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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to       
 
Commission file number 1-31443
 HAWAIIAN HOLDINGS INC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 71-0879698
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3375 Koapaka Street,Suite G-350  
Honolulu,HI 96819
(Address of Principal Executive Offices) (Zip Code)

(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)HANASDAQ Stock Market, LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer Accelerated filer 
Non-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 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No
 
As of April 23, 2021, 51,107,210 shares of the registrant’s common stock were outstanding.



Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended March 31, 2021
 
Table of Contents
 
   
   
 
   
 
  
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
 
2


PART I. FINANCIAL INFORMATION

ITEM 1.                   FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended March 31,
 20212020
 (unaudited)
Operating Revenue:  
Passenger$137,469 $503,469 
Other44,748 55,675 
Total182,217 559,144 
Operating Expenses:  
Wages and benefits12,809 188,254 
Aircraft fuel, including taxes and delivery47,736 113,478 
Maintenance, materials and repairs34,252 60,409 
Aircraft and passenger servicing17,251 38,283 
Depreciation and amortization35,356 39,449 
Aircraft rent29,841 27,004 
Commissions and other selling11,409 26,716 
Other rentals and landing fees19,668 29,766 
Purchased services24,097 34,241 
Special items 126,904 
Other22,962 42,736 
Total255,381 727,240 
Operating Loss(73,164)(168,096)
Nonoperating Income (Expense):  
Interest expense and amortization of debt discounts and issuance costs(23,693)(6,795)
Gains (losses) on fuel derivatives217 (6,452)
Other components of net periodic benefit cost981 338 
Interest income1,249 3,020 
Capitalized interest684 831 
Loss on extinguishment of debt(3,994) 
Other, net20,896 1,966 
Total(3,660)(7,092)
Loss Before Income Taxes(76,824)(175,188)
Income tax benefit(16,133)(30,816)
Net Loss$(60,691)$(144,372)
Net Loss Per Share  
Basic$(1.23)$(3.14)
Diluted$(1.23)$(3.14)
Weighted Average Number of Common Stock Shares Outstanding:
Basic49,472 45,967 
Diluted49,472 45,967 
Cash dividends declared per common stock share$ $0.12 

See accompanying Notes to Consolidated Financial Statements.
3


Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 Three Months Ended March 31,
 20212020
 (unaudited)
Net Loss$(60,691)$(144,372)
Other comprehensive income (loss), net:  
Net change related to employee benefit plans, net of tax benefit of $39 and net of tax expense of $197 for 2021 and 2020, respectively
1,117 598 
Net change in derivative instruments, net of tax expense of $113 for 2020
— 344 
Net change in available-for-sale investments, net of tax benefit of $468 and net of tax expense of $128 for 2021 and 2020, respectively
(1,441)389 
Total other comprehensive income (loss)(324)1,331 
Total Comprehensive Loss$(61,015)$(143,041)


See accompanying Notes to Consolidated Financial Statements.

4


Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
March 31, 2021
(unaudited)
December 31, 2020
ASSETS  
Current Assets:  
Cash and cash equivalents$987,865 $509,639 
Restricted cash31,817  
Short-term investments889,962 354,782 
Accounts receivable, net57,887 67,527 
Income taxes receivable94,724 95,002 
Spare parts and supplies, net36,014 35,442 
Prepaid expenses and other74,340 56,086 
Total2,172,609 1,118,478 
Property and equipment, less accumulated depreciation and amortization of $928,892 and $894,519 as of March 31, 2021 and December 31, 2020, respectively
2,063,134 2,085,030 
Other Assets:  
Operating lease right-of-use assets604,766 627,359 
Long-term prepayments and other118,890 133,663 
Intangible assets, net13,500 13,500 
Total Assets$4,972,899 $3,978,030 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$117,288 $112,002 
Air traffic liability and current frequent flyer deferred revenue687,323 533,702 
Other accrued liabilities145,701 140,081 
Current maturities of long-term debt, less discount142,051 115,019 
Current maturities of finance lease obligations22,545 21,290 
Current maturities of operating leases83,428 82,454 
Total1,198,336 1,004,548 
Long-Term Debt1,863,999 1,034,805 
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations115,447 120,618 
Noncurrent operating leases482,140 503,376 
Accumulated pension and other post-retirement benefit obligations212,853 217,737 
Other liabilities and deferred credits79,688 78,908 
Noncurrent frequent flyer deferred revenue207,610 201,239 
Deferred tax liability, net200,824 216,642 
Total1,298,562 1,338,520 
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of March 31, 2021 and December 31, 2020
  
Common stock, $0.01 par value per share, 51,107,210 and 48,145,093 shares outstanding as of March 31, 2021 and December 31, 2020, respectively
511 481 
Capital in excess of par value261,423 188,593 
Accumulated income464,919 525,610 
Accumulated other comprehensive loss, net(114,851)(114,527)
Total612,002 600,157 
Total Liabilities and Shareholders’ Equity$4,972,899 $3,978,030 
See accompanying Notes to Consolidated Financial Statements.
5


Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2020$481 $ $188,593 $525,610 $(114,527)$600,157 
Net Loss— — — (60,691)— (60,691)
Other comprehensive loss, net— — — — (324)(324)
Issuance of 101,907 shares of common stock, net of shares withheld for taxes
1 — (1,567)— — (1,566)
Issuance of 2,860,210 shares of common stock related to at-the-market offering
29 — 69,940 — — 69,969 
CARES Act warrant issuance, net of tax— — 2,251 — — 2,251 
Share-based compensation expense— — 2,206 — — 2,206 
Balance at March 31, 2021$511 $ $261,423 $464,919 $(114,851)$612,002 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of March 31, 2021 and December 31, 2020.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2021 and December 31, 2020.

6


Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2019$461 $ $135,651 $1,049,567 $(103,883)$1,081,796 
Net Loss— — — (144,372)— (144,372)
Dividends declared on common stock ($0.12 per share)
— — — (5,514)— (5,514)
Other comprehensive income, net— — — — 1,331 1,331 
Issuance of 88,141 shares of common stock, net of shares withheld for taxes
1 — (1,231)— — (1,230)
Repurchase and retirement of 259,910 shares common stock
(2)— — (7,508)— (7,510)
Share-based compensation expense— — (135)— — (135)
Balance at March 31, 2020$460 $ $134,285 $892,173 $(102,552)$924,366 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of March 31, 2020 and December 31, 2019.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2020 and December 31, 2019.

See accompanying Notes to Consolidated Financial Statements.
7


Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Three Months Ended March 31,
 20212020
(unaudited)
Net cash provided by Operating Activities$122,009 $46,887 
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments(10,417)(46,845)
Proceeds from the disposition of aircraft related equipment117  
Purchases of investments(655,266)(48,133)
Sales of investments117,857 80,218 
Net cash used in investing activities(547,709)(14,760)
Cash flows from Financing Activities:  
Proceeds from the issuance of common stock68,132  
Long-term borrowings1,220,259 235,000 
Repayments of long-term debt and finance lease obligations(328,256)(25,320)
Dividend payments (5,514)
Debt issuance costs(24,664) 
Repurchases of common stock (7,510)
Payment for taxes withheld for stock compensation(1,565)(1,230)
Other1,837  
Net cash provided by financing activities935,743 195,426 
Net increase in cash and cash equivalents510,043 227,553 
Cash, cash equivalents, and restricted cash - Beginning of Period509,639 373,056 
Cash, cash equivalents, and restricted cash - End of Period$1,019,682 $600,609 
 
See accompanying Notes to Consolidated Financial Statements.

8


Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. General
 
Business and Basis of Presentation

Hawaiian Holdings, Inc. (the Company) and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. Unless the context otherwise requires, the terms the Company, we, us, and our in this Quarterly Report on Form 10-Q refer to Hawaiian Holdings, Inc. and its consolidated subsidiaries. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian. The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal variations in the demand for air travel, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations for the entire year. Furthermore, the severe impacts of the global coronavirus (COVID-19) pandemic make any comparison to prior or future periods unreliable. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

2. Significant Accounting Policies
 
Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. The Company adopted ASU 2019-12 effective January 1, 2021 and its adoption did not have a material effect on the Company's consolidated financial statements.

9


3. Accumulated Other Comprehensive Income (Loss)
 
Reclassifications out of accumulated other comprehensive income (loss) by component are as follows: 
Details about accumulated other comprehensive income (loss) componentsThree months ended March 31,Affected line items in the statement where net income is presented
20212020
 (in thousands) 
Derivative instruments under ASC 815   
Foreign currency derivative gains, net$ $(1,114)Passenger revenue
Foreign currency derivative gains, net (2,786)Nonoperating Income (Expense), Other, net
Total before tax (3,900) 
Tax expense 965  
Total, net of tax$— $(2,935) 
Amortization of defined benefit plan items   
Actuarial loss$986 $922 Nonoperating Income (Expense), Other, net
Prior service cost92 56 Nonoperating Income (Expense), Other, net
Total before tax1,078 978  
Tax expense (benefit)39 (242) 
Total, net of tax$1,117 $736  
Short-term investments   
Realized losses (gain) on sales of investments, net$(76)$14 Nonoperating Income (Expense), Other, net
Total before tax(76)14  
Tax expense (benefit)19 (3) 
Total, net of tax$(57)$11  
Total reclassifications for the period$1,060 $(2,188) 

A roll-forward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three months ended March 31, 2021 and 2020 is as follows:
Three months ended March 31, 2021Defined Benefit
Plan Items
Short-Term InvestmentsTotal
 (in thousands)
Beginning balance$(116,181)$1,654 $(114,527)
Other comprehensive loss before reclassifications, net of tax (1,384)(1,384)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax1,117 (57)1,060 
Net current-period other comprehensive income (loss)1,117 (1,441)(324)
Ending balance$(115,064)$213 $(114,851)
10


Three months ended March 31, 2020Foreign Currency DerivativesDefined Benefit Plan ItemsShort-Term InvestmentsTotal
 (in thousands)
Beginning balance$3,341 $(108,028)$804 $(103,883)
Other comprehensive income (loss) before reclassifications, net of tax3,279 (138)378 3,519 
Amounts reclassified from accumulated other comprehensive income (loss), net of tax(2,935)736 11 (2,188)
Net current-period other comprehensive income344 598 389 1,331 
Ending balance$3,685 $(107,430)$1,193 $(102,552)


4. Loss Per Share
 
Basic loss per share, which excludes dilution, is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. For the three months ended March 31, 2021 and 2020, there were 680,492 and 141,665, respectively, potentially dilutive shares that were excluded from the computation of diluted weighted average common stock shares outstanding because their effect would have been antidilutive given the Company's net loss. The following table shows the computation of basic and diluted loss per share:
 Three Months Ended March 31,
 20212020
 (in thousands, except for per share data)
Numerator:  
Net Loss$(60,691)$(144,372)
Denominator:  
Weighted average common stock shares outstanding - Basic49,472 45,967 
Weighted average common stock shares outstanding - Diluted49,472 45,967 
Net Loss Per Share  
Basic$(1.23)$(3.14)
Diluted$(1.23)$(3.14)

At-the-Market Offering Program

On December 1, 2020, the Company entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with Morgan Stanley & Co. LLC, BNP Paribas Securities Corp. and Goldman Sachs & Co. LLC (the Managers) relating to the issuance and sale from time to time by the Company through the Managers, of up to 5.0 million shares of the Company's common stock, par value $0.01 per share. Sales of the shares under the Equity Distribution Agreement were made in transactions that were deemed to be "at-the-market" offerings as defined in Rule 415 under the Securities Act of 1933, as amended. Under the terms of the Equity Distribution Agreement, the Company set the parameters for the sale of the shares, including the number of the shares to be issued, time period during which sales were requested to be made, limitation on the number of the shares that may be sold in any one trading day and any minimum price below which sales may not be made.

During the three months ended March 31, 2021, the Company sold 2.9 million shares pursuant to the Equity Distribution Agreement at an average price of $24.47 per share, with net proceeds to the Company totaling approximately $68.1 million. As of March 31, 2021, the Company sold all 5.0 million shares authorized under the Equity Distribution Agreement, at an average price of $22.46 per share, with net proceeds to the Company of approximately $109.3 million.

Stock Repurchase Program

In November 2018, the Company's Board of Directors approved the repurchase of up to $100 million of its outstanding common stock over a two-year period through December 2020. In the first quarter of 2020, the Company announced the suspension of its stock repurchase program and pursuant to its receipt of financial assistance under federal Payroll Support Programs, it is restricted from making any stock repurchases until one year following repayment of all outstanding loans under the ERP. Accordingly, the Company will not be making any further repurchases under its current stock repurchase program.
11



During the three months ended March 31, 2020, the Company spent $7.5 million to repurchase and retire approximately 260 thousand shares of the Company's common stock in open market transactions. The Company had no stock repurchase activity during the three months ended March 31, 2021.

Dividends

The Company’s receipt of financial assistance under federal Payroll Support Programs precludes the Company from making any further dividend payments through September 30, 2022.

5. Revenue Recognition
The Company’s contracts with customers have two principal performance obligations, which are the promise to provide transportation to the passenger and the frequent flyer miles earned on the flight. In addition, the Company typically charges additional fees for items such as baggage. Such items are not capable of being distinct from the transportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of HawaiianMiles awards for flights, is satisfied, and revenue is recognized, as transportation is provided. In some instances, tickets sold by the Company can include a flight segment on another carrier which is referred to as an interline segment. In this situation, the Company acts as an agent for the other carrier and revenue is recognized net of cost in other revenue. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.
The majority of the Company's passenger revenue is derived from passenger ticket sales. Other revenue is primarily derived from the Company's cargo operations and loyalty program. The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in the State of Hawai'i. The management of such operations is based on a system-wide approach due to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian is engaged in only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's operating revenues by geographic region (as defined by the U.S. Department of Transportation (DOT)) are summarized below:
Three Months Ended March 31,
20212020
Geographic Information(in thousands)
Domestic$165,702 $402,014 
Pacific16,515 157,130 
Total operating revenue$182,217 $559,144 

Hawaiian attributes operating revenue by geographic region based on the destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which is mobile across geographic markets, and therefore has not been allocated to specific geographic regions.
Other operating revenue consists of cargo revenue, ground handling fees, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.
Three Months Ended March 31,
20212020
Passenger Revenue by Type(in thousands)
Passenger revenue, excluding frequent flyer$124,786 $474,135 
Frequent flyer revenue, transportation component12,683 29,334 
Passenger Revenue$137,469 $503,469 
Other revenue (e.g., cargo and other miscellaneous)$27,216 $34,183 
Frequent flyer revenue, marketing and brand component17,532 21,492 
Other Revenue$44,748 $55,675 
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For the three months ended March 31, 2021 and 2020, the Company's total revenue was $182.2 million and $559.1 million, respectively. As of March 31, 2021 and December 31, 2020, the Company's Air traffic liability balance, as it relates to passenger tickets (excluding frequent flyer liability), was $455.2 million and $308.2 million, respectively, which generally represents revenue that is expected to be realized in future periods. Prior to the second quarter of 2020, non-refundable tickets sold and credits issued generally expired 13 months from the date of issuance or scheduled flight, as applicable. In April 2020, the Company announced the waiver of certain change fees and extended ticket validity for up to 24 months. The Company assessed the impact of these changes and believes that the classification of Air traffic liability as a current liability remains appropriate. During the three months ended March 31, 2021 and 2020, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $30.9 million and $240.2 million, respectively.
Passenger revenue associated with unused tickets, which represents unexercised passenger rights, is recognized in proportion to the pattern of rights exercised by related passengers (e.g., scheduled departure dates). To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information and applies the trend rate to the current Air traffic liability balances for that specific period. Given the ongoing impact of the COVID-19 pandemic on operations, the Company continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available.

Frequent Flyer Accounting

The Company's frequent flyer liability is recorded in Air traffic liability, Current frequent flyer deferred revenue and Noncurrent frequent flyer deferred revenue in the Company's unaudited Consolidated Balance Sheets based on estimated and expected redemption patterns using historical data and analysis. As of March 31, 2021, and December 31, 2020, the Company's frequent flyer liability balance was $433.4 million and $420.1 million, respectively.
March 31, 2021December 31, 2020
(in thousands)
Air traffic liability (current portion of frequent flyer revenue)$225,818 $218,886 
Noncurrent frequent flyer deferred revenue207,610 201,239 
Total frequent flyer liability$433,428 $420,125 

The table below presents the Company's activity of the current and noncurrent frequent flyer deferred revenue:
 20212020
 (in thousands)
Balance at January 1$420,125 $349,806 
Miles awarded26,276 40,208 
Travel miles redeemed (Passenger Revenue)(12,683)(29,334)
Non-travel miles redeemed (Other Revenue)(290)(1,012)
Balance at March 31$433,428 $359,668 

Frequent flyer program deferred revenue classified as a current liability represents the Company's current estimate of revenue expected to be recognized in the next 12 months based on projected redemptions, while the balance classified as a noncurrent liability represents the Company's current estimate of revenue expected to be recognized beyond 12 months. Due to the effects of the COVID-19 pandemic, including changes to the Company's ticket validity and exchange policies, management continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available.

In April 2021, the Company announced the elimination of its HawaiianMiles expiration policy, effective immediately. The Company does not believe that the change in policy will have a material impact on its accounting estimates. Management will continue to evaluate the impact of this change as additional information becomes available.

6.  Fair Value Measurements
 
Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement (ASC 820), defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
13


 
Level 1 — Observable inputs such as 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 for the assets or liabilities; and
 
Level 3 — Unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets or liabilities.

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 Fair Value Measurements as of March 31, 2021
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$432,320 $356,314 $76,006 $ 
Short-term investments
Corporate debt securities455,857  455,857  
U.S. government and agency securities308,374  308,374  
Other fixed income securities125,731  125,731  
Total short-term investments889,962  889,962  
Fuel derivative contracts    
Foreign currency derivatives398  398  
Total assets measured at fair value$1,322,680 $356,314 $966,366 $ 
Foreign currency derivatives    
Total liabilities measured at fair value$ $ $ $ 
 
 Fair Value Measurements as of December 31, 2020
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$345,766 $297,698 $48,068 $ 
Short-term investments
Corporate debt securities198,355  198,355  
U.S. government and agency securities156,427  156,427  
Total short-term investments354,782  354,782  
Fuel derivative contracts43  43  
Foreign currency derivatives31  31  
Total assets measured at fair value$700,622 $297,698 $402,924 $ 
Foreign currency derivatives1,382  1,382  
Total liabilities measured at fair value$1,382 $ $1,382 $ 

Cash equivalents. The Company's Level 1 cash equivalents consist of money market securities. The carrying amounts approximate fair value because of the short-term maturity of these assets. The Company's Level 2 cash equivalents consist primarily of debt securities. These instruments are valued using quoted prices for similar assets in active markets.

Short-term investments. Short-term investments are valued based on a market approach using industry standard valuation techniques that incorporate inputs such as quoted prices for similar assets, interest rates, benchmark curves, credit ratings, and other observable inputs. As of March 31, 2021, corporate debt securities have remaining maturities of two years or less, U.S. government and agency securities have maturities of approximately two years or less, and other fixed-income securities of one year or less.

14


Fuel derivative contracts. The Company’s fuel derivative contracts consist of crude oil call options, which are not traded on a public exchange. The fair value of these instruments is determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves, and measures of volatility among others.
 
Foreign currency derivatives. The Company’s foreign currency derivatives consist of Japanese Yen and Australian Dollar forward contracts and are valued primarily based upon data readily observable in public markets.

The table below presents the Company’s debt measured at fair value: 
Fair Value of Debt
March 31, 2021December 31, 2020
CarryingFair ValueCarryingFair Value
AmountTotalLevel 1Level 2Level 3AmountTotalLevel 1Level 2Level 3
(in thousands)
$2,049,543 $2,142,513 $ $ $2,142,513 $1,171,349 $1,054,410 $ $ $1,054,410 
 
The fair value estimates of the Company’s debt were based on the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar instruments.
 
The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.
 
7.  Financial Derivative Instruments
 
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices and foreign currencies.
 
Fuel Risk Management

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. During the three months ended March 31, 2021, the Company's portfolio comprised of crude oil call options, which were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.

The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations.
 Three months ended March 31,
Fuel derivative contracts20212020
 (in thousands)
Losses realized at settlement$(165)$(3,086)
Reversal of prior period unrealized amounts382 2,488 
Unrealized losses that will settle in future periods (5,854)
Gains (losses) on fuel derivatives recorded as nonoperating income (expense)$217 $(6,452)

Foreign Currency Exchange Rate Risk Management
 
The Company is subject to foreign currency exchange rate risk due to revenues and expenses that are denominated in foreign currencies, with the primary exposures being to the Japanese Yen and the Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable.

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The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The gain or loss is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and therefore any changes in fair value are recognized as other nonoperating income (expense) in the period of change.

During the three months ended March 31, 2020, the Company de-designated certain hedged transactions as the Company concluded that the cash flows attributable to the hedged risk were no longer probable of occurring. As a result, the Company reclassified approximately $2.8 million from AOCI to nonoperating income in the period during the three months ended March 31, 2020. Future gains and losses related to these instruments will continue to be recorded in nonoperating expense. As of March 31, 2021, the Company did not have any remaining derivative instruments designated for hedge accounting.
 
The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Company's unaudited Consolidated Balance Sheets.

Derivative position as of March 31, 2021 
 Balance Sheet
Location
Notional AmountFinal
Maturity
Date
Gross fair
value of
assets
Gross fair
value of
(liabilities)
Net
derivative
position
  (in thousands) (in thousands)
Derivatives not designated as hedges     
Foreign currency derivativesPrepaid expenses and other
1,000,400 Japanese Yen
February 2022398  398 
 
Derivative position as of December 31, 2020
Balance Sheet
Location
Notional AmountFinal
Maturity
Date
Gross fair
value of
assets
Gross fair
value of
(liabilities)
Net
derivative
position
  (in thousands) (in thousands)
Derivatives not designated as hedges     
Foreign currency derivativesOther accrued liabilities
4,062,950 Japanese Yen
2,852 Australian Dollars
December 202131 (1,156)(1,125)
Other liabilities and deferred credits
789,000 Japanese Yen
February 2022 (226)(226)
Fuel derivative contractsPrepaid expenses and other
8,652 gallons
March 202143  43 
 
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Company's unaudited Consolidated Statements of Comprehensive Income. 
 (Gain) loss recognized in AOCI on derivatives(Gain) loss reclassified from AOCI
into income
 Three months ended March 31,Three months ended March 31,
 2021202020212020
(in thousands)
Foreign currency derivatives$ $(1,571)$ $(3,900)

Risk and Collateral
 
Financial derivative instruments expose the Company to possible credit loss in the event the counterparties fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings, (2) limits its exposure to any single counterparty, and (3) regularly assesses the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments, as cash collateral would be provided by the counterparties based on the current market exposure of the derivative.
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ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement or present such amounts on a gross basis. The Company’s accounting policy is to present its derivative assets and liabilities on a net basis, including any collateral posted with the counterparty. The Company had no collateral posted with counterparties as of March 31, 2021 and $0.4 million in collateral posted with its counterparties as of December 31, 2020.

The Company is also subject to market risk in the event that these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company’s overall exposure.


8.  Debt
 
Long-term debt, net of unamortized discounts and issuance costs, is outlined as follows:

March 31, 2021December 31, 2020
(in thousands)
Class A EETC-13, fixed interest rate of 3.9%, semiannual principal and interest payments, remaining balance due at maturity in January 2026
$207,821 $214,923 
Class B EETC-13, fixed interest rate of 4.95%, semiannual principal and interest payments, remaining balance due at maturity in January 2022
65,650 75,565 
Japanese Yen denominated financing, fixed interest rate of 1.05%, quarterly principal and interest payments, remaining balance due at maturity in May 2030
34,037 37,526 
Japanese Yen denominated financing, fixed interest rate of 1.01%, semiannual principal and interest payments, remaining balance due at maturity in June 2030
31,234 33,573 
Japanese Yen denominated financing, fixed interest rate of 0.65%, quarterly principal and interest payments, remaining balance due at maturity in March 2025
108,424 121,480 
Japanese Yen denominated financing, fixed interest rate of 0.76%, semiannual principal and interest payments, remaining balance due at maturity in September 2031
76,530 86,018 
Revolving credit facility, variable interest rate of LIBOR plus a margin of 2.25%, monthly interest payments, principal balance due at maturity in December 2022
 235,000 
Class A EETC-20, fixed interest rate of 7.375%, semiannual principal and interest payments, remaining balance due at maturity in September 2027
204,524 216,976 
Class B EETC-20, fixed interest rate of 11.25%, semiannual principal and interest payments, remaining balance due at maturity in September 2025