0.7 %
(18.9)%
84
Notes to Financial Statements—(Continued)
The Company accounts for income taxes using the asset and liability method. Deferred taxes are recorded based on differences between the financial statement basis and
tax basis of assets and liabilities and available tax loss and credit carryforwards. At December 31, 2019 and 2018, the significant components of the Company's deferred taxes
consisted of the following:
Deferred tax assets:
Income tax credits
Net operating losses
Deferred revenue
Nondeductible accruals
Deferred manufacturing credits
Accrued maintenance
Equity compensation
Operating lease liability
Other
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Deferred gain (loss) on leases, net
Accrued rent
Prepaid expenses
Property, plant and equipment
Deferred financing costs
Accrued aircraft and engine maintenance
Right-of-use asset
Deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2019
2018
(in thousands)
$
9,632 $
13,604
8,824
14,133
2,813
1,668
2,851
305,161
482
(1,746)
10,004
155,670
6,824
14,691
—
2,168
2,592
—
5,262
(254)
357,422
196,957
—
—
1,120
430,523
154
84,479
310,438
826,714
1,672
6,068
793
481,847
189
61,529
—
552,098
$
(469,292) $
(355,141)
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted. The TCJA reduces the statutory federal tax rate from 35.0% to 21.0% effective for tax year
2018 in addition to various other tax law changes that impact the Company. Pursuant to ASC 740, the Company is required to recognize the effects of changes in tax laws and
rates on deferred tax assets and liabilities upon enactment.The IRS issued new regulations for TCJA in 2019. The new regulations allowed the Company to generate additional
net operating losses in 2017, of which a portion was utilized as a carryback to the prior years with the remainder as a carryforward into 2018. As a result, the Company changed
its bonus depreciation policy in 2018 to elect out of bonus depreciation on its 2018 income tax return. The change to the bonus depreciation election for 2018 reduced the net
operating loss carryforward deferred tax asset as of December 31, 2019.
In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be
realized. In evaluating the Company’s ability to utilize its deferred tax assets, it considered all available evidence, both positive and negative, in determining future taxable
income on a jurisdiction by jurisdiction basis. As of December 31, 2019 and 2018, the Company had a valuation allowance of $1.7 million and $0.3 million, respectively,
against certain deferred tax assets related to equity compensation for executives due to changes in tax law resulting from the TCJA.
At December 31, 2019, the Company had $8.2 million of foreign tax credits and $1.4 million of general business tax credits, $37.7 million of federal net operating loss and
$109.4 million of state net operating loss available, that may be applied against future tax liabilities. The foreign tax credits will begin to expire in 2025, the state net operating
losses will begin to expire in 2027, the general business credits will begin to expire in 2038 and there is no expiration of federal net operating losses.
85
Notes to Financial Statements—(Continued)
In accordance with ASU No. 2016-09, excess income tax benefits and deficiencies related to share-based compensation are now included within income tax expense rather
than additional paid in capital. For the twelve months ended December 31, 2019 and 2018, $1.4 million income tax benefit and $0.4 million of income tax deficiency related to
share-based compensation was included within income tax expense, respectively. Prior to the adoption of ASU No. 2016-09, the excess tax (benefit)/deficiency was recorded as
a (reduction)/increase to income tax payable and a corresponding entry to additional paid in capital.
For tax years ended December 31, 2019, 2018 and 2017, the Company did not recognize any liabilities for uncertain tax positions nor any interest and penalties on
unrecognized tax benefits.
For tax years 2019, 2018 and 2017, all income for the Company is subject to domestic income taxes.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal income tax returns for 2016 through 2018
tax years are still subject to examination in the U.S. Various state and foreign jurisdiction tax years also remain open to examination. The Company believes that any potential
assessment would be immaterial to its financial statements.
18. Commitments and Contingencies
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
December 31, 2019, the Company's firm aircraft orders consisted of 135 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries
expected through 2027. In addition, the Company had 12 direct operating leases for A320neos with third-party lessors, with deliveries expected through 2021.
On December 20, 2019, the Company entered into an A320 NEO Family Purchase Agreement with Airbus for the purchase of 100 new Airbus A320neo family aircraft,
with options to purchase up to 50 additional aircraft. This agreement includes a mix of Airbus A319neo, A320neo and A321neo aircraft with such aircraft scheduled for delivery
through 2027. The Company also has one spare engine order for a V2500 SelectTwo engine with IAE and four spare engine orders for PurePower PW 1100G-JM engines with
Pratt & Whitney. Spare engines are scheduled for delivery from 2020 through 2023. As of December 31, 2019, purchase commitments for these aircraft and engines, including
estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $988.0 million in 2020, $744.8 million in 2021, $123.7 million in 2022,
$491.6 million in 2023, $1,002.5 million in 2024, and $3,605.4 million in 2025 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. The imposition of these tariffs may substantially increase the cost of new Airbus aircraft and parts required
to service the Company's Airbus fleet. For further discussion on this topic, please refer to "Risk Factors - Risks Related to Our Business - Any tariffs imposed on commercial
aircraft and related parts imported from outside the United States may have a material adverse effect on our fleet, business, financial condition and our results of operations."
As of December 31, 2019, the Company had secured debt financing commitments for 3 aircraft scheduled for delivery in 2020. In addition, as of December 31, 2019, the
Company had secured financing for 12 aircraft to be leased directly from third-party lessors, scheduled for delivery in 2020 through 2021. The Company did not have financing
commitments in place for the remaining 132 Airbus aircraft currently on firm order, which are scheduled for delivery through 2027. However, the Company has signed 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. The
agreement provides a standby credit facility in the form of senior secured mortgage debt financing.
As of December 31, 2019, principal and interest commitments related to the Company's future secured debt financing of 3 undelivered aircraft are approximately $9.6
million in 2020, $12.9 million in 2021, $13.0 million in 2022, $13.0 million in 2023, $13.1 million in 2024, and $83.3 million in 2025 and beyond. As of December 31, 2019,
aircraft rent commitments for future aircraft deliveries to be financed under direct leases from third-party lessors are expected to be approximately $6.0 million in 2020, $34.9
million in 2021, $44.1 million in 2022, $44.1 million in 2023, $44.1 million in 2024, and $356.1 million in 2025 and beyond.
Interest commitments related to the secured debt financing of 64 delivered aircraft as of December 31, 2019 are $77.9 million in 2020, $71.0 million in 2021, $64.7
million in 2022, $54.6 million in 2023, $44.0 million in 2024, and $118.1 million in 2025 and beyond. For principal commitments related to these financed aircraft, refer to Note
13, Debt and Other Obligations.
86
Notes to Financial Statements—(Continued)
The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system and other miscellaneous subscriptions and services
as of December 31, 2019: $21.9 million in 2020, $17.1 million in 2021, $17.2 million in 2022, $13.7 million in 2023, $13.9 million in 2024, and $50.3 million in 2025 and
beyond. 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.
Employees
The Company has five union-represented employee groups that together represent approximately 81% of all employees at December 31, 2019. The table below sets forth
the Company's employee groups and status of the collective bargaining agreements as of December 31, 2019.
Employee Groups
Pilots
Flight Attendants
Representative
Air Line Pilots Association, International (ALPA)
Association of Flight Attendants (AFA-CWA)
Dispatchers
Professional Airline Flight Control Association (PAFCA)
Ramp Service Agents
International Association of Machinists and Aerospace
Workers (IAMAW)
Amendable Date
February 2023
May 2021
October 2023
June 2020
Passenger Service Agents
Transport Workers Union of America (TWU)
NA
Percentage of
Workforce
27%
47%
1%
3%
3%
In February 2018, the pilot group voted to approve the current five-year agreement with the Company. The current agreement includes a one-time ratification incentive of
$80.2 million, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions which was recorded in special charges within operating expenses in
the statement of operations for the year ended December 31, 2018. For additional information, refer to Note 4, Special Charges.
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 December 31, 2019, the Company continued to negotiate with the TWU.
The Company is self-insured for health care claims, subject to a stop-loss policy, for eligible participating employees and qualified dependent medical claims, subject to
deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate of the ultimate aggregate liability for claims
incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued $5.2 million and $4.4 million, for health care
claims as of December 31, 2019, and 2018, respectively, recorded within other current liabilities on the Company's balance sheet.
19. 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:
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
87
Notes to Financial Statements—(Continued)
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 term loan debt agreements and revolving credit facility has 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 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 December 31, 2019 and December 31, 2018, were as follows:
As of December 31,
2019
2018
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Fair value
level
hierarchy
$
296.1
$
296.4 $
382.4 $
(in millions)
—
778.2
348.6
72.0
98.1
228.4
76.1
70.6
85.5
—
823.6
372.2
74.5
100.5
237.0
78.8
72.0
88.0
31.1
625.1
378.6
80.0
109.5
242.5
80.8
83.7
85.5
373.6
31.1
600.1
374.8
78.1
107.9
228.8
76.6
79.1
84.2
160.0
160.0
135.3
135.3
$
2,213.6
$
2,303.0 $
2,234.5 $
2,169.6
Level 3
Level 3
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
Fixed-rate senior term loans
Fixed-rate junior term loans
Fixed-rate term loans
2015-1 EETC Class A
2015-1 EETC Class B
2015-1 EETC Class C
2017-1 EETC Class AA
2017-1 EETC Class A
2017-1 EETC Class B
2017-1 EETC Class C
Revolving credit facility
Total long-term debt
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2019 and December 31, 2018 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.
Short-term Investment Securities
Short-term investment securities at December 31, 2019 and December 31, 2018 are classified as available-for-sale and generally consist of U.S. Treasury and U.S.
government agency securities with contractual maturities of twelve 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 8, 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 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.
88
Notes to Financial Statements—(Continued)
The fair value measurements for our held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources. As of
December 31, 2019, the Company had $2.3 million in assets held for sale recorded within prepaid expenses and other current assets in the accompanying balance sheets. As of
December 31, 2018, the Company did not hold any assets held for sale.
Assets and liabilities measured at gross fair value on a recurring basis are summarized below:
Cash and cash equivalents
Short-term investment securities
Assets held for sale
Total assets
Total liabilities
Cash and cash equivalents
Short-term investment securities
Total assets
Total liabilities
Fair Value Measurements as of December 31, 2019
Total
Level
1
Level
2
Level
3
(in millions)
$
979.0
$
979.0
$
— $
105.3
2.3
105.3
—
—
—
$
1,086.6
$
1,084.3
$
— $
—
—
2.3
2.3
$
— $
— $
— $
—
Fair Value Measurements as of December 31, 2018
Total
Level
1
Level
2
Level
3
(in millions)
$
1,004.7 $
1,004.7 $
102.8
102.8
$
1,107.5 $
1,107.5 $
— $
—
— $
$
— $
— $
— $
—
—
—
—
The Company had no transfers of assets or liabilities between any of the above levels during the years ended December 31, 2019 or 2018.
The following table presents the Company's activity for assets and liabilities measured at gross fair value on a recurring basis using significant unobservable inputs (Level
3):
Balance at December 31, 2018
Purchases
Sales
Total realized or unrealized gains (losses) included in earnings, net
Balance at December 31, 2019
$
$
—
5.4
—
(3.1)
2.3
Assets Held for Sale Activity for the Twelve Months Ended
December 31, 2019
(in millions)
20. Operating Segments and Related Disclosures
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") area are summarized below:
89
Notes to Financial Statements—(Continued)
DOT—Domestic
DOT—Latin America and Caribbean
Total
2019
2018
2017
(in millions)
$
$
3,462.8 $
2,990.7 $
2,432.1
367.7
332.3
211.5
3,830.5 $
3,323.0 $
2,643.6
During 2019, 2018 and 2017, no revenue from any one foreign country represented greater than 4% of the Company’s total passenger revenue. The Company attributes
operating revenues by geographic region based upon the origin and destination of each passenger flight segment. The Company’s tangible assets consist primarily of flight
equipment, which are mobile across geographic markets and, therefore, have not been allocated.
21. Quarterly Financial Data (Unaudited)
Quarterly results of operations for the years ended December 31, 2019 and 2018 are summarized below:
2019
Operating revenue
Operating income
Net income
Basic earnings per share
Diluted earnings per share
2018
Operating revenue
Operating income (loss)
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Three Months Ended
March 31
June 30
September 30
December 31
(in thousands, except per-share amounts)
$
855,796 $
1,012,956 $
991,968 $
87,804
56,076
0.82
0.82
163,938
114,501
1.67
1.67
124,681
83,464
1.22
1.22
$
704,138 $
851,771 $
904,330 $
(38,797)
(44,922)
(0.66)
(0.66)
108,521
11,254
0.16
0.16
145,125
97,480
1.43
1.42
969,816
124,624
81,214
1.19
1.18
862,795
136,065
91,937
1.35
1.34
Interim results 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. The air transportation business is also volatile and highly affected
by economic cycles and trends.
90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Spirit Airlines, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Spirit Airlines, Inc. (the Company) as of December 31, 2019 and 2018, the related statements of operations,
comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as
the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated February 5, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Notes 1, 2 and 14 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards
Update No. 2016-02, Lease (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
91
Description of the
Matter
Recoverability of aircraft maintenance deposits and accrual of lease return costs
At December 31, 2019, the Company recorded $170.6 million of aircraft maintenance deposits. As explained in Notes 1 and 14 to the financial
statements, some of the Company’s aircraft and engine master lease agreements require the payment of maintenance reserves to aircraft lessors to
be held as collateral in advance of performance of major maintenance activities. These lease agreements generally provide that maintenance
reserves are reimbursable to the Company upon completion of the maintenance event. Maintenance reserve payments that are substantively and
contractually related to the maintenance of the leased asset are accounted for as aircraft maintenance deposits to the extent they are expected to be
recoverable. These lease agreements also often contain provisions that require the Company to return aircraft airframes, engines and other aircraft
components to the lessor in a certain condition or pay an amount to the lessor based on the actual return condition. Management assesses the need
to accrue lease return costs throughout the year or whenever facts and circumstances warrant an assessment. For the year ended December 31,
2019, the Company recorded $4.8 million of supplemental rent, which is made up of maintenance reserves paid to aircraft lessors that are not
probable of being reimbursed, and probable and estimable lease return costs.
Auditing the recoverability of maintenance deposits and the estimate of lease return costs was complex because of the significant judgment
involved in determining the timing of future maintenance events.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls that address the risks of
material misstatement relating to the measurement of maintenance deposits and lease return costs. For example, we tested controls over
management’s review of the estimated timing of future maintenance events.
To test the recoverability of maintenance deposits and the estimate of lease return costs, our audit procedures included, among others, testing the
assumptions used and the accuracy and completeness of the underlying data used in the calculations. For example, to test the assumptions related
to the timing of future maintenance events, we compared projected event timing to the time interval between recently completed maintenance
events, regulatory requirements for aircraft and engine maintenance, current and projected utilization metrics for the aircraft, and changes to the
fleet plan. We also tested the historical accuracy of management’s forecasts of maintenance events by comparing when recent maintenance events
occurred to management’s initial projections.
/s/ Ernst & Young LLP
Certified Public Accountants
We have served as the Company’s auditor since 1995.
Miami, Florida
February 5, 2020
92
To the Shareholders and the Board of Directors of Spirit Airlines, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion on Internal Control over Financial Reporting
We have audited Spirit Airlines, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Spirit Airlines, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of
December 31, 2019 and 2018, the related statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes and our report dated February 5, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Certified Public Accountants
Miami, Florida
February 5, 2020
93
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated
and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on that evaluation, management
believes that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, which also audited our Financial Statements for the year ended December 31, 2019. Ernst & Young LLP's report on our internal control over financial reporting
is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during 2019 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
94
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information under the captions, “Election of Directors,” “Corporate Governance,” “Committee and Meetings of the Board of Directors,” “Executive Officers,” “Code
of Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2020 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions, “Director Compensation” and “Executive Compensation” in our 2020 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information under the captions, “Security Ownership” and “Equity Compensation Plan Information” in our 2020 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions, “Certain Relationships and Related Transactions” and “Corporate Governance” in our 2020 Proxy Statement is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the captions, “Ratification of Independent Registered Public Accounting Firm” in our 2020 Proxy Statement is incorporated herein by reference.
With the exception of the information specifically incorporated by reference in Part III to this Annual Report on Form 10-K from our 2020 Proxy Statement, our 2020
Proxy Statement shall not be deemed to be filed as part of this Report.
95
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. Financial Statements:
The financial statements included in Item 8. Financial Statements and Supplementary Data above are filed as part of this annual report.
2. Financial Statement Schedules:
There are no financial statement schedules filed as part of this annual report, since the required information is included in the Financial Statements, including the notes
thereto, or the circumstances requiring inclusion of such schedules are not present.
3. Exhibits:
The exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index included after the signature page.
96
Exhibit No.
Description of Exhibit
EXHIBIT INDEX
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Amended and Restated Certificate of Incorporation of Spirit Airlines, Inc., dated as of June 1, 2011, filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated June 1, 2011, is hereby incorporated by reference.
Amended and Restated Bylaws of Spirit Airlines, Inc., dated as of June 1, 2011, filed as Exhibit 3.2 to the Company's Current Report on Form 8-K
dated June 1, 2011, is hereby incorporated by reference.
Specimen Common Stock Certificate, filed as Exhibit 4.1 to the Company's Form S-1 Registration Statement (No. 333-178336), is hereby incorporated
by reference.
Pass Through Trust Agreement, dated as of August 11, 2015, between Spirit Airlines, Inc. and Wilmington Trust, National Association, filed as
Exhibit 4.1 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Trust Supplement No. 2015-1A, dated as of August 11, 2015, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to
the Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.2 to the Company’s Form 8-K dated August 11, 2015, is hereby
incorporated by reference.
Trust Supplement No. 2015-1B, dated as of August 11, 2015, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to
the Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.3 to the Company’s Form 8-K dated August 11, 2015, is hereby
incorporated by reference.
Revolving Credit Agreement (2015-1A), dated as of August 11, 2015, between Wilmington Trust, National Association, as Subordination Agent (as
agent and trustee for the trustee of Spirit Airlines Pass Through Trust 2015-1A), as Borrower, and Natixis, acting via its New York Branch, as
Liquidity Provider, filed as Exhibit 4.4 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Revolving Credit Agreement (2015-1B), dated as of August 11, 2015, between Wilmington Trust, National Association, as Subordination Agent (as
agent and trustee for the trustee of Spirit Airlines Pass Through Trust 2015-1B), as Borrower, and Natixis, acting via its New York Branch, as
Liquidity Provider, filed as Exhibit 4.5 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Intercreditor Agreement (2015-1), dated as of August 11, 2015, among Wilmington Trust, National Association, as Trustee of the Spirit Airlines Pass
Through Trust 2015-1A and as Trustee of the Spirit Airlines Pass Through Trust 2015-1B, Natixis, acting via its New York Branch, as Class A
Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust, National Association, as Subordination Agent, filed as Exhibit 4.6 to the
Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Deposit Agreement (Class A), dated as of August 11, 2015, between Wilmington Trust Company, as Escrow Agent, and Natixis, acting via its New
York Branch, as Depositary, filed as Exhibit 4.7 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Deposit Agreement (Class B), dated as of August 11, 2015, between Wilmington Trust Company, as Escrow Agent, and Natixis, acting via its New
York Branch, as Depositary, filed as Exhibit 4.8 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class A), dated as of August 11, 2015, among Wilmington Trust Company, as Escrow Agent, Citigroup Global
Markets Inc., Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, as Underwriters, Wilmington Trust, National Association, not in
its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2015-1A, and Wilmington Trust,
National Association, as Paying Agent, filed as Exhibit 4.9 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class B), dated as of August 11, 2015, among Wilmington Trust Company, as Escrow Agent, Citigroup Global
Markets Inc., Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, as Underwriters, Wilmington Trust, National Association, not in
its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2015-1B, and Wilmington Trust,
National Association, as Paying Agent, filed as Exhibit 4.10 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
97
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
Note Purchase Agreement, dated as of August 11, 2015, among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through Trustee
under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust Company, as
Escrow Agent, and Wilmington Trust National Association, as Paying Agent, filed as Exhibit 4.11 to the Company’s Form 8-K dated August 11, 2015,
is hereby incorporated by reference.
Form of Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through
Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust,
National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein) (Exhibit B to Note
Purchase Agreement), filed as Exhibit 4.12 to the Company’s Form 8-K dated August 11, 2015, is hereby incorporated by reference.
Form of Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National
Association, as Loan Trustee) (Exhibit C to Note Purchase Agreement), filed as Exhibit 4.13 to the Company’s Form 8-K dated August 11, 2015, is
hereby incorporated by reference.
Form of Pass Through Trust Certificate, Series 2015-1A (included in Exhibit A to Exhibit 4.2), filed as Exhibit 4.14 to the Company’s Form 8-K dated
August 11, 2015, is hereby incorporated by reference.
Form of Pass Through Trust Certificate, Series 2015-1B (included in Exhibit A to Exhibit 4.3), filed as Exhibit 4.15 to the Company’s Form 8-K dated
August 11, 2015, is hereby incorporated by reference.
Form of Series 2015-1 Equipment Notes (included in Section 2.01 of Exhibit 4.13), filed as Exhibit 4.16 to the Company’s Form 8-K dated August 11,
2015, is hereby incorporated by reference.
Trust Supplement No. 2017-1AA, dated as of November 28, 2017, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as
Trustee, to the Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.2 to the Company’s Form 8-K dated November 28,
2017, is hereby incorporated by reference.
Trust Supplement No. 2017-1A, dated as of November 28, 2017, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee,
to the Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.3 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Trust Supplement No. 2017-1B, dated as of November 28, 2017, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee,
to the Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.4 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Revolving Credit Agreement (2017-1AA), dated as of November 28, 2017, between Wilmington Trust, National Association, as Subordination Agent
(as agent and trustee for the trustee of Spirit Airlines Pass Through Trust 2017-1AA), as Borrower, and Commonwealth Bank of Australia, New York
Branch, as Liquidity Provider, filed as Exhibit 4.5 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Revolving Credit Agreement (2017-1A), dated as of November 28, 2017, between Wilmington Trust, National Association, as Subordination Agent
(as agent and trustee for the trustee of Spirit Airlines Pass Through Trust 2017-1A), as Borrower, and Commonwealth Bank of Australia, New York
Branch, as Liquidity Provider, filed as Exhibit 4.6 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Revolving Credit Agreement (2017-1B), dated as of November 28, 2017, between Wilmington Trust, National Association, as Subordination Agent (as
agent and trustee for the trustee of Spirit Airlines Pass Through Trust 2017-1B), as Borrower, and Commonwealth Bank of Australia, New York
Branch, as Liquidity Provider, filed as Exhibit 4.7 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Intercreditor Agreement (2017-1), dated as of November 28, 2017, among Wilmington Trust, National Association, as Trustee of the Spirit Airlines
Pass Through Trust 2017-1AA, as Trustee of the Spirit Airlines Pass Through Trust 2017-1A and as Trustee of the Spirit Airlines Pass Through Trust
2017-1B, Commonwealth Bank of Australia, New York Branch, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity
Provider, and Wilmington Trust, National Association, as Subordination Agent, filed as Exhibit 4.8 to the Company’s Form 8-K dated November 28,
2017, is hereby incorporated by reference.
98
Deposit Agreement (Class AA), dated as of November 28, 2017, between Wilmington Trust Company, as Escrow Agent, and Citibank, N.A., as
Depositary, filed as Exhibit 4.9 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Deposit Agreement (Class A), dated as of November 28, 2017, between Wilmington Trust Company, as Escrow Agent, and Citibank, N.A., as
Depositary, filed as Exhibit 4.10 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Deposit Agreement (Class B), dated as of November 28, 2017, between Wilmington Trust Company, as Escrow Agent, and Citibank, N.A., as
Depositary, filed as Exhibit 4.11 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class AA), dated as of November 28, 2017, among Wilmington Trust Company, as Escrow Agent, Morgan
Stanley & Co. LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Barclays Capital Inc., as Underwriters, Wilmington Trust,
National Association, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2017-
1AA, and Wilmington Trust, National Association, as Paying Agent, filed as Exhibit 4.12 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class A), dated as of November 28, 2017, among Wilmington Trust Company, as Escrow Agent, Morgan
Stanley & Co. LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Barclays Capital Inc., as Underwriters, Wilmington Trust,
National Association, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2017-
1A, and Wilmington Trust, National Association, as Paying Agent, filed as Exhibit 4.13 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class B), dated as of November 28, 2017, among Wilmington Trust Company, as Escrow Agent, Morgan
Stanley & Co. LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Barclays Capital Inc., as Underwriters, Wilmington Trust,
National Association, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2017-
1B, and Wilmington Trust, National Association, as Paying Agent, filed as Exhibit 4.14 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Note Purchase Agreement, dated as of November 28, 2017, among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through
Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust
Company, as Escrow Agent, and Wilmington Trust National Association, as Paying Agent, filed as Exhibit 4.15 to the Company’s Form 8-K dated
November 28, 2017, is hereby incorporated by reference.
Form of Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through
Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust,
National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein) (Exhibit B to Note
Purchase Agreement), filed as Exhibit 4.16 to the Company’s Form 8-K dated November 28, 2017, is hereby incorporated by reference.
Form of Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National
Association, as Loan Trustee) (Exhibit C to Note Purchase Agreement), filed as Exhibit 4.17 to the Company’s Form 8-K dated November 28, 2017, is
hereby incorporated by reference.
Form of Pass Through Trust Certificate, Series 2017-1AA (included in Exhibit A to Exhibit 4.2), filed as Exhibit 4.18 to the Company’s Form 8-K
dated November 28, 2017, is hereby incorporated by reference.
Form of Pass Through Trust Certificate, Series 2017-1A (included in Exhibit A to Exhibit 4.3), filed as Exhibit 4.19 to the Company’s Form 8-K dated
November 28, 2017, is hereby incorporated by reference.
Form of Pass Through Trust Certificate, Series 2017-1B (included in Exhibit A to Exhibit 4.4), filed as Exhibit 4.20 to the Company’s Form 8-K dated
November 28, 2017, is hereby incorporated by reference.
Form of Series 2017-1 Equipment Notes (included in Section 2.01 of Exhibit 4.17), filed as Exhibit 4.21 to the Company’s Form 8-K dated November
28, 2017, is hereby incorporated by reference.
Amended and Restated Intercreditor Agreement (2015-1), dated May 10, 2018, among Wilmington Trust, National Association, as Trustee of the
Spirit Airlines Pass Through Trust 2015-1A, as Trustee of the Spirit Airlines Pass Through Trust 2015-1B and as Trustee of the Spirit Airlines Pass
Through Trust 2015-C, Natixis, acting via its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust,
National Association, as Subordination Agent, filed as Exhibit 4.1 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by
reference.
4.25
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4.39
4.40
4.41
4.42
4.43
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4.46
4.47
4.48
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4.50
4.51
Trust Supplement No. 2015-1C, dated as of May 10, 2018, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to the
Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.2 to the Company’s Form 10-Q dated July 26, 2018, is hereby
incorporated by reference.
Form of 2015-1 First Amendment to Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National
Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination
Agent, Wilmington Trust, National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth
therein), filed as Exhibit 4.3 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by reference.
Form of 2015-1 First Amendment to Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and
Wilmington Trust, National Association, as Loan Trustee), filed as Exhibit 4.4 to the Company’s Form 10-Q dated July 26, 2018, is hereby
incorporated by reference.
Amended and Restated Intercreditor Agreement (2017-1), dated May 10, 2018, among Wilmington Trust, National Association, as Trustee of the
Spirit Airlines Pass Through Trust 2017-1AA, as Trustee of the Spirit Airlines Pass Through Trust 2017-1A, as Trustee of the Spirit Airlines Pass
Through Trust 2017-1B and as Trustee of the Spirit Airlines Pass Through Trust 2017-1C, Commonwealth Bank of Australia, New York Branch, as
Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust, National Association, as
Subordination Agent, filed as Exhibit 4.5 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by reference.
Trust Supplement No. 2017-1C, dated as of May 10, 2018, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to the
Pass Through Trust Agreement, dated as of August 11, 2015, filed as Exhibit 4.6 to the Company’s Form 10-Q dated July 26, 2018, is hereby
incorporated by reference.
Amended and Restated Note Purchase Agreement, dated as of May 10, 2018, among Spirit Airlines, Inc., Wilmington Trust, National Association, as
Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent,
Wilmington Trust Company, as Escrow Agent, and Wilmington Trust National Association, as Paying Agent, filed as Exhibit 4.7 to the Company’s
Form 10-Q dated July 26, 2018, is hereby incorporated by reference.
Form of Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through
Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust,
National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein) (Exhibit B to Note
Purchase Agreement), filed as Exhibit 4.8 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by reference.
Form of Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National
Association, as Loan Trustee) (Exhibit C to Note Purchase Agreement), filed as Exhibit 4.9 to the Company’s Form 10-Q dated July 26, 2018, is
hereby incorporated by reference.
Escrow and Paying Agent Agreement (Class C), dated as of May 10, 2018, among Wilmington Trust Company, as Escrow Agent, Morgan Stanley &
Co. LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Barclays Capital Inc., as Underwriters, Wilmington Trust, National
Association, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2017-1C, and
Wilmington Trust, National Association, as Paying Agent, filed as Exhibit 4.10 to the Company’s Form 10-Q dated July 26, 2018, is hereby
incorporated by reference.
Deposit Agreement (Class C), dated as of May 10, 2018, between Wilmington Trust Company, as Escrow Agent, and Citibank, N.A., as Depositary,
filed as Exhibit 4.11 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by reference.
Form of 2017-1 First Amendment to Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National
Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination
Agent, Wilmington Trust, National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth
therein), filed as Exhibit 4.12 to the Company’s Form 10-Q dated July 26, 2018, is hereby incorporated by reference
Form of 2017-1 First Amendment to Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and
Wilmington Trust, National Association, as Loan Trustee), filed as Exhibit 4.13 to the Company’s Form 10-Q dated July 26, 2018, is hereby
incorporated by reference.
Brief Description of all Securities Registered under Section 12 of the Exchange Act.
100
10.1
Airbus A320 NEO Family Purchase Agreement, dated as of December 20, 2019, between Airbus S.A.S. and Spirit Airlines ,Inc.
10.2+
10.3+
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12
10.13†
10.14†
10.15†
General Release, dated January 14, 2014, between Spirit Airlines, Inc. and Ben Baldanza, filed as Exhibit 10.1 to the Company's Form 10-K dated
February 20, 2014, is hereby incorporated by reference.
Offer Letter, dated September 7, 2013, between Spirit Airlines, Inc. and John Bendoraitis, filed as Exhibit 10.3 to the Company's Form 10-K dated
February 20, 2014, is hereby incorporated by reference.
Amended and Restated V2500 General Terms of Sale, dated as of October 1, 2013, by and between Spirit Airlines, Inc. and IAE International Aero
Engines AG, as supplemented by Side Letter No. 1 dated as of October 1, 2013, filed as Exhibit 10.1 to the Company's Form 10-Q/A dated February
20, 2014, is hereby incorporated by reference.
Amended and Restated Fleet Hour Agreement, dated as of October 1, 2013, by and between Spirit Airlines, Inc. and IAE International Aero Engines
AG, as supplemented by Side Letter No. 1 dated as of October 1, 2013, filed as Exhibit 10.2 to the Company's Form 10-Q/A dated February 20, 2014,
is hereby incorporated by reference.
V2500 General Terms of Sale, dated as of October 1, 2013, by and between Spirit Airlines, Inc. and IAE International Aero Engines AG, as
supplemented by Side Letter No. 1 dated as of October 1, 2013 and Side Letter No. 2 dated as of October 1, 2013, filed as Exhibit 10.3 to the
Company's Form 10-Q/A dated February 20, 2014, is hereby incorporated by reference.
Fleet Hour Agreement, dated of as October 1, 2013, by and between Spirit Airlines, Inc. and IAE International Aero Engines AG, as supplemented by
Side Letter No. 1 dated as of October 1, 2013, filed as Exhibit 10.4 to the Company's Form 10-Q/A dated February 20, 2014, is hereby incorporated by
reference.
PurePower PW1100G Engine Purchase Support Agreement, dated as of October 1, 2013, by and between the Company and United Technologies
Corporation, acting through its Pratt & Whitney Division, filed as Exhibit 10.5 to the Company's Form 10-Q dated October 30, 2013, is hereby
incorporated by reference.
Hosted Services Agreement, dated as of February 28, 2007, between Spirit Airlines, Inc. and Navitaire Inc., as amended by Amendment No. 1 dated as
of October 23, 2007, Amendment No. 2 dated as of May 15, 2008, Amendment No. 3 dated as of November 21, 2008, Amendment No. 4 dated as of
August 17, 2009 and Amendment No. 5 dated November 4, 2009, filed as Exhibit 10.3 to the Company's Amendment No. 4 to Form S-1 Registration
Statement (No. 333-169474), is hereby incorporated by reference.
Signatory Agreement, dated as of May 21, 2009, between Spirit Airlines, Inc. and U.S. Bank National Association, as amended by First Amendment
dated January 18, 2010, filed as Exhibit 10.4 to the Company's Amendment No. 4 to Form S-1 Registration Statement (No. 333-169474), is hereby
incorporated by reference.
Terms and Conditions for Worldwide Acceptance of the American Express Card by Airlines, dated September 4, 1998, between Spirit Airlines, Inc.
and American Express Travel Related Services Company, Inc., as amended January 1, 2003 and August 28, 2003, filed as Exhibit 10.6 to the
Company's Amendment No. 4 to Form S-1 Registration Statement (No. 333-169474), is hereby incorporated by reference.
Tax Receivable Agreement, dated as of June 1, 2011 between Spirit Airlines, Inc., Indigo Pacific Partners LLC, and OCM FIE, LLC, filed as Exhibit
10.12 to the Company's Form S-1 Registration Statement (No. 333-178336), is hereby incorporated by reference.
Lease, dated as of June 17, 1999, between Sunbeam Development Corporation and Spirit Airlines, Inc., as amended by Lease Modification and
Contraction Agreement dated as of May 7, 2009, filed as Exhibit 10.13 to the Company's Amendment No. 4 to Form S-1 Registration Statement
(No. 333-169474), is hereby incorporated by reference.
Lease Modification and Extension Agreement, dated as of September 26th, 2013, between Sunbeam Development Corporation and Spirit Airlines,
Inc., filed as Exhibit 10.14 to the Company's Form 10-K dated February 20, 2014, is hereby incorporated by reference.
Lease, dated as of September 26th, 2013, between Sunbeam Development Corporation and Spirit Airlines, Inc., filed as Exhibit 10.15 to the
Company's Form 10-K dated February 20, 2014, is hereby incorporated by reference.
101
10.16
Airline-Airport Lease and Use Agreement, dated as of August 17, 1999, between Broward County and Spirit Airlines, Inc., as supplemented by
Addendum dated August 17, 1999, filed as Exhibit 10.14 to the Company's Amendment No. 3 to Form S-1 Registration Statement (No. 333-169474),
is hereby incorporated by reference.
Airbus A320 Family Purchase Agreement, dated as of May 5, 2004, between AVSA, S.A.R.L. and Spirit Airlines, Inc.; as amended by Amendment
No. 1 dated as of December 21, 2004, Amendment No. 2 dated as of April 15, 2005, Amendment No. 3 dated as of June 30, 2005, Amendment No. 4
dated as of October 27, 2006 (as amended by Letter Agreement No. 1, dated as of October 27, 2006, to Amendment No. 4 and Letter Agreement No. 2,
dated as of October 27, 2006, to Amendment No. 4), Amendment No. 5 dated as of March 5, 2007, Amendment No. 6 dated as of March 27, 2007,
Amendment No. 7 dated as of June 26, 2007 (as amended by Letter Agreement No. 1, dated as of June 26, 2007, to Amendment No. 7), Amendment
No. 8 dated as of February 4, 2008, Amendment No. 9 dated as of June 24, 2008 (as amended by Letter Agreement No. 1, dated as of June 24, 2008, to
Amendment No. 9) and Amendment No. 10 dated July 17, 2009 (as amended by Letter Agreement No. 1, dated as of July 17, 2009, to Amendment
No. 10), and as supplemented by Letter Agreement No. 1 dated as of May 5, 2004, Letter Agreement No. 2 dated as of May 5, 2004, Letter Agreement
No. 3 dated as of May 5, 2004, Letter Agreement No. 4 dated as of May 5, 2004, Letter Agreement No. 5 dated as of May 5, 2004, Letter Agreement
No. 6 dated as of May 5, 2004, Letter Agreement No. 7 dated as of May 5, 2004, Letter Agreement No. 8 dated as of May 5, 2004, Letter Agreement
No. 9 dated as of May 5, 2004, Letter Agreement No. 10 dated as of May 5, 2004 and Letter Agreement No. 11 dated as of May 5, 2004, all filed as
Exhibit 10.15 to the Company's Amendment No. 4 to Form S-1 Registration Statement (No. 333-169474); as further amended by Amendment No. 11
dated as of December 29, 2011 (as amended by Letter Agreement No. 1 dated as of December 29, 2011, Letter Agreement No. 2 dated as of December
29, 2011, Letter Agreement No. 3 dated as of December 29, 2011, Letter Agreement No. 4 dated as of December 29, 2011, Letter Agreement No. 5
dated as of December 29, 2011, Letter Agreement No. 6 dated as of December 29, 2011, Letter Agreement No. 7 dated as of December 29, 2011 and
Letter Agreement No. 8 dated as of December 29, 2011) all filed as Exhibit 10.1 to the Company's Form 8-K dated January 5, 2012; Amendment No.
12, dated as of June 29, 2012, filed as Exhibit 10.1 to the Company's Form 10-Q dated July 26, 2013; Amendment No. 13, dated as of January 10,
2013, filed as Exhibit 10.2 to the Company's Form 10-Q dated July 26, 2013; and Amendment No. 14, dated as of June 20, 2013, filed as Exhibit 10.3
to the Company's Form 10-Q dated July 26, 2013; and Amendment No. 15 dated as of November 21, 2013, filed as Exhibit 10.1 to the Company's
Form 10-Q dated July 29, 2016; Amendment No. 16 dated as of December 17, 2013, filed as Exhibit 10.2 to the Company's Form 10-Q dated July 29,
2016; Amendment No. 17 dated as of March 11, 2014, filed as Exhibit 10.3 to the Company's Form 10-Q dated July 29, 2016; Amendment No. 18
dated as of July 31, 2014, filed as Exhibit 10.4 to the Company's Form 10-Q dated July 29, 2016; Amendment No. 19 dated as of August 21, 2015,
filed as Exhibit 10.5 to the Company's Form 10-Q dated July 29, 2016; and Amendment No. 20 dated as of April 27, 2016, filed as Exhibit 10.6 to the
Company's Form 10-Q dated July 29, 2016 is hereby incorporated by reference.
Spirit Airlines, Inc. Executive Severance Plan, filed as Exhibit 10.16 to the Company's Amendment No. 3 to Form S-1 Registration Statement (No.
333-169474), is hereby incorporated by reference.
Amended and Restated Spirit Airlines, Inc. 2005 Stock Incentive Plan and related documents, filed as Exhibit 10.17 to the Company's Amendment No.
3 to Form S-1 Registration Statement (No. 333-169474), is hereby incorporated by reference.
Spirit Airlines, Inc. 2011 Equity Incentive Award Plan, filed as Exhibit 10.2 to the Company's Form S-8 Registration Statement (No. 333-174812), is
hereby incorporated by reference.
Offer Letter, dated September 10, 2007, between Spirit Airlines, Inc. and Thomas Canfield, filed as Exhibit 10.22 to the Company's Amendment No. 3
to Form S-1 Registration Statement (No. 333-169474), is hereby incorporated by reference.
Form of Indemnification Agreement between Spirit Airlines, Inc. and its directors and executive officers, filed as Exhibit 10.24 to the Company's
Amendment No. 3 to Form S-1 Registration Statement (No. 333-169474), is hereby incorporated by reference.
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the Spirit Airlines, Inc. 2011 Equity Incentive
Award Plan, filed as Exhibit 10.4 to the Company's Form S-8 Registration Statement (No. 333-174812), is hereby incorporated by reference.
Addendum and Amendment to the Agreement Governing Acceptance of the American Express Card by Airlines, dated as of June 24, 2011, by and
between Spirit Airlines, Inc. and American Express Travel Related Services Company, Inc., filed as Exhibit 10.1 to the Company's Form 10-Q dated
July 28, 2011, is hereby incorporated by reference.
102
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10.41
Second Amendment to Signatory Agreement, effective as of September 6, 2011, by and between the Company and U.S. Bank, National Association,
filed as Exhibit 10.1 to the Company's Form 10-Q/A dated December 22, 2011, is hereby incorporated by reference.
Letter Agreement, dated January 16, 2012, by and between Spirit Airlines, Inc. and Jim Lynde, filed as Exhibit 10.27 to the Company's Form 10-K
dated February 20, 2014, is hereby incorporated by reference.
Separation and Transition Agreement with Tony Lefebvre, dated April 29, 2013, filed as Exhibit 10.4 to the Company's Form 10-Q dated July 26,
2013, is hereby incorporated by reference.
Framework Agreement, dated as of October 1, 2014 by and between Spirit Airlines, Inc., BNP Paribas, New York Branch, Landesbank Hessen-
Thuringen Girozentrale, Natixis, New York Branch, KfW IPEX-Bank GmbH, Investec Bank PLC and Wilmington Trust Company, filed as Exhibit
10.1 to the Company's Form 10-Q dated October 28, 2014, is hereby incorporated by reference.
Form of Performance Share Award Grant Notice and Performance Share Award Agreement for awards under the Spirit Airlines, Inc. 2015 Incentive
Award Plan, filed as Exhibit 10.2 to the Company’s Form 10-Q dated July 24, 2015, is hereby incorporated by reference.
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement for awards under the Spirit Airlines, Inc. 2015
Incentive Award Plan, filed as Exhibit 10.3 to the Company’s Form 10-Q dated July 24, 2015, is hereby incorporated by reference.
Form of Annual Cash Award Grant Notice and Annual Cash Award Agreement for awards under the Spirit Airlines, Inc. 2015 Incentive Award Plan,
filed as Exhibit 10.4 to the Company’s Form 10-Q dated July 24, 2015, is hereby incorporated by reference.
Non-Employee Director Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement for awards under the Spirit
Airlines, Inc. 2015 Incentive Award Plan, filed as Exhibit 10.5 to the Company’s Form 10-Q dated July 24, 2015, is hereby incorporated by reference.
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement for awards under the Spirit Airlines, Inc. 2011 Equity Incentive
Award Plan, filed as Exhibit 10.6 to the Company’s Form 10-Q dated July 24, 2015, is hereby incorporated by reference.
Robert L. Fornaro Employment Agreement, filed as Exhibit 10.35 to the Company's Form 10-K dated February 17, 2016, is hereby incorporated by
reference.
B. Ben Baldanza Separation Agreement, filed as Exhibit 10.36 to the Company's Form 10-K dated February 17, 2016, is hereby incorporated by
reference.
Spirit Airlines, Inc. 2017 Executive Severance Plan, filed as Exhibit 10.1 to the Company's Form 8-K dated August 22, 2017, is hereby incorporated by
reference.
Form of Performance Award Grant Notice and Performance Award Agreement under the Spirit Airlines, Inc. 2015 Equity Incentive Award Plan, filed
as Exhibit 10.41 to the Company's Form 10-K dated February 13, 2018, is hereby incorporated by reference.
Form of Severance and Release Agreement, filed as Exhibit 10.42 to the Company's Form 10-K dated February 13, 2018, is hereby incorporated by
reference.
Aircraft Sale Agreement, dated as of March 28, 2018, among Spirit Airlines, Inc. as Buyer and Wilmington Trust Company (acting not in its individual
capacity, but solely as owner trustee under each Trust Agreement) as Sellers and AerCap Global Aviation Trust as Owner Participant; Aircraft Make
and Model: 14 used Airbus model A319-100; Aircraft Manufacturer's Serial Numbers: 2433, 2470, 2473, 2485, 2490, 2673, 2679, 2704, 2711, 2978,
3007, 3017, 3026 and 3165; Make and Model of Engines: International Aero Engines AG (IAE) model V2524-A5, filed as Exhibit 10.1 to the
Company’s Form 10-Q dated April 26, 2018, is hereby incorporated by reference.
Letter Agreement, effective January 1, 2018, by and between Spirit Airlines, Inc. and Edward M. Christie III, filed as Exhibit 10.2 to the Company’s
Form 10-Q dated April 26, 2018, is hereby incorporated by reference.
Amendment No. 26 to Navitaire Hosted Services Agreement, effective as of February 1, 2018, by and between Navitaire LLC and Spirit Airlines, Inc.,
filed as Exhibit 10.3 to the Company’s Form 10-Q dated April 26, 2018, is hereby incorporated by reference.
103
Amendment No. 26 to Navitaire Hosted Services Agreement, effective as of February 1, 2018, by and between Navitaire LLC and Spirit Airlines, Inc.,
filed as Exhibit 10.3 to the Company’s Form 10-Q dated June 12, 2018, is hereby incorporated by reference.
Rocky B. Wiggins Offer Letter, filed as Exhibit 10.1 to the Company’s Form 10-Q dated October 24, 2018, is hereby incorporated by reference.
Scott M. Haralson Offer Letter, filed as Exhibit 10.2 to the Company’s Form 10-Q dated October 24, 2018, is hereby incorporated by reference.
Edward M. Christie Employment Agreement Amendment, filed as Exhibit 10.1 to the Company's Form 10-K dated February 13. 2019, is hereby
incorporated by reference.
Robert L. Fornaro Employment Agreement Amendment , filed as Exhibit 10.2 to the Company's Form 10-K dated February 13, 2019, is hereby
incorporate by reference.
Consent of Ernst & Young LLP, independent registered public accounting firm.
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*
Confidential treatment granted for certain portions of this Exhibit pursuant to Rule 406 under the Securities Act or Rule 24b-2 under the Exchange Act, which portions
are omitted and filed separately with the Securities and Exchange Commission.
Indicates a management contract or compensatory plan or arrangement.
Exhibits 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the
Exchange Act, except as otherwise specifically stated in such filing.
104
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 5, 2020
SPIRIT AIRLINES, INC.
By:
105
/s/ Scott M. Haralson
Scott M. Haralson
Senior Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edward Christie, Scott Haralson and Thomas
Canfield, and each of them, their true and lawful attorneys-in-fact, each with full power of substitution, for them in any and all capacities, to sign any amendments to this report
on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and
on the dates indicated
Signature
Title
Date
/s/ Edward M. Christie
Edward M. Christie
/s/ Scott M. Haralson
Scott M. Haralson
/s/ Brian J. McMenamy
Brian J. McMenamy
/s/ H. McIntyre Gardner
H. McIntyre Gardner
/s/ Carlton D. Donaway
Carlton D. Donaway
/s/ Mark B. Dunkerley
Mark B. Dunkerley
/s/ Robert D. Johnson
Robert D. Johnson
/s/ Barclay G. Jones
Barclay G. Jones
/s/ Christine P. Richards
Christine P. Richards
/s/ Myrna M. Soto
Myrna M. Soto
/s/ Dawn M. Zier
Dawn M. Zier
President, Chief Executive Officer and Director (Principal Executive Officer)
February 5, 2020
Senior Vice President, Chief Financial Officer (Principal Financial Officer)
February 5, 2020
Vice President, Controller (Principal Accounting Officer)
February 5, 2020
Director (Chairman of the Board)
Director
Director
Director
Director
Director
Director
Director
106
February 5, 2020
February 5, 2020
February 5, 2020
February 5, 2020
February 5, 2020
February 5, 2020
February 5, 2020
February 5, 2020
Exhibit 4.51
General
DESCRIPTION OF CAPITAL STOCK
As of December 31, 2019, there were 70,148,386 shares of our voting common stock issued, 68,455,011 shares of our voting common stock
outstanding and no shares of our non-voting common stock issued and outstanding.
Our amended and restated certificate of incorporation authorizes us to issue up to 240,000,000 shares of voting common stock, $0.0001 par
value per share, 50,000,000 shares of non-voting common stock, $0.0001 par value per share, and 10,000,000 shares of preferred stock,
$0.0001 par value per share. All of our issued and outstanding shares of common stock and preferred stock, if any, are duly authorized, validly
issued, fully paid and non-assessable. Our shares of voting common stock and non-voting common stock are not redeemable and do not have
preemptive rights. The remaining shares of authorized and unissued capital stock are available for future issuance, subject to our amended and
restated certificate of incorporation, amended and restated bylaws and applicable law, including any regulations governing the exchange on
which our shares of capital stock are then listed. While the additional shares are not designed to deter or prevent a change of control, under
some circumstances we could use the additional shares to create voting impediments or to frustrate persons seeking to effect a takeover or
otherwise gain control by, for example, issuing those shares in private placements to purchasers who might side with out Board in opposing a
hostile takeover bid.
The following description of our capital stock and provisions of our amended and restated certificate of incorporation and amended and restated
bylaws summarize the material terms and provisions of our capital stock. Such descriptions are qualified by reference to the amended and
restated certificate of incorporation and the amended and restated bylaws, copies of which have been filed with the Securities and Exchange
Commission (“SEC”).
Voting Common Stock
Dividend Rights. Holders of our voting common stock are entitled to receive dividends, if any, as may be declared from time to time by our
board of directors out of legally available funds ratably with shares of our non-voting common stock, subject to preferences that may be
applicable to any then outstanding preferred stock and limitations under the Delaware General Corporation Law.
Voting Rights. Each holder of our voting common stock is entitled to one vote for each share on all matters submitted to a vote of the
stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors.
Accordingly, holders of a majority of the voting shares are able to elect all of the directors properly up for election at any given stockholders’
meeting.
Liquidation. In the event of our liquidation, dissolution or winding up, holders of our voting common stock will be entitled to share ratably with
shares of our non-voting common stock in the net assets legally available for distribution to stockholders after the payment of all of our debts
and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences. Holders of our voting common stock have no preemptive, conversion, subscription or other rights, and there are no
redemption or sinking fund provisions applicable to our voting common stock. The rights, preferences and privileges of the holders of our
voting common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock
that we may designate in the future.
Non-Voting Common Stock
Dividend Rights. Holders of our non-voting common stock are entitled to receive dividends, if any, as may be declared from time to time by our
board of directors out of legally available funds ratably with shares of our voting common stock, subject to preferences that may be applicable
to any then outstanding preferred stock and limitations under the Delaware General Corporation Law.
Voting Rights. Shares of our non-voting common stock are not entitled to vote on any matters submitted to a vote of the stockholders, including
the election of directors, except to the extent required under the Delaware General Corporation Law.
Conversion Rights. Shares of our non-voting common stock are convertible on a share-for-share basis into voting common stock at the election
of the holder. Please see “—Limited Voting by Foreign Owners.”
Liquidation. In the event of our liquidation, dissolution or winding up, holders of our non-voting common stock will be entitled to share ratably
with shares of our voting common stock in the net assets legally available for distribution to stockholders after the payment of all of our debts
and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences. Holders of our non-voting common stock have no preemptive, subscription or other rights, and there are no redemption
or sinking fund provisions applicable to our non-voting common stock. The rights, preferences and privileges of the holders of our non-voting
common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we
may designate in the future.
Preferred Stock
Under our amended and restated certificate of incorporation, our board of directors has the authority, without further action by our stockholders,
to issue up to 10,000,000 shares of preferred stock, par value $0.0001 per share, in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series,
any or all of which may be greater than the rights of common stock. Our issuance of preferred stock could adversely affect the voting power of
holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control of our company or other corporate
action. As of December 31, 2019, no shares of preferred stock were outstanding.
Anti-Takeover Provisions of Our Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation provides for our board of directors to be divided into three classes, with staggered three-
year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the
remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a
majority of the shares of voting common stock outstanding will be able to elect all of our directors up for election at any given stockholders’
meeting. At any given stockholders’ meeting for the election of directors at which a quorum is present, a plurality of the votes cast shall be
sufficient to elect a director up for election. Except as otherwise required by applicable law or the rights and preferences of any then-
outstanding preferred stock, our amended and restated certificate of incorporation and amended and restated bylaws provide that a director may
be removed from the board of directors with cause by a majority vote of the shares of voting common stock outstanding, but vacancies may
only be filled by the board of directors. Our amended and restated certificate of incorporation and amended and restated bylaws provide that all
stockholder action must be effected at a duly called meeting of stockholders and not by a consent in writing, and that only our corporate
secretary, upon the direction of our board of directors, or the Chairman of the Board may call a special meeting of stockholders. Our amended
and restated bylaws also establish advance notice procedures with regard to all stockholder proposals to be brought before meetings of our
stockholders, including proposals for the nomination of candidates for election as directors, all of which must be brought in a timely manner.
Timely, for purposes of our amended and restated bylaws, generally means delivery of notice to us not less than 90 days nor more than 120
days prior to the first anniversary of the prior year’s annual meeting date.
Our amended and restated certificate of incorporation and amended and restated bylaws requires a 66 2/3% stockholder vote for the
amendment, repeal or modification of certain provisions of
our amended and restated certificate of incorporation and amended and restated bylaws including, among other things, relating to the
classification of our board of directors, the requirement that stockholder actions be effected at a duly called meeting, and the designated parties
entitled to call a special meeting of the stockholders. The combination of the classification of our board of directors, the lack of cumulative
voting and the 66 2/3% stockholder voting requirements make it more difficult for our stockholders to replace our board of directors as well as
for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain and
discharge our officers, these provisions could also make it more difficult for stockholders or another party to effect a change in management. In
addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to change our control.
These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or management. These provisions are
intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain
types of transactions that may involve an actual or threatened acquisition of us. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions may also have the
effect of preventing changes in our management.
Section 203 of the Delaware General Corporation Law. We are subject to Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after
the date that such stockholder became an interested stockholder, with the following exceptions:
•
•
before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining
the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of
the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
In general, Section 203 defines business combination to include the following:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of
the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or
through the corporation.
In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates,
beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the
outstanding voting stock of the corporation.
Limited Voting by Foreign Owners
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our amended and restated certificate of incorporation
and amended and restated bylaws restrict voting of shares of our capital stock by non-U.S. citizens. The restrictions imposed by federal law
currently require that no more than 25% of our voting stock be voted, directly or indirectly, by persons who are not U.S. citizens, and that our
president and at least two-thirds of the members of our board of directors and senior management be U.S. citizens. Our amended and restated
bylaws provide that no shares of our capital stock may be voted by or at the direction of non-U.S. citizens unless such shares are registered on a
separate stock record, which we refer to as the foreign stock record. Our amended and restated bylaws further provide that no shares of our
capital stock will be registered on the foreign stock record if the amount so registered would exceed the foreign ownership restrictions imposed
by federal law.
Delaware as Sole and Exclusive Forum
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and
exclusive forum for (a) any derivative action or proceeding brought on behalf us, (b) any action asserting a claim of breach of a fiduciary duty
owed by any of our directors or officers to us or our stockholders, (c) any action asserting a claim
against us arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation
or amended and restated bylaws or (d) any action asserting a claim against us governed by the internal affairs doctrine. As a result, any action
brought by any of our stockholders with regard to any of these matters will need to be filed in the Court of Chancery of the State of Delaware
and cannot be filed in any other jurisdiction.
Limitations of Liability and Indemnification
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the
fullest extent permitted by the Delaware General Corporation Law. Consequently, our directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
•
•
•
•
any breach of the director’s duty of loyalty to us or our stockholders;
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
any transaction from which the director derived an improper personal benefit.
Our amended and restated certificate of incorporation provides that we may indemnify our directors and officers, in each case to the fullest
extent permitted by the Delaware General Corporation Law. Our amended and restated bylaws also provide that we are obligated to indemnify
our directors and officers to the fullest extent permitted by the Delaware General Corporation Law and advance expenses incurred by a director
or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted
to indemnify him or her under the provisions of the Delaware General Corporation Law. We have entered into agreements to indemnify our
directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide
for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by
any of these individuals in any action or proceeding. We believe these limitation of liability provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation, amended and restated bylaws
and indemnification agreements may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their
fiduciary duty.
Our amended and restated certificate of incorporation provides that any such lawsuit must be brought in the Court of Chancery of the State of
Delaware. The foregoing provisions may also reduce the likelihood of derivative litigation against our directors and officers, even though an
action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that
we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. Insofar as
indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims
for indemnification.
Market Listing
Our common stock is listed and traded on the New York Stock Exchange under the symbol “SAVE.”
A320 NEO FAMILY
P U R C H A S E A G R E E M E N T
B E T W E E N
A I R B U S S.A.S.
as Seller
A N D
SPIRIT AIRLINES, INC.
as Buyer
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C O N T E N T S
CLAUSES TITLES
0 DEFINITIONS AND INTERPRETATION
1 SALE AND PURCHASE
2 SPECIFICATION
3 PRICES
4 PRICE REVISION
5 PAYMENTS
6 MANUFACTURE PROCEDURE - INSPECTION
7 CERTIFICATION
8 TECHNICAL ACCEPTANCE
9 DELIVERY
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10 EXCUSABLE DELAY
11 NON-EXCUSABLE DELAY
12 WARRANTIES AND SERVICE LIFE POLICY
13 PATENT AND COPYRIGHT INDEMNITY
14 OEM TECHNICAL DATA AND BUYER DATA
15 SELLER REPRESENTATIVES SERVICES
16 TRAINING SUPPORT AND SERVICES
17 EQUIPMENT SUPPLIER PRODUCT SUPPORT
18 BUYER FURNISHED EQUIPMENT
19 INDEMNIFICATION AND INSURANCE
20 TERMINATION
21 ASSIGNMENTS AND TRANSFERS
22 MISCELLANEOUS PROVISIONS
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C O N T E N T S
EXHIBITS TITLES
Exhibit A SPECIFICATION
Exhibit B1 FORM OF SPECIFICATION CHANGE NOTICE
Exhibit B2
FORM OF A MANUFACTURER SPECIFICATION CHANGE NOTICE
Exhibit C PART 1 SELLER PRICE REVISION FORMULA
PART 2 PROPULSION SYSTEMS PRICE REVISION FORMULA - CFM
PART 3 PROPULSION SYSTEMS PRICE REVISION FORMULA - IAE
Exhibit D FORM OF CERTIFICATE OF ACCEPTANCE
Exhibit E FORM OF BILL OF SALE
Exhibit F SERVICE LIFE POLICY – LIST OF ITEMS
Exhibit G TECHNICAL DATA INDEX
Exhibit H MATERIAL SUPPLY AND SERVICES
Exhibit I LICENSES AND ON LINE SERVICES
Exhibit J AIRBUS S.A.S BILL OF SALE WARRANTY
Exhibit K FORM OF AWA
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A320 NEO FAMILY PURCHASE AGREEMENT
This A320 NEO Family Purchase Agreement (the "Agreement") is made on December 20, 2019, between Airbus SAS, a French société
par actions simplifiée, with its registered office at 2, rond-point Emile Dewoitine, 31700 Blagnac, France, registered with the Commercial
and Companies Register of Toulouse under number 383 474 814 (the "Seller"), and Spirit Airlines, Inc., a company organized and
existing under the laws of the State of Delaware, United States of America, having its principal corporate office located at 2800 Executive
Way, Miramar, Florida 33025, U.S.A. (the “Buyer”).
WHEREAS subject to the terms and conditions of this Agreement, the Seller desires to sell the Aircraft to the Buyer and the Buyer desires
to purchase the Aircraft from the Seller.
NOW THEREFORE IT IS AGREED AS FOLLOWS:
0 - DEFINITIONS
0 - DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly provided, the following terms will have the following meanings:
Affiliate - with respect to any person or entity, any other person or entity directly or indirectly controlling, controlled by or under
common control with such person or entity.
Airbus Goods and Services - any goods, excluding Aircraft, and services that may be purchased by the Buyer from the Seller or its
Affiliates (excluding Airbus Canada).
AirbusWorld - as defined in in Clause 14.10.1.
Aircraft - any or all of the Airbus A319 NEO Aircraft, A320 NEO Aircraft or A321 NEO Aircraft to be sold by the Seller and purchased
by the Buyer pursuant to this Agreement, including the Airframe and all components, equipment, parts and accessories installed in
or on such aircraft and the Propulsion Systems installed thereon upon Delivery.
Aircraft Training Services - all flight support services including but not limited to any and all training courses, flight training, flight
assistance, line training, line assistance
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and more generally all flights of any kind performed by the Seller, its agents, employees or subcontractors, and maintenance
support, maintenance training (including Practical Training), training support of any kind performed on aircraft and provided to the
Buyer pursuant to this Agreement.
Airframe - any Aircraft, excluding the Propulsion Systems therefor.
AirN@v Family - as defined in Clause 14.9.1.
Approved BFE Supplier - as defined in Clause 18.1.1.1.
ATA Specification - recommended specifications developed by the Air Transport Association of America reflecting consensus in the
commercial Aviation industry on accepted means of communicating information, conducting business, performing operations and
adhering to accepted practices.
Aviation Authority - when used with respect to any jurisdiction, the government entity that, under the laws of such jurisdiction, has
regulatory control over civil aviation and the registration, airworthiness or operation of civil aircraft in such jurisdiction.
A319 NEO Aircraft - an A319-100N type aircraft delivered or to be delivered under this Agreement, including the Airframe and all
components, equipment, parts and accessories installed in or on such aircraft and the Propulsion Systems installed thereon upon
Delivery.
A319 NEO Standard Specification - the A319-100N standard specification document Number J.000.01000N, Issue 1.1, dated June
13, 2018, a copy of which has been annexed hereto as Exhibit A.
A320 NEO Aircraft - an A320-200N type aircraft delivered or to be delivered under this Agreement, including the Airframe and all
components, equipment, parts and accessories installed in or on such aircraft and the Propulsion Systems installed thereon upon
Delivery.
A320 NEO Standard Specification - the A320-200N standard specification document Number D.000.02000N, Issue 1.1, dated June
13, 2018, a copy of which has been annexed hereto as Exhibit A.
A321 NEO Aircraft - an A321-200NX type aircraft delivered or to be delivered under this Agreement, including the Airframe and all
components, equipment, parts and accessories installed in or on such aircraft and the Propulsion Systems installed thereon upon
Delivery.
A321-200NX Standard Specification - the A321-200NX standard specification document Number E.000.02000NX, Issue 1.1, dated
June 13, 2018, a copy of which has been annexed hereto as Exhibit A.
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Balance of the Final Price - as defined in Clause 5.4.
Base Price - for any Aircraft, Airframe, SCNs or Propulsion Systems, as more completely described in Clause 3.1.
BFE Data - as defined in Clause 14.3.2.1.
Business Day - with respect to any action to be taken hereunder, a day other than a Saturday, Sunday or other day designated as a
holiday in the jurisdiction in which such action is required to be taken (limited to *****).
Buyer Furnished Equipment (BFE) - as defined in Clause 18.1.1.1.
BFE Engineering Definition - as defined in Clause 18.1.2.1.
BFE Supplier - as defined in Clause 18.1.1.1.
Buyer Party - means the Buyer, any guarantor of the Buyer’s obligations hereunder or any assignor or assignee under Clause 21.5.
Certificate of Acceptance - as defined in Clause 8.3.
COC Data – as defined in Clause 14.8.
***** - the ***** amounts described in Clause 5.2.
Contractual Definition Freeze or CDF - as defined in Clause 2.4.1.
Customization Milestones Chart - as defined in Clause 2.4.1.
Customer Services Catalogue (CSC) - means the then current customer services e-catalogue available in AirbusWorld.
Declaration of Design and Performance or DDP - the documentation provided by an equipment manufacturer guaranteeing that the
corresponding equipment meets the requirements of the Specification, the interface documentation as well as all the relevant
certification requirements.
Delivery - the transfer of title to the Aircraft from the Seller to the Buyer in accordance with Clause 9.
Delivery Date - the date on which Delivery occurs.
Delivery Location – with respect to each Aircraft, the facilities of the Seller at the location of final assembly of such Aircraft.
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Development Changes - as defined in Clause 2.2.2.
*****
EASA - European Aviation Safety Agency or any successor thereto.
Embodiment Rank – The first Aircraft (and associated Scheduled Delivery Month) on which an SCN or MSCN is available for line-fit
installation.
Excusable Delay - as defined in Clause 10.1.
Export Certificate of Airworthiness - an export certificate of airworthiness issued by the Aviation Authority of the Delivery Location
for export of the Aircraft to the United States.
FAA - the U.S. Federal Aviation Administration, or any successor thereto.
Final Price - as defined in Clause 3.2.
Firm Aircraft – the Aircraft scheduled for delivery under Clause 9.1.1 on and as of the date of original execution of this Agreement.
Fleet Serial Numbers - as defined in Clause 14.2.1.
Goods and Services - any goods, excluding Aircraft, and services offered for sale by the Seller, its Affiliates (excluding Airbus
Canada) or designees for purchase by its/their customers.
Indemnitee - as defined in Clause 19.3.
Indemnitor - as defined in Clause 19.3.
Inhouse Warranty - as defined in Clause 12.1.7.1.
Inhouse Warranty Labor Rate - as defined in Clause 12.1.7.5 (b).
Interface Problem - as defined in Clause 12.4.1.
*****
LIBOR Rate – means, with respect to any payment, the rate appearing on Reuters Page LIBOR01 screen service (the successor
page to Telerate page 3750) or any successor or substitute page of such page at approximately 11:00 a.m., London time, on the
date such payment is due, as the rate for dollar deposits with a maturity of one month.
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Lien - means any liens, claims, charges, encumbrances or rights of others.
Losses - as defined in Clause 19.1.
Non-Excusable Delay - as defined in Clause 11.1.
Manufacture Facilities - means the various manufacture facilities of the Seller, its Affiliates or any subcontractor, where the Airframe
or its parts are manufactured or assembled.
Manufacturer Specification Change Notice or MSCN - as set out in Clause 2.2.2.1.
Material - as defined in Clause 1.2 of Exhibit H.
Non-Excusable Delay - as defined in Clause 11.1.
*****
PEP - as defined in Clause 14.13.1.
Parties (the) -means the Buyer and the Seller
Practical Training - as defined in the Airbus customer services catalogue.
Predelivery Payment - any of the payments required pursuant to Clause 5.3.
Predelivery Payment Reference Price - as defined in Clause 5.3.2.
Propulsion Systems - as defined in Clause 2.3.
Propulsion Systems Manufacturer - means the manufacturer of the Propulsion Systems.
Propulsion Systems Price Revision Formula - the Propulsion Systems price revision formula set forth in Part 2 of Exhibit C.
Ready for Delivery – with respect to any Aircraft, the time when (i) the Technical Acceptance Process has been completed in
accordance with Clause 8 and (ii) all technical conditions required for the issuance of the Export Certificate of Airworthiness have
been satisfied.
Reference Price – means the Reference Price of a set of Propulsion Systems as set out in Part 2 and 3 (as applicable) of Exhibit C.
Revision Service Period - as defined in Clause 14.5.
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Scheduled Delivery Month - as defined in Clause 9.1.
Scheduled Delivery Quarter – as defined in Clause 9.1.
Scheduled Delivery Period – the Scheduled Delivery Month or Scheduled Delivery Quarter, as applicable, of an Aircraft.
Seller Indemnitees - as defined in Clause 19.2.
Seller Price Revision Formula - the price revision formula set forth in Part 1 of Exhibit C.
Seller Representatives - the representatives of the Seller referred to in Clause 15.
Service Life Policy - as defined in Clause 12.2.
Software Services - means the software services described in Clause 14.
Specification – either (a) the Standard Specification if no SCNs are applicable or (b) if SCNs are issued, the Standard Specification
as amended by all applicable SCNs.
Specification Change Notice or SCN - as set out in Clause 2.2.1.
Standard Specification - the A319 NEO Standard Specification, the A320 NEO Standard Specification and the A321 NEO Standard
Specification, as applicable.
Supplier - any supplier of Supplier Parts.
Supplier Part - as defined in Clause 12.3.1.2.
Supplier Product Support Agreement - as defined in Clause 12.3.1.3.
*****
Technical Data - as defined in Clause 14.1.
Termination Event - as defined in Clause 20.1.
*****
*****
Total Loss - as defined in Clause 10.4
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Training Conference - as defined in Clause 16.1.2.
Type Certificate - as defined in Clause 7.1
Warranted Part - as defined in Clause 12.1.1.
Warranty Period - as defined in Clause 12.1.3.
The definition of a singular in this Clause 0 will apply to plurals of the same words.
References in this Agreement to an exhibit, schedule, article, section, subsection or clause refer to the appropriate exhibit or
schedule to, or article, section, subsection or clause in this Agreement.
Each agreement defined in this Clause 0 will include all appendixes, exhibits and schedules thereto. If the prior written consent of
any person is required hereunder for an amendment, restatement, supplement or other modification to any such agreement and the
consent of each such person is obtained, references in this Agreement to such agreement shall be to such agreement as so
amended, restated, supplemented or modified.
References in this Agreement to any statute, law, regulation, or the like will be to such statute, law, regulation, or the like as
amended or modified and in effect at the time any such reference is operative.
The term “including” when used in this Agreement means “including without limitation” except when used in the computation of time
periods.
Technical and trade terms not otherwise defined herein will have the meanings assigned to them as generally accepted in the
aircraft manufacturing industry.
1 SALE AND PURCHASE
The Seller shall sell and deliver to the Buyer, and the Buyer shall purchase and take delivery of the Aircraft from the Seller,
subject to the terms and conditions contained in this Agreement.
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2
2.1
SPECIFICATION
Aircraft Specification
Each Aircraft shall be manufactured in accordance with the applicable Standard Specification, as modified or varied at the
date of this Agreement by the Specification Change Notices listed in Appendix 1 to Exhibit A. The Seller confirms that all
listed SCNs will be available for incorporation into the Aircraft by time of first Aircraft Delivery unless otherwise specified in
Appendix 1 to Exhibit A.
2.2
Specification Amendment
The Specification may be further amended following signature of this Agreement in accordance with the terms of this Clause
2.
2.2.1
Specification Change Notice
The Specification may be amended following a request from Buyer (or per the terms of Clause 7.3) and by written
agreement between the parties in a Specification Change Notice (“SCN”). Each SCN shall be substantially in the form set
out in Exhibit B1 and shall set out the SCN’s Aircraft Embodiment Rank and shall also set forth, in detail, the particular
change to be made to the Specification and the effect, if any, of such change on design, performance, weight, Delivery Date
of the Aircraft affected thereby and on the text of the Specification. An SCN may result in an adjustment of the Aircraft Base
Price, which adjustment, if any, shall be specified in the SCN.
2.2.2
Development Changes
The Specification may also be amended by Seller incorporating changes deemed necessary by Seller to improve the
Aircraft, prevent delay, or ensure compliance with this Agreement (“Development Changes”), as set forth in this Clause
2.2.2.
2.2.2.1
Manufacturer Specification Changes Notices
The Specification may be amended by the Seller through a Manufacturer Specification Change Notice (“MSCN”), which shall
be substantially in the form set out in Exhibit B2 and shall set out the MSCN’s Aircraft Embodiment Rank as well as, in detail,
the particular change to be made to the Specification and the effect, if any, of such change on performance, weight, Aircraft
Base Price, Delivery Date of the Aircraft affected thereby and interchangeability or replaceability requirements under the
Specification.
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Except when the MSCN is necessitated by an Aviation Authority directive or by equipment obsolescence, in which case the
MSCN shall be accomplished without requiring the Buyer’s consent, if the MSCN adversely affects the performance, weight,
Aircraft Base Price, Delivery Date of the Aircraft affected thereby or the interchangeability or replaceability requirements
under the Specification, the Seller shall give the Buyer not less than ***** days following delivery of written notice to the
Buyer (unless otherwise agreed by the Parties) within which to accept or reject such MSCN. If, provided such timely advance
notice has been given, the Buyer does not notify the Seller of the rejection of the MSCN within such period, the MSCN shall
be deemed accepted by the Buyer and the corresponding modification shall be accomplished.
2.2.2.2
Seller may revise the Specification to incorporate Development Changes having no adverse effect on Aircraft
performance, weight, Aircraft Base Price, Delivery Date of the Aircraft affected thereby or interchangeability or
replaceability requirements under the Specification, without the Buyer’s consent. All such Development Changes shall be
incorporated ***** the details of such changes shall be made available through the relevant application in AirbusWorld.
2.3
Aircraft Design Weights and Propulsion Systems
2.3.1
Aircraft design weights
The Aircraft will be delivered with the following design weights expressed in metric tons (Maximum Take-off Weight
(‘’MTOW”) Maximum Landing Weight (‘MLW’) and Maximum Zero Fuel Weight (“MZFW”)) as the same have been selected by
the Buyer (the “Weights”)
MTOW
MLW
MZFW
*****
*****
*****
*****
*****
*****
*****
*****
*****
A319 NEO Aircraft
A320 NEO Aircraft
A321 NEO Aircraft
2.3.2
Propulsion Systems
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The Aircraft shall be equipped with a set of either two (2) CFM International LEAP engines or two (2) International Aero
Engines, LLC PW1100G-JM engines, upon selection by Buyer referred to respectively as the “Propulsion Systems”.
CFM
*****
*****
*****
IAE
*****
*****
*****
A319 NEO
A320 NEO
A321 NEO
* AET means Airbus Equivalent Thrust
If the Buyer has not selected the Propulsion Systems as of the date of this Agreement, such choice shall be
made by the execution of an SCN:
*****
Milestones
Customization Milestones Chart
2.4
2.4.1
*****, the Seller shall provide the Buyer with a customization milestones chart (the “Customization Milestone Chart”), which
shall be valid for and applicable to all Aircraft covered under this Agreement, unless otherwise agreed. The Customization
Milestone Chart shall set out the dates (expressed in weeks) by which:
1)
2)
3)
the Buyer shall take certain actions and decisions, including the provision of certain information and documentation to
the Seller;
specific SCNs shall be executed; and
the contractual definition of the Aircraft shall be finalized by way of execution of all SCNs (the “Contractual Definition
Freeze” or “CDF”), in order to enable a) the Seller to manufacture the Aircraft and b) incorporation of such SCNs into
the manufacturing of the Aircraft and the Delivery of the Aircraft in the Scheduled Delivery Month.
2.4.2 Compliance with Customization Milestones
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2.4.2.1
Any delay or failure by the Buyer to comply with any of the requirements referred to in Clauses 2.3 and 2.4.1 above may
delay the performance by the Seller of its obligations under the Agreement and, in addition to any other rights and remedies
available to the Seller under the Agreement and at law, shall in particular relieve the Seller of any obligation to deliver certain
Aircraft within their respective Scheduled Delivery Month(s) *****.
2.4.2.2
*****
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3 - PRICES
3.1
Base Price of the Aircraft
The Base Price of each Aircraft is the sum of:
(i) the Base Price of the Airframe and
(ii) the Base Price of the Propulsion Systems for such Aircraft.
3.1.1
Base Price of the Airframe
The Base Price of the Airframe is the sum of the following base prices:
(i)
the Airframe’s Base Price as defined in the Standard Specification, excluding Buyer Furnished Equipment but
including nacelles, thrust reversers, and the Weights as set forth in Clause 2.3.1 above, which is:
*****
(ii)
the sum of the Base Prices of all SCNs set forth in Appendix 1 to Exhibit A which is,
*****
(iii)
the Base Price of the master charge, which is applicable if a CFM LEAP-1A Propulsion System is selected, which is:
*****
The Base Price for each Airframe is expressed in United States Dollars (USD) at ***** and is subject to adjustment in
accordance with the Seller Price Revision Formula.
3.1.2
Base Price of the Propulsion Systems
3.1.2.1 CFM Propulsion Systems
*****
3.1.2.2 IAE LLC Propulsion Systems
*****
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(b)
The IAE Propulsion Systems Base Prices have been computed from the IAE LLC Propulsion Reference Prices as set forth in
Part 3 of Exhibit C to the Agreement.
3.2
Final Price of the Aircraft
The “Final Price” of each Aircraft shall be the sum of:
(i)
(ii)
(iii)
(iv)
(v)
the Base Price of the Airframe, as adjusted to the applicable Delivery Date of such Aircraft in accordance with Clause
4.1; plus
the aggregate of all increases and decreases to the Base Price of the Airframe following execution of this Agreement
as set out in any Specification Change Notice or MSCN applicable to the Airframe subsequent to the date of this
Agreement in each case priced in ***** as revised to the date of the Delivery Date in accordance with the Seller Price
Revision Formula; plus
the Propulsion Systems Reference Price as adjusted to the Delivery Date of such Aircraft in accordance with Clause
4.2; plus
the aggregate of all increases or decreases to the Propulsion Systems Reference Price as agreed in any
Specification Change Notice applicable to the Propulsion Systems subsequent to the date of this Agreement as
revised to the Delivery Date in accordance with Clause 4.2; plus
any other amount owed by the Buyer to the Seller pursuant to this Agreement and/or any other written agreement
between the Buyer and Seller, *****.
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4 - PRICE REVISION
4.1
Seller Price Revision Formula
4.2
4.2.1
4.2.2
The Base Prices of the Airframe and of the SCNs are subject to adjustment up to and including the Delivery Date in
accordance with the Seller Price Revision Formula.
Propulsion Systems Price Revision
The Reference Price is subject to adjustment up to and including the Delivery Date in accordance with the Propulsion
Systems Price Revision Formula.
The Reference Price, the prices of any related equipment, the Propulsion Systems designation(s) and the Propulsion
Systems Price Revision Formula are based on information that the Seller has received from the Propulsions Systems
Manufacturer and are subject to amendment by the Propulsion Systems Manufacturer at any time prior to Delivery. If the
Propulsion Systems Manufacturer makes any such amendment, the amendment shall be deemed to be incorporated into
this Agreement and the Reference Price, the prices of the related equipment, the Propulsion Systems designation(s) and the
Propulsion Systems Price Revision Formula shall be adjusted accordingly. The Seller agrees to notify the Buyer as soon as
the Seller receives notice of any such amendment from the Propulsion Systems Manufacturer.
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5 - PAYMENT TERMS
5.1
Seller’s Account
The Buyer shall pay the Predelivery Payments, the Balance of the Final Price and any other amount payable
by the Buyer to the Seller under this Agreement in immediately available funds in United States dollars to:
*****
or to such other account as may be designated by the Seller to the Buyer in writing no less than ***** before the date such
payment is due.
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5.2
5.3
5.3.1
5.3.2
*****
Predelivery Payments
Predelivery Payments are nonrefundable and shall be paid by the Buyer to the Seller for the Aircraft.
“Predelivery Payment Reference Price” means, with respect to an Aircraft to be delivered in calendar year T, the amount
determined in accordance with the following formula:
*****
5.3.3
The Buyer shall pay Predelivery Payments on the dates and in the amounts set forth below.
Payment Date
*****
*****
Percentage of Predelivery
Payment
Reference Price
*****
If application of such schedule results in any Predelivery Payment falling due prior to the date of signature of the Agreement,
such Predelivery Payments shall be made upon signature of this Agreement.
5.3.4
The Seller shall be entitled to hold and use any Predelivery Payment as absolute owner thereof and shall be under no
obligation to segregate any Predelivery Payment, or any amount equal thereto, from the Seller’s funds generally.
5.4
Payment of Balance of the Final Price of the Aircraft
Subject to Clause 9.4, on the date on which each Aircraft is Ready for Delivery, the Buyer shall pay to the Seller the Final
Price of such Aircraft less the amount of Predelivery Payments that the Seller has previously received for such Aircraft (the
“Balance of the Final Price”).
The Seller's receipt of the full amount of all Predelivery Payments and of the Balance of the Final Price of the Aircraft,
including any amounts due under Clause 5.8, is a condition precedent to the Seller's obligation to deliver such Aircraft to the
Buyer.
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5.5
Taxes
5.6 Application of Payments
*****
5.7
5.8
5.8.1
*****
*****
Overdue Payments
If any payment due to the Seller is not received by the Seller on the date when due, the Buyer shall pay to the Seller on
demand *****.
5.9
Property Interest
Notwithstanding any provision of law to the contrary, the Buyer shall not, by virtue of anything contained in this Agreement
(including, without limitation, payment of any ***** Predelivery Payments hereunder, or any designation or identification by
the Seller of a particular aircraft as an Aircraft to which any provision of this Agreement refers) acquire any property,
insurable or other interest whatsoever in any Aircraft before Delivery of and payment for such Aircraft, as provided in this
Agreement.
5.10
Payment in Full
The Buyer's obligation to make payments to the Seller hereunder shall not be affected by and shall be determined without
regard to any setoff, counterclaim, recoupment, defense or other right that the Buyer may have against the Seller or any
other person and all such payments shall be made without deduction or withholding of any kind. The Buyer shall ensure that
the sums received by the Seller under this Agreement shall be equal to the full amounts expressed to be due to the Seller
hereunder, without deduction or withholding on account of and free from any and all Taxes as provided in Clause 5.5, except
that if the Buyer is compelled by law to make any such deduction or withholding the Buyer shall pay such additional amounts
to the Seller as may be necessary so that the net amount received by the Seller after such deduction or withholding shall
equal the amounts that would have been received in the absence of such deduction or withholding.
*****
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5.11
Other Charges
Unless expressly stipulated otherwise, any charges due under this Agreement other than those set out in Clauses 5.2, 5.3,
5.8 and 5.10 shall be paid by the Buyer at the same time as payment of the Balance of the Final Price or, if invoiced after
Delivery, within ***** after the invoice date.
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6 - MANUFACTURE AND ASSEMBLY PROCEDURE - INSPECTION
6.1
6.2
6.2.1
*****
Inspection
The Buyer or its duly authorized representatives (the "Buyer's Inspector(s)") shall be entitled to inspect the manufacture
and assembly of the Airframe and all materials and parts obtained by the Seller for the manufacture and assembly of the
Airframe (each an “Inspection”) on the following terms and conditions;
(i)
(ii)
(iii)
(iv)
any Inspection shall be conducted pursuant to the Seller’s system of inspection and Airbus procedures, as developed
under the supervision of the relevant Aviation Authority and disclosed in writing to the Buyer;
the Buyer's Inspector(s) shall have access to such relevant technical data as is reasonably necessary for the purpose
of the Inspection;
any Inspection and any related discussions with the Seller and its personnel by the Buyer's Inspector(s) shall be at
reasonable times during business hours and shall take place in the presence of the relevant inspection department
personnel of the Seller;
the Inspections shall be performed in a manner so as not to unduly delay or hinder the manufacture or assembly of
the Aircraft, the performance of this Agreement by the Seller or any other work in progress at the Manufacture
Facilities.
6.2.2
Location of Inspections
The Buyer's Inspector(s) may conduct Inspections at the relevant Manufacture Facility of the Seller or its Affiliates and where
possible at the Manufacture Facilities of the sub-contractors provided that if access to any part of the Manufacture Facilities
where the Airframe manufacture is in progress or materials or parts are stored are restricted for security or confidentiality
reasons, the Seller shall be allowed reasonable time to make the relevant items available elsewhere.
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6.3
Seller's Service for Buyer's Inspector(s)
For the purpose of the Inspections, and starting from a mutually agreed date until the Delivery Date, the Seller shall furnish
***** suitable space and office equipment, including but not limited to suitable high speed internet access, in or conveniently
located to the Delivery Location for the use by a reasonable number of Buyer's Inspector(s).
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7 - CERTIFICATION
Except as set forth in this Clause 7, the Seller shall not be required to obtain any certificate or approval with respect to the
Aircraft.
7.1
Type Certification
The Aircraft has been or will be type certificated under EASA procedures for certification in the transport category. The Seller
shall obtain or cause to be obtained an FAA type certificate (the "Type Certificate") to allow the issuance of the Export
Certificate of Airworthiness upon Delivery.
7.2
Export Certificate of Airworthiness
Subject to the provisions of Clause 7.3, the Aircraft shall be delivered to the Buyer with an Export Certificate of Airworthiness
and in a condition enabling the Buyer to obtain at the time of Delivery a Standard Airworthiness Certificate issued pursuant
to Part 21 of the US Federal Aviation Regulations and a Certificate of Sanitary Construction issued by the U.S. Public Health
Service of the Food and Drug Administration. *****
7.3
Specification Changes before Aircraft Ready for Delivery
*****
*****
7.4
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8 - TECHNICAL ACCEPTANCE
8.1
8.1.1
Technical Acceptance Process
Prior to Delivery, the Aircraft shall undergo a technical acceptance process developed by the Seller, the purpose of which is
for the Seller to demonstrate to the Buyer compliance with the delivery requirements for such Aircraft under this Agreement
(the "Technical Acceptance Process"). *****
8.1.2
The Technical Acceptance Process shall:
(i)
(ii)
commence on a date notified by the Seller to the Buyer with no less than ***** advance notice,
take place at the Delivery Location,
(iii)
be carried out by the personnel of the Seller, and
(iv)
include a technical acceptance flight that shall not exceed ***** unless additional time is necessary to complete the
Technical Acceptance Process (including any additional test flights as may be required to complete the Technical
Acceptance Process) (the “Technical Acceptance Flight”).
8.2
8.2.1
8.2.2
Buyer’s Attendance
Buyer's Inspectors shall be entitled to attend the Technical Acceptance Process.
If Buyer elects to attend the Technical Acceptance Process, the Buyer's Inspectors:
(i)
(ii)
shall comply with the reasonable requirements of the Seller as advised to the Buyer, with the intention of completing
the Technical Acceptance Process within *****, and
may have a maximum of ***** of its representatives (no more than ***** of whom shall have access to the cockpit at
any one time) accompany the Seller’s representatives on the Technical Acceptance Flight, during which the Buyer’s
representatives shall comply with the instructions of the Seller’s representatives.
8.2.3
If the Buyer does not attend (other than as a result of the Seller’s failure to notify the Buyer as required by Clause 8.1.2(i)) or
interferes with
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the Technical Acceptance Process, the Seller shall be entitled to complete the Technical Acceptance Process and the Buyer
shall be deemed to have accepted that the Technical Acceptance Process has been satisfactorily completed, in all respects.
8.3
Certificate of Acceptance
When the Aircraft is Ready for Delivery, subject to Clause 9.4, the Buyer shall sign and deliver to the Seller a certificate of
acceptance in respect of the Aircraft in the form set forth in Exhibit D (the "Certificate of Acceptance").
8.4 Finality of Acceptance
The Buyer’s signature of the Certificate of Acceptance for the Aircraft shall constitute waiver by the Buyer of any right it may
have, under the Uniform Commercial Code as adopted by the State of New York or otherwise, to revoke acceptance of the
Aircraft for any reason, whether known or unknown to the Buyer at the time of acceptance.
8.5
Aircraft Utilization
*****
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9 - DELIVERY
9.1
9.1.1
9.1.2
9.1.3
9.2
9.2.1
9.2.2
Delivery Schedule
Subject to Clauses 2, 7, 8, 10 and 18, the Seller shall have the Aircraft Ready for Delivery at the Delivery Location within the
following quarters (each a “Scheduled Delivery Quarter”):
*****
The scheduled delivery month (“Scheduled Delivery Month”) of each Aircraft shall be notified in writing to the Buyer by the
Seller no later than *****.
The Seller shall give the Buyer at least ***** advance written notice of the anticipated date on which the Aircraft shall be
Ready for Delivery. Such notice shall also include the starting date and the planned schedule of the Technical Acceptance
Process. Thereafter the Seller shall notify the Buyer of any change to such dates.
Delivery Process
The Buyer shall send the Buyer's Inspectors to the Delivery Location in order to take Delivery of the Aircraft on the date the
Aircraft is Ready for Delivery, and remove the Aircraft from the Delivery Location within *****.
The Seller shall deliver and transfer title to the Aircraft to the Buyer free and clear of all Liens (except for any Liens or
encumbrances created by or on behalf of the Buyer) provided that the Balance of the Final Price of such Aircraft and all
other amounts stated to be due hereunder on the Delivery Date have been paid by the Buyer pursuant to Clause 5.4 and
that the Certificate of Acceptance has been signed and delivered to the Seller pursuant to Clause 8.3. The Seller shall
provide the Buyer with (a) a bill of sale in (i) the form set forth in Exhibit E-1, if the Delivery Location is in Mobile, Alabama
and (ii) in the form set forth in Exhibit E-2, if the Delivery Location is in any place other than Mobile, Alabama (the “Bill of
Sale”), and/or (b) such other documentation confirming transfer of title and receipt of the Final Contract Price as may
reasonably be requested by the Buyer and (c) if Mobile, Alabama is the Delivery Location, a warranty from Airbus S.A.S in
the form of Exhibit J. Title to, property in and risk of loss of or damage to the Aircraft shall pass to the Buyer
contemporaneously with the delivery by the Seller to the Buyer of such Bill of Sale.
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9.2.3
If, when the Aircraft is Ready for Delivery, subject to 9.4, the Buyer fails to:
(i) deliver the signed Certificate of Acceptance to the Seller, or
(ii) pay the Balance of the Final Price of the Aircraft to the Seller and collect the Aircraft,
*****
These rights of the Seller shall be in addition to the Seller’s other rights and remedies under this Agreement.
If the Buyer fails to remove the Aircraft as required by Clause 9.2.1 then, without prejudice to the Seller’s other rights under
this Agreement or at law, the provisions of Clause 9.2.3(c) shall apply.
9.3
9.3.1
9.3.2
Flyaway
As applicable, the Buyer and the Seller shall cooperate to obtain any licenses that may be required by the Aviation Authority
of the Delivery Location for the purpose of exporting the Aircraft.
***** The Buyer shall make direct arrangements with the supplying companies for the fuel and oil required for all post-
Delivery flights.
9.4
Delivery on the date on which an Aircraft is Ready for Delivery
*****
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10 - EXCUSABLE DELAY AND TOTAL LOSS
10.1
Scope of Excusable Delay
*****
10.2
Consequences of Excusable Delay
10.2.1 If an Excusable Delay occurs:
(i)
(ii)
(iii)
(iv)
the Seller shall notify the Buyer of such Excusable Delay as soon as practicable after becoming aware of the same;
the Seller shall not be responsible for any damages arising from or in connection with such Excusable Delay suffered
or incurred by the Buyer;
the Seller shall not be deemed to be in default in the performance of its obligations hereunder as a result of such
Excusable Delay;
the Seller shall as soon as practicable after the removal of the cause of such delay resume performance of its
obligations under this Agreement and in particular shall notify the Buyer of the revised Scheduled Delivery Month.
10.3
Termination on Excusable Delay
10.3.1
10.3.2
10.3.3
*****, then either party may terminate this Agreement with respect to the affected Aircraft, by giving written notice to the other
party *****. However, the *****.
If the Seller advises the Buyer in its notice of a revised Scheduled Delivery Month pursuant to Clause 10.2.1(iv) that there
shall be a delay in Delivery of an Aircraft of more than *****, then either party may terminate this Agreement with respect to
the affected Aircraft. Termination shall be made by giving written notice to the other party within ***** after the Buyer's receipt
of the notice of a revised Scheduled Delivery Month.
If this Agreement is not terminated under the terms of Clause 10.3.1 or 10.3.2, then the Seller shall be entitled to reschedule
Delivery. The Seller shall notify the Buyer of the new Scheduled Delivery Month after the ***** referred to in Clause 10.3.1 or
10.3.2, and this new Scheduled Delivery Month shall be deemed to be an amendment to the applicable Scheduled Delivery
Month in Clause 9.1.
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10.4
Total Loss, Destruction or Damage
If, prior to Delivery, any Aircraft is lost, destroyed or in the reasonable opinion of the Seller is damaged beyond economic
repair (“Total Loss”), the Seller shall notify the Buyer to this effect within ***** of such occurrence. The Seller shall include in
said notification (or as soon after the issue of the notice as such information becomes available to the Seller) the earliest
date consistent with the Seller's other commitments and production capabilities that an aircraft to replace the Aircraft may be
delivered to the Buyer and the Scheduled Delivery Month shall be extended as specified in the Seller's notice to
accommodate the delivery of the replacement aircraft *****:
Nothing herein shall require the Seller to manufacture and deliver a replacement aircraft if such manufacture would require
the reactivation of its production line for the model or series of aircraft that includes the Aircraft.
10.5
Termination Rights Exclusive
If this Agreement is terminated as provided for under the terms of Clauses 10.3 or 10.4, such termination shall discharge all
obligations and liabilities of the parties hereunder with respect to such affected Aircraft and undelivered material, services,
data or other items applicable thereto and to be furnished under the Agreement.
10.6
Remedies
THIS CLAUSE 10 SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF THE BUYER FOR DELAYS IN DELIVERY
OR FAILURE TO DELIVER, OTHER THAN SUCH DELAYS AS ARE COVERED BY CLAUSE 11, AND THE BUYER
HEREBY WAIVES ALL RIGHTS TO WHICH IT WOULD OTHERWISE BE ENTITLED IN RESPECT THEREOF,
INCLUDING, WITHOUT LIMITATION, ANY RIGHTS TO INCIDENTAL AND CONSEQUENTIAL DAMAGES OR SPECIFIC
PERFORMANCE. THE BUYER SHALL NOT BE ENTITLED TO CLAIM THE REMEDIES AND RECEIVE THE BENEFITS
PROVIDED IN THIS CLAUSE 10 WHERE THE DELAY REFERRED TO IN THIS CLAUSE 10 IS CAUSED BY THE
NEGLIGENCE OR FAULT OF THE BUYER OR ITS REPRESENTATIVES.
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11 - NON-EXCUSABLE DELAY
11.1
*****
11.2
Renegotiation
If, as a result of an Non-Excusable Delay, the Delivery does not occur within ***** the Buyer shall have the right, exercisable
by written notice to the Seller given between *****, to require from the Seller a renegotiation of the Scheduled Delivery Month
for the affected Aircraft. Unless otherwise agreed between the Seller and the Buyer during such renegotiation, the said
renegotiation shall not prejudice the Buyer's right to receive ***** in accordance with Clause 11.1.
11.3
Termination
If, as a result of an Non-Excusable Delay, the Delivery does not occur within ***** and the parties have not renegotiated the
Delivery Date pursuant to Clause 11.2, then both parties shall have the right exercisable by written notice to the other party,
given between *****, to terminate this Agreement in respect of the affected Aircraft. In the event of termination, neither party
shall have any claim against the other, except that the Seller shall pay to the Buyer any amounts due pursuant to Clause
11.1 and shall pay to the Buyer an amount equal to the Predelivery Payments received from the Buyer hereunder in respect
of such affected Aircraft.
11.4
Remedies
THIS CLAUSE 11 SETS FORTH THE SOLE AND EXCLUSIVE REMEDY OF THE BUYER FOR DELAYS IN DELIVERY
OR FAILURE TO DELIVER, OTHER THAN SUCH DELAYS AS ARE COVERED BY CLAUSE 10, AND THE BUYER
HEREBY WAIVES ALL RIGHTS TO WHICH IT WOULD OTHERWISE BE ENTITLED IN RESPECT THEREOF,
INCLUDING WITHOUT LIMITATION ANY RIGHTS TO INCIDENTAL AND CONSEQUENTIAL DAMAGES OR SPECIFIC
PERFORMANCE. THE BUYER SHALL NOT BE ENTITLED TO CLAIM THE REMEDIES AND RECEIVE THE BENEFITS
PROVIDED IN THIS CLAUSE 11 WHERE THE DELAY REFERRED TO IN THIS CLAUSE 11 IS CAUSED BY THE
NEGLIGENCE OR FAULT OF THE BUYER OR ITS REPRESENTATIVES.
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12
WARRANTIES AND SERVICE LIFE POLICY
This Clause covers the terms and conditions of the warranty and service life policy.
12.1
Standard Warranty
12.1.1
Nature of Warranty
For the purpose of this Agreement the term "Warranted Part" shall mean any Seller proprietary component, equipment,
accessory or part, which is installed on an Aircraft at Delivery thereof *****
12.1.2
Exclusions
The warranties set forth in Clause 12.1.1 shall not apply to Buyer Furnished Equipment, nor to the Propulsion Systems, nor
to any component, equipment, accessory or part installed on the Aircraft at Delivery that is not a Warranted Part *****
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12.1.3
Warranty Period
The warranties set forth in Clauses 12.1.1 and 12.1.2 shall be limited to those defects that become apparent ***** (the
“Warranty Period”).
12.1.4
Limitations of Warranty
12.1.4.1
*****
12.1.4.2
In the event of a defect covered by Clauses 12.1.1 (iii), 12.1.1 (iv) and 12.1.2 (ii) becoming apparent within the Warranty
Period, the Seller shall also, if so requested by the Buyer in writing, correct such defect in any Aircraft which has not yet
been delivered to the Buyer *****
12.1.4.3
Cost of inspection
In addition to the remedies set forth in Clauses 12.1.4.1 and 12.1.4.2, *****provided that
*****
12.1.5
Warranty Claim Requirements
The Buyer’s remedy and the Seller’s obligation and liability under this Clause 12.1 with respect to any warranty claim
submitted by the Buyer (each a “Warranty Claim”) are subject to the following conditions:
(i)
the defect having become apparent within the Warranty Period;
(ii)
the Buyer having filed a warranty claim within ***** of discovering the defect;
(iii)
the Buyer having submitted to the Seller evidence reasonably satisfactory to the Seller that the claimed defect is due to
a matter warranted under this Clause 12.1;
(iv)
the Seller having received a Warranty Claim substantially complying with the provisions of Clause 12.1.6 below.
12.1.6
Warranty Administration
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The warranties set forth in Clause 12.1 shall be administered as hereinafter provided.
12.1.6.1
Claim Determination
Determination as to whether any claimed defect in any Warranted Part is a valid Warranty Claim shall be made through the
Seller’s online claims tool as soon as it is determined by the Seller and shall be based upon *****.
12.1.6.2
Transportation Costs
The cost of transporting a Warranted Part claimed to be defective to and from the facilities designated by the Seller shall be
borne *****.
12.1.6.3
Return of an Aircraft
If the Buyer and the Seller mutually agree, prior to such return, that it is necessary to return an Aircraft to the Seller for
consideration of a Warranty Claim, *****.
12.1.6.4
On Aircraft Work by the Seller
If either (i) it is determined by both Parties that a defect subject to this Clause 12.1 justifies the dispatch by the Seller of a
working team to the Aircraft to repair or correct such defect through the embodiment of one or several Seller's Service
Bulletins at the Buyer's facilities, or (ii) if the Buyer returns an Aircraft to the Seller pursuant to Clause 12.1.6.3 in order for
the Seller to perform or have performed such repair or correction, then the labor costs for such on-Aircraft work shall be
borne*****.
In accordance with the forgoing, on-Aircraft work shall be accomplished when*****.
The Seller and the Buyer shall agree on a schedule and place for the on-Aircraft work to be performed.
12.1.6.5
Warranty Claim Substantiation
Each Warranty Claim filed by the Buyer under this Clause 12.1 shall contain at least the following data:
(a)
(b)
(c)
description of defect and action taken, if any,
date of incident and/or removal date,
description of Warranted Part claimed to be defective,
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part number,
(d)
serial number (if applicable),
(e)
position on Aircraft,
(f)
total flying hours or calendar time, as applicable, at the date of defect appearance,
(g)
time since last shop visit at the date of defect appearance,
(h)
(i) Manufacturer Serial Number of the Aircraft and/or its registration,
(j)
(k) Warranty Claim number,
date of Warranty Claim,
(l)
(m) Delivery Date of Aircraft or Warranted Part to the Buyer,
Aircraft total flying hours and/or number of landings at the date of defect appearance,
Warranty Claims are to be addressed as follows:
AIRBUS
CUSTOMER SERVICES DIRECTORATE
WARRANTY ADMINISTRATION
2, rond-point Emile Dewoitine
B.P. 33
F 31700 BLAGNAC
FRANCE
12.1.6.6
Replacements
Replacements made pursuant to this Clause 12 shall be made as soon as reasonably practicable, but in any event within the
lead time defined in the Airbus Spare Parts Price Catalog.
Title to and risk of loss of any Aircraft, component, accessory, equipment or part returned by the Buyer to the Seller shall at
all times remain with the Buyer, except that:
(i)
when the Seller has custody, possession, or control of a returned Aircraft, component, accessory, equipment or part to
which the Buyer has title, the Seller shall have such responsibility therefor as is chargeable by law to a bailee for hire,
but the Seller shall not be liable for loss of use, and;
(ii)
title to and risk of loss of a returned component, accessory, equipment or part shall pass to the Seller upon shipment
by the Seller to the Buyer of any item furnished by the Seller to the Buyer as a replacement therefor.
Upon the Seller's shipment to the Buyer of any replacement component, accessory, equipment or part provided by the Seller
pursuant to this Clause
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12.1, title to and risk of loss of such replacement component, accessory, equipment or part shall pass to the Buyer.
Upon replacement, the components, equipment, accessories, or parts replaced thereby shall become the Seller's property.
12.1.6.7
Rejection
The Seller shall provide written substantiation reasonably acceptable to Buyer in case of rejection of a Warranty Claim. *****
12.1.6.8
Inspection
The Seller shall have the right to inspect the affected Aircraft, documents and other records relating thereto in the event of
any Warranty Claim under this Clause 12.1 as the same relates to the Warranty Claim.
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12.1.7
Inhouse Warranty
12.1.7.1
Seller's Authorization
The Seller hereby authorizes the Buyer to repair Warranted Parts (“Inhouse Warranty”) subject to the terms of this Clause
12.1.7.
The Seller agrees that the Buyer may designate a third party facility to perform such repair on Warranted Parts.
12.1.7.2
Conditions for Seller's Authorization
The Buyer shall be entitled to repair such Warranted Parts:
- where the estimated cost of repair is in excess of *****, the Buyer shall notify the Seller Representative of its intention to
perform Inhouse Warranty repairs before any such repairs are started. The Buyer’s notification shall include sufficient
detail regarding the defect, estimated labor hours and material to allow the Seller to ascertain the reasonableness of the
estimate. The Seller agrees to use all reasonable efforts to ensure a prompt response and shall not unreasonably withhold
or delay authorization.
- provided repairs are performed in accordance with the Seller's Technical Data or written instructions; and
- only to the extent specified by the Seller, or, in the absence of such specification, to the extent reasonably necessary to
correct the defect, in accordance with the standards set forth in Clause 12.1.10.
12.1.7.3 Seller's Rights
The Seller shall have the right to require the return of any Warranted Part, or any part removed therefrom, which is claimed
to be defective if, in the Seller’s reasonable judgment, the nature of the claimed defect requires technical investigation. If a
Warranted Part is returned for technical investigation, the related transportation costs shall be borne *****. Furthermore, the
Seller shall have the right to have a Seller Representative present during the disassembly, inspection and testing of any
Warranted Part claimed to be defective, subject to such presence being practical and not materially delaying any such
disassembly, inspection, and/or testing.
12.1.7.4
Inhouse Warranty Claim Substantiation
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Claims for Inhouse Warranty credit shall be filed within the time period set forth in 12.1.5 (ii) and shall contain the same
information as that required for Warranty Claims under Clause 12.1.6.5 and in addition shall include:
(a)
a report of technical findings with respect to the defect,
(b)
for parts required to remedy the defect:
- part numbers,
- serial numbers (if applicable),
- parts description,
- quantity of parts,
- unit price of parts,
- related Seller's or third party's invoices (if applicable),
- total price of parts,
(c)
detailed number of labor hours,
(d)
Inhouse Warranty Labor Rate,
(e)
total claim value.
12.1.7.5
Credit
The Buyer's sole remedy and the Seller’s sole obligation and liability with respect to Inhouse Warranty Claims shall be *****
12.1.7.6
Limitation
***** (“BER” or “Beyond Economic Repair”); provided that if the failure is such that the Warranted Part is BER, then the
provisions of Clause 12.1.7.7 shall apply to such part.
12.1.7.7
Scrapped Material
The Buyer may, with the Seller Representative's consent (which consent shall not be unreasonably withheld, conditioned or
delayed), scrap any such defective Warranted Parts that are BER and not required for technical evaluation.
If the Buyer does not obtain the agreement of the Seller’s Representative to scrap a defective Warranted Part BER, then the
Buyer shall retain such
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Warranted Part and any defective part removed from a Warranted Part during repair for a period of ***** of receipt of the
Seller’s request to that effect.
Scrapped Warranted Parts shall be evidenced by a record of scrapped material certified by an authorized representative of
the Buyer and shall be kept in the Buyer’s file for at least the duration of the applicable Warranty Period.
12.1.8
Standard Warranty in case of Pooling or Leasing Arrangements
Without prejudice to Clause 21.1, the warranties provided for in this Clause 12.1 for any Warranted Part shall accrue
to the benefit of any airline in revenue service, other than the Buyer, if the Warranted Part enters into the possession of any
such airline as a result of a pooling or leasing agreement between such airline and the Buyer, in accordance with the terms
and subject to the limitations and exclusions of the foregoing warranties and to the extent permitted by any applicable law or
regulations.
12.1.9
Warranty for Corrected, Replaced or Repaired Warranted Parts
Whenever any Warranted Part, which contains a defect for which the Seller is liable under Clause 12.1, has been
corrected, replaced or repaired pursuant to the terms of this Clause 12.1, the period of the Seller's warranty with respect to
such corrected, repaired or replacement Warranted Part, whichever the case may be, shall be *****.
If a defect is attributable to a defective repair or replacement by the Buyer, and such defective replacement or repair
is not attributable solely to inaccuracies in written instructions or designs supplied by the Seller and followed by the Buyer, a
Warranty Claim with respect to such defect shall be rejected, notwithstanding any subsequent correction or repair, and shall
immediately terminate the remaining warranties under this Clause 12.1 in respect of the affected Warranted Part.
12.1.10
Accepted Industry Standard Practices Normal Wear and Tear
The Buyer's rights under this Clause 12.1 are subject to *****.
The Seller's liability under this Clause 12.1 shall not extend to normal wear and tear nor to:
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*****
12.1.11
DISCLAIMER OF SELLER LIABILITY
*****
12.2
Service Life Policy
12.2.1
In addition to the warranties set forth in Clause 12.1, the Seller further agrees that should a Failure occur in any Item (as
these terms are defined hereinbelow) that has not suffered from an extrinsic force, then, subject to the general conditions
and limitations set forth in Clause 12.2.4, the provisions of this Clause 12.2 shall apply.
For the purposes of this Clause 12.2:
(i)
"Item" means any item listed in Exhibit “F”;
(ii)
"Failure" means *****.
12.2.2
Periods and Seller's Undertakings
Subject to the general conditions and limitations set forth in Clause 12.2.4, the Seller agrees that if a Failure occurs in
an Item before the Aircraft in which such Item was originally installed has *****, the Seller shall, at its discretion and as
promptly as practicable and with the Seller's financial participation as hereinafter provided, either :
- design and furnish to the Buyer a correction for such Item with a Failure and provide any parts required for such correction
(including Seller designed standard parts but excluding industry standard parts), or
- replace such Item.
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12.2.3 Seller's Participation in the Costs
Subject to the general conditions and limitations set forth in Clause 12.2.4, any part or Item that the Seller is required
to furnish to the Buyer under this Service Life Policy in connection with the correction or replacement of an Item shall be
furnished to the Buyer at the Seller’s then current sales price therefore, less the Seller's financial participation determined in
accordance with the following formula:
*****
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12.2.4
General Conditions and Limitations
12.2.4.1
12.2.4.2
12.2.4.3
12.2.4.4
The undertakings set forth in this Clause 12.2 shall be valid after the period of the Seller's warranty applicable to an Item
under Clause 12.1.
The Buyer's remedies and the Seller's obligations and liabilities under this Service Life Policy are subject to compliance by
the Buyer with the following conditions:
(i)
the Buyer shall maintain log books and other historical records with respect to each Item, adequate to enable the Seller
to determine whether the alleged Failure is covered by this Service Life Policy and, if so, to define the portion of the
costs *****;
(ii)
*****;
(iii)
the Buyer shall comply with the conditions of Clause 12.1.10;
(iv)
*****;
(v)
the Buyer shall report any breakage or defect in an Item in writing to the Seller within ***** after such breakage or
defect becomes apparent to the Buyer, whether or not said breakage or defect can reasonably be expected to occur in
any other aircraft, and the Buyer shall have provided to the Seller sufficient detail on the breakage or defect to enable
the Seller acting reasonably to determine whether said breakage or defect is subject to this Service Life Policy.
Except as otherwise provided for in this Clause 12.2, any claim under this Service Life Policy shall be administered as
provided for in, and shall be subject to the terms and conditions of, Clause 12.1.6.
In the event of the Seller having issued a modification applicable to an Aircraft, the purpose of which is to avoid a Failure, the
Seller shall supply the necessary modification kit ***** that will be applicable to all operators subject to the same fleetwide
coverage. If such a kit is so offered to the Buyer, then, to the extent of such Failure and any Failures that could ensue
therefrom, the validity of the Seller's commitment under this Clause 12.2 shall be subject to the Buyer incorporating such
modification in the relevant Aircraft, as promulgated by the Seller and in accordance with the Seller's instructions, within a
reasonable time.
12.2.4.5
THIS SERVICE LIFE POLICY IS NEITHER A WARRANTY, PERFORMANCE GUARANTEE, NOR AN AGREEMENT TO
MODIFY ANY AIRCRAFT OR AIRFRAME COMPONENTS TO CONFORM TO NEW DEVELOPMENTS OCCURRING IN
THE STATE OF AIRFRAME DESIGN
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AND MANUFACTURING ART. THE SELLER'S OBLIGATION UNDER THIS CLAUSE 12.2 IS TO FURNISH ONLY THOSE
CORRECTIONS TO THE ITEMS OR PROVIDE REPLACEMENTS THEREFOR AS PROVIDED FOR IN THIS CLAUSE
12.2. THE BUYER'S SOLE REMEDY AND RELIEF FOR THE NON-PERFORMANCE OF ANY OBLIGATION OR LIABILITY
OF THE SELLER ARISING UNDER OR BY VIRTUE OF THIS SERVICE LIFE POLICY WILL BE *****. WITHOUT LIMITING
THE EXCLUSIVITY OF WARRANTIES AND GENERAL LIMITATIONS OF LIABILITY PROVISIONS SET FORTH IN
CLAUSE 12.5, THE BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL CLAIMS TO ANY FURTHER
DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS AND ALL OTHER RIGHTS,
CLAIMS AND REMEDIES, ARISING UNDER OR BY VIRTUE OF THIS SERVICE LIFE POLICY.
12.3
Supplier Warranties and Service Life Policies
Prior to or at Delivery of the first Aircraft, the Seller shall provide the Buyer, in accordance with the provisions of Clause 17,
with the warranties and, where applicable, service life policies that the Seller has obtained for Supplier Parts pursuant to the
Supplier Product Support Agreements.
12.3.1
Definitions
12.3.1.1
“Supplier” means any supplier of Supplier Parts.
12.3.1.2
12.3.1.3
“Supplier Part” means any component, equipment, accessory or part installed in an Aircraft at the time of Delivery thereof
and for which there exists a Supplier Product Support Agreement. For the sake of clarity, Propulsion Systems and Buyer
Furnished Equipment and other equipment selected by the Buyer to be supplied by suppliers with whom the Seller has no
existing enforceable warranty agreements are not Supplier Parts.
“Supplier Product Support Agreements” means agreements between the Seller and Suppliers, as described in Clause
17.1.2, containing enforceable and transferable warranties and, in the case of landing gear suppliers, service life policies for
selected structural landing gear elements.
12.3.2
Supplier's Default
12.3.2.1
In the event of any Supplier, under any standard warranty obtained by the Seller pursuant to Clause 12.3.1, defaulting in the
performance of any material obligation with respect thereto and subject to the Buyer first using its reasonable efforts to
enforce its rights under such standard warranty and (ii) the Buyer submitting in reasonable time to the Seller reasonable
evidence that such default has occurred, *****.
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12.3.2.2
12.3.2.3
In the event of any Supplier, under any Supplier Service Life Policy obtained by the Seller pursuant to Clause 12.3.1,
defaulting in the performance of any material obligation with respect thereto and subject to (i) the Buyer first using its
reasonable efforts to enforce its rights under such Supplier Service Life Policy and (ii) the Buyer submitting in reasonable
time to the Seller reasonable evidence that such default has occurred, *****.
At the Seller's request, the Buyer shall assign to the Seller, and the Seller shall be subrogated to, all of the Buyer's rights
against the relevant Supplier with respect to and arising by reason of such default and shall provide reasonable assistance
to enable the Seller to enforce the rights so assigned.
12.4
Interface Commitment
12.4.1
Interface Problem
If the Buyer experiences any technical problem in the operation of an Aircraft or its systems due to a malfunction, the cause
of which, after due and reasonable investigation, is not readily identifiable by the Buyer but which the Buyer reasonably
believes to be attributable to the design characteristics of one or more components of the Aircraft ("Interface Problem"), the
Seller shall, if so requested by the Buyer, *****, promptly conduct or have conducted an investigation and analysis of such
problem to determine, if possible, the cause or causes of the problem and to recommend such corrective action as may be
feasible. The Buyer shall furnish to the Seller all data and information in the Buyer's possession relevant to the Interface
Problem and shall cooperate with the Seller in the conduct of the Seller's investigations and such tests as may be required.
At the conclusion of such investigation, the Seller shall promptly advise the Buyer in writing of the Seller's opinion as to the
cause or causes of the Interface Problem and the Seller's recommendations as to corrective action.
12.4.2
Seller's Responsibility
If the Seller determines, acting reasonably, that the Interface Problem is primarily attributable to the design of a Warranted
Part, the Seller shall, if so requested by the Buyer and pursuant to the terms and conditions of Clause 12.1, correct the
design of such Warranted Part to the extent of the Seller's obligation as defined in Clause 12.1.
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12.4.3
Supplier's Responsibility
If the Seller determines, acting reasonably, that the Interface Problem is primarily attributable to the design of any Supplier
Part, the Seller shall, if so requested by the Buyer, reasonably assist the Buyer in processing any warranty claim the Buyer
may have against the Supplier. Should the Supplier fail to address such Interface Problem in a manner reasonably
satisfactory to Buyer, then the conditions of Clause 12.3.2 shall apply.
12.4.4
Joint Responsibility
If the Seller determines, acting reasonably, that the Interface Problem is attributable partially to the design of a Warranted
Part and partially to the design of any Supplier Part, the Seller shall, if so requested by the Buyer, seek a solution to the
Interface Problem through cooperative efforts of the Seller and any Supplier involved.
The Seller shall promptly advise the Buyer of such corrective action as may be proposed by the Seller and any such
Supplier. Such proposal shall be consistent with any then existing obligations of the Seller hereunder and of any such
Supplier towards the Buyer. *****
12.4.5
General
12.4.5.1
All requests under this Clause 12.4 shall be directed to both the Seller and the affected Supplier.
12.4.5.2
12.4.5.3
Except as specifically set forth in this Clause 12.4, this Clause shall not be deemed to impose on the Seller any obligations
not expressly set forth elsewhere in this Agreement.
All reports, recommendations, data and other documents furnished by the Seller to the Buyer pursuant to this Clause 12.4
shall be deemed to be delivered under this Agreement and shall be subject to the terms, covenants and conditions set forth
in this Clause 12.
12.5
Exclusivity of Warranties
THIS CLAUSE 12 SETS FORTH THE EXCLUSIVE WARRANTIES, EXCLUSIVE LIABILITIES AND EXCLUSIVE
OBLIGATIONS OF THE
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SELLER, AND THE EXCLUSIVE REMEDIES AVAILABLE TO THE BUYER, WHETHER UNDER THIS AGREEMENT OR
OTHERWISE, ARISING FROM ANY DEFECT OR NONCONFORMITY OR PROBLEM OF ANY KIND IN ANY AIRCRAFT,
COMPONENT, EQUIPMENT, ACCESSORY, PART, SOFTWARE, DATA OR SERVICE DELIVERED BY THE SELLER
UNDER THIS AGREEMENT.
THE BUYER RECOGNIZES THAT THE RIGHTS, WARRANTIES AND REMEDIES IN THIS CLAUSE 12 ARE ADEQUATE
AND SUFFICIENT TO PROTECT THE BUYER FROM ANY DEFECT OR NONCONFORMITY OR PROBLEM OF ANY
KIND IN THE GOODS AND SERVICES SUPPLIED UNDER THIS AGREEMENT. THE BUYER HEREBY WAIVES,
RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES AND LIABILITIES OF THE
SELLER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE SELLER, WHETHER
EXPRESS OR IMPLIED BY CONTRACT, TORT, OR STATUTORY LAW OR OTHERWISE, WITH RESPECT TO ANY
NONCONFORMITY OR DEFECT OR PROBLEM OF ANY KIND IN ANY AIRCRAFT, COMPONENT, EQUIPMENT,
ACCESSORY, PART, SOFTWARE, DATA OR SERVICE DELIVERED BY THE SELLER UNDER THIS AGREEMENT,
INCLUDING BUT NOT LIMITED TO:
(1)
(2)
ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY GENERAL OR PARTICULAR
PURPOSE;
ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE;
(3)
ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT;
(4)
ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF LIABILITY, HOWEVER ALLEGED,
INCLUDING, BUT NOT LIMITED TO, ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACTS, WILLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT LIABILITY, STRICT LIABILITY
OR FAILURE TO WARN;
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(5)
(6)
ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL CODE OR ANY OTHER
STATE OR FEDERAL STATUTE;
ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR STANDARDS IMPOSED BY ANY
INTERNATIONAL, NATIONAL, STATE OR LOCAL STATUTE OR AGENCY;
(7)
ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR:
(a)
(b)
LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR
PART PROVIDED UNDER THIS AGREEMENT;
LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY
OR PART PROVIDED UNDER THIS AGREEMENT;
(c)
LOSS OF PROFITS AND/OR REVENUES;
(d)
ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE.
THE WARRANTIES AND SERVICE LIFE POLICY PROVIDED BY THIS AGREEMENT SHALL NOT BE EXTENDED,
ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED BY THE SELLER AND THE BUYER. IN THE
EVENT THAT ANY PROVISION OF THIS CLAUSE 12 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR
OTHERWISE UNENFORCEABLE, THE REMAINDER OF THIS CLAUSE 12 SHALL REMAIN IN FULL FORCE AND
EFFECT.
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FOR THE PURPOSES OF THIS CLAUSE 12.5, THE “SELLER” SHALL BE UNDERSTOOD TO INCLUDE THE SELLER,
ANY OF ITS SUPPLIERS, SUBCONTRACTORS, AND AFFILIATES.
12.6
Duplicate Remedies
The remedies provided to the Buyer under Clause 12.1 and Clause 12.2 as to any defect in respect of the Aircraft or any part
thereof are mutually exclusive and not cumulative. The Buyer will be entitled to the remedy that provides the maximum
benefit to it, as the Buyer may elect, pursuant to the terms and conditions of this Clause 12 for any particular defect for which
remedies are provided under this Clause 12; provided, however, that the Buyer will not be entitled to elect a remedy under
both Clause 12.1 and Clause 12.2 for the same defect. The Buyer's rights and remedies herein for the nonperformance of
any obligations or liabilities of the Seller arising under these warranties will *****.
12.7
Negotiated Agreement
The Buyer specifically recognizes that:
(i)
(ii)
(iii)
the Specification has been agreed upon after careful consideration by the Buyer using its judgment as a professional
operator of aircraft used in public transportation and as such is a professional within the same industry as the Seller;
this Agreement, and in particular this Clause 12, has been the subject of discussion and negotiation and is fully
understood by the Buyer; and
the price of the Aircraft and the other mutual agreements of the Buyer set forth in this Agreement were arrived at in
consideration of, inter alia, the provisions of this Clause 12, specifically including the waiver, release and renunciation
by the Buyer set forth in Clause 12.5.
12.8
Disclosure to Third Party Entity
In the event of the Buyer intending to designate a third party entity (a “Third Party Entity”) to administrate this Clause 12,
the Buyer shall notify the Seller of such intention prior to any disclosure of this Clause to the selected Third Party Entity and
shall cause such Third Party Entity to enter into a confidentiality agreement and or any other relevant documentation with the
Seller solely for the purpose of administrating this Clause 12.
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12.9
Transferability
Without prejudice to Clause 21.1, the Buyer's rights under this Clause 12 may not be assigned, sold, transferred,
novated or otherwise alienated by operation of law or otherwise, without the Seller's prior written consent, which shall not be
unreasonably withheld and the Seller shall reasonably cooperate with the foregoing.
Any transfer in violation of this Clause 12.9 shall, as to the particular Aircraft involved, void the rights and warranties of the
Buyer under this Clause 12 and any and all other warranties that might arise under or be implied in law.
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13
13.1
13.1.1
PATENT AND COPYRIGHT INDEMNITY
Indemnity
Subject to the provisions of Clause 13.2.3, the Seller shall indemnify, defend and hold harmless the Buyer from and against
any damages, costs and/or expenses including legal costs (excluding damages, costs, expenses, loss of profits and other
liabilities in respect of or resulting from loss of use of the Aircraft) resulting from any infringement or claim of infringement by
the Airframe (or any part or software installed therein at Delivery) of:
*****
13.1.2
Clause 13.1.1 shall not apply to
*****
13.1.3
In the event that the Buyer, due to circumstances contemplated in Clause 13.1.1, is prevented from using the Aircraft
(whether by a valid judgment of a court of competent jurisdiction or by a settlement arrived at between claimant, Seller and
Buyer), the Seller shall at its discretion and expense either:
*****
13.2
Administration of Patent and Copyright Indemnity Claims
13.2.1
If the Buyer receives a written claim or a suit is threatened or commenced against the Buyer for infringement of a patent or
copyright referred to in Clause 13.1, the Buyer shall:
(i)
forthwith notify the Seller giving particulars thereof;
(ii)
(iii)
furnish to the Seller all data, papers and records within the Buyer's control or possession relating to such patent or
claim;
refrain from admitting any liability or making any payment or assuming any expenses, damages, costs or royalties or
otherwise acting in a manner prejudicial to the defense or denial of such suit or claim provided always that nothing in
this sub-Clause (iii) shall prevent the Buyer from paying such sums as may be required in order to obtain the release of
the Aircraft, provided such payment is accompanied by a denial of liability and is made without prejudice;
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(iv)
(v)
reasonably co-operate with, and render reasonable assistance to, the Seller *****, as may be pertinent to the defense
or denial of the suit or claim;
reasonably act in such a way as to mitigate damages, costs and expenses and/or reduce the amount of royalties which
may be payable.
13.2.2
The Seller shall be entitled either in its own name or on behalf of the Buyer to conduct negotiations with the party or parties
alleging infringement and may assume and conduct the defense or settlement of any suit or claim in the manner which, in
the Seller's opinion, it deems proper; provided that Seller shall upon Buyer’s request keep Buyer reasonably informed on
such matter and to the extent that there is a settlement obligation imposed on the Buyer which is not covered by the
indemnification obligations of the Seller, then such obligation shall require the prior written approval of Buyer, not to be
unreasonably witheld.
13.2.3
The Seller's liability hereunder shall be conditional upon the strict and timely compliance by the Buyer with the terms of this
Clause and is in lieu of any other liability to the Buyer express or implied which the Seller might incur at law as a result of
any infringement or claim of infringement of any patent or copyright.
THE INDEMNITY PROVIDED IN THIS CLAUSE 13 AND THE OBLIGATIONS AND LIABILITIES OF THE SELLER
UNDER THIS CLAUSE 13 ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND THE BUYER HEREBY WAIVES,
RELEASES AND RENOUNCES ALL OTHER INDEMNITIES, WARRANTIES, OBLIGATIONS, GUARANTEES AND
LIABILITIES ON THE PART OF THE SELLER AND RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE
SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY ARISING FROM OR WITH RESPECT TO LOSS OF USE OR
REVENUE OR CONSEQUENTIAL DAMAGES),
WITH RESPECT TO ANY ACTUAL OR ALLEGED PATENT
INFRINGEMENT OR THE LIKE BY ANY AIRFRAME, PART OR SOFTWARE INSTALLED THEREIN AT DELIVERY, OR
THE USE OR SALE THEREOF, PROVIDED THAT, IN THE EVENT THAT ANY OF THE AFORESAID PROVISIONS
SHOULD FOR ANY REASON BE HELD UNLAWFUL OR OTHERWISE INEFFECTIVE, THE REMAINDER OF THIS
CLAUSE SHALL REMAIN IN FULL FORCE AND EFFECT. THIS INDEMNITY AGAINST PATENT AND COPYRIGHT
INFRINGEMENTS SHALL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED
BY THE SELLER AND THE BUYER.
14 OEM TECHNICAL DATA AND BUYER DATA
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14.1
The OEM Technical Data shall be supplied in the English language using the aeronautical terminology in common use.
Range, type, format and delivery schedule of the OEM Technical Data to be provided under this Agreement are outlined in
Exhibit G hereto.
14.2
Aircraft Identification for OEM Technical Data
14.2.1
The following OEM Technical Data can be customized to the Aircraft:
- Aircraft Maintenance Manual,
- Illustrated Parts Catalogue,
- Trouble Shooting Manual,
- Aircraft Wiring Manual,
- Aircraft Schematics Manual, and
- Aircraft Wiring Lists.
For such OEM Technical Data , the Buyer agrees to the allocation of fleet serial numbers (“Fleet Serial Numbers”) in the
form of block of numbers selected in the range from 001 to 999.
14.2.2
The sequence *****.
14.2.3
The Buyer shall indicate to the Seller the Fleet Serial Number allocated to each Aircraft corresponding to the delivery
schedule set forth in Clause 9.1 *****. Neither the designation of such Fleet Serial Numbers nor the subsequent allocation of
the Fleet Serial Numbers to Manufacturer Serial Numbers for the purpose of producing certain customized OEM Technical
Data shall constitute any property, insurable or other interest of the Buyer in any Aircraft prior to the Delivery of such Aircraft
as provided for in this Agreement. To the extent that the Buyer provides Buyer Data for inclusion in the OEM Technical Data,
such Buyer Data shall not change ownership by virtue of such inclusion and Clause 22.8 shall apply.
14.3
Integration of Equipment Data
14.3.1
Supplier Equipment
Information, including revisions, relating to Supplier equipment that is installed on the Aircraft at Delivery, or through Airbus
Service Bulletins thereafter, shall be introduced into the customized OEM Technical Data to the extent necessary for
understanding of the affected systems, *****.
14.3.2
Buyer Furnished Equipment
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14.3.2.1
The Seller shall introduce BFE data for Buyer Furnished Equipment that is installed on the Aircraft by the Seller (“BFE Data”)
into the customized OEM Technical Data, ***** to the Buyer for the initial issue of the OEM Technical Data provided at or
before Delivery of the first Aircraft, provided such BFE Data is provided in accordance with the conditions set forth in
Clauses 14.3.2.2 through 14.3.2.5 no such ref.
14.3.2.2
The Buyer shall supply, or shall cause the BFE Supplier(s) to supply on Buyer’s behalf, BFE Data to the Seller *****.
14.3.2.3
14.3.2.4
The BFE Data shall be supplied in English and shall be established in compliance with the then applicable revision of *****,
Information Standards for Aviation Maintenance.
The BFE Data shall be delivered in digital format and/or in Portable Document Format (PDF), as agreed between the Buyer
and the Seller.
14.3.2.5
All costs related to the delivery to the Seller of the applicable BFE Data shall be *****
14.4
Supply
14.4.1
OEM Technical Data shall be supplied on-line and/or off-line, as set forth in Exhibit G hereto.
14.4.2
*****
14.4.3
Delivery
14.4.3.1
14.4.3.2
14.4.3.3
14.4.4
For OEM Technical Data provided off-line, such OEM Technical Data and corresponding revisions shall be sent to up to two
(2) addresses as indicated by the Buyer.
OEM Technical Data provided off-line shall be delivered by the Seller at the Buyer’s named place of destination under DAP
conditions. The term Delivered At Place (DAP) is defined in the Incoterms 2010 publication issued by the International
Chamber of Commerce.
The OEM Technical Data shall be delivered according to a mutually agreed schedule to correspond with the Deliveries of
Aircraft. The Buyer shall provide no less than ***** when requesting a change to such delivery schedule.
It shall be the responsibility of the Buyer to coordinate and satisfy local Aviation Authorities' requirements with respect to
OEM Technical Data.
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Reasonable quantities of such OEM Technical Data shall be supplied by the Seller ***** at the Buyer’s named place of
destination.
Notwithstanding the foregoing, and in agreement with the relevant Aviation Authorities, preference shall be given to the on-
line access to such Buyer Technical Data through the Airbus customer portal “AirbusWorld”.
14.5
Revision Service
For each Aircraft purchased under this Agreement, revision service for the OEM Technical Data shall be provided ***** (each
a “Revision Service Period”).
Thereafter revision service shall be provided *****.
14.6
Service Bulletins (SB) Incorporation
During any Revision Service Period and upon the Buyer’s request, which shall be made within *****, Seller Service Bulletin
information shall be incorporated into the OEM Technical Data, provided that the Buyer notifies the Seller through the
relevant AirbusWorld on-line Service Bulletin Reporting application that it intends to accomplish such Service Bulletin, after
which post Service Bulletin status shall be shown.
14.7
OEM Technical Data Familiarization
Upon request by the Buyer, the Seller shall provide ***** of OEM Technical Data familiarization training ***** at the Seller’s or
the Buyer’s facilities. The basic familiarization course is tailored for maintenance and engineering personnel.
14.8
Customer Originated Changes (COC)
If the Buyer wishes to introduce Buyer Data, including BFE Data after the initial issue of the OEM Technical Data,
(hereinafter “COC Data”) into any of the customized OEM Technical Data that are identified as eligible for such incorporation
in the Seller’s then current Customer Services Catalog, the Buyer shall notify the Seller of such intention.
The incorporation of any COC Data shall be performed under the methods and tools for achieving such introduction and the
conditions specified in the Seller’s then current Customer Services Catalog.
14.9
AirN@v Family products
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14.9.1
The OEM Technical Data listed below are provided on DVD and include integrated software (hereinafter together referred to
as “AirN@v Family”).
14.9.2
The AirN@v Family covers several OEM Technical Data domains, reflected by the following AirN@v Family products:
- AirN@v / Maintenance,
- AirN@v / Planning,
- AirN@v / Repair,
- AirN@v / Workshop,
- AirN@v / Associated Data,
- AirN@v / Engineering.
14.9.3
14.9.4
AirN@v Family integrated software is subject to Part 1 of Exhibit I to the Agreement (the “End-User License Agreement for
Airbus Software”).
The revision service and the license to use AirN@v Family products shall be granted *****. At the end of such Revision
Service Period, the yearly revision service for AirN@v Family products ***** shall be provided to the Buyer *****.
14.10
On-Line Technical Data
14.10.1
The OEM Technical Data provided on-line shall be made available to the Buyer through the Airbus customer portal
AirbusWorld (“AirbusWorld”).
14.10.2
The list of the OEM Technical Data provided on-line may be extended from time to time.
For any OEM Technical Data which is or becomes available on-line, the Seller reserves the right to eliminate other formats.
14.10.3
Access to the AirbusWorld portal shall be ***** of the Buyer’s users (including two (2) Buyer’s Administrators for the OEM
Technical Data related to the Aircraft that are operated by the Buyer.
14.10.4
OEM Technical Data accessed through AirbusWorld portal are at all times subject to the conditions of this Clause 14.
14.11
Waiver, Release and Renunciation
The Seller warrants that it has sufficient rights in the OEM Technical Data to provide Buyer the rights granted to Buyer under
this Agreement and that the OEM Technical Data are prepared in accordance with the state of art at the date of their
development. Should any OEM Technical Data prepared by the Seller contain a non-conformity or defect, the sole and
exclusive
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liability of the Seller shall be to take all reasonable and proper steps to correct such OEM Technical Data. Irrespective of any
other provisions herein, no warranties of any kind shall be given for the COC Data and Buyer Data.
THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF THE SELLER (AS DEFINED BELOW FOR THE PURPOSES
OF THIS CLAUSE) AND REMEDIES OF THE BUYER SET FORTH IN THIS CLAUSE 14 ARE *****
14.12
Proprietary Rights
14.12.1
All proprietary rights relating to OEM Technical Data, including but not limited to patent, design and copyrights, shall remain
with the Seller and/or its Affiliates, as the case may be.
*****
14.12.2
The supply of the OEM Technical Data by Seller shall not be construed as any right for the Buyer to design or manufacture
any aircraft or part thereof or any spare part.
14.13
Performance Engineer's Program
14.13.1
14.13.2
14.13.3
In addition to the OEM Technical Data, the Seller shall provide to the Buyer Software Services, which shall consist of the
Performance Engineer's Programs (“PEP”) for the Aircraft type covered under this Agreement. Such PEP is composed of
software components and databases, and its use is subject to the End-User License Agreement for Airbus Software (as set
forth in Exhibit I to the Agreement).
Use of the PEP shall be limited to ***** to be used on the Buyer’s computers for the purpose of computing performance
engineering data. The PEP is intended for use on ground only and shall not be placed or installed on board the Aircraft.
The license to use the PEP and the revision service shall be provided *****. At the end of such Revision Service Period, the
PEP shall be provided to the Buyer *****.
14.14
Future Developments
The Seller continuously monitors technological developments and applies them to OEM Technical Data, document and
information systems’ functionalities, production and methods of transmission.
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The Seller shall make such new developments available at ***** for Buyer’s use, ***** and of the date by which the same
shall be implemented by the Seller among users of the Seller’s Airframes generally.
14.15
Confidentiality
14.15.1
This Clause 14, the OEM Technical Data, the Software Services and their content are designated as confidential. All such
OEM Technical Data and Software Services are provided to the Buyer for the sole use of the Buyer who undertakes not to
disclose the contents thereof to any third party without the prior written consent of the Seller, except as permitted herein or
therein pursuant to any government or legal requirement imposed upon the Buyer. The OEM Technical Data shall be
deemed “Confidential Information” under Clause 22.8 of the Agreement.
14.15.2
14.15.3
14.15.4
*****
*****
*****
14.16
Transferability
Without prejudice to Clause 21.1, the Buyer's rights under this Clause 14 may not be assigned, sold, transferred, novated or
otherwise alienated by operation of law or otherwise, without the Seller's prior written consent except as provided in the End
User License for Airbus Software (as set forth in Exhibit I to the Agreement).
Any transfer in violation of this Clause 14.16 shall, as to the particular Aircraft involved, void the rights and warranties of the
Buyer under this Clause 14 and any and all other warranties that might arise under or be implied in law.
*****
*****
14.17
15
SELLER REPRESENTATIVE SERVICES
The Seller shall provide ***** to the Buyer the services of Seller Representatives, as described in this Clause 15.
15.1
Seller Representatives
The Seller shall provide to the Buyer the services of Seller customer support representatives (each a “Seller
Representative”), for a total of:
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*****
Except as otherwise mutually agreed between the Parties, the number of such Seller Representatives shall not exceed *****.
It is agreed and understood by the Buyer that the above allocation includes the statutory vacation period of the Seller
Representatives, during which the Buyer shall have access to the services set out in Clause 15.3.
Each Seller Representative, or any other employee of the Seller providing services to the Buyer hereunder, shall be acting in
an advisory capacity only and shall at no time be deemed to be an employee or agent of the Buyer, either directly or
indirectly.
15.2
Location
The Seller shall provide to the Buyer the services of Seller Representatives, at the Buyer’s facilities or such other locations
as the Parties may agree from time to time, for the duration defined in Clause 15.1.
15.3
Availability
15.3.1
15.3.2
The Parties acknowledge and agree that during the period defined in Clause 15.1, each Seller Representative may provide
support to airlines other than the Buyer.
If, at the end of the Seller Representative’s assignment, as set out in Clause 15.1, the Buyer needs technical assistance in
an AOG situation, the Buyer shall have ***** access to:
1)
2)
AIRTAC (Airbus Technical AOG Centre); and
the network of Seller Representatives of the Seller closest to the Buyer's main base, the contacts of which shall be
provided to the Buyer.
15.4
Buyer's Support at the Buyer’s facilities
If the Parties have agreed as per 15.2 on one or more Seller Representative(s) being based at the Buyer’s facilities for all or
part of the man-months set out in Clause 15.1, in consideration of which the conditions of this Clause 15.4 shall apply.
15.4.1
From the date of arrival of the first Seller Representative at the Buyer’s facilities and for as long as *****, the Buyer shall
provide ***** suitable lockable office for the use of the Seller Representative(s), conveniently located with respect to the
Buyer's maintenance facilities, with complete
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office furniture and equipment including telephone and internet connections. All related communication costs shall be ***** of
all relevant justifications*****.
15.4.2
If the Buyer requests any Seller Representative to travel on business to a city other than his/her usual place of assignment,
*****.
15.4.3
The Buyer shall assist the Seller’s obtaining *****.
15.5
Withdrawal of the Seller Representative
The Seller shall have the right upon written notice to the Buyer to withdraw its assigned Seller Representatives as it
sees fit if and for the duration that conditions exist that are, in the Seller's reasonable opinion, dangerous to their safety or
health or prevent them from fulfilling their tasks.
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16
16.1
TRAINING SUPPORT AND SERVICES
General
This Clause 16 sets out the terms and conditions for the supply by the Seller to the Buyer’s personnel of training
support and services to support the operation of the Aircraft.
16.1.1
The Seller shall provide to the Buyer***** the training allowances set out in Appendix A to this Agreement.
The training courses conducted pursuant to this Agreement are not “Ab Initio Training Courses” and shall be as described in
the CSC current at the time of performance of such training courses.
Training courses shall be conducted in English, using training aids written in English and using common aeronautical
terminology.
16.1.2
The Parties shall mutually agree on the scheduling of training courses during a training conference (the “Training
Conference”) which shall be held, to the extent possible *****.
16.2
Training Location
16.2.1
The Seller shall:
1)
2)
provide training at one of its training centres ***** (each a “Seller Training Centre”), or
if the unavailability of facilities or scheduling difficulties make training by the Seller at any Seller Training Centre
impractical, ensure that the Buyer is provided with such training at another location selected by the Seller (each a
“Seller Chosen Training Location”),
(individually or collectively a “Training Centre”).
16.2.2
16.2.3
Upon the Buyer's request, the Seller may provide training at locations other than a Training Centre, including one of the
Buyer's bases (each a “Buyer Chosen Training Location”), under terms and conditions to be agreed upon but subject to
the provisions of Clause 16.5.
If the Buyer requests an Airbus training course to be conducted at a Buyer Chosen Training Location, the Buyer shall ensure
that the training facilities at such location are suitably equipped with the adapted classroom space and equipment for such
training. The Buyer shall to this effect provide all
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necessary access and information with respect to such training facilities to the representatives of the Seller and the
competent Aviation Authority.
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16.3 Training Courses
16.3.1 With respect to training courses performed under this Agreement:
1)
for the duration of the training course at a Training Centre, the Seller shall make available to the trainees all
necessary training media and training equipment; for the avoidance of doubt, such training equipment shall not
include aircraft;
training material and equipment necessary for course performance at a Buyer Chosen Training Location shall be
provided by the Buyer ***** in accordance with the Seller's indications and requirements;
the Seller may however, upon the Buyer’s request, provide the training material and equipment necessary for such
course’s performance *****;
the equipment and curricula used for the training of flight, cabin and maintenance personnel shall not be fully
customized but shall be configured as necessary to obtain the relevant Aviation Authority’s approval;
trainee documentation shall be made available to the trainees for the duration of the training course only, for the sole
purpose of training, shall remain the property of the Seller and shall be returned to the Seller at the end of any
training course;
at the end of each training course provided at a Training Centre each trainee shall receive either an attestation,
indicating that the trainee has attended such course, or a certificate of course completion indicating the outcome of
the relevant evaluation at the end of such training, as applicable. No such certificate or attestation shall represent
authority or qualification by any Aviation Authority but may be presented to an Aviation Authority by the recipient in
order to obtain relevant formal qualification;
when a training course is provided at a Seller Chosen Training Location, the Seller shall communicate to the Buyer
the terms and conditions applicable to such training at the time it is offered.
2)
3)
4)
5)
16.3.2
Exchange of Training Courses
The Buyer may exchange any available training allowances set out in Appendix A against any training course set out in the
Seller’s “Training Course Exchange Matrix” current at the time of the request. Should the Buyer requests an exchange that is
not contemplated under the Training
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Course Exchange Matrix, the Seller may agree to such swap subject to the terms and conditions set out in the CSC current
at the time of the request.
16.3.3
Timing of Requests, Rescheduling and Cancellation of Training Courses
Further to the Training Conference, the Seller shall issue a training proposal to the Buyer (the “Training Conference
Proposal”).
With respect to any training request made outside of the Training Conference or any training exchange request made
under Clause 16.3.2, the Buyer shall submit the request at the latest ***** prior to the desired course start date and the Seller
shall, subject to its commercial and planning constraints, issue to the Buyer a proposal with the earliest available training
schedule (each a “Training Proposal”).
The Buyer shall provide a written notification of its acceptance of the Training Conference Proposal or the Training
Proposal, as applicable, within***** of receipt thereof (or such longer period as may be accepted in writing by the Seller),
after which the Buyer shall be deemed to have refused such proposal.
Without prejudice to the foregoing, the Buyer may ***** cancel or reschedule, fully or partially, any confirmed training course
irrespective of its location, subject to a minimum advance notification of at least ***** prior to the start of the relevant training
course.
After such deadline, if the Buyer gives notice to the Seller:
*****
If a training course becomes available less than *****, the Seller may issue a Training Proposal to the Buyer and the Buyer
shall confirm in writing its acceptance of such course within *****, subject to the provisions of this Clause 16.3.3.
The above cancellation or rescheduling fee shall be applied through deduction from the training allowance set out in
Appendix A or invoicing at the Seller’s then applicable price.
16.3.4
All training allowances indicated in Appendix A hereto are the total allowances granted for the entire fleet of Aircraft, unless
otherwise specified herein. Should this Agreement be terminated with respect to any or all Aircraft
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then, in addition to any other rights and remedies available to it under the Agreement or at law, the Seller shall be entitled,
on a prorata basis:
*****
16.3.5
If the Buyer does not use any or all of the training allowances provided pursuant to this Clause 16 within the timeframe set
out in Appendix A *****.
16.4
Prerequisites and Conditions
16.4.1
16.4.2
The Buyer shall be responsible for ensuring that the trainees registered on a training course have the prerequisite
knowledge and experience specified for such course in the CSC.
At the time of booking of a training course, and in no event later than ***** prior to each course, the Buyer shall provide the
Seller with a list of the trainees for each course, together with evidence of the qualification, proficiency and professional
experience of each trainee and such other information as the Seller may request.
If the Seller determines:
-
-
prior to the start of a course, that a trainee does not meet the prerequisites set out in the CSC; or
at any time during a training course, that a trainee lacks the required level,
such trainee shall be withdrawn from such course.
Without prejudice to the above and with the aim of reintegrating the trainee into the course from which he was withdrawn, the
Parties shall discuss the possibility of directing the trainee to an intermediate level training module or such other training as
may be required, *****.
16.4.3
The Seller does in no case warrant and shall not be held liable for any trainee's performance as a result of any training
provided hereunder. For the purposes of this Clause 16.4.3, the “Seller” shall be understood to include the Seller, any of its
suppliers and subcontractors, its Affiliates and any of their respective insurers.
16.5
Logistics
16.5.1
Travel and living expenses for the Buyer's trainees shall be borne *****.
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The Buyer shall obtain all necessary authorizations, permits and visas necessary for its trainees to attend the training
courses to be provided hereunder. Rescheduling or cancellation of training courses due to the Buyer’s failure to obtain any
such authorizations, permits and visas shall be subject to the provisions of Clauses 16.3.3.
16.5.2
16.5.3
For any training provided by the Seller at a Buyer Chosen Training Location and for each Instructor providing support under
this Clause 16 *****.
The Seller shall not be liable to the Buyer for any delay or cancellation in the performance of any training outside of the
Seller's Training Centers arising as a result of the transportation of the Seller’s personnel.
16.6
Conditions Specific to Certain Training
16.6.1
Flight Support
If, during any period during which a Seller pilot Instructor is performing flight crew line initial operating experience at the
Buyer Chosen Training Location, the Buyer wishes any such Instructor to perform any other flight support (such as but not
limited to line assistance, demonstration flight(s), ferry flight(s)), it is understood that:
1) any such flight support shall be subject to the Seller’s prior consent;
2) such Instructors shall only perform the above flight support to the extent they bear the relevant qualifications to do so;
and
3) such flight(s) shall be deducted from the remaining allowance set out in Appendix A hereto.
16.6.2
Provision of Aircraft
During any and all on-Aircraft training (whether flight or maintenance training) to be performed pursuant to this
Clause 16, the Buyer shall provide *****an aircraft it owns or operates for the performance of such training. *****
16.6.3
Validation of Licenses
The Buyer shall assist the Seller in obtaining the validation of the licenses of the Seller’s pilot Instructors performing base
flight training or flight crew line initial operating experience by the Aviation Authority of the country of registration of the
aircraft on which the training is to be performed.
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16.7
Transferability
The Buyer's rights under this Clause 16 may not be assigned, sold, transferred, novated or otherwise alienated by
operation of law or otherwise, without the Seller's prior written consent.
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APPENDIX "A" TO CLAUSE 16
*****
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17 - EQUIPMENT SUPPLIER PRODUCT SUPPORT
17.1
Equipment Supplier Product Support Agreements
17.1.1
17.1.2
17.1.2.1
17.1.2.2
17.1.2.3
17.1.2.4
17.1.2.5
The Seller has obtained enforceable and transferable product support agreements from Suppliers of Supplier Parts. The
Seller will ***** to the Buyer transfer to the Buyer the Supplier Product Support Agreements, the benefit of which is hereby
accepted by the Buyer. Said agreements become enforceable as soon as and for as long as an operator is identified as an
Airbus aircraft operator.
These agreements are based on the "World Airlines Suppliers Guide", are made available online to the Buyer through
AirbusWorld, and include Supplier commitments as contained in the Supplier Product Support Agreements which include the
following provisions:
Technical data and manuals required to operate, maintain, service and overhaul the Supplier Parts shall be prepared in
accordance with the applicable provisions of ATA Specification including revision service and be published in the English
language. The Seller shall recommend that a software user guide, where applicable, be supplied in the form of an appendix
to the Component Maintenance Manual. Such data shall be provided in compliance with the applicable ATA Specification;
Warranties and guarantees, including standard warranties. In addition, landing gear Suppliers shall provide service life
policies for selected structural landing gear elements;
Training to ensure efficient operation, maintenance and overhaul of the Supplier Parts for the Buyer's instructors, shop and
line service personnel;
Spares data in compliance with *****, initial provisioning recommendations, spare parts and logistic service including routine
and expedite deliveries;
Technical service to assist the Buyer with maintenance, overhaul, repair, operation and inspection of Supplier Parts as well
as required tooling and spares provisioning.
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17.2
Supplier Compliance
The Seller shall monitor Suppliers’ compliance with support commitments defined in the Supplier Product Support
Agreements and shall, if necessary, jointly take remedial action with the Buyer.
17.3
Nothing in this Clause 17 shall be construed to prevent or limit the Buyer from entering into direct negotiations with a
Supplier with respect to different or additional terms and conditions applicable to Suppliers Parts selected by the Buyer to be
installed on the Aircraft.
17.4
Familiarization Training
Upon the Buyer’s request, the Seller shall provide ***** the Buyer with Supplier Product Support Agreements familiarization
training at the Seller’s facilities in Blagnac, France. An on-line training module shall be further available through AirbusWorld.
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18 - BUYER FURNISHED EQUIPMENT
18.1
Administration
18.1.1.1
18.1.1.2
In accordance with the Specification, the Seller shall install those items of equipment that are identified in the Specification
as being furnished by the Buyer ("Buyer Furnished Equipment" or "BFE"), provided that the BFE and the supplier of such
BFE (the “BFE Supplier”) are referred to in the Airbus BFE Product Catalog valid at the time the BFE Supplier is selected.
Notwithstanding the foregoing and without prejudice to Clause 2.4, if the Buyer wishes to install BFE manufactured by a
supplier who is not referred to in the Airbus BFE Product Catalog, the Buyer shall so inform the Seller and the Seller shall
conduct a feasibility study of the Buyer’s request, in order to consider approving such supplier, provided that such request is
compatible with the Seller’s industrial planning and the associated Scheduled Delivery Month for the Buyer’s Aircraft. In
addition, it is a prerequisite to such approval that the considered supplier be qualified by the Seller’s Aviation Authorities to
produce equipment for installation on civil aircraft. ***** The Buyer shall cause any BFE supplier approved under this Clause
18.1.1.2 (each an “Approved BFE Supplier”) to comply with the conditions set forth in this Clause 18 and specifically
Clause 18.2.
Except for the specific purposes of this Clause 18.1.1.2, the term “BFE Supplier” shall be deemed to include Approved BFE
Suppliers.
18.1.2.1
The Seller shall advise the Buyer of the dates by which, in the planned release of engineering for the Aircraft, the Seller
requires a written detailed engineering definition encompassing a Declaration of Design and Performance (the “BFE
Engineering Definition”). The Seller shall provide to the Buyer and/or the BFE Supplier(s), within an appropriate timeframe,
the necessary interface documentation to enable the development of the BFE Engineering Definition.
The BFE Engineering Definition shall include the description of the dimensions and weight of BFE, the information related to
its certification and the information necessary for the installation and operation thereof, including when applicable 3D models
compatible with the Seller’s systems. The Buyer shall furnish, or cause the BFE Suppliers to furnish, the BFE Engineering
Definition by the dates specified.
Thereafter, the BFE Engineering Definition shall not be revised, except through an SCN executed in accordance with Clause
2.
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18.1.2.2
The Seller shall also provide to the Buyer, sufficiently in advance to meet customary BFE leadtimes, a schedule of dates and
the shipping addresses for delivery of the BFE and, where requested by the Seller, additional spare BFE to permit
installation in the Aircraft and Delivery of the Aircraft in accordance with the Aircraft delivery schedule. The Buyer shall
provide, or cause the BFE Suppliers to provide, the BFE by such dates in a serviceable condition, in order to allow
performance of any assembly, installation, test or acceptance process in accordance with the Seller’s industrial schedule. In
order to facilitate the follow-up of the timely receipt of BFE, the Buyer shall, upon the Seller’s request, provide to the Seller
dates and references of all BFE purchase orders placed by the Buyer.
The Buyer shall also provide, when requested by the Seller, at the applicable Delivery Location, adequate field service
including support from BFE Suppliers to act in a technical advisory capacity to the Seller in the installation, calibration and
possible repair of any BFE.
18.1.3
Without prejudice to the Buyer’s obligations hereunder, in order to facilitate the development of the BFE Engineering
Definition, the Seller shall organize meetings between the Buyer and BFE Suppliers. The Buyer hereby agrees to participate
in such meetings and to provide adequate technical and engineering expertise to reach decisions within the defined
timeframe.
In addition, throughout the development phase and up to Delivery of the Aircraft to the Buyer, the Buyer agrees:
▪
▪
▪
▪
to monitor the BFE Suppliers and ***** including but not limited to those set forth in the Customization Milestone Chart;
that, should a timeframe, quality or other type of risk be identified at a given BFE Supplier, *****;
for major BFE, including, but not being limited to, seats, galleys and IFE (“Major BFE”) to participate on a mandatory
basis in the specific meetings that take place between BFE Supplier selection and BFE delivery, namely:
o
o
Preliminary Design Review (“PDR”),
Critical Design Review (“CDR”);
to attend the First Article Inspection (“FAI”) for the first shipset of all Major BFE. Should the Buyer not attend such FAI,
the Buyer shall delegate the FAI to the BFE Supplier and confirmation thereof shall be supplied to the Seller in writing;
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▪
to attend the Source Inspection (“SI”) that takes place at the BFE Supplier’s premises prior to shipping, for each shipset
of all Major BFE. Should the Buyer not attend such SI, the Buyer shall delegate the SI to the BFE Supplier and
confirmation thereof shall be brought to the Seller in writing. *****
The Seller shall be entitled to attend the PDR, the CDR and the FAI. In doing so, the Seller’s employees shall be acting in an
advisory capacity only and at no time shall they be deemed to be acting as Buyer's employees or agents, either directly or
indirectly.
18.1.4
The BFE shall be imported into the location of final assembly of the Aircraft at the following addresses, as applicable:
AIRBUS OPERATIONS S.A.S.
316 Route de Bayonne
31300 TOULOUSE
FRANCE
or
AIRBUS OPERATIONS GmbH
Kreetslag 10
21129 HAMBURG
GERMANY
or
AIRBUS LOGISTICS CENTER
320 Airbus Way
Mobile AL 36615
USA
or such other location as may be specified in writing by the Seller.
18.1.4.2
BFE delivered to ***** and imported under a suspensive customs system ("Régime de l'entrepôt douanier ou régime de
perfectionnement actif " or "Zollverschluss") without application of any ***** or customs duty. *****
18.2
Applicable Requirements
*****
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The Seller shall be entitled to refuse any item of BFE that is incompatible, as determined by the Seller, with the Specification,
the BFE Engineering Definition or the certification requirements for installation on the Aircraft and Seller shall promptly notify
Buyer of the same.
*****
18.3 Buyer's Obligation and Seller's Remedies
18.3.1
Any delay or failure by the Buyer or the BFE Suppliers in:
▪
▪
complying with the foregoing warranty or in providing the BFE Engineering Definition or field service mentioned in
Clause 18.1.2.2, or
furnishing the BFE in a serviceable condition at the requested delivery date, or
▪ obtaining any required approval for such BFE equipment under the above mentioned Aviation Authorities’
regulations,
may delay the performance of any act to be performed by the Seller, including Delivery of the Aircraft *****.
18.3.2
In addition, in the event of any delay or failure mentioned in 18.3.1 above, the Seller may:
*****
18.4
Title and Risk of Loss
*****
18.5 Disposition of BFE Following Termination
*****
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19 - INDEMNITIES AND INSURANCE
19.1
Seller’s Indemnities
The Seller shall, except in the case of gross negligence or willful misconduct of the Buyer, its directors, officers, agents
and/or employees, be solely liable for and shall indemnify and hold the Buyer, its Affiliates and each of their respective
shareholders, members (if the Buyer or if its Affiliate is a limited liability company), directors, officers, agents, employees and
insurers harmless against all losses, liabilities, claims, damages, costs and expenses, including court costs and reasonable
attorneys’ fees (“Losses”), arising from:
19.2
*****
Buyer’s Indemnities
The Buyer shall, except in the case of gross negligence or willful misconduct of the Seller, its Affiliates or any of its
respective directors, officers, agents or employees, be solely liable for and shall indemnify and hold the Seller, its Affiliates,
its subcontractors, and each of their respective directors, officers, agents, employees and insurers (collectively, the “Seller
Indemnitees”), harmless against all Losses arising from
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19.3
Notice and Defense of Claims
If any claim is made or suit is brought against a party or entity entitled to indemnification under this Clause 19 (the
“Indemnitee”) for damages for which liability has been assumed by the other party under this Clause 19 (the “Indemnitor”),
the Indemnitee shall promptly give notice to the Indemnitor and the Indemnitor (unless otherwise requested by the
Indemnitee) shall assume and conduct the defense, or settlement, of such claim or suit, as the Indemnitor shall deem
prudent. Notwithstanding the foregoing, no settlement or compromise will be made without the prior written consent of any
Indemnitee if such settlement or compromise would result in the imposition of an injunction or other equitable relief upon
such Indemnitee, or if such Indemnitee is not unconditionally and irrevocably released from liabilities or obligations with
respect to such suit or claim. Notice of the claim or suit shall be accompanied by all information pertinent to the matter as is
reasonably available to the Indemnitee and shall be followed by such cooperation by the Indemnitee as the Indemnitor or its
counsel may reasonably request, at the expense of the Indemnitor. The Indemnitee may participate, at its own expense, with
Indemnitor in the defense or appeal of any such claim or suit, with attorneys of its choosing; provided that the Indemnitor
retains sole control and authority regarding any such defense, compromise, settlement, appeal, or similar action, subject to
all other provisions of this Clause 19.3.
If the Indemnitor fails or refuses to assume the defense of any claim or suit notified to it under this Clause 19, the Indemnitee
shall have the right to proceed with the defense or settlement of the claim or suit as it deems prudent and shall have a claim
against the Indemnitor for any judgments, settlements, costs or expenses, including reasonable attorneys’ fees. Further, in
such event, the Indemnitor shall be deemed to have waived any objection or defense to the Indemnitee’s claim based on the
reasonableness of any settlement.
19.4
Buyer Insurance
For all Aircraft Training Services, to the extent of the Buyer’s undertaking set forth in Clause 19.2, the Buyer shall:
(a)
cause the Seller Indemnitees to be named as additional insured under the Buyer’s Comprehensive Aviation Legal
Liability insurance policies, including War Risks and Allied Perils (such insurance to include the AVN 52E Extended
Coverage Endorsement Aviation Liabilities or any further Endorsement replacing AVN 52E as may be available,
including any excess coverage in respect of War and Allied Perils Third Parties Legal Liabilities Insurance that Buyer
then maintains), and
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(b)
with respect to the Buyer’s Hull All Risks and Hull War Risks insurances and Allied Perils, request the insurers of the
Buyer’s hull insurance policies to waive all rights of subrogation against the Seller Indemnitees.
Any applicable deductible shall be borne by the Buyer. The Buyer shall endeavor to furnish to the Seller, *****certificates of
insurance, in English, evidencing the limits of liability cover and period of insurance coverage in a form reasonably
acceptable to the Seller from the Buyer’s insurance broker(s), certifying that such policies have been endorsed as follows:
(i)
(ii)
(iii)
under the Comprehensive Aviation Legal Liability Insurances, the Buyer’s policies are primary and non-contributory to
any insurance maintained by the Seller,
such insurance can only be cancelled or materially altered by the giving of not less than ***** prior written notice
thereof to the Seller, and
under any such cover, all rights of subrogation against the Seller Indemnitees have been waived to the extent of the
Buyer’s undertaking under Clause 19.2 and this Clause 19.4.
19.5
Seller Insurance
At the request of the Buyer, the Seller will furnish to the Buyer, certificates of insurance in English, evidencing the limits of
liability cover and period of insurance covering the Seller’s undertaking in Clause 19.1, in a form reasonably acceptable to
the Buyer from the Seller’s insurance broker(s).
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20 -
TERMINATION
20.1
Termination Events
Each of the following shall constitute a “Termination Event”
*****
20.2
Remedies in Event of Termination
20.2.1
If a Termination Event occurs, the Buyer shall be in material breach of this Agreement, and the Seller may elect any of the
following remedies under the applicable law:
20.2.2
20.2.3
20.2.4.
20.3
*****
*****
*****
The parties to this Agreement are commercially sophisticated parties acting within the same industry, and represented by
competent counsel and the parties expressly agree and declare as follows:
*****
Definitions
For purposes of this Clause 20, the terms “Affected Aircraft”, “Applicable Date” and “Escalated Price” are defined as follows:
i. “Affected Aircraft” – any or all Aircraft with respect to which *****
***** “Applicable Date” – for any Affected Aircraft, the date *****
20.4
Notice of Termination Event
***** the Buyer shall notify the Seller of such occurrence in writing, provided, that any failure by the Buyer to notify the Seller
shall not prejudice the Seller’s rights or remedies hereunder.
20.5
Information Covenants
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In the event that the Buyer’s shares cease to be publically traded and the Buyer is no longer regulated under
the US Securities and Exchange Commission, then the Seller may request and the Buyer commit to reasonable information
covenants, including but not limited to the commitment to provide the Seller with timely audited annual and interim financial
statements.
20.6
Nothing contained in this Clause 20 shall be deemed to waive or limit the Seller’s rights or ability to request adequate
assurance under Article 2, Section 609 of the Uniform Commercial Code (the "UCC"). It is further understood that any
commitment of the Seller or the Propulsion Systems manufacturer to provide financing to the Buyer shall not constitute
adequate assurance under Article 2, Section 609 of the UCC.
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21 - ASSIGNMENTS AND TRANSFERS
21.1
Assignments
Except as set forth herein, neither party may sell, assign, novate or transfer its rights or obligations (in whole or in part) under
this Agreement to any person without the prior written consent of the other party. Notwithstanding the foregoing, Seller shall
have the right to assign or transfer its right to receive Predelivery Payments and the Balance of the Final Price to a third
party, including a financier or lender, *****.
21.2
Assignments on Sale, Merger or Consolidation - Buyer
*****
21.3 Designation of Affiliates for Performance *****
The Seller may at any time by notice to the Buyer designate facilities or personnel of the Seller or any Affiliate of the Seller at which
or by whom the services to be performed under this Agreement shall be performed. Notwithstanding such designation, the Seller
shall remain ultimately responsible for fulfilment of all obligations undertaken by the Seller in this Agreement.
21.4
Transfer of Rights and Obligations upon Reorganization *****
If the Seller is subject to a corporate restructuring having as its object the transfer of, or succession by operation of law in, all or a
substantial part of its assets and liabilities, rights and obligations, including those existing under this Agreement, to a person (the
“Successor”) that is an Affiliate of the Seller at the time of that restructuring, for the purpose of the Successor carrying on the
business carried on by the Seller at the time of the restructuring, such restructuring shall be completed without consent of the Buyer
following notification by the Seller to the Buyer in writing, *****. The Buyer recognizes that succession of the Successor to the
Agreement by operation of law that is valid under the law pursuant to which that succession occurs shall be binding upon the Buyer,
provided that it includes the succession of the Seller’s obligations hereunder.
21.5 Assignment *****
*****
21.6 *****
21.6.1 *****
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21.6.2 *****
22 - MISCELLANEOUS PROVISIONS
22.1
22.2
*****
Notices
All notices and requests required or authorized hereunder shall be given in writing either by personal delivery to an
authorized officer of the party to whom the same is given or by commercial courier or express mail at the addresses and
numbers set forth below. The date on which any such notice or request is so personally delivered, or if such notice or
request is given by commercial courier or express mail, the date on which sent, provided that if such date is not a Business
Day notice shall be deemed to have been received on the first following Business Day, shall be deemed to be the effective
date of such notice or request.
The Seller will be addressed at:
Airbus S.A.S.
Attention: V.P Contracts
2, rond-point Emile Dewoitine
31700 Blagnac
France
Email: vp.contracts@airbus.com
The Buyer shall be addressed at:
Spirit Airlines,
2800 Executive Way,
Miramar, Florida 33025, U.S.A.
Attention: Legal Department
*****
Attention: Treasury Department
*****
From time to time, the party receiving the notice or request may designate in writing another address or another person.
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22.3
Waiver
The failure of either party to enforce at any time any of the provisions of this Agreement, to exercise any right herein
provided or to require at any time performance by the other party of any of the provisions hereof shall in no way be
construed to be a present or future waiver of such provisions nor in any way to affect the validity of this Agreement or any
part hereof or the right of the other party thereafter to enforce each and every such provision. The express waiver by either
party of any provision, condition or requirement of this Agreement shall not constitute a waiver of any future obligation to
comply with such provision, condition or requirement.
22.4
Certain Representations of the Parties
22.4.1
Buyer's Representations
The Buyer represents and warrants to the Seller:
(i)
(ii)
the Buyer is a corporation organized and existing in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into and perform its obligations under this Agreement;
neither the execution and delivery by the Buyer of this Agreement, nor the consummation of any of the transactions
by the Buyer contemplated thereby, nor the performance by the Buyer of the obligations thereunder, constitutes a
breach of any agreement to which the Buyer is a party or by which its assets are bound;
(iii)
this Agreement has been duly authorized, executed and delivered by the Buyer and constitutes the legal, valid and
binding obligation of the Buyer enforceable against the Buyer in accordance with its terms.
22.4.2
Seller's Representations
The Seller represents and warrants to the Buyer:
(i)
(ii)
the Seller is organized and existing in good standing under the laws of the Republic of France and has the corporate
power and authority to enter into and perform its obligations under the Agreement;
neither the execution and delivery by the Seller of this Agreement, nor the consummation of any of the transactions
by the Seller contemplated thereby, nor the performance by the Seller of the
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obligations thereunder, constitutes a breach of any agreement to which the Seller is a party or by which its assets are
bound;
(iii)
this Agreement has been duly authorized, executed and delivered by the Seller and constitutes the legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance with its terms.
22.5
Interpretation and Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND THE PERFORMANCE THEREOF SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS
CONFLICTS OF LAWS PROVISIONS THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION.
Each of the Seller and the Buyer (i) hereby irrevocably submits itself to the nonexclusive jurisdiction of the courts of the state
of New York, New York County, of the United States District Court for the Southern District of New York, for the purposes of
any suit, action or other proceeding arising out of this Agreement, the subject matter hereof or any of the transactions
contemplated hereby brought by any party or parties hereto, and (ii) hereby waives, and agrees not to assert, by way of
motion, as a defense or otherwise, in any such suit, action or proceeding, to the extent permitted by applicable law, any
defense based on sovereign or other immunity or that the suit, action or proceeding which is referred to in clause (i) above is
brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or that this Agreement or the
subject matter hereof or any of the transactions contemplated hereby may not be enforced in or by these courts.
THE PARTIES HEREBY ALSO AGREE THAT THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS SHALL NOT APPLY TO THIS TRANSACTION.
22.5.1
[INTENTIONALLY OMITTED]
22.5.2
22.5.3
The assumption in Clause 22.5.1 made for the purpose of effecting the service of process shall not affect any assertion of
diversity by either party hereto initiating a proceeding in the New York Federal Courts or seeking transfer to the New York
Federal Courts on the basis of diversity.
Service of process in any suit, action or proceeding in respect of any matter as to which the Seller or the Buyer has
submitted to jurisdiction under Clause 22.5 (i) may be made on the Seller by delivery of the same personally to CT
Corporation, New York City offices as agent for the Seller, it being agreed
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that service upon CT Corporation shall constitute valid service upon the Seller or by any other method authorized by the
laws of the State of New York, and (ii) may be made on the Buyer by service on Corporation Service Company, 80 State
Street, Albany, New York 12207-2543.
22.5.4
Headings
All headings in this Agreement are for convenience of reference only and do not constitute a part of this Agreement.
22.6
Waiver of Jury Trial
EACH OF THE PARTIES HERETO WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM OR CROSS-CLAIM THEREIN.
22.7
No Representations Outside of this Agreement
The parties declare that, prior to the execution of this Agreement, they, with the advice of their respective counsel, apprised
themselves of sufficient relevant data in order that they might intelligently exercise their own judgments in deciding whether
to execute this Agreement and in deciding on the contents of this Agreement. Each party further declares that its decision to
execute this Agreement is not predicated on or influenced by any declarations or representations by any other person, party,
or any predecessors in interest, successors, assigns, officers, directors, employees, agents or attorneys of any said person
or party, except as set forth in this Agreement. This Agreement resulted from negotiation involving counsel for all of the
parties hereto and no term herein shall be construed or interpreted against any party under the contra proferentum or any
related doctrine.
22.8
Confidentiality
Subject to any legal or governmental requirements of disclosure, the parties (which for this purpose shall include their
employees, and legal counsel) shall maintain the terms and conditions of this Agreement and any reports or other data
furnished hereunder strictly confidential, including but not limited to, the Aircraft pricing (the “Confidential Information”).
Without limiting the generality of the foregoing, each party shall use its best efforts to limit the disclosure of the contents of
this Agreement to the extent legally permissible in (i) any filing or disclosure required to be made by such party with any
governmental agency and shall make such applications as shall be necessary to implement the foregoing, and (ii) any press
release concerning the whole or any part of the contents and/or subject matter hereof
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PRIVILEGED AND CONFIDENTIAL
or of any future addendum hereto. With respect to any public disclosure or filing, the Buyer agrees to submit to the Seller a
copy of the proposed document to be disclosed or filed and shall give the other party a reasonable period of time in which to
review said document. The Buyer and the Seller shall consult with each other prior to the making of any public disclosure or
filing, permitted hereunder, of this Agreement or the terms and conditions thereof.
The provisions of this Clause 22.9 shall survive any termination of this Agreement.
22.9
Severability
If any provision of this Agreement should for any reason be held ineffective, the remainder of this Agreement shall remain in
full force and effect. To the extent permitted by applicable law, each party hereto hereby waives any provision of law that
renders any provision of this Agreement prohibited or unenforceable in any respect.
22.10
Entire Agreement; amendments
This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes
any previous understanding, commitments or representations whatsoever, whether oral or written. This Agreement shall not
be amended or modified except by an instrument in writing of even date herewith or subsequent hereto executed by both
parties or by their fully authorized representatives.
22.11
Inconsistencies
In the event of any inconsistency between the terms of this Agreement and the terms contained in either (i) the Specification,
or (ii) any other Exhibit, in each such case the terms of this Agreement shall prevail over the terms of the Specification or any
other Exhibit. For the purpose of this Clause 22.11, the term Agreement shall not include the Specification or any other
Exhibit hereto.
22.12
Language
All correspondence, documents and any other written matters in connection with this Agreement shall be in English.
22.13
Counterparts
Notwithstanding the foregoing, this Agreement may be executed by the parties hereto in separate counterparts, each of
which when so executed
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and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this A320 NEO Agreement was entered into as of the day and year first above written.
AIRBUS, S.A.S.
By: /s/ Benoit de Saint-Exupery
Title: Senior Vice President, Contracts
SPIRIT AIRLINES, INC.
By: /s/ Scott M Haralson
Title: Senior Vice President and Chief Financial Officer
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PRIVILEGED AND CONFIDENTIAL
Exhibit A
E X H I B I T A
S P E C I F I C A T I O N
The A319 NEO Standard Specification, A320 NEO Standard Specification and A321-200 NX Standard
Specification are contained in a separate folder.
*****
*****- Exhibit A
PRIVILEGED AND CONFIDENTIALPage 1/1
EXHIBIT B
E X H I B I T B
Exhibit B-1: Form of a Specification Change Notice
Exhibit B-2: Form of a Manufacturer’s Specification Change Notice
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 1/7
EXHIBIT B-1
SPECIFICATION CHANGE NOTICE
(SCN)
For
SCN Number
Issue
Dated
Page
Title :
Description :
Effect on weight :
• Manufacturer’s Weight Empty change :
• Operational Weight Empty change :
• Allowable Payload change :
Remarks / References
Specification changed by this SCN
This SCN requires prior or concurrent acceptance of the following SCN (s):
Price per aircraft
US DOLLARS:
AT DELIVERY CONDITIONS:
This change will be effective on AIRCRAFT N° and subsequent.
Provided approval is received by
Buyer approval Seller approval
By : By :
Date : Date :
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 2/7
EXHIBIT B-1
SPECIFICATION CHANGE NOTICE
(SCN)
For
SCN Number
Issue
Dated
Page
Specification repercussion:
After contractual agreement with respect to weight, performance, delivery, etc, the indicated part of the specification wording will read as follows:
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 3/7
EXHIBIT B-1
SPECIFICATION CHANGE NOTICE
(SCN)
For
SCN Number
Issue
Dated
Page
Scope of change (FOR INFORMATION ONLY)
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 4/7
EXHIBIT B-2
MANUFACTURER’S SPECIFICATION CHANGE NOTICE
(MSCN)
For
MSCN Number
Issue
Dated
Page
Title :
Description :
Effect on weight :
• Manufacturer’s Weight Empty change :
• Operational Weight Empty change :
• Allowable Payload change :
Remarks / References
Specification changed by this MSCN
Price per aircraft
US DOLLARS:
AT DELIVERY CONDITIONS:
This change will be effective on AIRCRAFT N° and subsequent.
Provided MSCN is not rejected by
Buyer approval Seller approval
By : By :
Date : Date :
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 5/7
EXHIBIT B-2
MANUFACTURER’S SPECIFICATION CHANGE NOTICE
(MSCN)
For
MSCN Number
Issue
Dated
Page
Specification repercussion:
After contractual agreement with respect to weight, performance, delivery, etc, the indicated part of the specification wording will read as follows:
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 6/7
EXHIBIT B-2
MANUFACTURER’S SPECIFICATION CHANGE NOTICE
(MSCN)
For
MSCN Number
Issue
Dated
Page
Scope of change (FOR INFORMATION ONLY)
***** Exhibit B
PRIVILEGED AND CONFIDENTIAL Page 7/7
PART 1
SELLER PRICE REVISION FORMULA
Exhibit C
1
2
3
BASE PRICE
The Airframe Base Price quoted in Clause 3.1 of the Agreement is subject to adjustment for changes in economic conditions as
measured by data obtained from the US Department of Labor, Bureau of Labor Statistics, and in accordance with the provisions
hereof.
BASE PERIOD
The Airframe Base Price has been established in accordance with the average economic conditions prevailing in ***** as
defined by "ECIb" and "ICb" index values indicated hereafter.
INDEXES
Labor Index: "Employment Cost Index for Workers in Aerospace manufacturing" hereinafter referred to as "ECI336411W",
quarterly published by the US Department of Labor, Bureau of Labor Statistics, in “NEWS”, and found in Table 9, “WAGES and
SALARIES (not seasonally adjusted): Employment Cost Indexes for Wages and Salaries for private industry workers by
industry and occupational group”, or such other name that may be from time to time used for the publication title and/or table,
(Aircraft manufacturing, NAICS Code 336411, base month and year December 2005 = 100).
The quarterly value released for a certain month (March, June, September and December) shall be the one deemed to apply
for the two preceding months.
Index code for access on the Web site of the US Bureau of Labor Statistics: CIU2023211000000I.
Material Index: "Industrial Commodities" (hereinafter referred to as "IC") as published in "PPI Detailed Report" (found in Table
9. “Producer price indexes and percent changes for commodity and service groupings and individual items not seasonally
adjusted” or such other names that may be from time to time used for the publication title and/or table). (Base Year 1982 =
100).
Index code for access on the Web site of the US Bureau of Labor Statistics: WPU03THRU15.
Revision Formula
*****
PRIVILEGED AND CONFIDENTIAL
Exhibit C – 1 Seller Price
Exhibit C
4
5
REVISION FORMULA
*****
GENERAL PROVISIONS
5.1
Roundings
The Labor Index average and the Material Index average shall be computed to the first decimal. If the next succeeding place is
five (5) or more, the preceding decimal place shall be raised to the next higher figure.
Each quotient ***** and ***** shall be rounded to the nearest ten-thousandth (4 decimals). If the next succeeding place is five
(5) or more, the preceding decimal place shall be raised to the next higher figure.
The final factor ***** shall be rounded to the nearest ten-thousandth (4 decimals).
The final price shall be rounded to the nearest whole number (0.5 or more rounded to 1).
Exhibit C – 1 Seller Price
Revision Formula
*****
PRIVILEGED AND CONFIDENTIAL
Exhibit C
5.2
Substitution of Indexes for Seller Price Revision Formula
If:
(i)
the United States Department of Labor substantially revises the methodology of calculation of the Labor Index or the
Material Index as used in the Seller Price Revision Formula, or
(ii)
the United States Department of Labor discontinues, either temporarily or permanently, such Labor Index or such Material
Index, or
(iii)
the data samples used to calculate such Labor Index or such Material Index are substantially changed;
the Seller shall select a substitute index for inclusion in the Seller Price Revision Formula (the "Substitute Index").
The Substitute Index shall reflect as closely as possible the actual variance of the Labor Costs or of the material costs used in
the calculation of the original Labor Index or Material Index as the case may be.
As a result of the selection of the Substitute Index, the Seller shall make an appropriate adjustment to the Seller Price Revision
Formula to combine the successive utilization of the original Labor Index or Material Index (as the case may be) and of the
Substitute Index.
5.3
Final Index Values
The Index values as defined in Clause 4 above shall be considered final and no further adjustment to the base prices as
revised at Delivery of the Aircraft shall be made after Aircraft Delivery for any subsequent changes in the published Index
values.
5.4
Limitation
Should the sum of *****
Revision Formula
*****
PRIVILEGED AND CONFIDENTIAL
Exhibit C – 1 Seller Price
Exhibit C
PART 2 PROPULSION SYSTEMS PRICE REVISION FORMULA
CFM INTERNATIONAL
1.
REFERENCE PRICE OF THE PROPULSION SYSTEMS
The Reference Price of a set of two (2) CFM INTERNATIONAL LEAP Propulsion Systems is:
*****
This Reference Price is subject to adjustment for changes in economic conditions as measured by data obtained from the US
Department of Labor, Bureau of Labor Statistics and in accordance with the provisions of Clauses 4 and 5 hereof.
2.
REFERENCE PERIOD
The Reference Price has been established in accordance with the economic conditions prevailing for a theoretical delivery in
***** as defined by CFM INTERNATIONAL by the Reference Composite Price Index (CPI) *****.
3.
INDEXES
Labor Index: "Employment Cost Index for Workers in Aerospace manufacturing" hereinafter referred to as “ECI336411W”,
quarterly published by the US Department of Labor, Bureau of Labor Statistics, in “NEWS”, and found in: Table 9, “WAGES and
SALARIES (not seasonally adjusted): Employment Cost Indexes for Wages and Salaries for private industry workers by
industry and occupational group”, or such other name that may be from time to time used for the publication title and/or table,
(Aircraft manufacturing, NAICS Code 336411, base month and year December 2005 = 100, hereinafter multiplied by *****
and rounded to the first decimal place) .
The quarterly value released for a certain month (March, June, September and December) shall be the one deemed to apply
for the two preceding months.
Index code for access on the Web site of the US Bureau of Labor Statistics: CIU2023211000000I
Material Index: "Industrial Commodities" (hereinafter referred to as "IC") as published in "PPI detailed report" (found in Table 9.
“Producer price indexes and percent changes for commodity groupings and individual items not seasonally adjusted” or such
other names that may be from time to time used for the publication title and/or table). (Base Year 1982 = 100).
Exhibit C - 2 CFM Price Revision Formula
***** - PRIVILEGED AND CONFIDENTIAL
Index code for access on the Web site of the US Bureau of Labor Statistics: WPU03THRU15.
Exhibit C - 2 CFM Price Revision Formula
***** - PRIVILEGED AND CONFIDENTIAL
Exhibit C
4.
REVISION FORMULA
*****
Exhibit C - 2 CFM Price Revision Formula
***** - PRIVILEGED AND CONFIDENTIAL
Exhibit C
Exhibit C
5.
5.1
GENERAL PROVISIONS
Roundings
(i) The Material index average (ICn) shall be rounded to the nearest second decimal place and the labor index average (ECIn) shall be
rounded to the nearest first decimal place.
(ii) CPIn shall be rounded to the nearest second decimal place.
(iii) The final factor ***** shall be rounded to the nearest third decimal place.
If the next succeeding place is five (5) or more, the preceding decimal place shall be raised to the next higher figure. After final
computation Pn shall be rounded to the nearest whole number (0.5 rounds to 1).
5.2
Final Index Values
The revised Reference Price at the date of Aircraft Delivery shall not be subject to any further adjustments in the indexes.
5.3
Interruption of Index Publication
If the US Department of Labor substantially revises the methodology of calculation or discontinues any of these indexes referred to
hereabove, the Seller shall reflect the substitute for the revised or discontinued index selected by CFM INTERNATIONAL, such
substitute index to lead in application to the same adjustment result, insofar as possible, as would have been achieved by continuing the
use of the original index as it may have fluctuated had it not been revised or discontinued.
Appropriate revision of the formula shall be made to accomplish this result.
5.4
Annulment of the Formula
Should the above escalation provisions become null and void by action of the US Government, the Reference Price shall be adjusted
due to increases in the costs of labor and materiel which have occurred from the period represented by the applicable Reference
Composite Price Index to the twelfth (12th) month prior to the month of Aircraft Delivery.
5.5
Limitation
*****
Exhibit C - 2 CFM Price Revision Formula
***** - PRIVILEGED AND CONFIDENTIAL
Exhibit C
PART 3
PROPULSION SYSTEMS PRICE REVISION FORMULA
IAE LLC
1.
REFERENCE PRICE OF THE PROPULSION SYSTEMS
The Reference Price of a set of two (2) IAE LLC PW1100G-JM Propulsion Systems is:
*****
The Reference Price is subject to adjustment for changes in economic conditions as measured by data obtained from the US
Department of Labor, Bureau of Labor Statistics, and in accordance with the provisions hereof.
2.
BASE PERIOD
The Reference Price has been established in accordance with the average economic conditions prevailing in ***** as defined
by "ECIb", "ICb" and "C10b" index values indicated hereafter.
3.
INDEXES
Labor Index: "Employment Cost Index for Workers in Aerospace manufacturing" hereinafter referred to as "ECI336411W",
quarterly published by the US Department of Labor, Bureau of Labor Statistics, in “NEWS”, and found in Table 9, “WAGES and
SALARIES (not seasonally adjusted): Employment Cost Indexes for Wages and Salaries for private industry workers by
industry and occupational group”, or such other name that may be from time to time used for the publication title and/or table,
(Aircraft manufacturing, NAICS Code 336411, base month and year December 2005 = 100).
The quarterly value released for a certain month (March, June, September and December) shall be the one deemed to apply
for the two preceding months.
Index code for access on the Web site of the US Bureau of Labor Statistics: CIU2023211000000I.
Material Index: “Industrial Commodities” (hereinafter referred to as “IC”) as published in “PPI Detailed Report” (found in Table 9.
“Producer Price indexes and percent changes for commodity and service groupings and individual items not seasonally
adjusted” or such other names that may be from time to time used for the publication title and/or table). (Base Year 1982 = 100)
***** Exhibit D
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Index code for access on the Web site of the US Bureau of Labor Statistics: WPU03THRU15
Metal Index: “Metals and metal products” Code 10” (hereafter referred to as “C10”) as published in “PPI Detailed Report” (found
in Table 9. “Producer Price indexes and percent changes for commodity and service groupings and individual items not
seasonally adjusted” or such other names that may be from time to time used for the publications title and/or table). (Base 1982
= 100).
Index code for access on the Web site of the US Bureau of Labor Statistics: WPU10
Exhibit C
4.
REVISION FORMULA
*****
***** Exhibit D
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Exhibit C
5.
5.1
GENERAL PROVISIONS
Roundings
The Labor Index average, the Material Index average and the Metal Index average shall be computed to the first decimal. If the
next succeeding place is five (5) or more, the preceding decimal place shall be raised to the next higher figure.
Each quotient ***** shall be rounded to the nearest ten-thousandth (4 decimals). If the next succeeding place is five (5) or
more, the preceding decimal place shall be raised to the next higher figure.
The final factor shall be rounded to the nearest ten-thousandth (4 decimals).
The final price shall be rounded to the nearest whole number (0.5 or more rounded to 1).
5.2 Substitution of Indexes for Price Revision Formula
If:
(i) the United States Department of Labor substantially revises the methodology of calculation of the Labor Index , the
Material Index or the Metal Index, as used in the Price Revision Formula, or
(ii) the United States Department of Labor discontinues, either temporarily or permanently, such Labor Index, such Material
Index or such Metal Index, or
(iii) the data samples used to calculate such Labor Index, such Material Index, or such Metal Index are substantially
changed;
IAE LLC shall select a substitute index for inclusion in the Price Revision Formula (the "Substitute Index") and the Seller shall
reflect such Substitute Index.
The Substitute Index shall reflect as closely as possible the actual variance of the labor costs, of the material costs or of the
metal costs used in the calculation of the original Labor Index, Material Index or Metal Index, as the case may be.
***** Exhibit D
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As a result of the selection of the Substitute Index, an appropriate adjustment to the Price Revision Formula shall be performed,
to combine the successive utilization of the original Labor Index, Material Index or Metal Index (as the case may be) and of the
Substitute Index.
Exhibit C
5.3
Final Index Values
The Index values as defined in Clause 4 above shall be considered final and no further adjustment to the adjusted Reference
Price as revised at Aircraft Delivery (or payment of such revised amounts, as the case may be) shall be respectively made after
Aircraft Delivery (or payment of such adjusted amounts, as the case may be) for any subsequent changes in the published
Index values.
5.4
Limitation
*****
***** Exhibit D
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EXHIBIT D
CERTIFICATE OF ACCEPTANCE
In accordance with the terms of clause _____ of the _____ purchase agreement dated _____ __________ _____ and made between Spirit
Airlines, Inc (the “Customer”) and Airbus S.A.S., as amended and supplemented from time to time (the “Purchase Agreement”), the
technical acceptance tests relating to one Airbus A3__-___ aircraft bearing manufacturer’s serial number _____ and registration mark
_____ (the “Aircraft”) have taken place in _________.
In view of said tests having been carried out with satisfactory results, the Customer, hereby approves the Aircraft as being in conformity
with the provisions of the Purchase Agreement and accepts the Aircraft for delivery in accordance with the provisions of the Purchase
Agreement.
Such acceptance shall not impair the rights that may be derived from the warranties relating to the Aircraft set forth in the Purchase
Agreement.
Any right at law or otherwise to revoke this acceptance of the Aircraft is hereby irrevocably waived.
IN WITNESS WHEREOF, the Customer, has caused this instrument to be executed by its duly authorised representative this _____ day of
__________ _____ in ________,___.
SPIRIT AIRLINES, INC.
Name:
Title:
Signature:
***** Exhibit D
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EXHIBIT E-1
Know all men by these presents that Airbus Americas Inc., a Delaware corporation having its principal place of business at 2550 Wasser
Terrace, Suite 9100, Herndon, VA 20171, United States (the “Seller”), was, this _____ day of __________ _____, the owner of the title to
the following airframe (the “Airframe”), the [engines/propulsion systems] as specified (the “[Engines/Propulsion Systems]”) and all
appliances, components, parts, instruments, accessories, furnishings, modules and other equipment of any nature, excluding buyer
furnished equipment, (“BFE”), incorporated therein, installed thereon or attached thereto on the date hereof (the “Parts”):
BILL OF SALE
AIRFRAME: [ENGINES/PROPULSION SYSTEMS]:
AIRBUS Model A3[•]-[•] [manufacturer] Model _____
MANUFACTURER'S SERIAL NUMBER:
_____ LH: _____
ENGINE SERIAL NUMBERS:
RH: _____
REGISTRATION MARK:_____
The Airframe, [Engines/Propulsion Systems] and Parts are hereafter together referred to as the “Aircraft”.
The Seller did, this _____ day of __________ _____, sell, transfer and deliver all of its above described rights, title and interest in and to
the Aircraft to the following entity and to its successors and assigns forever, said Aircraft to be the property thereof:
[Insert Name and Address of Buyer]
(the “Buyer”)
The Seller hereby warrants to the Buyer, its successors and assigns that it had good and lawful right to sell, deliver and transfer title to the
Aircraft to the Buyer and that there was conveyed to the Buyer good, legal and valid title to the Aircraft, free and clear of all liens, claims,
charges, encumbrances and rights of others and that the Seller will warrant and defend such title forever against all claims and demands
whatsoever.
This Bill of Sale is governed by and shall be construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Seller has caused this instrument to be executed by its duly authorised representative this _____ day of
__________ _____ in [Mobile, Alabama, United States].
AIRBUS AMERICAS, INC.
Name:
Title:
Signature:
***** – Exhibit E
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BILL OF SALE
(the “Bill of Sale”)
Exhibit E-2
Know all men by these presents that Airbus S.A.S., a French société par actions simplifiée, with its registered office at 2, rond-point Emile
Dewoitine, 31700 Blagnac, France, registered with the Commercial and Companies Register of Toulouse under number 383 474 814 (the
“Seller”), was, this _____ day of __________ _____, the owner of the title to the following airframe (the “Airframe”), the
[engines/propulsion systems] as specified (the “[Engines/Propulsion Systems]”) and all appliances, components, parts, instruments,
accessories, furnishings, modules and other equipment of any nature, excluding buyer furnished equipment (“BFE”), incorporated therein,
installed thereon or attached thereto on the date hereof (the “Parts”):
AIRFRAME: [ENGINES/PROPULSION SYSTEMS]:
AIRBUS Model A3__-___ [engine or p/s manufacturer] Model _____
MANUFACTURER'S SERIAL NUMBER: ENGINE SERIAL NUMBERS:
_____ LH: _____
RH: _____
REGISTRATION MARK:_____
and had such title to the BFE as was acquired by it from [insert name of vendor of the BFE] pursuant to a bill of sale dated _____
__________ _____ (the “BFE Bill of Sale”).
The Airframe, [Engines/Propulsion Systems] and Parts are hereafter together referred to as the “Aircraft”.
The Seller did, this _____ day of __________ _____, sell, transfer and deliver all of its above described rights, title and interest in and to
the Aircraft and the BFE to the following entity and to its successors and assigns forever, said Aircraft and the BFE to be the property
thereof:
[Insert Name and Address of Buyer]
(the “Buyer”)
The Seller hereby warrants to the Buyer, its successors and assigns that it had (i) good and lawful right to sell, deliver and transfer title to
the Aircraft to the Buyer and that there was conveyed to the Buyer good, legal and valid title to the Aircraft, free and clear of all liens,
claims, charges, encumbrances and rights of others and that the Seller will warrant and defend such title forever against all claims and
demands whatsoever and (ii) such title
***** – Exhibit E
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to the BFE as Seller has acquired from [insert name of vendor of the BFE] pursuant to the BFE Bill of Sale.
This Bill of Sale is governed by and shall be construed in accordance with the laws of [same governing law as in the Purchase Agreement].
IN WITNESS WHEREOF, the Seller has caused this instrument to be executed by its duly authorised representative this _____ day of
__________ _____ in [Insert Delivery Location].
Exhibit E-2
AIRBUS S.A.S.
Name:
Title:
Signature:
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Exhibit - F
EXHIBIT F
S E R V I C E L I F E P O L I C Y
L I S T O F I T E M S
***** – Exhibit F
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Exhibit - F
SELLER SERVICE LIFE POLICY
1The Items covered by the Service Life Policy pursuant to Clause 12.2 are those Seller Items of primary and auxiliary structure described
hereunder.
2WINGS - CENTER AND OUTER WING BOX (LEFT AND RIGHT)
2.1Wing Structure
2.1.1Spars
2.1.2Ribs and stringers inside the wing box
2.1.3Upper and lower wing skin panels of the wing box
2.2Fittings
2.2.1Support structure and attachment fittings for the flap structure
2.2.2Support structure and attachment fitting for the engine pylons
2.2.3Support structure and attachment fitting for the main landing gear
2.2.4Support structure and attachment fitting for the center wing box
2.3Auxiliary Support Structure
2.3.1For the slats:
2.3.1.1Ribs supporting the track rollers on wing box structure
2.3.1.2Ribs supporting the actuators on wing box structure
2.3.2For the ailerons:
2.3.2.1Hinge brackets and ribs on wing box rear spar or shroud box
2.3.2.2Actuator fittings on wing box rear spar or shroud box
2.3.3For airbrakes, spoilers, lift dumpers:
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Exhibit - F
2.3.3.1Hinge brackets and ribs on wing box rear spar or shroud box
2.3.3.2Actuator fittings on wing box rear spar or shroud box
2.4Pylon
2.4.1For the Pylon Main Structural Box
2.4.1.1Spars
2.4.1.2Ribs
2.4.1.3Skin, doublers and stiffeners
2.4.1.4Support structure and attachment fitting for engine supports
3 FUSELAGE
3.1Fuselage structure
3.1.1Fore and aft bulkheads
3.1.2Pressurized floors and bulkheads surrounding the main and nose gear wheel well and center wing box
3.1.3Skins with doublers, stringers and frames from the forward pressure bulkheads to the frame supporting the rear attachment of
horizontal stabilizer
3.1.4Window and windscreen attachment structure but excluding transparencies
3.1.5Passenger and cargo doors internal structure
3.1.6Sills, excluding scuff plates, and upper beams surrounding passenger and cargo door apertures
3.1.7Cockpit floor structure and passenger cabin floor beams excluding floor panels and seat rails
3.1.8Keel beam structure
3.2Fittings
3.2.1Landing gear support structure and attachment fitting
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Exhibit - F
3.2.2Support structure and attachment fittings for the vertical and horizontal stabilizers
3.2.3Support structure and attachment fitting for the APU
4STABILIZERS
4.1Horizontal Stabilizer Main Structural Box
4.1.1Spars
4.1.2Ribs
4.1.3Upper and lower skins and stringers
4.1.4Support structure and attachment fitting to fuselage and trim screw actuator
4.1.5Elevator support structure
4.1.5.1Hinge bracket
4.1.5.2Servocontrol attachment brackets
4.2Vertical Stabilizer Main Structural Box
4.2.1Spars
4.2.2Ribs
4.2.3Skins and stringers
4.2.4Support structure and attachment fitting to fuselage
4.2.5Rudder support structure
4.2.5.1Hinge brackets
4.2.5.2Servocontrol attachment brackets
***** – Exhibit F
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5EXCLUSIONS
Exhibit - F
Bearing and roller assemblies, bearing surfaces, bushings, fittings other than those listed above, access and inspection doors,
including manhole doors, latching mechanisms, all system components, commercial interior parts, insulation and related
installation and connecting devices are excluded from this Seller Service Life Policy.
***** – Exhibit F
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Exhibit - G
TECHNICAL DATA & SOFTWARE
***** – Exhibit G
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TECHNICAL DATA & SOFTWARE
Exhibit - G
Where applicable, data shall be established in general compliance with the ATA 100 Information Standards for Aviation Maintenance and
the applicable provisions for digital standard of ATA Specification 2200 (iSpec2200).
The Seller shall provide the Buyer with the following Technical Data (or such other equivalent Technical Data as may be applicable at the
time of their provision to the Buyer).
1-
Airbus Flight Operations Data Package
The Airbus Flight Operations Data Package encompasses the following customised operational manuals required to operate the
Aircraft:
Flight Manual (FM),
Flight Crew Operating Manual (FCOM),
Flight Crew Training Manual (FCTM),
•
•
•
• Quick Reference Handbook (QRH),
• Cabin Crew Operating Manual (CCOM),
• Master Minimum Equipment List (MMEL),
• Weight and Balance Manual (WBM).
1.1-Format of Data
The Flight Operations Data Package shall be available on-line through the Seller’s customer portal AirbusWorld in eXtensible
Mark-up Language (XML), for downloading and further data processing and customization, and/or in Portable Document Format
(PDF), as applicable.
In addition, the Seller shall make available up to a maximum of two (2) QRH sets per Aircraft in paper format.
1.2- Availability Schedule
The Airbus Flight Operations Data Package, reflecting the Buyer’s Aircraft configuration, shall be available to the Buyer *****.
A preliminary customized MMEL shall be available *****.
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The final issue of WBM and FM shall be made available at the time of each Aircraft Delivery.
2-
Airbus Maintenance Technical Data Package
The Airbus Maintenance Technical Data Package encompasses the following customised maintenance data required for on-
aircraft maintenance to ensure the continued airworthiness of the Aircraft:
Exhibit - G
• Aircraft Maintenance Manual (AMM),
• Aircraft Wiring Manual (AWM),
• Aircraft Schematics Manual (ASM),
• Aircraft Wiring Lists (AWL),
•
•
Illustrated Part Catalog (IPC),
Trouble Shooting Manual (TSM).
2.1-Format of Data
The Airbus Maintenance Technical Data Package shall be available in the Airn@v/Maintenance module of the AirN@v software
and shall be accessible on-line through the Seller’s customer portal AirbusWorld.
In addition, if so requested by the Buyer, the corresponding raw data in Standard Generalized Mark-up Language (SGML) format
shall also be made available for download from the Seller’s customer portal AirbusWorld.
2.2- Availability Schedule
The Airbus Maintenance Technical Data Package, reflecting the Buyer’s Aircraft configuration, shall be available to the *****.
Upon the Buyer’s request, where applicable, preliminary customized maintenance data may be available *****.
3-Non-customized Technical Data
Non-customised Technical Data, provided as part of the Maintenance Technical Data Package, shall be made available to the
Buyer either in the corresponding Airn@v software module, as detailed in Clause 14.9 of the Agreement, or in PDF format, as
applicable.
The Technical Data belonging to each AirN@v module and/or available in PDF format shall be as listed in the Seller’s Customer
Services Catalog current at the time of the delivery of the Technical Data.
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Non-customised Technical Data shall be made available to the Buyer in accordance with a schedule to be mutually agreed
between the Buyer and Seller no later than *****.
4-
Additional Technical Data
4.1 In addition to the Flight Operations Data Package and the Maintenance Technical Data Package, the Seller shall provide, at
Delivery of each Aircraft, on-line access to the Aircraft mechanical drawings that cover installation of structure and systems fitted
on the Buyer’s Aircraft at Delivery.
Exhibit - G
4.2 ***** of each Aircraft, the Seller shall provide:
•
•
the weighing report, for integration into the WBM by the Buyer,
the Electrical Load Analysis (ELA), in a format allowing further updating by the Buyer.
***** – Exhibit G
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Exhibit - H
M A T E R I A L
S U P P L Y AND S E R V I C E S
***** – Exhibit H
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Exhibit - H
1.
1.1
1.1.1
GENERAL
Scope
This Exhibit H sets forth the terms and conditions for the support and services offered by the Seller to the Buyer with respect to
Material (as defined below).
1.1.2
References made to Articles shall be deemed to refer to articles of this Attachment 1 to Appendix 3 unless otherwise specified.
1.1.3
For purposes of this Attachment 1 to Appendix 3:
1.1.4
1.1.5
the term “Supplier” shall mean any supplier providing any of the Material listed in Article 1.2.1 and the term “Supplier Part” shall
mean an individual item of Material.
The term “SPEC 2000” means the “E-Business Specification for Materials Management” document published by the Air
Transport Association of America.
1.2
Material Categories
1.2.1
Each of the following constitutes "Material" for purposes of this Attachment 1 to Appendix 3:
(i) Seller Parts;
(ii)
Supplier Parts classified as Repairable Line Maintenance Parts (as defined in SPEC 2000);
(iii)
Supplier Parts classified as Expendable Line Maintenance Parts (as defined in SPEC 2000);
(iv) Seller and Supplier ground support equipment and specific-to-type tools
where “Seller Parts” means Seller's proprietary parts bearing a part number of the Seller or for which the Seller has the
exclusive sales rights.
1.2.2
Propulsion Systems, engine exchange kits, their accessories and parts for any of the foregoing, are not covered under this
Attachment 1 to Appendix 3.
1.3
Term
*****, the Seller shall maintain, or cause to be maintained, a reasonable stock of Seller Parts.
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Exhibit - H
The Seller shall use reasonable efforts to obtain a similar service from all Suppliers of Supplier Parts originally installed on an
Aircraft at Delivery.
1.4
Airbus Material Store
1.4.1
AACS Spares Center
The Seller has established and shall maintain or cause to be maintained, during the Term, a US store ("US Spares Center").
The US Spares Center shall be operated twenty-four (24) hours per day, seven (7) days per week, for the handling of AOG and
critical orders for Seller Parts.
The Seller shall make reasonable efforts to deliver Seller Parts to the Buyer from the US Spares Center. ,
1.4.2
Material Support Center, Germany
The Seller has established its material headquarters in Hamburg, Germany (the "Airbus Material Center") and shall, during the
Term, maintain, or have maintained on its behalf, a central store of Seller Parts. The Airbus Material Center shall be operated
twenty-four (24) hours per day, seven (7) days per week.
1.4.3
Other Points of Shipment
1.4.3.1
In addition to the AACS Spares Center and the Airbus Material Center, the Seller and its Affiliates operate a global network of
regional satellite stores (the “Regional Satellite Stores”). A list of such stores shall be provided to the Buyer upon the Buyer’s
request.
1.4.3.2
The Seller reserves the right to effect deliveries from distribution centers other than the US Spares Center or the Airbus
Material Center, which may include the Regional Satellite Stores or any other production or Supplier’s facilities.
1.5
Customer Order Desk
The Seller operates a “Customer Order Desk”, the main functions of which are:
(i)
(ii)
Management of order entries for all priorities, including Aircraft On Ground (“AOG”);
Management of order changes and cancellations;
***** – Exhibit H
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Exhibit - H
(iii)
Administration of Buyer’s routing instructions;
(iv) Management of Material returns;
(v)
Clarification of delivery discrepancies;
(vi)
Issuance of credit and debt notes.
The Buyer hereby agrees to communicate its orders for Material to the Customer Order Desk either in electronic format (SPEC
2000) or via the Internet.
1.6
Commitments of the Buyer
1.6.1
During the Term, the Buyer agrees to purchase from
(a)
(b)
the Seller, AACS or the Seller’s licensee(s) the Seller Parts required for the Buyer's own needs; or
other operators or purchase Seller Parts from said operators or from distributors, provided said Seller Parts were
originally designed by the Seller and manufactured by the Seller or its licensees.
1.6.2
Subject to the express further agreement of the Seller in relation to Article 1.6.2 (ii) below, the Buyer may manufacture,
exclusively for its own use parts, equivalent to Seller Parts, provided, however, that it may only do so in one of the following
circumstances:
(i)
(ii)
after expiration of the Term, the concerned Seller Parts are out of stock;
Seller Parts are needed to perform confirmed AOG repairs upon any Aircraft delivered under the Agreement and are not
available from the Seller, its licensees or other approved sources within a lead time shorter than or equal to the time in
which the Buyer can manufacture such parts with Airbus technical data assistance;
(iii)
when a Seller Part is identified as "Local Manufacture" in the Illustrated Parts Catalog.
1.6.3.1
1.6.3.2
The rights granted to the Buyer in Article 1.6.2 shall not in any way be construed as a license, nor shall they in any way obligate
the Buyer to pay any license fee or royalty, nor shall they in any way be construed to affect the rights of third parties.
If the Buyer manufactures any parts pursuant to Article 1.6.2, the Buyer shall be solely responsible for such manufacturing and
any use made of the
***** – Exhibit H
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Exhibit - H
manufactured parts, and the agreement of the Seller under Article 1.6.2 shall not be construed as express or implicit approval
either of the Buyer in its capacity as manufacturer of such parts or of the manufactured parts.
The Buyer shall also be solely responsible to ensure that such manufacturing is performed in accordance with the relevant
procedures and Aviation Authority requirements.
THE SELLER SHALL NOT BE LIABLE FOR, AND THE BUYER SHALL INDEMNIFY THE SELLER AGAINST, ANY CLAIMS
FROM ANY THIRD PARTIES FOR LOSSES DUE TO ANY DEFECT OR NON-CONFORMITY OF ANY KIND, ARISING OUT
OF OR IN CONNECTION WITH ANY MANUFACTURING OF ANY PART UNDERTAKEN BY THE BUYER UNDER ARTICLE
1.6.2 OR ANY OTHER ACTIONS UNDERTAKEN BY THE BUYER UNDER THIS ATTACHMENT 1 TO APPENDIX 3
WHETHER SUCH CLAIM IS ASSERTED IN CONTRACT OR IN TORT, OR IS PREMISED ON ALLEGED, ACTUAL,
IMPUTED, ORDINARY OR INTENTIONAL ACTS OR OMISSIONS OF THE BUYER.
1.6.3.3
The Buyer shall allocate its own part number to any part manufactured in accordance with Article 1.6.2. The Buyer shall under
no circumstances be allowed to use the Airbus part number of the Seller Part to which such manufactured part is intended to be
equivalent.
1.6.3.4
The Buyer shall not be entitled to sell or lend any part manufactured under the provisions of Article 1.6.2 to any third party.
2.
2.1
INITIAL PROVISIONING
Period
***** (“Initial Provisioning Period").
2.2
Pre‑‑Provisioning Meeting
2.2.1
The Seller shall organize a free of charge pre‑provisioning meeting at AACS Spares Center or at the Airbus Material Center, or
at any other agreed location, for the purpose of setting an acceptable schedule and working procedure for the preparation of
the initial issue of the Provisioning Data and the Initial Provisioning Conference referred to in Articles 2.3 and 2.4 below (the
“Pre-Provisioning Meeting”).
***** – Exhibit H
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Exhibit - H
During the Pre-Provisioning Meeting, the Seller shall familiarize the Buyer with the provisioning processes, methods and
formulae of calculation and documentation.
2.2.2
The free of charge Pre-Provisioning Meeting shall take place on an agreed date that is no later than nine (9) months prior to
Scheduled Delivery Month of the first Aircraft, allowing a minimum preparation time of eight (8) weeks for the Initial Provisioning
Conference.
2.3
Initial Provisioning Conference
The Seller shall organize an initial provisioning conference at the AACS Spares Center or at the Airbus Material Center (the
“Initial Provisioning Conference”), the purpose of which shall be to agree the material scope and working procedures to
accomplish the initial provisioning of Material (the “Initial Provisioning”).
The free of charge Initial Provisioning Conference shall take place at the earliest eight (8) weeks after Aircraft Manufacturer
Serial Number allocation or Contractual Definition Freeze, whichever occurs last and latest six (6) months before the Scheduled
Delivery Month of the first Aircraft.
2.4
Provisioning Data
2.4.1
Provisioning data generally in accordance with SPEC 2000, Chapter 1, for Material described in Articles 1.2.1 (i) through 1.2.1
(iii) ("Provisioning Data") shall be supplied by the Seller to the Buyer in the English language, in a format and timeframe to be
agreed during the Pre-Provisioning Meeting.
2.4.1.1
Unless a longer revision cycle has been agreed, the Provisioning Data shall be revised ***** up to the end of the Initial
Provisioning Period.
2.4.1.2
The Seller shall ensure that Provisioning Data is provided to the Buyer in time to permit the Buyer to perform any necessary
evaluation and to place orders in a timely manner.
2.4.1.3
Provisioning Data generated by the Seller shall comply with the configuration of the Aircraft as documented *****.
This provision shall not cover:
(i)
(ii)
Buyer modifications not known to the Seller,
other modifications not approved by the Seller’s Aviation Authorities.
2.4.2
Supplier‑‑Supplied Data
***** – Exhibit H
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Exhibit - H
Provisioning Data relating to each Supplier Part (both initial issue and revisions) shall be produced by Supplier thereof and may
be delivered to the Buyer either by the Seller or such Supplier. It is agreed and understood by the Buyer that the Seller shall not
be responsible for the substance, accuracy or quality of such data. Such Provisioning Data shall be provided in either SPEC
2000 format or any other agreed format.
2.4.3
Supplementary Data
The Seller shall provide the Buyer with data supplementary to the Provisioning Data. This shall include ground support
equipment and specific-to-type tools.
2.5
Commercial Offer
Upon the Buyer’s request, the Seller shall submit a commercial offer for Initial Provisioning Material.
2.6
Delivery of Initial Provisioning Material
2.6.1
2.6.2
During the Initial Provisioning Period, Initial Provisioning Material shall conform to the latest known configuration standard of the
Aircraft for which such Material is intended as reflected in the Provisioning Data transmitted by the Seller.
The delivery of Initial Provisioning Material shall take place according to the conditions specified in the commercial offer
mentioned in Article 2.5.
2.6.3
All Initial Provisioning Material shall be packaged in accordance with ATA 300 Specification.
2.7
Buy‑‑Back Period and Buy-Back of Initial Provisioning Surplus Material
*****
3. OTHER MATERIAL SUPPORT
3.1 Replenishment and Delivery
3.1.1 General
For the purpose of clarification, it is expressly stated that the provisions of Article 3.1.2 do not apply to Initial Provisioning
Material and Provisioning Data as described in Article 2.
3.1.2 Lead times
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In general, lead times shall be in accordance with the provisions of the latest edition of the "World Airlines and Suppliers Guide".
3.1.2.1 Seller Parts as per Article 1.2.1 (i) shall be dispatched within the lead times published by the Seller.
Lead times for Seller Parts as per Article 1.2.1 (i), which are not published by the Seller, shall be quoted upon request.
3.1.2.2 Material defined in Articles 1.2.1 (ii) through 1.2.1 (iv) can be dispatched within the Supplier's lead time augmented by
the Seller's own order and delivery administration time.
3.1.3 Expedite Service
The Seller shall provide a twenty‑‑four (24) hours a day / seven (7) days a week expedite service to provide for the
supply of critically required parts (the “Expedite Service”).
3.1.3.1 The Expedite Service is operated in accordance with the "World Airlines and Suppliers Guide" and the Seller shall
notify the Buyer of the action taken to satisfy an expedite order received from the Buyer within:
(i)
(ii)
(iii)
four (4) hours after receipt of an AOG order;
twenty‑‑four (24) hours after receipt of a critical order (imminent AOG or work stoppage);
seven (7) days after receipt of an expedite order (urgent stock replenishment).
3.1.3.2 In exceptional AOG circumstances, should the Buyer be unable to send a written order for reasons beyond his
control, the Seller may deliver the Material after a telephone call, provided a purchase order is sent to the Seller by the
end of the next Business Day. Should the Buyer fail to send such purchase order, the Seller reserves the right to
refuse any subsequent purchase orders without prior receipt of a firm written purchase order.
3.1.4 Shortages, Overshipments, Non‑‑Conformity in Orders
3.1.4.1 The Buyer shall, within ***** after delivery of Material pursuant to a purchase order, advise the Seller:
(i)
(ii)
of any alleged shortages or overshipments;
of any non-conformities of delivered Material.
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Exhibit - H
In the event of the Buyer not having advised the Seller of any such alleged shortages, overshipments or
non‑‑conformities within the above-defined period, the Buyer shall be deemed to have accepted the delivery.
3.1.4.2 In the event of the Buyer reporting an overshipment or non‑‑conformity to the order within the period defined in Article
3.1.4.1 the Seller shall, if the Seller recognizes such overshipment or non-conformity, either replace the concerned
Material or credit the Buyer for the returned Material, if the Buyer chooses to return the Material subject of an
overshipment or non-conformity. In such case, reasonable transportation costs shall be borne by the Seller.
3.1.5 Delivery Terms
Material shall be delivered to the Buyer as follows:
(i)
(ii)
(iii)
Free Carrier (FCA) Airbus Material Center;
Free Carrier (FCA) Seller’s Regional Satellite Stores;
Free Carrier (FCA) Seller’s or Supplier’s facility for deliveries from any other Seller or Supplier facilities.
The term Free Carrier (FCA) is as defined in the Incoterms 2010 publication issued by the International Chamber of
Commerce.
3.1.6 Packaging
All Material shall be packaged in accordance with ATA 300 Specification.
3.1.7 Cessation of Deliveries
The Seller reserves the right to restrict, stop or otherwise suspend deliveries if the Buyer fails to meet its obligations defined in
Articles 5.2 through 5.3.
3.2 Seller Parts Leasing
The Seller offers the Buyer the option to lease certain Seller Parts as listed in the Customer Services Catalog. The terms and
conditions applicable to such service shall be as set forth in the then current Customer Services Catalog.
3.3 Tools and Ground Support Equipment
The Seller offers for sale and/or loan a range of ground support equipment and specific-to-type tools, as defined in
1.2.1 (iv).
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Exhibit - H
The terms and conditions applicable to such service shall be as set forth in the then current Customer Services
Catalog.
3.4 Seller Parts Repair
The Seller may offer the Buyer a service whereby the Seller would manage the repair of Seller Parts as defined in
Article 1.2.1 (i).
The terms and conditions applicable to such service shall be as set forth in the then current Customer Services
Catalog.
WARRANTIES
Seller Parts
4.
4.1
Subject to the limitations and conditions as hereinafter provided, the Seller warrants to the Buyer that all Seller Parts, sold
under this Attachment 1 to Appendix 3 shall at delivery to the Buyer:
(i)
be free from defects in material.
(ii)
be free from defects in workmanship, including without limitation processes of manufacture.
(iii)
be free from defects arising from failure to conform to the applicable specification for such part.
4.1.1
Warranty Period
4.1.1.1
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4.1.1.2
Whenever any Seller Part that contains a defect for which the Seller is liable under Article 4.1 has been corrected, replaced or
repaired pursuant to the terms of this Article 4.1, the period of the Seller's warranty with respect to such corrected, repaired or
replacement Seller Part, as the case may be, shall be *****.
4.1.2
Buyer's Remedy and Seller's Obligation
*****
The provisions of Clauses 12.1.5 through 12.1.11 of the Agreement shall apply to claims made pursuant to this Article 4.1.
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Exhibit - H
4.2
Supplier Parts
With respect to Supplier Parts to be delivered to the Buyer under this Attachment 1 to Appendix 3, the Seller agrees to transfer
to the Buyer the benefit of any warranties, which the Seller may have obtained from the corresponding Suppliers and the Buyer
hereby agrees that it shall accept the same.
4.3
Waiver, Release and Renunciation
THIS ARTICLE 4 (INCLUDING ITS SUBPARTS) SETS FORTH THE EXCLUSIVE WARRANTIES, EXCLUSIVE LIABILITIES
AND EXCLUSIVE OBLIGATIONS OF THE SELLER, AND THE EXCLUSIVE REMEDIES AVAILABLE TO THE BUYER,
WHETHER UNDER THIS AGREEMENT OR OTHERWISE, ARISING FROM ANY DEFECT OR NONCONFORMITY OR
PROBLEM OF ANY KIND IN ANY SELLER PART, MATERIAL, LEASED PART, OR SERVICES DELIVERED BY THE
SELLER UNDER THIS AGREEMENT.
THE BUYER RECOGNIZES THAT THE RIGHTS, WARRANTIES AND REMEDIES IN THIS ARTICLE 4 ARE ADEQUATE
AND SUFFICIENT TO PROTECT THE BUYER FROM ANY DEFECT OR NONCONFORMITY OR PROBLEM OF ANY KIND
IN THE SELLER PARTS, MATERIALS, LEASED PARTS, OR SERVICES SUPPLIED UNDER THIS AGREEMENT. THE
BUYER HEREBY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES, OBLIGATIONS, GUARANTEES
AND LIABILITIES OF THE SELLER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF THE BUYER AGAINST THE
SELLER AND ITS SUPPLIERS, WHETHER EXPRESS OR IMPLIED BY CONTRACT, TORT, OR STATUTORY LAW OR
OTHERWISE, WITH RESPECT TO ANY NONCONFORMITY OR DEFECT OR PROBLEM OF ANY KIND IN ANY SELLER
PART, MATERIAL, LEASED PART, OR SERVICES DELIVERED BY THE SELLER UNDER THIS AGREEMENT, INCLUDING
BUT NOT LIMITED TO:
(1) ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR ANY GENERAL OR PARTICULAR
PURPOSE;
(2) ANY IMPLIED OR EXPRESS WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE;
(3) ANY RIGHT, CLAIM OR REMEDY FOR BREACH OF CONTRACT;
(4) ANY RIGHT, CLAIM OR REMEDY FOR TORT, UNDER ANY THEORY OF LIABILITY, HOWEVER ALLEGED,
INCLUDING, BUT NOT LIMITED TO, ACTIONS AND/OR CLAIMS FOR NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACTS, SHALLFUL DISREGARD, IMPLIED WARRANTY, PRODUCT LIABILITY, STRICT LIABILITY OR
FAILURE TO WARN;
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Exhibit - H
(5) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER THE UNIFORM COMMERCIAL CODE OR ANY OTHER STATE
OR FEDERAL STATUTE;
(6) ANY RIGHT, CLAIM OR REMEDY ARISING UNDER ANY REGULATIONS OR STANDARDS IMPOSED BY ANY
INTERNATIONAL, NATIONAL, STATE OR LOCAL STATUTE OR AGENCY;
(7) ANY RIGHT, CLAIM OR REMEDY TO RECOVER OR BE COMPENSATED FOR:
(a) LOSS OF USE OR REPLACEMENT OF ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR PART
PROVIDED UNDER THE AGREEMENT;
(b) LOSS OF, OR DAMAGE OF ANY KIND TO, ANY AIRCRAFT, COMPONENT, EQUIPMENT, ACCESSORY OR
PART PROVIDED UNDER THE AGREEMENT;
(c) LOSS OF PROFITS AND/OR REVENUES;
(d) ANY OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGE.
THE WARRANTIES PROVIDED BY THIS AGREEMENT SHALL NOT BE EXTENDED, ALTERED OR VARIED EXCEPT BY A
WRITTEN INSTRUMENT SIGNED BY THE SELLER AND THE BUYER. IN THE EVENT THAT ANY PROVISION OF THIS
ARTICLE 4 SHOULD FOR ANY REASON BE HELD UNLAWFUL, OR OTHERWISE UNENFORCEABLE, THE REMAINDER
OF THIS ARTICLE 4 SHALL REMAIN IN FULL FORCE AND EFFECT.
FOR THE PURPOSES OF THIS ARTICLE 4, THE “SELLER” SHALL BE UNDERSTOOD TO INCLUDE THE SELLER, ANY
OF ITS SUPPLIERS, SUBCONTRACTORS, AND AFFILIATES AND ANY OF THEIR RESPECTIVE INSURERS.
4.4
Duplicate Remedies
The remedies provided to the Buyer under this Article 4 as to any part thereof are mutually exclusive and not cumulative. The
Buyer shall be entitled to the remedy that provides the maximum benefit to it, as the Buyer may elect, pursuant to the terms and
conditions of this Article 4 for any particular defect for which remedies are provided under this Article 4; provided, however, that
the Buyer shall not be entitled to elect a remedy under one part of this Article 4that constitutes a duplication of any remedy
elected by it under any other part
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Exhibit - H
hereof for the same defect. The Buyer’s rights and remedies herein for the non-performance of any obligations or liabilities of
the Seller arising under these warranties shall be in monetary damages limited to the amount the Buyer expends in procuring a
correction or replacement for any covered part subject to a defect or non-performance covered by this Article 4, and the Buyer
shall not have any right to require specific performance by the Seller.
5.
5.1
COMMERCIAL CONDITIONS
Delivery Terms
All Material prices are quoted on the basis of Free Carrier (FCA) delivery terms, without regard to the place from which such
Material is shipped. The term “Free Carrier (FCA)” is as defined by publication n° 560 of the International Chamber of
Commerce, published in 2010.
5.2
Payment Procedures and Conditions
All payments under this Attachment 1 to Appendix 3 shall be made in accordance with the terms and conditions set forth in the
then current Customer Services e-Catalog.
5.3
Title
Title to any Material purchased under this Attachment 1 to Appendix 3 shall remain with the Seller until full payment of the
invoices and interest thereon, if any, has been received by the Seller.
The Buyer hereby undertakes that Material title to which has not passed to the Buyer, shall be kept free from any debenture or
mortgage or any similar charge or claim in favour of any third party.
5.4
Cessation of Deliveries
The Seller has the right to restrict, stop or otherwise suspend deliveries if the Buyer fails to meet its obligations set forth in this
Attachment 1 to Appendix 3.
6.
EXCUSABLE DELAY
Clauses with respect to excusable delay in the Agreement shall apply, mutatis mutandis, to all Material support and services
provided under this Attachment 1 to Appendix 3.
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Exhibit - H
7.
TERMINATION OF MATERIAL PROCUREMENT COMMITMENTS
If the Agreement is terminated with respect to any Aircraft, then the rights and obligations of the parties with respect to
undelivered spare parts, services, data or other items to be purchased hereunder and which are applicable to those Aircraft for
which the Agreement has been terminated shall also be terminated. Unused Material in excess of the Buyer's requirements due
to such termination may be repurchased by the Seller, at the Seller’s option, as provided in Article 2.7.
8.
INCONSISTENCY
In the event of any inconsistency between this Attachment 1 to Appendix 3 and the Customer Services Catalog or any order
placed by the Buyer, this Attachment 1 to Appendix 3 shall prevail to the extent of such inconsistency.
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*****
Exhibit - I
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AIRBUS S.A.S WARRANTY
Exhibit - J
Airbus S.A.S. hereby warrants to _____________ (the “Buyer”), its successors and assigns that the bill of sale executed by Airbus
Americas Inc. dated ___ ________ _____ and relating to one A3__-____ aircraft bearing MSN __________ (the “Bill of Sale”)
conveys to the said Buyer on the date hereof good, legal and valid title to the Aircraft(as defined in the Bill of Sale), free and clear of all
liens, claims, charges, encumbrances and rights of others, and that Airbus S.A.S. will warrant and defend such title to the Aircraft
forever against all claims and demands whatsoever.
This Airbus S.A.S. Warranty is governed by and shall be construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, Airbus S.A.S. has caused this Airbus S.A.S. Warranty to be executed by its duly authorized representative
this ______ day of _________ ______.
.
AIRBUS S.A.S.
By:____________________________
Name:
Title:
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DATED [•]
AIRBUS S.A.S.
as Manufacturer
AIRFRAME WARRANTIES Agreement
in respect of one
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