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HAWAIIAN HOLDINGS INC - Quarter Report: 2021 September (Form 10-Q)


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 September 30, 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 October 25, 2021, 51,212,761 shares of the registrant’s common stock were outstanding.



Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended September 30, 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 September 30,Nine months ended September 30,
 2021202020212020
 (unaudited)
Operating Revenue:  
Passenger$454,044 $39,777 $947,784 $573,008 
Other54,804 36,205 154,062 122,122 
Total508,848 75,982 1,101,846 695,130 
Operating Expenses:  
Wages and benefits180,405 148,582 511,342 478,725 
Aircraft fuel, including taxes and delivery108,785 14,544 240,361 135,025 
Maintenance, materials and repairs48,081 18,664 119,416 93,067 
Aircraft and passenger servicing30,915 5,140 73,896 46,459 
Depreciation and amortization33,899 36,734 104,368 115,516 
Aircraft rent26,680 26,230 84,200 77,120 
Commissions and other selling20,964 5,201 49,643 34,844 
Other rentals and landing fees36,414 14,156 83,421 57,599 
Purchased services27,361 22,878 75,229 77,006 
Special items— 17,489 8,983 178,407 
Government grant recognition(78,256)(129,088)(320,645)(240,648)
Other30,133 16,525 82,854 80,143 
Total465,381 197,055 1,113,068 1,133,263 
Operating Income (Loss)43,467 (121,073)(11,222)(438,133)
Nonoperating Income (Expense):  
Other nonoperating special items— (7,011)— (7,011)
Interest expense and amortization of debt discounts and issuance costs(29,897)(11,596)(83,905)(26,612)
Gains (losses) on fuel derivatives— (297)217 (6,933)
Other components of net periodic benefit cost981 (136)2,943 589 
Interest income2,067 1,942 4,661 7,728 
Capitalized interest880 831 2,340 2,583 
Loss on extinguishment of debt— — (3,994)— 
Other, net1,671 (6,244)23,011 (3,504)
Total(24,298)(22,511)(54,727)(33,160)
Income (Loss) Before Income Taxes19,169 (143,584)(65,949)(471,293)
Income tax expense (benefit)4,500 (46,485)(13,750)(122,918)
Net Income (Loss)$14,669 $(97,099)$(52,199)$(348,375)
Net Income (Loss) Per Share  
Basic$0.29 $(2.11)$(1.03)$(7.58)
Diluted$0.28 $(2.11)$(1.03)$(7.58)
Weighted Average Number of Common Stock Shares Outstanding:
Basic51,210 46,001 50,619 45,980 
Diluted51,825 46,001 50,619 45,980 
Cash dividends declared per common stock share$— $— $— $0.12 

See accompanying Notes to Consolidated Financial Statements.
3


Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 Three Months Ended September 30,
 20212020
 (unaudited)
Net Income (Loss)$14,669 $(97,099)
Other comprehensive income (loss), net:  
Net change related to employee benefit plans, net of tax expense of $237 and net of tax benefit of $3,272 for 2021 and 2020, respectively
841 (11,284)
Net change in derivative instruments, net of tax benefit of $416 for 2020
— (1,266)
Net change in available-for-sale investments, net of tax benefit of $182 and $197 for 2021 and 2020, respectively
(551)(579)
Total other comprehensive income (loss)290 (13,129)
Total Comprehensive Income (Loss)$14,959 $(110,228)

 Nine months ended September 30,
 20212020
 (unaudited)
Net Loss$(52,199)$(348,375)
Other comprehensive income (loss), net:
Net change related to employee benefit plans, net of tax expense of $465 and net of tax benefit of $2,833 for 2021 and 2020, respectively
2,769 (9,950)
Net change in derivative instruments, net of tax benefit of $1,098 for 2020
— (3,341)
Net change in available-for-sale investments, net of tax benefit of $780 for 2021 and net of tax expense of $281 for 2020
(2,386)875 
Total other comprehensive income (loss)383 (12,416)
Total Comprehensive Loss$(51,816)$(360,791)

See accompanying Notes to Consolidated Financial Statements.

4


Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
September 30, 2021
(unaudited)
December 31, 2020
ASSETS  
Current Assets:  
Cash and cash equivalents$714,597 $509,639 
Restricted cash31,822 — 
Short-term investments1,279,953 354,782 
Accounts receivable, net55,041 67,527 
Income taxes receivable94,543 95,002 
Spare parts and supplies, net35,116 35,442 
Prepaid expenses and other77,489 56,086 
Total2,288,561 1,118,478 
Property and equipment, less accumulated depreciation and amortization of $990,444 and $894,519 as of September 30, 2021 and December 31, 2020, respectively
1,983,040 2,085,030 
Other Assets:  
Assets held for sale29,672 — 
Operating lease right-of-use assets554,850 627,359 
Long-term prepayments and other99,651 133,663 
Intangible assets, net13,500 13,500 
Total Assets$4,969,274 $3,978,030 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$131,341 $112,002 
Air traffic liability and current frequent flyer deferred revenue721,446 533,702 
Other accrued liabilities150,276 140,081 
Current maturities of long-term debt, less discount119,980 115,019 
Current maturities of finance lease obligations24,219 21,290 
Current maturities of operating leases80,792 82,454 
Total1,228,054 1,004,548 
Long-Term Debt1,851,672 1,034,805 
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations106,940 120,618 
Noncurrent operating leases442,093 503,376 
Accumulated pension and other post-retirement benefit obligations211,100 217,737 
Other liabilities and deferred credits81,545 78,908 
Noncurrent frequent flyer deferred revenue216,184 201,239 
Deferred tax liability, net204,042 216,642 
Total1,261,904 1,338,520 
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of September 30, 2021 and December 31, 2020
— — 
Common stock, $0.01 par value per share, 51,212,761 and 48,145,093 shares outstanding as of September 30, 2021 and December 31, 2020, respectively
512 481 
Capital in excess of par value267,865 188,593 
Accumulated income473,411 525,610 
Accumulated other comprehensive loss, net(114,144)(114,527)
Total627,644 600,157 
Total Liabilities and Shareholders’ Equity$4,969,274 $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
— (1,567)— — (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 
Net Loss— — — (6,177)— (6,177)
Other comprehensive income, net— — — — 417 417 
Issuance of 100,606 shares of common stock, net of shares withheld for taxes
— (148)— — (147)
CARES Act warrant issuance, net of tax— — 2,168 — — 2,168 
Share-based compensation expense— — 2,211 — — 2,211 
Balance at June 30, 2021$512 $— $265,654 $458,742 $(114,434)$610,474 
Net Income— — — 14,669 — 14,669 
Other comprehensive income, net— — — — 290 290 
Issuance of 4,945 shares of common stock, net of shares withheld for taxes
— — (51)— — (51)
Share-based compensation expense— — 2,262 — — 2,262 
Balance at September 30, 2021$512 $— $267,865 $473,411 $(114,144)$627,644 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of September 30, 2021 and December 31, 2020.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of September 30, 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
— (1,231)— — (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 
Net Loss— — — (106,904)— (106,904)
Other comprehensive loss, net— — — — (618)(618)
Issuance of 46,447 shares of common stock, net of shares withheld for taxes
— — (83)— — (83)
CARES Act PSP warrant issuance— — 7,403 — — 7,403 
Share-based compensation expense— — 1,769 — — 1,769 
Balance at June 30, 2020$460 $— $143,374 $785,269 $(103,170)$825,933 
Net Loss— — — (97,099)— (97,099)
Other comprehensive loss, net— — — — (13,129)(13,129)
Issuance of 7,214 shares of common stock, net of shares withheld for taxes
— — (45)— — (45)
CARES Act warrant issuance, net of tax— — (7)— — (7)
Share-based compensation expense— — 1,562 — — 1,562 
Balance at September 30, 2020$460 $— $144,884 $688,170 $(116,299)$717,215 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of September 30, 2020 and December 31, 2019.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of September 30, 2020 and December 31, 2019.

See accompanying Notes to Consolidated Financial Statements.
7


Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Nine months ended September 30,
 20212020
(unaudited)
Net cash provided by (used in) Operating Activities$311,300 $(173,482)
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments(34,144)(101,775)
Proceeds from the purchase assignment and sale leaseback— 114,000 
Proceeds from the disposition of aircraft related equipment394 — 
Purchases of investments(1,529,293)(408,955)
Sales of investments598,979 214,469 
Net cash used in investing activities(964,064)(182,261)
Cash flows from Financing Activities:  
Proceeds from the issuance of common stock68,132 — 
Long-term borrowings1,251,705 602,264 
Repayments of long-term debt and finance lease obligations(405,703)(64,686)
Dividend payments— (5,514)
Debt issuance costs and discounts(24,664)(3,506)
Repurchases of common stock— (7,510)
Payment for taxes withheld for stock compensation(1,763)(1,359)
Other1,837 — 
Net cash provided by financing activities889,544 519,689 
Net increase in cash and cash equivalents236,780 163,946 
Cash, cash equivalents, and restricted cash - Beginning of Period509,639 373,056 
Cash, cash equivalents, and restricted cash - End of Period$746,419 $537,002 
 
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.

The Company reclassified certain prior period amounts for government grant recognition contra-expense from wages and benefits to its own financial statement line item to conform to the current period presentation.

Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.

2. Significant Accounting Policies
 
Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board 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 September 30,Nine months ended September 30,Affected line items in the statement where net income is presented
2021202020212020
 (in thousands) 
Derivative instruments under ASC 815     
Foreign currency derivative gains, net$— $— $— $(3,075)Passenger revenue
Foreign currency derivative losses (gains)— 418 — (4,363)Nonoperating Income (Expense), Other, net
Total before tax— 418 — (7,438) 
Tax expense (benefit)— (103)— 1,840  
Total, net of tax$— $315 $— $(5,598) 
Amortization of defined benefit plan items     
Actuarial loss$986 $1,046 $2,958 $2,890 Nonoperating Income (Expense), Other, net
Prior service cost92 414 276 526 Nonoperating Income (Expense), Other, net
Special termination benefits— 5,258 — 5,258 Other nonoperating special items
Curtailment loss— 1,753 — 1,753 Other nonoperating special items
Total before tax1,078 8,471 3,234 10,427  
Tax benefit(237)(1,904)(465)(2,388) 
Total, net of tax$841 $6,567 $2,769 $8,039  
Short-term investments     
Realized gain on sales of investments, net$(3)$(283)$(599)$(654)Nonoperating Income (Expense), Other, net
Total before tax(3)(283)(599)(654) 
Income tax expense67 149 159  
Total, net of tax$(2)$(216)$(450)$(495) 
Total reclassifications for the period$839 $6,666 $2,319 $1,946  

A roll-forward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three and nine months ended September 30, 2021 and 2020 is as follows:
Three months ended September 30, 2021Defined Benefit
Plan Items
Short-Term InvestmentsTotal
 (in thousands)
Beginning balance$(114,253)$(181)$(114,434)
Other comprehensive loss before reclassifications, net of tax— (549)(549)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax841 (2)839 
Net current-period other comprehensive income (loss)841 (551)290 
Ending balance$(113,412)$(732)$(114,144)
10


Three months ended September 30, 2020Foreign Currency DerivativesDefined Benefit Plan ItemsShort-Term InvestmentsTotal
 (in thousands)
Beginning balance$1,266 $(106,694)$2,258 $(103,170)
Other comprehensive loss before reclassifications, net of tax(1,581)(17,851)(363)(19,795)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax315 6,567 (216)6,666 
Net current-period other comprehensive loss(1,266)(11,284)(579)(13,129)
Ending balance$— $(117,978)$1,679 $(116,299)

Nine months ended September 30, 2021Defined Benefit Pension ItemsShort-Term InvestmentsTotal
(in thousands)
Beginning balance$(116,181)$1,654 $(114,527)
Other comprehensive loss before reclassifications, net of tax— (1,936)(1,936)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax2,769 (450)2,319 
Net current-period other comprehensive income (loss)2,769 (2,386)383 
Ending balance$(113,412)$(732)$(114,144)
Nine months ended September 30, 2020Foreign Currency DerivativesDefined Benefit Pension ItemsShort-Term InvestmentsTotal
(in thousands)
Beginning balance$3,341 $(108,028)$804 $(103,883)
Other comprehensive income (loss) before reclassifications, net of tax2,257 (17,989)1,370 (14,362)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax(5,598)8,039 (495)1,946 
Net current-period other comprehensive income (loss)(3,341)(9,950)875 (12,416)
Ending balance$— $(117,978)$1,679 $(116,299)

4. Earnings (Loss) Per Share
 
Basic earnings (loss) per share, which excludes dilution, is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. The potentially dilutive shares that were excluded from the computation of diluted weighted average common stock shares outstanding because their effect would have been antidilutive was 87,670 and 164,253 for the three months ended September 30, 2021 and 2020, respectively, and 515,601 and 137,051 for the nine months ended September 30, 2021 and 2020, respectively. The following table shows the computation of basic and diluted loss per share:
11


 Three Months Ended September 30,Nine months ended September 30,
 2021202020212020
 (in thousands, except for per share data)
Numerator:    
Net Income (Loss)$14,669 $(97,099)$(52,199)$(348,375)
Denominator:    
Weighted average common stock shares outstanding - Basic51,210 46,001 50,619 45,980 
Assumed exercise of stock options and awards217 — — — 
Assumed conversion of warrants398 — — — 
Weighted average common stock shares outstanding - Diluted51,825 46,001 50,619 45,980 
Net Income (Loss) Per Share    
Basic$0.29 $(2.11)$(1.03)$(7.58)
Diluted$0.28 $(2.11)$(1.03)$(7.58)

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 nine months ended September 30, 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 5, 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

Pursuant to a stock repurchase program approved by the Company's Board of Directors to repurchase up to $100 million of its outstanding common stock, which terminated in December 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 in the first quarter of 2020. Pursuant to its receipt of financial assistance under federal Payroll Support Programs, the Company is restricted from making any stock repurchases through September 30, 2022. Accordingly, the Company will not be making any further repurchases until the expiration of such restrictions, at the earliest.

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 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:
12


Three Months Ended September 30,Nine months ended September 30,
2021202020212020
Geographic Information(in thousands)
Domestic$482,652 $69,838 $1,039,578 $526,958 
Pacific26,196 6,144 62,268 168,172 
Total operating revenue$508,848 $75,982 $1,101,846 $695,130 

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 September 30,Nine months ended September 30,
2021202020212020
Passenger Revenue by Type(in thousands)
Passenger revenue, excluding frequent flyer$421,255 $34,623 $876,234 $534,926 
Frequent flyer revenue, transportation component32,789 5,154 71,550 38,082 
Passenger Revenue$454,044 $39,777 $947,784 $573,008 
Other revenue (e.g., cargo and other miscellaneous)$28,823 $23,265 $88,607 $74,884 
Frequent flyer revenue, marketing and brand component25,981 12,940 65,455 47,238 
Other Revenue$54,804 $36,205 $154,062 $122,122 

As of September 30, 2021 and December 31, 2020, the Company's Air traffic liability balance, as it relates to passenger tickets (excluding frequent flyer liability), was $481.0 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 for (a) tickets issued between March 1, 2020 and December 31, 2020 and (b) tickets issued prior to March 1, 2020 for original travel between March 1, 2020 and February 28, 2021. 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 September 30, 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 $207.2 million and $6.4 million, respectively. During the nine months ended September 30, 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 $188.9 million and $254.6 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 its operations, the Company continues to monitor customers' travel behavior and may adjust its estimates in the future as additional information becomes available. As of September 30, 2021, the Company had approximately $180.0 million in passenger tickets which were subject to extended validity. During the three months ended September 30, 2021, the Company recognized approximately $9.7 million in advanced ticket breakage associated with these tickets.
Frequent Flyer Accounting

The Company's frequent flyer liability is recorded in Air traffic liability and Noncurrent frequent flyer deferred revenue in its unaudited Consolidated Balance Sheets. As of September 30, 2021, and December 31, 2020, the Company's frequent flyer liability balance was $451.3 million and $420.1 million, respectively.
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September 30, 2021December 31, 2020
(in thousands)
Air traffic liability (current portion of frequent flyer revenue)$235,139 $218,886 
Noncurrent frequent flyer deferred revenue216,184 201,239 
Total frequent flyer liability$451,323 $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 awarded104,239 79,155 
Travel miles redeemed (Passenger Revenue)(71,550)(38,082)
Non-travel miles redeemed (Other Revenue)(1,491)(1,281)
Balance at September 30$451,323 $389,598 

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 ongoing effects of the COVID-19 pandemic, including changes to the Company's ticket validity and exchange policies, and the uncertainty of the pacing to return to normalized service in various markets, primarily international, 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 and 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:
 
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.

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The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 Fair Value Measurements as of September 30, 2021
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$470,672 $450,673 $19,999 $— 
Restricted cash31,822 31,822 — — 
Short-term investments
Corporate debt securities518,293 — 518,293 — 
U.S. government and agency securities349,758 — 349,758 — 
Equity mutual funds 200,076 200,076 — 
Other fixed income securities200,889 — 200,889 — 
Asset-backed securities10,937 10,937 
Total short-term investments1,279,953 200,076 1,079,877 — 
Assets held for sale29,672 — — 29,672 
Total assets measured at fair value$1,812,119 $682,571 $1,099,876 $29,672 
Foreign currency derivatives— — — — 
Total liabilities measured at fair value$— $— $— $— 
 
 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 and restricted cash. Cash equivalents designated as Level 1 consist of money market securities and mutual funds. Restricted cash includes funds held in a controlled account to be used for debt service payments associated with the Company's loyalty and intellectual brand offering. The carrying amounts approximate fair value because of the short-term maturity of these assets. These instruments are valued based on a market approach using prices generated by market transactions involving identical or similar assets. Cash equivalents designated as Level 2 consist primarily of debt securities with original maturity dates less than 90 days. These instruments are valued using prices for similar assets in active markets.

Short-term investments. Equity mutual funds are designated as Level 1 instruments and are valued based on a market approach using prices generated by market transactions involving identical or similar assets. Short-term investments designated as Level 2 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 September 30, 2021, corporate debt securities, U.S. government and agency securities, and asset-backed securities have remaining maturities ranging from less than one year to more than five years, while other fixed-income securities have remaining maturities of one year or less.

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.
 
15


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.

Assets held for sale. The Company's assets held for sale consist of aircraft, engine, rotable and expendable aircraft parts, and commercial real estate. 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 assets' carrying amount to fair value less cost to sell. The fair value measurements for the Company's held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources and other market sources. Refer to Note 11 to the Notes to Consolidated Financial Statements for additional discussion.

The table below presents the Company’s debt measured at fair value: 
Fair Value of Debt
September 30, 2021December 31, 2020
CarryingFair ValueCarryingFair Value
AmountTotalLevel 1Level 2Level 3AmountTotalLevel 1Level 2Level 3
(in thousands)
$2,013,478 $2,102,670 $— $— $2,102,670 $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 based on quotes of similar debt for other similarly rated companies.
 
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. Any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change. During the three months ended September 30, 2021, the Company did not enter into or hold any fuel derivative positions.

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 September 30,Nine months ended September 30,
Fuel derivative contracts2021202020212020
 (in thousands)
Losses realized at settlement$— $(2,062)$(165)$(7,899)
Reversal of prior period unrealized amounts— 3,287 382 2,488 
Unrealized losses that will settle in future periods— (1,522)— (1,522)
Gains (losses) on fuel derivatives recorded as nonoperating income (expense)$— $(297)$217 $(6,933)

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 and nine months ended September 30, 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 $0.5 million and $3.9 million from AOCI to nonoperating income in the period during the three and nine months ended September 30, 2020, respectively. Future gains and losses related to these instruments will continue to be recorded in nonoperating expense. As of September 30, 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 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 September 30,Three months ended September 30,
 2021202020212020
(in thousands)
Foreign currency derivatives$— $1,262 $— $418 

(Gain) loss recognized in AOCI on derivatives (effective portion)(Gain) loss reclassified from AOCI
into income (effective portion)
Nine months ended September 30,Nine months ended September 30,
2021202020212020
(in thousands)
Foreign currency derivatives$— $3,131 $— $(7,020)

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.
17



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 September 30, 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:

September 30, 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
$196,338 $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
45,090 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
32,002 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
28,659 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
98,372 121,480 
Japanese Yen denominated financing, fixed interest rate of 0.76%, semiannual principal and interest payments, remaining balance due at maturity in September 2031
72,398 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
192,073 216,976 
Class B EETC-20, fixed interest rate of 11.25%, semiannual principal and interest payments, remaining balance due at maturity in September 2025
36,564 45,010 
CARES Act Payroll Support Program, fixed interest rate of 1.0% for the first through fifth years and variable interest of SOFR plus a margin of 2.0% for the sixth year through maturity, semiannual interest payments, principal balance due at maturity in April 2030 through September 2030
60,278 60,278 
Payroll Support Program Extension, fixed interest rate of 1.0% for the first through fifth years and variable interest of SOFR plus a margin of 2.0% for the sixth year through maturity, semiannual interest payments, principal balance due at maturity in March 2031 through April 2031
27,797 — 
Payroll Support Program 3, fixed interest rate of 1.0% for the first through fifth years and variable interest of SOFR plus a margin of 2.0% for the sixth year through maturity, semiannual interest payments, principal balance due at maturity in June 2031
23,908 — 
CARES Act Economic Relief Program, variable interest rate of LIBOR plus a margin of 2.5%, quarterly interest payments, principal balance due at maturity in June 2024
— 45,000 
Loyalty Program Financing, fixed interest of 5.75%, quarterly interest payments, principal balance due at maturity in January 2026
1,200,000 — 
Unamortized debt discount and issuance costs(41,827)(21,525)
Total Debt$1,971,652 $1,149,824 
Less: Current maturities of long-term debt(119,980)(115,019)
Long-Term Debt, less discount$1,851,672 $1,034,805 

On September 23, 2021, the Company commenced cash tender offers for any and all of the outstanding 7.375% Series 2020-1A Pass Through Certificates due 2027 and 11.250% Series 2020-1B Pass Through Certificates due 2025. The tender offer is expected to close in early November 2021.
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Revolving Credit Facility

In March 2020, the Company drew down $235.0 million in revolving loans pursuant to its Amended and Restated Credit and Guaranty Agreement (the Credit Agreement) dated December 11, 2018. In February 2021, the Company repaid the entire $235.0 million then outstanding. The Credit Agreement terminates, and all outstanding revolving loans thereunder will be due and payable, on December 11, 2022, unless otherwise extended by the parties. The revolving loans bear a variable interest rate equal to the LIBO Rate plus a margin of 2.25% per annum. The revolving loans are secured by certain assets of Hawaiian and the Company. The Credit Agreement requires that the Company maintain $300.0 million in liquidity, as defined under the Credit Agreement. In the event that the requirement is not met, or other customary conditions are not satisfied, the due date of the revolving loans may be accelerated.

As of September 30, 2021, the Company has $235.0 million undrawn and available under its revolving credit facility.

Payroll Support Program Extension Loans

The Consolidated Appropriations Act, 2021 (CAA 2021) was enacted on December 27, 2020, and included an extension of the payroll support program (PSP) created under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) providing an additional $15 billion in grants and loans to be used for airline employee wages, salaries and benefits (the PSP Extension). In January 2021, the Company entered into a PSP extension agreement (the PSP Extension Agreement) and contemporaneously entered into a warrant agreement (the Warrant Extension Agreement) with the U.S. Department of Treasury (the Treasury), and issued a promissory note to the Treasury (the Extension Note). During the nine months ended September 30, 2021, the Company received a total of $192.7 million in financial assistance, to be used exclusively for continuing to pay employee salaries, wages and benefits, including the payment of lost wages, salaries and benefits to certain returning employees as defined in the PSP Extension Agreement.

These support payments consisted of $164.9 million in a grant and $27.8 million in an unsecured 10-year low interest loan, and as compensation to the U.S. government, and pursuant to the Warrant Extension Agreement, the Company issued warrants to the Treasury to purchase up to a total of 156,341 shares of its common stock at an exercise price of $17.78 per share (the PSP Extension Warrants). The PSP Extension Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.

The Company recorded the value of the Extension Note and the PSP Extension Warrants on a relative fair value basis as $23.8 million in noncurrent debt and $4.0 million in additional paid in capital, respectively.

The American Rescue Plan Act of 2021 (the ARP 2021), which was enacted on March 11, 2021, included a second PSP extension (the PSP3), providing an additional $14 billion in grants and loans for airline employee wages, salaries and benefits. In April 2021, the Company entered into a Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), a promissory note (the PSP3 Note), and a Warrant Agreement (the PSP3 Warrant Agreement). The PSP3 Agreement extends (i) the prohibition on conducting involuntary employee layoffs or furloughs through September 2021 or the date on which assistance provided under the agreement is exhausted, whichever is later, (ii) the prohibitions on share repurchases and dividends through September 2022, and (iii) the limitations on executive compensation until April 2023.

During the nine months ended September 30, 2021, the Company received $179.7 million in payroll support payments under the PSP3 Agreement, consisting of $155.8 million in a grant and $23.9 million in an unsecured 10-year low interest loan. As compensation to the U.S. government, and pursuant to the PSP3 Warrant Agreement, the Company issued warrants to the Treasury to purchase up to a total of 87,670 shares of its common stock at an exercise of $27.27 per share (the PSP3 Warrants). The terms of the PSP3 Note and PSP3 Warrants are consistent with those of the original PSP and the first PSP Extension.

The Company recorded the value of the PSP3 Note and the PSP3 Warrants on a relative fair value basis as $22.1 million in noncurrent debt and $1.8 million in additional paid in capital, respectively.

The Company participated in the initial PSP, the PSP Extension, and the PSP3. A summary of the amounts received and warrants issued as of September 30, 2021 under these programs is set forth in the following table:

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Summary of payroll support program activity
(in millions, except percentages)Total AmountGrantLoanNumber of warrants
Percentage of outstanding shares at September 30, 2021
Payroll Support Program$300.9 $240.6 $60.3 0.51.0 %
Payroll Support Program Extension192.7 164.9 27.8 0.20.3 %
Payroll Support Program 3 (1)
179.7 155.8 23.9 0.10.2 %

(1)    During the three months ended September 30, 2021, the Company recognized the remaining $78.3 million of this grant in Government grant recognition in the unaudited Consolidated Statements of Operations.

Economic Relief Program Loan

In September 2020, the Company entered into a Loan Agreement with the Treasury under the Economic Relief Program (ERP) under the CARES Act, which was subsequently amended and restated to increase the maximum facility available to be borrowed by the Company to $622.0 million (the Amended and Restated Loan Agreement). In connection with its entry into the Amended and Restated Loan Agreement, the Company also entered into a Warrant Agreement with the Treasury (the ERP Warrant Agreement). On September 25, 2020, the Company borrowed $45.0 million and issued to the Treasury warrants to purchase up to 380,711 shares of the Company's common stock at an exercise price of $11.82 per share. The Company recorded the value of the loan and the warrants on a relative fair value basis as $41.9 million in noncurrent debt and $3.1 million in additional paid in capital, respectively.

On February 4, 2021, the Company repaid in full the $45.0 million loan under the ERP, and in connection with this repayment, terminated the Amended and Restated Loan Agreement. The debt extinguishment resulted in the recognition of a loss of $4.0 million during the nine months ended September 30, 2021, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations. The warrants issued under the ERP Warrant Agreement remain outstanding pursuant to its terms.

Loyalty Program and Intellectual Property Financing

In February 2021, the Company completed the private offering (the Notes Offering) by Hawaiian Brand Intellectual Property, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Brand Issuer), and HawaiianMiles Loyalty, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Loyalty Issuer and, together with the Brand Issuer, the Issuers) of an aggregate of $1.2 billion principal amount of their 5.750% senior secured notes due 2026 (the Notes). The Notes require interest only payments, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, beginning on July 20, 2021.

The Notes are fully and unconditionally guaranteed, jointly and severally, by (i) Hawaiian Finance 1 Ltd., a direct wholly owned subsidiary of Hawaiian (HoldCo 1), (ii) Hawaiian Finance 2 Ltd., a direct subsidiary of HoldCo 1 and indirect wholly owned subsidiary of Hawaiian (HoldCo 2 and, together with HoldCo 1, the Cayman Guarantors), (iii) Hawaiian and (iv) Holdings (Holdings, together with Hawaiian, the Parent Guarantors and the Parent Guarantors, together with the Cayman Guarantors, the Guarantors). The Notes were issued pursuant to an Indenture, dated as of February 4, 2021 (the Indenture), among the Issuers, the Guarantors and Wilmington Trust, National Association, as trustee, collateral custodian.

In connection with the issuance of the Notes, Hawaiian contributed to the Brand Issuer, which is a newly-formed subsidiary structured to be bankruptcy remote, all worldwide rights, owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries, in and to all intellectual property, including all trademarks, service marks, brand names, designs, and logos that include the word “Hawaiian” or any successor brand and the “hawaiianairlines.com” domain name and similar domain names or any successor domain names (the Brand IP). The Brand Issuer indirectly granted Hawaiian an exclusive, worldwide, perpetual and royalty-bearing sublicense to use the Brand IP. Further, Hawaiian contributed to the Loyalty Issuer its rights to certain other collateral owned by Hawaiian, including, to the extent permitted by such agreements or otherwise by operation of law, any of Hawaiian’s rights under the HawaiianMiles Agreements and the IP Agreements (each as defined in the Indenture), together with HawaiianMiles program (HawaiianMiles) customer data and certain other intellectual property owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries (including the Issuers) and required or necessary to operate HawaiianMiles (the Loyalty Program IP) (all such collateral being, the Loyalty Program Collateral). The Loyalty Issuer indirectly granted Hawaiian an exclusive, worldwide, perpetual and royalty-free sub-license to use the Loyalty Program IP.

20


As of September 30, 2021, approximately $31.8 million in cash was held in the Interest Reserve Account designated for debt servicing, and is classified as restricted cash on the Company's consolidated balance sheets.

Schedule of Maturities of Long-Term Debt

As of September 30, 2021, the expected maturities of long-term debt for the remainder of 2021 and the next four years, and thereafter, were as follows (in thousands): 
Remaining months in 2021$7,039 
2022122,267 
202387,242 
202485,133 
2025104,563 
Thereafter1,607,235 
 $2,013,479 

Covenants

The Company's debt agreements contain various affirmative, negative and financial covenants as discussed above within this Note. The Company was in compliance with the covenants in these debt agreements as of September 30, 2021.

9. Employee Benefit Plans
 
The components of net periodic benefit cost for the Company’s defined benefit and other post-retirement plans included the following: 
 Three months ended September 30,Nine months ended September 30,
Components of Net Period Benefit Cost2021202020212020
 (in thousands)
Service cost$2,739 $2,695 $8,218 $8,029 
Other cost:
Interest cost4,216 4,970 12,649 14,910 
Expected return on plan assets(6,275)(6,293)(18,825)(18,865)
Recognized net actuarial loss1,078 1,460 3,234 3,416 
Total other components of the net periodic benefit cost(981)137 (2,942)(539)
Curtailment loss— 1,753 — 1,753 
Special termination benefits— 5,258 — 5,258 
Net periodic benefit cost$1,758 $9,843 $5,276 $14,501 
 
Service costs are recorded within Wages and Benefits in the unaudited Consolidated Statements of Operations. Total other components of the net periodic benefit cost are recorded within the nonoperating income (expense), other, net line item in the unaudited Consolidated Statements of Operations. During the three and nine months ended September 30, 2021 and 2020, the Company was not required to, and did not make cash contributions to its defined benefit and other post-retirement plans. The Company is not required to make a cash contribution to its defined benefit plan for the remainder of 2021.

In the third quarter of 2020, the Company remeasured its postretirement healthcare obligation to account for retiree healthcare benefits provided to eligible participants under the Company's voluntary separation programs. As a result, the Company recorded $5.3 million in special termination benefits during the three and nine months ended September 30, 2020. The Company also recorded $1.8 million in curtailment loss during the three and nine months ended September 30, 2020. As a result of its separation programs, the Company remeasured its postretirement plans using discount rates ranging between 2.48% and 2.81% based on the measurement date. The projected benefit obligation of the other postretirement plans increased by approximately $33.7 million and accumulated other comprehensive income gains decreased by approximately $14.3 million as a result of the plans' remeasurement.

21


10. Commitments and Contingent Liabilities
 
Commitments

As of September 30, 2021, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights for additional aircraft and engines:
Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft— N/A
B787-9 aircraft10 10 Between 2022 and 2026
General Electric GEnx spare engines:   
B787-9 spare enginesBetween 2022 and 2025

In July 2018, the Company entered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft, including purchase rights for an additional 10 aircraft with scheduled delivery from 2021 to 2025. In October 2018, the Company entered into a definitive agreement for the selection of GEnx engines to power its Boeing 787-9 fleet. The agreement provides for the purchase of 20 GEnx engines, the right to purchase an additional 20 GEnx engines, and the purchase of up to four spare engines.

In October 2020, the Company entered into an amendment related to its Boeing 787-9 purchase agreement referenced above, which, amongst other things, provides for a change in the Company's aircraft delivery schedule to between 2022 and 2026, with the first delivery scheduled in the third quarter of 2022. The committed expenditures under the amended agreement are reflected in the table below.
In order to complete the purchase of these aircraft and fund related costs, the Company may need to secure acceptable financing. Financing may be necessary to satisfy the Company's capital commitments for firm order aircraft and other related capital expenditures. The Company can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.
Committed capital and operating expenditures include escalation amounts based on estimates. Capital expenditures represent aircraft and aircraft related equipment commitments, and operating expenditures represent all other non-aircraft commitments the Company has entered into. The gross committed expenditures and committed payments for those deliveries as of September 30, 2021 are detailed below: 
Aircraft and aircraft relatedOtherTotal Committed
Expenditures
 (in thousands)
Remaining in 2021$— $5,395 $5,395 
2022342,593 27,008 369,601 
2023158,380 25,017 183,397 
2024500,465 23,708 524,173 
2025410,957 15,123 426,080 
Thereafter233,823 21,727 255,550 
 $1,646,218 $117,978 $1,764,196 

Litigation and Contingencies
 
The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of any currently pending proceeding will have a material effect on the Company’s operations, business or financial condition.

22


General Guarantees and Indemnifications
 
In the normal course of business, the Company enters into numerous aircraft financing and real estate leasing arrangements that have various guarantees included in such contracts. It is common in such lease transactions for the lessee to agree to indemnify the lessor and other related third parties for tort liabilities that arise out of, or relate to, the lessee’s use of the leased aircraft or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by such parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to the lessee's use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most of the tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot reasonably estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.
 
Credit Card Holdback
 
Under the Company’s bank-issued credit card processing agreements, proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. As of September 30, 2021 and December 31, 2020, there were no holdbacks held with the Company's credit card processors.
 
In the event of a material adverse change in the Company's business, the credit card processor could increase holdbacks to up to 100% of the amount of outstanding credit card tickets that are unflown (e.g., Air traffic liability, excluding frequent flyer deferred revenue), which would result in a restriction of cash. If the Company were unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material impact on the Company's operations, business or financial condition.

11. Assets Held-For-Sale

As of September 30, 2021 and December 31, 2020, the Company had approximately $29.7 million and $0.0 million, respectively, in Assets held for sale on the Consolidated Balance Sheets, consisting of the following:

During the second quarter of 2021, management announced the termination of its 'Ohana by Hawaiian operations, which utilizes its ATR-42 and ATR-72 fleet, and was operated under a capacity purchase agreement (the CPA) with a third-party carrier. Following the termination of the operations, which were temporarily suspended in late 2020, management committed to a plan of sale and wrote-down the related assets by approximately $6.4 million to fair value, less cost to sell, and classified approximately $23.4 million as Assets held for sale on the Consolidated Balance Sheets.
During the second quarter of 2021, management committed to a plan to sell certain commercial real-estate assets held by one of the Company's subsidiaries. Management fair valued the assets, less the cost to sell, which did not result in a write-down to the asset group, and as of September 30, 2021, reclassified approximately $6.3 million as Assets held for sale on the Consolidated Balance Sheets.

Management expects to complete the sale of the above referenced assets within 12 months from the original designation date, and will continue to monitor the asset groups for potential impairment.

12. Special Items

Special items in the unaudited Consolidated Statements of Operations consisted of the following:
23


Three months ended September 30,Nine months ended September 30,
2021202020212020
(in thousands)
Operating
Collective bargaining agreement payment (1)
$— $— $— $20,242 
Goodwill impairment (2)
— — — 106,662 
Long-lived asset impairment (3)
— — — 34,014 
'Ohana by Hawaiian termination (4)
— — 8,983 — 
Severance and benefit costs (5)
— 17,489 — 17,489 
Total operating special items$— $17,489 $8,983 $178,407 
Nonoperating
Special termination benefits (6)
$— $5,258 $— $5,258 
Curtailment loss (6)
— 1,753 — 1,753 
Total nonoperating special items$— $7,011 $— $7,011 

(1)In March 2020, the Company reached an agreement in principle with the flight attendants of Hawaiian, represented by the Association of Flight Attendants (the AFA) on a new five-year contract that runs through April 2025. On April 3, 2020, the Company received notice from the AFA that the collective bargaining agreement (CBA) was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flights attendants upon retirement. During the three months ended March 31, 2020, the Company recorded a $23.5 million ratification bonus, of which $20.2 million was related to service prior to January 1, 2020, and was recorded as a Special item in the unaudited Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of Wages and benefits in the unaudited Consolidated Statements of Operations.

(2)In the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove the Company's stock price to 52-week lows and significantly reduced future cash flow projections. The Company qualitatively assessed that an impairment loss may have been incurred and performed an interim test of the recoverability of its goodwill and indefinite-lived intangible assets. The Company determined that the estimated fair value of the Company's one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the Company's unaudited Consolidated Balance Sheets, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.

(3)In the second quarter of 2020, the Company recorded an impairment charge of $34.0 million related to its ATR-42 and ATR-72 fleets, assets held under its commercial real estate subsidiary, and software-related projects that were discontinued as a result of the COVID-19 pandemic. The Company estimated the fair value of its ATR-42 and ATR-72 fleets using a third-party valuation and estimated the fair value of the assets held in its commercial real-estate subsidiary using a combination of a market and income-based approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates.

(4)In the second quarter of 2021, the Company announced the termination of its 'Ohana by Hawaiian operations. The Company wrote-down the asset group to fair value, less cost to sell by approximately $6.4 million. Additionally, the Company recorded a one-time charge of approximately $2.6 million for the early termination of its CPA. Refer to Note 11 to the Notes to Consolidated Financial Statements for additional discussion.

(5)During the third quarter of 2020, the Company announced and completed voluntary separation program offerings across each of its labor groups. In addition to separation payments, the Company offered its employees, based on labor group, age, and years of service, special termination benefits in the form of retiree healthcare benefits as discussed below. The election and revocation windows for these programs closed during such quarter. Additionally, the Company announced involuntary separations and temporary leave programs, the majority of which were effective as of October 1, 2020. Combined, the
24


separation and temporary leave programs represented a reduction of approximately 32% of the Company's workforce. The Company recorded $17.5 million during the three and nine months ended September 30, 2020 related to the workforce reduction and separation programs.

(6)During the three and nine months ended September 30, 2020, the Company recorded $7.0 million in special termination benefits and curtailment losses related to the Company's pension and other postretirement benefit plans in connection with its voluntary separation programs. See Note 9 for additional information.

13. Condensed Consolidating Financial Information

The following condensed consolidating financial information is presented in accordance with Regulation S-X paragraph 210.3-10 because, in connection with the issuance by pass-through trusts formed by Hawaiian (which is also referred to in this Note 13 as Subsidiary Issuer / Guarantor) of pass-through certificates, the Company (which is also referred to in this Note 13 as Parent Issuer / Guarantor) is fully and unconditionally guaranteeing the payment obligations of Hawaiian, which is a 100% owned subsidiary of the Company, under equipment notes issued by Hawaiian to purchase new aircraft.

The Company's condensed consolidating financial statements are presented in the following tables:

Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended September 30, 2021
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Operating Revenue$— $508,069 $9,681 $(8,902)$508,848 
Operating Expenses:     
Wages and benefits— 180,405 — — 180,405 
Aircraft fuel, including taxes and delivery— 108,785 — — 108,785 
Maintenance, materials and repairs— 47,973 108 — 48,081 
Aircraft and passenger servicing— 30,915 — — 30,915 
Commissions and other selling— 20,969 19 (24)20,964 
Aircraft rent— 26,680 — — 26,680 
Other rentals and landing fees— 36,443 — (29)36,414 
Depreciation and amortization— 33,899 — — 33,899 
Purchased services26 26,938 463 (66)27,361 
Government grant recognition— (78,256)— — (78,256)
Other1,705 36,594 617 (8,783)30,133 
Total1,731 471,345 1,207 (8,902)465,381 
Operating Income (Loss)(1,731)36,724 8,474 — 43,467 
Nonoperating Income (Expense):     
Undistributed net income (loss) of subsidiaries16,393 (9,819)— (6,574)— 
Interest expense and amortization of debt discounts and issuance costs— (11,804)(18,849)756 (29,897)
Interest income2,055 761 (756)2,067 
Capitalized interest— 880 — — 880 
Other components of net periodic pension cost— 981 — — 981 
Other, net— 1,671 — — 1,671 
Total16,400 (16,036)(18,088)(6,574)(24,298)
Income (Loss) Before Income Taxes14,669 20,688 (9,614)(6,574)19,169 
Income tax expense (benefit)— 4,500 — — 4,500 
Net Income (Loss)$14,669 $16,188 $(9,614)$(6,574)$14,669 
Comprehensive Income (Loss)$14,959 $16,478 $(9,614)$(6,864)$14,959 
25



Condensed Consolidating Statements of Operations and Comprehensive Loss
Three months ended September 30, 2020
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Operating Revenue$— $76,090 $3,114 $(3,222)$75,982 
Operating Expenses:     
Wages and benefits— 148,582 — — 148,582 
Aircraft fuel, including taxes and delivery— 14,544 — — 14,544 
Maintenance, materials and repairs— 18,027 1,187 (550)18,664 
Aircraft and passenger servicing— 5,140 — — 5,140 
Commissions and other selling(25)5,221 (1)5,201 
Aircraft rent— 26,182 48 — 26,230 
Depreciation and amortization— 35,726 1,008 — 36,734 
Other rentals and landing fees— 14,175 (28)14,156 
Purchased services39 25,184 296 (2,641)22,878 
Special items— 17,489 — — 17,489 
Government grant recognition— (129,088)— — (129,088)
Other1,439 14,503 585 (2)16,525 
Total1,453 195,685 3,139 (3,222)197,055 
Operating Loss(1,453)(119,595)(25)— (121,073)
Nonoperating Income (Expense):     
Undistributed net loss of subsidiaries(95,952)— — 95,952 — 
Other nonoperating special items— (7,011)— — (7,011)
Interest expense and amortization of debt discounts and issuance costs— (11,596)— — (11,596)
Interest income1,941 — — 1,942 
Capitalized interest— 831 — — 831 
Losses on fuel derivatives— (297)— — (297)
Other components of net periodic pension cost— (136)— — (136)
Other, net— (6,244)— — (6,244)
Total(95,951)(22,512)— 95,952 (22,511)
Loss Before Income Taxes(97,404)(142,107)(25)95,952 (143,584)
Income tax expense (benefit)(305)(46,175)(5)— (46,485)
Net Loss$(97,099)$(95,932)$(20)$95,952 $(97,099)
Comprehensive Loss$(110,228)$(109,061)$(20)$109,081 $(110,228)


26


Condensed Consolidating Statements of Operations and Comprehensive Loss
Nine months ended September 30, 2021
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Operating Revenue$— $1,099,678 $24,522 $(22,354)$1,101,846 
Operating Expenses:     
Aircraft fuel, including taxes and delivery— 240,361 — — 240,361 
Wages and benefits— 511,342 — — 511,342 
Aircraft rent— 84,200 — — 84,200 
Maintenance materials and repairs— 119,003 413 — 119,416 
Aircraft and passenger servicing— 73,896 — — 73,896 
Commissions and other selling49,669 62 (88)49,643 
Depreciation and amortization— 102,821 1,547 — 104,368 
Other rentals and landing fees— 83,513 — (92)83,421 
Purchased services1,991 76,472 1,322 (4,556)75,229 
Special items— 4,648 4,335 — 8,983 
Government grant recognition— (320,645)— — (320,645)
Other4,857 93,867 1,748 (17,618)82,854 
Total6,848 1,119,147 9,427 (22,354)1,113,068 
Operating Income (Loss)(6,848)(19,469)15,095 — (11,222)
Nonoperating Income (Expense):     
Undistributed net loss of subsidiaries(45,377)(30,306)— 75,683 — 
Interest expense and amortization of debt discounts and issuance costs— (37,135)(48,727)1,957 (83,905)
Interest income26 4,625 1,967 (1,957)4,661 
Capitalized interest— 2,340 — — 2,340 
Gains on fuel derivatives— 217 — — 217 
Loss on extinguishment of debt— (3,994)— — (3,994)
Other components of net periodic pension cost— 2,943 — — 2,943 
Other, net— 23,011 — — 23,011 
Total(45,351)(38,299)(46,760)75,683 (54,727)
Loss Before Income Taxes(52,199)(57,768)(31,665)75,683 (65,949)
Income tax expense (benefit)— (13,750)— — (13,750)
Net Loss$(52,199)$(44,018)$(31,665)$75,683 $(52,199)
Comprehensive Loss$(51,816)$(43,635)$(31,665)$75,300 $(51,816)

27


Condensed Consolidating Statements of Operations and Comprehensive Loss
Nine months ended September 30, 2020
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Operating Revenue$— $694,755 $10,347 $(9,972)$695,130 
Operating Expenses:     
Aircraft fuel, including taxes and delivery— 135,025 — — 135,025 
Wages and benefits— 478,725 — — 478,725 
Aircraft rent— 77,128 (8)— 77,120 
Maintenance materials and repairs— 89,992 4,359 (1,284)93,067 
Aircraft and passenger servicing— 46,459 — — 46,459 
Commissions and other selling(6)34,833 63 (46)34,844 
Depreciation and amortization— 110,558 4,958 — 115,516 
Other rentals and landing fees— 57,672 (82)57,599 
Purchased services189 84,516 849 (8,548)77,006 
Special items— 147,570 30,837 — 178,407 
Government grant recognition— (240,648)— — (240,648)
Other4,306 74,178 1,671 (12)80,143 
Total4,489 1,096,008 42,738 (9,972)1,133,263 
Operating Loss(4,489)(401,253)(32,391)— (438,133)
Nonoperating Income (Expense):     
Undistributed net loss of subsidiaries(344,832)— — 344,832 — 
Other nonoperating special items— (7,011)— — (7,011)
Interest expense and amortization of debt discounts and issuance costs— (26,612)— (26,612)
Interest income7,724 — — 7,728 
Capitalized interest— 2,583 — — 2,583 
Losses on fuel derivatives— (6,933)— — (6,933)
Other components of net periodic pension cost— 589 — — 589 
Other, net— (3,499)(5)— (3,504)
Total(344,828)(33,159)(5)344,832 (33,160)
Loss Before Income Taxes(349,317)(434,412)(32,396)344,832 (471,293)
Income tax expense (benefit)(942)(115,173)(6,803)— (122,918)
Net Loss$(348,375)$(319,239)$(25,593)$344,832 $(348,375)
Comprehensive Loss$(360,791)$(331,655)$(25,593)$357,248 $(360,791)
28


Condensed Consolidating Balance Sheets
September 30, 2021
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
ASSETS     
Current assets:     
Cash and cash equivalents$11,620 $668,064 $34,913 $— $714,597 
Restricted cash— — 31,822 — 31,822 
Short-term investments— 1,279,953 — — 1,279,953 
Accounts receivable, net— 54,340 11,673 (10,972)55,041 
Income taxes receivable— 94,543 — — 94,543 
Spare parts and supplies, net— 35,116 — — 35,116 
Prepaid expenses and other119 77,241 129 — 77,489 
Total11,739 2,209,257 78,537 (10,972)2,288,561 
Property and equipment at cost— 2,949,640 23,844 — 2,973,484 
Less accumulated depreciation and amortization— (966,600)(23,844)— (990,444)
Property and equipment, net— 1,983,040 — — 1,983,040 
Assets held for sale— 971 28,701 — 29,672 
Operating lease right-of-use assets— 554,850 — — 554,850 
Long-term prepayments and other50 99,111 1,200,490 (1,200,000)99,651 
Goodwill and other intangible assets, net— — 13,500 — 13,500 
Intercompany receivable— 566,053 — (566,053)— 
Investment in consolidated subsidiaries1,064,357 (17,306)503 (1,047,554)— 
TOTAL ASSETS$1,076,146 $5,395,976 $1,321,731 $(2,824,579)$4,969,274 
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:     
Accounts payable$643 $138,785 $929 $(9,016)$131,341 
Air traffic liability and current frequent flyer deferred revenue— 715,852 5,594 — 721,446 
Other accrued liabilities— 138,149 14,083 (1,956)150,276 
Current maturities of long-term debt, less discount— 119,980 — — 119,980 
Current maturities of finance lease obligations— 24,219 — — 24,219 
Current maturities of operating leases— 80,792 — — 80,792 
Total643 1,217,777 20,606 (10,972)1,228,054 
Long-term debt— 1,873,225 1,178,447 (1,200,000)1,851,672 
Intercompany payable447,859 — 118,194 (566,053)— 
Other liabilities and deferred credits:    
Noncurrent finance lease obligations— 106,940 — — 106,940 
Noncurrent operating leases— 442,093 — — 442,093 
Accumulated pension and other post-retirement benefit obligations— 211,100 — — 211,100 
Other liabilities and deferred credits— 80,389 1,156 — 81,545 
Noncurrent frequent flyer deferred revenue— 216,184 — — 216,184 
Deferred tax liabilities, net— 204,042 — — 204,042 
Total— 1,260,748 1,156 — 1,261,904 
Shareholders’ equity627,644 1,044,226 3,328 (1,047,554)627,644 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,076,146 $5,395,976 $1,321,731 $(2,824,579)$4,969,274 
29


Condensed Consolidating Balance Sheets
December 31, 2020
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-Guarantor
Subsidiaries
EliminationsConsolidated
(in thousands)
ASSETS    
Current assets:     
Cash and cash equivalents$24,088 $476,409 $9,142 $— $509,639 
Short-term investments— 354,782 — — 354,782 
Accounts receivable, net— 67,831 424 (728)67,527 
Income taxes receivable, net— 95,002 — — 95,002 
Spare parts and supplies, net— 35,442 — — 35,442 
Prepaid expenses and other21 56,046 19 — 56,086 
Total24,109 1,085,512 9,585 (728)1,118,478 
Property and equipment at cost— 2,916,850 62,699 — 2,979,549 
Less accumulated depreciation and amortization— (865,952)(28,567)— (894,519)
Property and equipment, net— 2,050,898 34,132 — 2,085,030 
Operating lease right-of-use assets— 627,359 — — 627,359 
Long-term prepayments and other50 133,143 470 — 133,663 
Goodwill and other intangible assets, net— 13,000 500 — 13,500 
Intercompany receivable— 540,491 — (540,491)— 
Investment in consolidated subsidiaries1,106,627 — 503 (1,107,130)— 
TOTAL ASSETS$1,130,786 $4,450,403 $45,190 $(1,648,349)$3,978,030 
LIABILITIES AND SHAREHOLDERS’ EQUITY     
Current liabilities:     
Accounts payable$720 $110,070 $1,940 $(728)$112,002 
Air traffic liability and current frequent flyer deferred revenue— 527,440 6,262 — 533,702 
Other accrued liabilities— 139,878 203 — 140,081 
Current maturities of long-term debt, less discount— 115,019 — — 115,019 
Current maturities of finance lease obligations— 21,290 — — 21,290 
Current maturities of operating leases— 82,454 — — 82,454 
Total720 996,151 8,405 (728)1,004,548 
Long-term debt— 1,034,805 — — 1,034,805 
Intercompany payable529,909 — 10,582 (540,491)— 
Other liabilities and deferred credits:    
Noncurrent finance lease obligations— 120,618 — — 120,618 
Noncurrent operating leases— 503,376 — — 503,376 
Accumulated pension and other post-retirement benefit obligations— 217,737 — — 217,737 
Other liabilities and deferred credits— 77,803 1,105 — 78,908 
Noncurrent frequent flyer deferred revenue— 201,239 — — 201,239 
Deferred tax liabilities, net— 216,642 — — 216,642 
Total— 1,337,415 1,105 — 1,338,520 
Shareholders’ equity600,157 1,082,032 25,098 (1,107,130)600,157 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$1,130,786 $4,450,403 $45,190 $(1,648,349)$3,978,030 
30


Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2021
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-
Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Net Cash Provided By (Used In) Operating Activities$(6,202)$327,738 $(10,236)$— $311,300 
Cash Flows From Investing Activities:     
Net payments to affiliates2,725 1,183,456 (1,104,496)(81,685)— 
Additions to property and equipment, including pre-delivery deposits— (33,692)(452)— (34,144)
Proceeds from the disposition of aircraft related equipment— 228 166 — 394 
Purchases of investments— (1,529,293)— — (1,529,293)
Sales of investments— 598,979 — — 598,979 
Net cash provided by (used in) investing activities2,725 219,678 (1,104,782)(81,685)(964,064)
Cash Flows From Financing Activities:     
Proceeds from the issuance of common stock68,132 — — — 68,132 
Long-term borrowings— 51,705 1,200,000 — 1,251,705 
Repayments of long-term debt and finance lease obligations— (405,703)— — (405,703)
Debt issuance costs and discount— — (24,664)— (24,664)
Net payments from affiliates(78,960)— (2,725)81,685 — 
Payment for taxes withheld for stock compensation— (1,763)— — (1,763)
Other1,837 — — — 1,837 
Net cash provided by (used in) financing activities(8,991)(355,761)1,172,611 81,685 889,544 
Net increase (decrease) in cash and cash equivalents(12,468)191,655 57,593 — 236,780 
Cash, cash equivalents, & restricted cash - Beginning of Period24,088 476,409 9,142 — 509,639 
Cash, cash equivalents, & restricted cash - End of Period$11,620 $668,064 $66,735 $— $746,419 


31


Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2020
 Parent Issuer /
Guarantor
Subsidiary
Issuer /
Guarantor
Non-
Guarantor
Subsidiaries
EliminationsConsolidated
 (in thousands)
Net Cash Provided By (Used In) Operating Activities$4,111 $(177,272)$(321)$— $(173,482)
Cash Flows From Investing Activities:     
Net payments to affiliates(7,850)(24,921)(66)32,837 — 
Additions to property and equipment, including pre-delivery deposits— (94,565)(7,210)— (101,775)
Proceeds from the purchase assignment and sale leaseback— 114,000 — — 114,000 
Purchases of investments— (408,955)— — (408,955)
Sales of investments— 214,469 — — 214,469 
Net cash used in investing activities(7,850)(199,972)(7,276)32,837 (182,261)
Cash Flows From Financing Activities:     
Long-term borrowings— 602,264 — — 602,264 
Repayments of long-term debt and finance lease obligations— (64,686)— — (64,686)
Debt issuance costs— (3,506)— — (3,506)
Dividend payments(5,514)— — — (5,514)
Net payments from affiliates24,987 — 7,850 (32,837)— 
Repurchases of Common Stock(7,510)— — — (7,510)
Payment for taxes withheld for stock compensation— (1,359)— — (1,359)
Net cash provided by financing activities11,963 532,713 7,850 (32,837)519,689 
Net increase (decrease) in cash and cash equivalents8,224 155,469 253 — 163,946 
Cash, cash equivalents, & restricted cash - Beginning of Period1,228 362,933 8,895 — 373,056 
Cash, cash equivalents, & restricted cash - End of Period$9,452 $518,402 $9,148 $— $537,002 


Income Taxes
 
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.
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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. Such forward-looking statements include, without limitation, statements related to our financial statements and results of operations; any expectations of operating expenses, deferred revenue, interest rates, tax rates, income taxes, deferred tax assets, valuation allowances or other financial items; the severity, magnitude, duration and effects of the COVID-19 pandemic; the extent to which the COVID-19 pandemic and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position or achievement of strategic objectives; the duration and scope of government mandates or other limitations of or restrictions on travel; the impact of COVID-19 testing programs and vaccinations on the demand for air travel and travel to, from and within Hawai'i; the demand for air travel in the markets in which we operate; the compounding effect of the COVID-19 pandemic on competitive pressures in the markets in which we operate; our dependence on tourism; the impact of the COVID-19 pandemic on our suppliers; the effect of the economic downturn and the COVID-19 pandemic on our aircraft contracts and commitments; the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; the terms and effectiveness of cost reduction and liquidity preservation measures taken by us; our ability to continue to generate sufficient cash to operate; changes in our future capital needs; estimations related to our liquidity requirements; our participation under the CARES Act and the terms of relief thereunder; future obligations under the CARES Act and Payroll Support Programs; the availability of aircraft fuel, aircraft parts and personnel; expectations regarding industry capacity, our operating performance, available seat miles, operating revenue per available seat mile and operating cost per available seat mile for the third quarter of 2021; expected salary and related costs; our expected fleet as of September 30, 2022; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; the availability of, and efforts seeking, future financing; changes in our fleet plan and related cash outlays; committed capital expenditures; expected cash payments related to our post-retirement plan obligations; estimated financial charges; expected delivery or deferment of new aircraft and engines; the impact of accounting standards on our financial statements; the effects of any litigation on our operations or business; the effects of our fuel and currency risk hedging policies; the fair value and expected maturity of our debt obligations; our estimated contractual obligations; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. Words such as “expects,” “anticipates,” “projects,” “intends,” “plans,” “believes,” “estimates,” “could,” “would,” “will,” “might,” “may,” variations of such words, and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and assumptions relating to our operations and business environment, all of which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.

Factors that could affect such forward-looking statements include, but are not limited to: the continuing and developing effects of the spread of COVID-19 on our business operations and financial condition; whether our cost-cutting efforts related to the COVID-19 pandemic will be effective or sufficient; the duration of government-mandated and other restrictions on travel; the full effect that quarantines, restrictions on travel, vaccination requirements, and other measures to limit the spread of COVID-19 will have on demand for air travel in the markets in which we operate; the effect of vaccination mandates on our operations; fluctuations and the extent of declining demand for air transportation in the markets in which we operate; our dependence on the tourist industry; our ability to generate sufficient cash and manage the cash available to us; our ability to accurately forecast quarterly and annual results; global economic volatility; macroeconomic political and regulatory developments; the price and availability of fuel, aircraft parts and personnel; foreign currency exchange rate fluctuations; competitive pressures, including the impact of increasing industry capacity between North America and Hawai'i; maintenance of privacy and security of customer-related information and compliance with applicable federal and foreign privacy or data security regulations or standards; our dependence on technology and automated systems; our reliance on third-party contractors; satisfactory labor relations; our ability to attract and retain qualified personnel and key executives; successful implementation of our growth strategy and cost reduction goals; adverse publicity; risks related to the airline industry; our ability to obtain and maintain adequate facilities and infrastructure; seasonal and cyclical volatility; the effect of applicable state, federal and foreign laws and regulations; increases in insurance costs or reductions in coverage; the limited number of suppliers for aircraft, aircraft engines and parts; our existing aircraft purchase agreements; delays in aircraft or engine deliveries or other loss of fleet capacity; changes in our future capital needs; fluctuations in our share price; our financial liquidity; and our ability to implement our growth strategy. The risks, uncertainties, and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements also include the risks, uncertainties, and assumptions discussed under the heading “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and discussed from time to time in our public filings and public announcements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us as of the date hereof. We undertake no obligation to
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publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this quarterly report. The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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.

Our Business

We are engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the Neighbor Island routes), between the Hawaiian Islands and certain cities in the U.S. mainland (the North America routes and collectively with the Neighbor Island routes, referred to as our Domestic routes), and between the Hawaiian Islands and the South Pacific, Australia, and Asia (the International routes), collectively referred to as our “Scheduled Operations.” In addition, we operate various charter flights. Since February 2020, we have temporarily reduced our Scheduled Operations due to the COVID-19 pandemic. We are the largest airline headquartered in the state of Hawai'i and the twelfth largest domestic airline in the United States based on revenue passenger miles reported by the Research and Innovative Technology Administration Bureau of Transportation Statistics for the month of July 2021, the latest available data. As of September 30, 2021, we had 6,403 active employees before giving effect to voluntary and involuntary separation programs discussed in detail below.

General information about us is available at https://www.hawaiianairlines.com. Information contained on our website is not incorporated by reference into, or otherwise to be regarded as part of, this Quarterly Report on Form 10-Q unless expressly noted. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission.

September 2021 Quarterly Financial Overview

GAAP net income in the third quarter was $14.7 million, or $0.28 per diluted share on total revenue of $508.8 million, compared to a net loss of $97.1 million, or $2.11 per diluted share, on total revenue of $76.0 million during the same period in 2020.

During the three and nine months ended September 30, 2021, capacity (as measured in Available Seat Miles or ASM) was up 488.7% and 68.6%, respectively, while Revenue Passenger Miles (RPM) increased 1,625.3% and 76.6%, respectively, as compared to the same periods in 2020, driven primarily by increased customer demand, predominantly within our domestic network.

Unrestricted cash, cash equivalents and short-term investments was $2.0 billion as of September 30, 2021.

See “Results of Operations” below for further discussion of changes in revenue and operating expense. See “Non-GAAP Financial Measures” below for our reconciliation of Non-GAAP measures.

Impact of COVID-19 Pandemic

Due to the rapid and unprecedented spread of COVID-19, which began in the first quarter of 2020, we have experienced significantly suppressed customer demand as compared to pre-COVID-19 pandemic levels, with passenger revenue down approximately 34.6% and 51.4%, respectively, during the three and nine months ended September 30, 2021, as compared to the same periods in 2019.

During the third quarter of 2021, we continued to rebuild our network, leading to a 17.9% increase in overall capacity as compared to the second quarter of 2021 and a 488.7% increase as compared to the third quarter of 2020; however, capacity remained depressed from pre-COVID-19 pandemic levels, down 20.7% and 32.9%, respectively, during the three and nine months ended September 30, 2021 as compared to the same periods in 2019. During the fourth quarter of 2021, we anticipate capacity will be down between 18% to 21%, as compared to the same period in 2019.

Effective June 15, 2021, the State of Hawai'i Safe Travels Program was updated to remove restrictions on travel within the state of Hawai'i, and to permit travelers who were fully vaccinated in the state of Hawai'i to bypass testing or quarantine requirements with proof of vaccination when traveling into the state. Effective July 8, 2021, all U.S. domestic travelers who were fully vaccinated in the United States also were permitted to bypass pre-travel testing or quarantine requirements with proof of vaccination when entering the state starting the 15th day following completion of their vaccination. Furthermore, in September 2021, both the City and County of Honolulu and the County of Maui enacted programs that impose certain
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vaccination and testing requirements on employees and customers of restaurants, bars, gyms and other similar establishments, with limited exceptions.

Restrictions on travel to and from various international locations (including those within our network) remain in effect, continuing to suppress international travel demand, with revenue down 88.1% during the third quarter of 2021 as compared to the same period in 2019. During the third quarter of 2021, our domestic network accounted for approximately 94.9% of total passenger revenue. We continue to monitor developments relating to the easing of restrictions on international travel by both the U.S. government and international governments.

Despite the easing of restrictions on travel to and within Hawai'i, uncertainties remain regarding the impact of vaccination-related travel requirements and increased vaccination availability and uptake on the demand for air travel, including the availability, reliability and effectiveness of vaccines domestically and worldwide, particularly as new variants of the COVID-19 virus have emerged and spread. There can be no assurance whether, at some point, the State of Hawai'i or counties within the state may limit or suspend the ability for travelers to bypass quarantine requirements should the prevalence of the COVID-19 pandemic worsen. The U.S. government and international governments could also impose, extend or otherwise modify existing travel restrictions on international travel. Additionally, ongoing restrictions or shortages in other sectors of the travel industry, such as hotel or transportation availability, including as a result of vaccination requirements and any associated labor shortages, could negatively impact our operations and affect our ability to satisfy any increased demand we experience. As a result of all the above factors and our results to date, we expect bookings, revenue and results of operations to continue to be below pre-2020 historical levels during 2021. Unpredictability in the demand for air travel as a result of the ongoing COVID-19 pandemic may result in decreases to existing or anticipated levels of demand, and such decreases could be material to our business. We will continue to assess our routes and schedule in response to changes in demand, including those related to the COVID-19 pandemic.

Government Support Programs

The CARES Act was enacted on March 27, 2020 and provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The CARES Act provides, among other things: (a) financial relief to passenger air carriers for direct payroll support under the PSP, (b) financial relief in the form of loans and loan guarantees available for operations under the ERP, (c) temporary suspension of certain aviation taxes, (d) temporary deferral of certain employer payroll taxes, and (e) additional Corporate tax benefits. The CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. Lastly, the CARES Act provided for the carryback of additional net operating loss carryforwards (NOLs) to 2016 and 2017, which will result in tax benefits for those years.

Economic Relief Program Loan

In September 2020, the Company entered into the Amended and Restated Loan Agreement under the ERP pursuant to which the maximum facility available to be borrowed by us increased to $622.0 million (the Amended and Restated Loan Agreement). In connection with our entry into the Amended and Restated Loan Agreement, we also entered into an ERP Warrant Agreement with the Treasury. On September 25, 2020, we borrowed $45.0 million and issued to the Treasury warrants to purchase up to 380,711 shares of our common stock. We recorded the value of the loan and the warrants on a relative fair value basis as $41.9 million in noncurrent debt and $3.1 million in additional paid in capital, respectively.

On February 4, 2021, we repaid in full the $45.0 million loan under the ERP, and in connection with this repayment, terminated the Amended and Restated Loan Agreement. The debt extinguishment resulted in the recognition of a loss of $4.0 million, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.

Payroll Support Programs

On April 22, 2020 (the PSP Closing Date), we entered into a Payroll Support Program Agreement (the PSP Agreement) with the Treasury under the CARES Act. In connection with the PSP Agreement, we entered into a PSP Warrant Agreement and Hawaiian issued a promissory note to the Treasury (the Note). Pursuant to the PSP Agreement, the Treasury provided us with financial assistance, paid in installments, totaling approximately $300.9 million, to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits. Under the PSP Agreement, we agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020, (ii) limit executive compensation through March 24, 2022 and (iii) suspend payment of dividends and stock repurchases through September 30, 2021. The PSP Agreement also imposes certain Treasury-mandated reporting obligations on us. Finally, we are required to
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continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT and subject to exemptions granted by the DOT to us given the absence of demand for certain of such services.

The Note issued by us to the Treasury was in the principal amount of approximately $60.3 million. The Note has a ten-year term and bears interest at a rate per annum equal to 1.00% until the fifth anniversary of the PSP Closing Date, and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00% until the tenth anniversary of the PSP Closing Date, which interest is payable semi-annually beginning on September 30, 2020. The Note may be prepaid at any time, without penalty and is subject to customary change of control provisions and events of default.

As compensation to the U.S. government for providing financial relief under the PSP Agreement, and pursuant to the PSP Warrant Agreement, we issued to the Treasury warrants to purchase a total of 509,964 shares of our common stock (the PSP Warrants) at an exercise price of $11.82 per share. The PSP Warrants are non-voting, freely transferable, may be settled as net shares or in cash at our option, expire five years from the date of issuance, and contain registration rights and customary anti-dilution provisions.

The CAA 2021 was enacted on December 27, 2020, and provided $15.0 billion for airline employee wages, salaries and benefits under an extension (the PSP Extension) of the Payroll Support Program created under the CARES Act. In January 2021, we entered into a PSP extension agreement with the Treasury (the PSP Extension Agreement). PSP Extension funds are required to be used exclusively for the purpose of continuing to pay employee salaries, wages and benefits, including the payment of lost wages, salaries and benefits to certain returning employees, as defined in the PSP Extension Agreement. Under the PSP Extension Agreement, we agreed to (i) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits from December 1, 2020 through March 31, 2021, (ii) recall any employees who were subject to an involuntary termination or furlough between October 1, 2020 and the date of the PSP Extension Agreement and who elected to return to employment pursuant to a recall notice and to compensate these employees for lost salary, wages and benefits, (iii) limit executive compensation through October 1, 2022, and (iv) suspend payment of dividends and stock repurchases through March 31, 2022. Finally, we are required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT.

During the nine months ended September 30, 2021, we received $192.7 million in grants, entered into a promissory note with the Treasury (the Extension Note) for approximately $27.8 million and issued to the Treasury warrants to purchase up to a total of 156,341 shares of our common stock at an exercise price of $17.78 per share (the PSP Extension Warrants) pursuant to the PSP Extension Agreement. The Extension Note has a 10-year term and bears interest at a rate per annum equal to 1.00% for the first five years and at a rate equal to the secured overnight financing rate plus 2.00% for the following five years. We recorded the value of the Extension Note and the PSP Extension Warrants on a relative fair value basis as $23.8 million in noncurrent debt and $4.0 million in additional paid in capital, respectively.

The ARP 2021 was enacted on March 11, 2021, and included a second PSP extension, providing an additional $14 billion in grants and loans for airline employee wages, salaries and benefits. In April 2021, we entered into a Payroll Support Program 3 Agreement with the Treasury (PSP3 Agreement), a promissory note (the PSP3 Note), and a Warrant Agreement to purchase up to 87,670 shares of the Company’s common stock at an exercise of $27.27 (the PSP3 Warrants). The PSP3 Agreement extends (i) the prohibition on conducting involuntary employee layoffs or furloughs through September 2021 or the date on which assistance provided under the agreement is exhausted, whichever is later, (ii) the prohibitions on share repurchases and dividends through September 2022, and (iii) the limitations on executive compensation until April 2023. The terms of the PSP3 Note and PSP3 Warrants are consistent with those of the original PSP and the first PSP Extension. During the nine months ended September 30, 2021, we received a total of $179.7 million pursuant to the PSP3 Agreement, consisting of approximately $155.8 million in a grant and $23.9 million in a ten-year loan.

Loyalty Program and Intellectual Property Financing

On February 4, 2021, we completed the private offering (the Notes Offering) by Hawaiian Brand Intellectual Property, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Brand Issuer), and HawaiianMiles Loyalty, Ltd., an indirect wholly owned subsidiary of Hawaiian (the Loyalty Issuer and, together with the Brand Issuer, the Issuers) of an aggregate of $1.2 billion principal amount of their 5.750% senior secured notes due 2026 (the Notes). The Notes require interest only payments, payable quarterly in arrears on July 20, October 20, January 20 and April 20 of each year, beginning on July 20, 2021.

In connection with the issuance of the Notes, Hawaiian contributed to the Brand Issuer, which is a newly-formed subsidiary structured to be bankruptcy remote, all worldwide rights, owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries, in and to all intellectual property, including all
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trademarks, service marks, brand names, designs, and logos that include the word “Hawaiian” or any successor brand and the “hawaiianairlines.com” domain name and similar domain names or any successor domain names (the Brand IP). The Brand Issuer indirectly granted to Hawaiian an exclusive, worldwide, perpetual and royalty-bearing sublicense to use the Brand IP. Further, Hawaiian contributed to the Loyalty Issuer its rights to certain other collateral owned by Hawaiian, including, to the extent permitted by such agreements or otherwise by operation of law, any of Hawaiian’s rights under the HawaiianMiles Agreements and the IP Agreements (each as defined in the Indenture), together with HawaiianMiles program (HawaiianMiles) customer data and certain other intellectual property owned or purported to be owned, or later developed or acquired and owned or purported to be owned, by Hawaiian or any of its subsidiaries (including the Issuers) and required or necessary to operate HawaiianMiles (the Loyalty Program IP) (all such collateral being, the Loyalty Program Collateral). The Loyalty Issuer indirectly granted Hawaiian an exclusive, worldwide, perpetual and royalty-free sub-license to use the Loyalty Program IP.

The Notes are redeemable at the option of the Issuers, in whole or in part, at any time and from time to time, after January 20, 2024 at the redemption prices set forth in the Indenture. In addition, the Notes are redeemable, at the option of the Issuers, at any time and from time to time, in whole or in part, prior to January 20, 2024 at a price equal to 100% of their principal amount plus the “make-whole” premium described in the Indenture and accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Additionally, from time to time on or prior to January 20, 2024, the Issuers may also redeem up to 40% of the original outstanding principal amount of the Notes with proceeds from any one or more equity offerings of Hawaiian at a redemption price equal to 105.75% of the principal amount of Notes to be redeemed, plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Upon the occurrence of certain mandatory prepayment events and mandatory repurchase offer events, the Issuers will be required to make a prepayment on the Notes, or offer to repurchase the Notes, pro rata, to the extent of any net cash proceeds received in connection with such events, at a price equal to 100% of the principal amount to be prepaid, plus, in some cases, an applicable premium. In addition, upon a change of control of Hawaiian, the Issuers may be required to make an offer to prepay the Notes at a price equal to 101% of the respective principal amounts thereof, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The Indenture contains certain covenants that limit the ability of the Issuers, the Cayman Guarantors and, in certain circumstances, Hawaiian to, among other things: (i) make Restricted Payments (as defined in the Indenture), (ii) incur additional indebtedness, (iii) create certain liens on the Loyalty Program Collateral, (iv) sell or otherwise dispose of the Loyalty Program Collateral and (v) consolidate, merge, sell or otherwise dispose of all or substantially all of the Issuers’ assets. The Indenture also requires the Issuers and, in certain circumstances, Hawaiian, to comply with certain affirmative covenants, including depositing the Transaction Revenues (as defined in the Indenture) in collection accounts, with amounts to be distributed for the payment of fees, principal and interest on the Notes pursuant to a payment waterfall described in the Indenture, and certain financial reporting requirements. In addition, the Indenture requires Hawaiian to maintain minimum liquidity at the end of any business day of at least $300.0 million.

Material Changes to our Consolidated Balance Sheet

Cash, cash equivalents and short-term investments totaled approximately $2.0 billion as of September 30, 2021, compared to $0.9 billion as of December 31, 2020. As a result of the COVID-19 pandemic, we took actions to increase liquidity and augment our financial position. Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 filed on February 12, 2021, for a comprehensive discussion of actions taken in 2020. Refer to discussions below for actions taken during the nine months ended September 30, 2021.

As of September 30, 2021, our total debt was $2.0 billion, an increase of $821.8 million, or 71.5%, as compared to $1.1 billion as of December 31, 2020. During the nine months ended September 30, 2021, we completed the following financing transactions:

On February 4, 2021, we issued $1.2 billion in 5.75% senior secured notes, which are collateralized by our loyalty program and intellectual property, as discussed above. The Notes require quarterly interest payments and mature in January 2026.
On February 4, 2021, we repaid in full the $45.0 million ERP loan issued pursuant to the CARES Act, and in connection with such repayment, terminated the Amended and Restated Loan Agreement. The warrants remain outstanding pursuant to the terms of the agreement.
On February 11, 2021, we repaid the $235.0 million outstanding balance drawn on our revolving credit facility. The revolving credit facility matures in December 2022 and remains available to draw upon at a future date in the event the need arises.
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During the nine months ended September 30, 2021, we received $192.7 million in grants and $27.8 million in loans from the Treasury pursuant to the PSP Extension under CAA 2021. The Extension Note requires interest payments with the principal balance due at maturity in 2031.
During the second quarter of 2021, we received $179.7 million pursuant to the PSP3 Agreement, consisting of approximately $155.8 million in a grant and $23.9 million in a ten-year note. The PSP3 Note requires interest payments with the principal balance due at maturity in 2031.

Additionally, during the nine months ended September 30, 2021, we issued 2.9 million shares in connection with our Equity Distribution Agreement entered into in December 2020, at an average price of $24.47 per share generating net proceeds of approximately $68.1 million. As of March 5, 2021, we issued all of the 5.0 million shares authorized under the Equity Distribution Agreement.

Based on these actions, including anticipated revenue recovery assumptions, we believe that we have sufficient liquidity to satisfy our obligations and remain in compliance with existing debt covenants. If we are unable to generate sufficient cash flows to support our future payment obligations, comply with debt covenants, compete successfully with less heavily leveraged competitors, manage potential adverse economic and industry conditions in the future or maintain our credit ratings, the impact to our business and financial condition could be material.

Fleet Summary

Due to the ongoing uncertainties of the COVID-19 pandemic on our business, we continue to evaluate our existing fleet structure to optimize capacity with demand, as well as the potential deferment of future aircraft deliveries. The table below summarizes our total fleet as of September 30, 2020 and 2021, respectively and our expected fleet as of September 30, 2022 (based on existing executed agreements as of September 30, 2021):
 September 30, 2020September 30, 2021September 30, 2022
Aircraft TypeLeased (1)Owned (2)TotalLeased (1)Owned (2)TotalLeased (1)Owned (2)Total
A330-20012 12 24 12 12 24 12 12 24 
A321neo (3)14 18 14 18 14 18 
787-9— — — — — — — 
717-20014 19 14 19 14 19 
ATR 42-500 (4)— — — 
ATR 72-200 (4)— — — 
Total21 48 69 21 47 68 21 48 69 

(1)    Leased aircraft include aircraft under both finance and operating leases.

(2)    Includes unencumbered aircraft as well as those purchased and under various debt financing.

(3)    We took delivery of the last firm order Airbus A321-200 aircraft in the second quarter of 2020.

(4)    The ATR 42-500 turboprop and ATR 72-200 turboprop aircraft are owned by Airline Contract Maintenance & Equipment, Inc., a wholly owned subsidiary of the Company. During the second quarter of 2021, the Company announced the permanent suspension of its 'Ohana by Hawaiian operations, which operated under a CPA with a third-party provider. As of September 30, 2021, these aircraft and related asset group were classified as Assets held for sale on the Consolidated Balance Sheets.

Results of Operations
 
For the three months ended September 30, 2021, we generated net income of $14.7 million, or $0.28 per diluted share, compared to a net loss of $97.1 million, or $2.11 per diluted share, for the same period in 2020. For the nine months ended September 30, 2021, we generated a net loss of $52.2 million, or $1.03 per diluted share, compared to a net loss of $348.4 million, or $7.58 per diluted share, for the same period in 2020.

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Selected Consolidated Statistical Data (unaudited)
 Three months ended September 30, Nine months ended September 30,
 2021 2020 2021 2020
 (in thousands, except as otherwise indicated)
Scheduled Operations (a):       
Revenue passengers flown2,056  331  4,512  2,873 
Revenue passenger miles (RPM)3,181,165  181,878  7,000,012  3,988,435 
Available seat miles (ASM)4,188,971  711,151  10,201,330  6,095,612 
Passenger revenue per RPM (Yield)14.27 ¢21.87 ¢13.54 ¢14.37 ¢
Passenger load factor (RPM/ASM)75.9 %25.6 %68.6 %65.4 %
Passenger revenue per ASM (PRASM)10.84 ¢5.59 ¢9.29 ¢9.40 ¢
Total Operations (a):       
Revenue passengers flown2,066  332  4,533  2,877 
RPM3,205,407  185,788  7,056,854  3,995,644 
ASM4,229,461  718,405  10,298,035  6,107,424 
Operating revenue per ASM (RASM)12.03 ¢10.58 ¢10.70 ¢11.38 ¢
Operating cost per ASM (CASM)11.00 ¢27.43 ¢10.81 ¢18.56 ¢
CASM excluding aircraft fuel and non-recurring items (b)10.28 ¢40.94 ¢11.50 ¢17.36 ¢
Aircraft fuel expense per ASM (c)2.57 ¢2.02 ¢2.33 ¢2.22 ¢
Revenue block hours operated45,816  12,388  112,061  71,743 
Gallons of aircraft fuel consumed52,599  13,394  126,987  84,975 
Average cost per gallon of aircraft fuel (c)$2.07  $1.09  $1.89  $1.59 
 
(a)    Includes the operations of our contract carrier under a CPA. which was indefinitely suspended in the first quarter of 2021 and terminated in the second quarter of 2021.
(b)    Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See “Non-GAAP Financial Measures” below for a reconciliation of non-GAAP measures.
(c)    Includes applicable taxes and fees.

Operating Revenue
 
During the three and nine months ended September 30, 2021, operating revenue increased by $432.9 million, or 569.7%, and decreased by $406.7 million, or 58.5%, respectively, as compared to the same periods in 2020. The increase noted during the third quarter was primarily driven by the return of passenger travel demand within our domestic markets.

Passenger revenue

For the three and nine months ended September 30, 2021, passenger revenue increased by $414.3 million, or 1,041.5%, and $374.8 million, or 65.4%, respectively, as compared to the same periods in 2020. Details of these changes are reflected in the table below: 
Increase (Decrease) vs. Three Months Ended September 30, 2020
(in thousands)Three months ended September 30, 2021Passenger RevenueYieldRPMsASMsPRASM
Domestic$430,682 1,017.9 %(34.8)%1,614.5 %457.5 %100.4 %
International23,362 1,769.0 
NM1
NM1
NM1
NM1
Total$454,044 1,041.5 %(34.8)%1,649.1 %489.0 %93.9 %
1    Not meaningful
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Increase (Decrease) vs. Nine Months Ended September 30, 2020
(in thousands)Nine months ended September 30, 2021Passenger RevenueYieldRPMsASMsPRASM
Domestic$900,645 108.7 %(13.8)%141.8 %109.1 %(0.2)%
International47,139 (66.7)190.7 (88.5)(60.7)(15.3)
Total$947,784 65.4 %(5.8)%75.5 %67.4 %(1.2)%

Domestic passenger revenue during the three months ended September 30, 2021 increased 1,017.9% on capacity growth of 457.5% as compared to the same period in 2020, and increased 108.7% on capacity growth of 109.1% during the nine months ended September 30, 2021 as compared to the same period in 2020. The increase in both periods were the result of improved demand for passenger travel, predominantly within our North America to Hawai'i network, driven by the relaxing of travel restrictions for travel to and within the state of Hawai'i, and improving COVID-19 vaccination rates. However, demand on our domestic network remains below our pre-COVID-19 pandemic levels, down 13.6% and 37.5%, respectively, during the three and nine months ended September 30, 2021, as compared to the same periods in 2019.

During the second quarter of 2021, the State of Hawai'i announced updates to its Safe Travels Program, including that, beginning June 15, 2021, all passengers who are not in quarantine are free to travel between islands without restriction and, beginning July 8, 2021, individuals who are fully vaccinated in the United States entering Hawai'i on domestic flights may bypass pre-travel testing or quarantine with proof of vaccination starting the 15th day following the completion of their vaccination.
In the first quarter of 2021, we announced the expansion of service with the addition of three new U.S. mainland destinations: Austin, Texas, Orlando, Florida, and Ontario, California with service to and from Honolulu, Hawai'i, each of which commenced between March and April 2021. We also expanded service with a daily non-stop flight between Kahului, Hawai'i and Long Beach, California, which commenced in March 2021. Additionally, in March and April 2021, respectively, we announced the recommencement of our thrice-weekly service between Kahului, Hawai'i and Las Vegas, Nevada, and launched four-times-weekly seasonal service between Kahului, Hawai'i and Phoenix, Arizona, both of which commenced in May 2021.
International passenger revenue during the three months ended September 30, 2021 increased 1,769.0%, as compared to the same period in 2020, to $23.4 million, and decreased 66.7% on a capacity reduction of 60.7% during the nine months ended September 30, 2021, as compared to the same period in 2020.
While we recommenced scheduled international passenger flights on a limited basis beginning in the fourth quarter of 2020, customer demand across our international network remains depressed given international government travel restrictions and the availability, reliability and effectiveness of vaccines, particularly as new variants of the COVID-19 virus emerge and spread. We expect this significantly lower international demand environment to continue through the fourth quarter of 2021, with improvement in the international markets expected to lag behind domestic demand recovery until government travel restrictions begin to lift and customer demand starts to return.
Other Operating Revenue

For the three and nine months ended September 30, 2021, Other operating revenue increased by $18.6 million, or 51.4%, and $31.9 million, or 26.2%, as compared to the same periods in 2020.

During the three and nine months ended September 30, 2021, Cargo revenue increased $3.6 million and $16.2 million, respectively, as compared to the same periods in 2020, primarily driven by improved demand. Loyalty revenue, primarily comprised of brand and marketing performance obligations, increased $12.0 million and $12.6 million, respectively during the three and nine months ended September 30, 2021, as compared to the same periods in 2020, as a result of increased credit card spend and new cardholder acquisitions. Other components in Other operating revenue include, but are not limited to, ground handling and other freight services, which collectively, increased during the three and nine months ended September 30, 2021 by approximately $3.0 million and $3.2 million, respectively, as compared to the same periods in 2020.

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Operating Expense
 
Operating expenses were $465.4 million and $1,113.1 million during the three and nine months ended September 30, 2021, respectively. Increases (decreases) in operating expenses for the three and nine months ended September 30, 2021, as compared to the same periods in 2020, are detailed below:
Increase / (decrease) for the three months ended September 30, 2021 compared to the three months ended September 30, 2020
Increase / (decrease) for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020
$%$%
Operating expenses(in thousands)(in thousands)
Wages and benefits$31,823 21.4 %$32,617 6.8 %
Aircraft fuel, including taxes and delivery94,241 648.0 105,336 78.0 
Maintenance, materials and repairs29,417 157.6 26,349 28.3 
Aircraft and passenger servicing25,775 501.5 27,437 59.1 
Commissions and other selling15,763 303.1 14,799 42.5 
Aircraft rent450 1.7 7,080 9.2 
Other rentals and landing fees22,258 157.2 25,822 44.8 
Depreciation and amortization(2,835)(7.7)(11,148)(9.7)
Purchased services4,483 19.6 (1,777)(2.3)
Special items(17,489)(100.0)(169,424)(95.0)
Government grant recognition50,832 (39.4)(79,997)33.2 
Other13,608 82.3 2,711 3.4 
Total$268,326 136.2 %$(20,195)(1.8)%
 
Wages and benefits

Wages and benefits expense increased by $31.8 million, or 21.4%, and $32.6 million, or 6.8%, for the three and nine months ended September 30, 2021, respectively, as compared to the prior year periods. Actions taken by the Company in response to decreased passenger travel demand attributed to the COVID-19 pandemic in 2020, through voluntary and involuntary programs had a significant impact on wages and benefits during 2020. Beginning in the first quarter of 2021, improving domestic travel demand led to the ramp up of domestic operations, notably amongst our front-line employees. These actions, combined with scheduled contractual wage increases, resulted in higher wages and benefits during the three and nine months ended September 30, 2021 as compared to the same periods in 2020. We expect that wages and benefits will increase during the fourth quarter of 2021, as compared to the same periods in 2020, as we begin to ramp up our international operations.

Aircraft fuel
 
Aircraft fuel expense increased during the three and nine months ended September 30, 2021, as compared to the prior year periods, due to an increase in the average fuel price per gallon and increased consumption, as illustrated in the following table: 
Three months ended September 30,Nine months ended September 30,
20212020% Change20212020% Change
(in thousands, except per-gallon amounts)(in thousands, except per-gallon amounts)
Aircraft fuel expense, including taxes and delivery$108,785 $14,544 648.0 %$240,361 $135,025 78.0 %
Fuel gallons consumed52,599 13,394 292.7 %126,987 84,975 49.4 %
Average fuel price per gallon, including taxes and delivery$2.07 $1.09 89.9 %$1.89 $1.59 18.9 %
 
We believe economic fuel expense is a good measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations in a period and is consistent with how our management manages our business and assesses our operating performance. We define economic fuel expense as raw fuel expense plus (gains)/losses realized through actual cash payments to/(receipts from) hedge counterparties for fuel derivatives settled in the period, inclusive of costs related to hedging premiums. Economic fuel expense is calculated as follows: 
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Three months ended September 30, Nine months ended September 30,
20212020% Change20212020% Change
(in thousands, except per-gallon amounts)(in thousands, except per-gallon amounts)
Aircraft fuel expense, including taxes and delivery$108,785 $14,544 648.0 %$240,361 $135,025 78.0 %
Realized losses on settlement of fuel derivative contracts— 2,062 (100.0)%165 7,899 (97.9)%
Economic fuel expense$108,785 $16,606 555.1 %$240,526 $142,924 68.3 %
Fuel gallons consumed52,599 13,394 292.7 %126,987 84,975 49.4 %
Economic fuel costs per gallon$2.07 $1.24 66.9 %$1.89 $1.68 12.5 %
 
Maintenance, materials and repairs

Maintenance, materials and repairs expense increased by $29.4 million, or 157.6%, and $26.3 million, or 28.3%, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. The increase during the third quarter is primarily attributable to increased utilization of our aircraft commensurate with the ramp up of our operations during the period, as discussed above. We expect maintenance, materials and repairs expense to increase during the fourth quarter of 2021, as compared to the same periods in 2020, as we continue to rebuild operational capacity combined with scheduled heavy maintenance events.

Aircraft and passenger servicing

Aircraft and passenger servicing expense increased by $25.8 million, or 501.5%, and $27.4 million, or 59.1%, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. The increase during the third quarter is primarily attributed to increased capacity and passengers flown, as discussed above. We expect aircraft and passenger service expense to increase during the fourth quarter of 2021, as compared to the same periods in 2020, as we continue to rebuild operational capacity.

Commissions and other selling expenses

Commissions and other selling expenses increased by $15.8 million, or 303.1%, and increased by $14.8 million, or 42.5%, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. The increase during the third quarter was primarily related to the increase in operational capacity and passenger travel, as discussed above. We expect commissions and other selling expenses to increase during the fourth quarter of 2021, as compared to the same periods in 2020 as we continue to rebuild operational capacity.

Other rentals and landing fees

Other rentals and landing fees increased by $22.3 million, or 157.2%, and $25.8 million, or 44.8%, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. A portion of our other rentals and landing fees are variable in nature and are dependent on factors such as the number of departures and passengers. The increase in landing fees and other rentals during the third quarter is attributed to increased operations as discussed above. We expect other rentals and landing fees expense to increase proportionally during the fourth quarter of 2021, as compared to the same periods in 2020, as we continue to rebuild operational capacity.

Special items

During the nine months ended September 30, 2021, we announced the termination of our 'Ohana by Hawaiian operations, which operated under the CPA with a third-party carrier. We reclassified approximately $23.6 million to Assets held for sale and recognized a one-time expense of $6.4 million to write-down the asset group to fair value. Additionally, we recorded a charge of approximately $2.6 million for the early termination of the CPA.

During the nine months ended September 30, 2020, we recognized approximately $178.4 million of operating special items comprised of the following:

In March 2020, we reached an agreement in principle with our flight attendants, represented by the AFA, on a new five-year contract that runs through April 2025. On April 3, 2020, we received notification from the AFA that the CBA
42


was ratified by its members. The ratified CBA provides for, among other things, a ratification payment to be paid over a one-year term, increased medical cost sharing, improved pay scales, and a one-time medical savings contribution to eligible flight attendants upon retirement. During the first quarter of 2020, we recorded a $23.5 million ratification bonus, of which $20.2 million was related to service prior to January 1, 2020, and recognized this as a special item in the unaudited Consolidated Statements of Operations. The remaining $3.3 million was recorded as a component of wages and benefits in the unaudited Consolidated Statements of Operations.

During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove our stock price to 52-week lows and significantly reduced future cash flow projections. We qualitatively assessed that an impairment loss may have been incurred as of March 31, 2020 and performed an interim test of the recoverability of goodwill and indefinite-lived intangible assets. We determined that the estimated fair value of our one reporting unit was less than its carrying value and that the deficit between fair value and the carrying value of the reporting unit exceeded the amount of goodwill on the unaudited Consolidated Balance Sheets, leading to the recognition of a goodwill impairment charge of $106.7 million in the first quarter of 2020.

During the second quarter of 2020, we recorded Special items of $34.0 million comprised of the following: (a) an impairment charge of $27.5 million to fair value our ATR-42 and ATR-72 fleets, (b) an impairment charge of $3.4 million to fair value our commercial real estate assets, and (c) an approximately $3.1 million write-off for discontinued software-related projects as a result of the COVID-19 pandemic.

During the third quarter of 2020, we announced and completed voluntary separation programs across each of our labor groups providing for one-time severance payments, the establishment of health reimbursement accounts and other benefits. Additionally, we announced involuntary separation and temporary leave programs, the majority of which were effective as of October 1, 2020. We recorded $17.5 million in severance and benefits as an operating special item and $7.0 million related to special termination benefits and curtailment loss as a nonoperating special item on the Consolidated Statements of Operations.

Government grant recognition

In the first quarter of 2021, we entered into a PSP Extension Agreement with the Treasury and received $192.7 million in payroll support payments. In the second quarter, we received $179.7 million pursuant to the PSP3 Agreement, all of which must be used exclusively for the payment of employee wages, salaries and benefits. The support payments included total grants of $320.6 million that was recognized as contra-expense in 2021 over the period that the funds were expected to be utilized. During the three and nine months ended September 30, 2021, we recognized total contra-expense of $78.3 million and $320.6 million, respectively, in the Consolidated Statements of Operations. As of September 30, 2021, we have utilized all funds received under the payroll support programs.

Other expense

Other expense increased by $13.6 million, or 82.3%, and $2.7 million, or 3.4%, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. The increase during the third quarter 2021 was primarily attributed to the ramp up of operations, including personnel-related expenditures for crew travel, professional and technical expenditures, and other miscellaneous expense. We expect other expense to increase during the fourth quarter of 2021 as we continue to rebuild operational capacity.

Nonoperating Income (Expense)

Net nonoperating expense increased by $1.8 million, or 7.9%, and $21.6 million, or 65.0%, during the three and nine months ended September 30, 2021 as compared to the same periods in 2020. The increase in expense was primarily attributed to an increase in interest expense as a result of the $1.2 billion loyalty and intellectual property financing completed in February 2021. Additionally, during the nine months ended September 30, 2020, we recorded $7.0 million related to special termination benefits and curtailment losses in connection with our separation program, as discussed above.

Income Taxes

Our effective tax rate was 23.5% and 32.4% for the three months ended September 30, 2021 and 2020, respectively, and 20.8% and 26.1% for the nine months ended September 30, 2021 and 2020, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible items.

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The effective tax rate for the three and nine months ended September 30, 2020 included the impact of the nondeductible goodwill impairment and reflected a tax benefit resulting from the rate differential from NOLs generated in recent periods, which were carried back to prior years.

We expect our tax rate to be approximately 21% during the fourth quarter of 2021.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments (excluding restricted cash) totaled approximately $2.0 billion as of September 30, 2021, compared to approximately $864.4 million as of December 31, 2020. As a result of the COVID-19 pandemic, we took actions in 2020 to increase liquidity and augment our financial position and continued to do so into the first quarter of 2021 with the closing of our $1.2 billion loyalty and intellectual property financing. For additional discussion of the actions we took in 2020 and the first quarter of 2021 to increase liquidity and augment our financial position, refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, filed with the SEC on April 28, 2021 and July 29, 2021, respectively. Additionally, for a discussion of liquidity actions taken during the nine months ended September 30, 2021, refer to the "Material Changes to our Consolidated Balance Sheet" section above. In connection with our 2021 financing activities, our total debt obligations increased $821.8 million, or 71.5% as of September 30, 2021 as compared to December 31, 2020.

As of September 30, 2021, our current assets exceeded our current liabilities by approximately $1,060.5 million as compared to $113.9 million as of December 31, 2020. Approximately $721.4 million of our current liabilities relate to our advanced ticket sales and frequent flyer deferred revenue.

Cash Flows

Net cash provided by operating activities was $311.3 million and $173.5 million during the nine months ended September 30, 2021 and 2020, respectively. Operating cash flows are primarily derived from providing air transportation to customers. The vast majority of tickets are purchased in advance of when travel is provided. We sell tickets for air travel in advance of the customer's travel date. We record the receipt on advance sales as deferred revenue in air traffic liability. The air traffic liability typically increases during the winter and spring months as advanced ticket sales grow prior to the summer and winter peak travel seasons and decreases upon utilization during these seasons. The impact of COVID-19 has resulted in a lower level of advanced bookings than historically experienced, which has impacted seasonal trends. Operating cash flows for the nine months ended September 30, 2021 included $320.6 million in proceeds received as part of the PSP Extension and PSP3, which was utilized to offset eligible payroll and payroll-related costs.
Cash used in investing activities was $964.1 million and $182.3 million during the nine months ended September 30, 2021 and 2020, respectively. Investing activities included capital expenditures, primarily related to aircraft and other equipment, and the purchases and sales of short-term investments. During the nine months ended September 30, 2021, capital expenditures were approximately $34.1 million, as compared with $101.8 million in capital expenditures during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, our purchases and sales of short-term investments resulted in net cash outflow of $930.3 million as compared to net cash inflow of $194.5 million during the same period in 2020.
Net cash provided by financing activities was $889.5 million and $519.7 million during the nine months ended September 30, 2021 and 2020, respectively. Prior to the suspension of our dividend and share repurchase programs in the first quarter of 2020, we returned $13.0 million to our shareholders through a combination of share repurchases and dividend payments. During the nine months ended September 30, 2020, we raised $602.3 million in cash through (i) a drawdown of $235.0 million on our revolving credit facility in March 2020, (ii) $262.0 million in aircraft financing through enhanced equipment trust certificates, (iii) $60.3 million in loans from government payroll support programs. and (iv) $45.0 million in loans through the ERP. During the nine months ended September 30, 2021, we raised approximately $1.3 billion in cash, primarily in connection with our loyalty and intellectual property financing, PSP funding programs, and shares issued through our at-the-market offering. These inflows were offset by the repayment of debt and finance lease obligations of $405.7 million, including the pay-down of our revolving credit facility of $235.0 million and the ERP loan of $45.0 million in the first quarter of 2021. Refer to Liquidity and Capital Resources section above for further discussion.
Covenants
We were in compliance with covenants contained in our financing agreements as of September 30, 2021.
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Capital Commitments

As of September 30, 2021, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights: 
Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft— N/A
B787-9 aircraft1010Between 2022 and 2026
General Electric GEnx spare engines:   
B787-9 spare enginesBetween 2022 and 2025
 
In October 2020, we entered into an amendment to our Boeing 787-9 purchase agreement, which changed the scheduled delivery of each aircraft and related engines to between 2022 and 2026. Refer to Note 10 in the Notes to Consolidated Financial Statements for additional discussion.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. We can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.

Stock Repurchase Program and Dividends

Pursuant to a stock repurchase program under which our Board of Directors authorized the repurchase of up to $100 million of our outstanding common stock, which terminated in December 2020, we spent $7.5 million to repurchase and retire approximately 260,000 shares of our common stock in open market transactions in the first quarter of 2020. In March 2020, we indefinitely suspended all repurchases under the approved repurchase plan and in connection with our receipt of federal Payroll Support Program financial assistance, which restricts us from repurchasing shares and making dividend payments until September 2022.

At-the-Market Offering Program

In December 2020, we entered into the Equity Distribution Agreement relating to the issuance and sale of up to 5.0 million shares of our common stock, par value $0.01 per share. During the nine months ended September 30, 2021, we sold 2.9 million shares pursuant to the Equity Distribution Agreement at an average price of $24.47 per share, with net proceeds totaling approximately $68.1 million. As of March 5, 2021, we sold all of the 5.0 million shares authorized under the Equity Distribution Agreement, at an average price of $22.46 per share, with net proceeds of approximately $109.3 million.

Credit Card Holdbacks

Under our bank-issued credit card processing agreements, proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. As of September 30, 2021 and December 31, 2020, there were no holdbacks held by our credit card processors. In the event of a material adverse change in our business, the credit card processors could increase holdbacks to an amount up to 100% of the outstanding credit card tickets that are unflown (e.g., Air traffic liability, excluding frequent flyer deferred revenue), which would result in the restriction of cash. If we were unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material impact on our operations, business or financial condition.

Pension and Postemployment Benefit Plan Funding

During the three and nine months ended September 30, 2021 and 2020, we were not required to, and did not make contributions to our defined benefit and other postretirement plans. Future funding requirements for our defined benefit and other postretirement plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements and the level and timing of asset returns. Given available funding credits in the defined benefit plan from past contributions in excess of required minimums, and the financial uncertainties of the COVID-19 pandemic on our business, we continue to evaluate whether any cash contributions will be made to our defined benefit plan during 2021.
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Contractual Obligations
 
Our estimated contractual obligations as of September 30, 2021 are summarized in the following table: 
Contractual ObligationsTotalRemaining in 20212022 - 20232024 - 20252026 and
thereafter
 (in thousands)
Debt obligations, including principal and interest (1)$2,448,663 $25,128 $403,503 $367,884 $1,652,148 
Finance lease obligations, including principal and interest (2)697,769 27,471 203,047 157,545 309,706 
Operating lease obligations (3) 152,972 7,295 58,782 30,759 56,136 
Aircraft purchase commitments (4)1,646,218 — 500,973 911,422 233,823 
Other commitments (5)117,979 5,395 52,025 38,832 21,727 
Projected employee benefit contributions (6)78,600 — 25,900 38,000 14,700 
Total contractual obligations$5,142,201 $65,289 $1,244,230 $1,544,442 $2,288,240 

(1)    Represents scheduled and estimated interest payments under our long-term debt based on interest rates specified in the applicable debt agreements. Principal and interest payments for debt denominated in Japanese Yen is estimated using the spot rate as of September 30, 2021.

(2)    Amounts reflect finance lease obligations for one Airbus A330-200 aircraft, one Boeing 717-200 aircraft, two Airbus A321neo aircraft, one Airbus A330 flight simulator, and aircraft and IT related equipment.

(3)    Amounts reflect leases for eleven Airbus A330-200 aircraft, four Boeing 717-200 aircraft, and office space.

(4)    Amounts include our firm commitments for aircraft and aircraft related equipment. On October 26, 2020, we entered into an amendment to our 787-9 purchase agreement with Boeing, providing for change in our aircraft delivery schedule to between 2022 through 2026. The committed expenditures under the amended agreement is reflected in the table above.

(5)    Amounts include commitments for services provided by third parties for aircraft maintenance, IT, and reservations. Total contractual obligations do not include long-term contracts where the commitment is variable in nature (with no minimum guarantee), such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.

(6)    Amounts include our estimated minimum contributions to our pension plans (based on actuarially determined estimates) and contributions to our pilots’ disability plan. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns and the impact of future legislation.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) retained a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in the first three categories that we believe may have a current or future material effect on our financial condition, liquidity or results of operations. We do have obligations arising out of variable interests in unconsolidated entities related to certain aircraft leases. To the extent our leases and related guarantees are with a separate legal entity other than a governmental entity, we are not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease, and the lease does not include a residual value guarantee, fixed price purchase option, or similar feature.

Non-GAAP Financial Measures

We believe the disclosure of non-GAAP financial measures is useful information to readers of our financial statements because:

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We believe it is the basis by which we are evaluated by many industry analysts and investors;

These measures are often used in management and Board of Directors decision making analysis;

It improves a reader’s ability to compare our results to those of other airlines; and

It is consistent with how we present information in our quarterly financial results press releases.

See tables below for reconciliation between GAAP consolidated net income (loss) to adjusted consolidated net income (loss), including per share amounts (in thousands unless otherwise indicated), adjusted income (loss) before income taxes, adjusted Operating Costs per Available Seat Mile (CASM), and adjusted EBITDA. The adjustments are described below:

During the three and nine months ended September 30, 2020, the effective tax rate included a tax benefit of $6.1 million and $29.5 million, respectively, resulting from the rate differential between the prevailing tax rate of 21% during the years that generated the net operating losses and the previous tax rate of 35% that was in effect during the years to which net operating losses were carried back as a result of the enactment of the CARES Act. This benefit is attributed to the enactment of the CARES Act and we believe that exclusion of this tax benefit provides investors comparability of results between periods.
We recognized $78.3 million and $320.6 million in contra-expense during the three and nine months ended September 30, 2021, respectively, and $129.1 million and $240.6 million during the three and nine months ended September 30, 2020, respectively related to grant proceeds received from the federal Payroll Support Programs. The grant proceeds were recognized in proportion to estimated eligible wages and benefits over the period to which the Payroll Support Programs relate.
Loss on extinguishment of debt is excluded to allow investors to better analyze our core operational performance and more readily compare our results to other airlines in the periods presented below.
Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This line item includes the unrealized amounts of fuel derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. We believe that excluding the impact of these derivative adjustments helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
Unrealized loss (gain) on foreign debt is based on the fluctuation in exchanges rates and the measurement of foreign-denominated debt to our functional currency. We believe that excluding the impact of these amounts helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
Changes in fair value of foreign currency derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This line item includes the unrealized amounts of foreign currency derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. We believe that excluding the impact of these derivative adjustments helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
Special Items

On April 3, 2020, we received notification from the AFA that the CBA was ratified by its members. The ratified CBA provided for, among other things, a ratification payment, payable over twelve months. During the three months ended March 31, 2020, we recorded a $23.5 million ratification bonus, of which $20.2 million related to service prior to January 1, 2020, and was recorded as a special item in the unaudited Consolidated Statements of Operations.
In the first quarter of 2020, we recognized a goodwill impairment charge of $106.7 million, recorded as a special item.
In the second quarter of 2020, we recognized a charge of $34.0 million associated with the impairment of certain of our long-lived assets. Refer to Note 12 in the Notes to the Consolidated Financial Statements for additional discussion.
In the third quarter of 2020, we announced and completed voluntary separation programs across each of our labor groups providing for one-time severance payments, the establishment of health reimbursement accounts and other benefits. Additionally, we announced involuntary separation programs, the majority of which were effective October
47


1, 2020. We recorded $17.5 million in severance and benefits as an operating special item and $7.0 million related to special termination benefits and curtailment loss as a nonoperating special item in the Consolidated Statements of Operations.
In May 2021, we announced the termination of our 'Ohana by Hawaiian operations, which operated under the CPA with a third-party carrier. The termination did not meet the requirements of discontinued operations under ASC 205; however, the asset group met the requirements for, and was reclassified as Held-for-Sale on the Consolidated Balance Sheets. We fair valued the asset group resulting in the write-down of approximately $6.4 million. Additionally, we recorded an early termination charge associated with the CPA of approximately $2.6 million.
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
 TotalDiluted Net Loss Per ShareTotalDiluted Net Loss Per ShareTotalDiluted Net Loss Per ShareTotalDiluted Net Income Per Share
(in thousands, except for per share data)
Net Income (Loss), as reported$14,669 $0.28 $(97,099)$(2.11)$(52,199)$(1.03)$(348,375)$(7.58)
Adjusted for:
CARES Act - carryback of additional NOLs— — (6,143)(0.13)— — (29,537)(0.64)
Government grant recognition(78,256)(1.51)(129,088)(2.81)(320,645)(6.33)(240,648)(5.23)
Loss on extinguishment of debt— — — — 3,994 0.08 — — 
Changes in fair value of fuel derivative contracts— — (1,765)(0.04)(382)(0.01)(966)(0.02)
Unrealized (gains) losses on foreign debt(1,945)(0.04)5,119 0.11 (20,896)(0.41)7,541 0.16 
Unrealized (gains) losses on non-designated fx positions— — 623 0.01 (1,352)(0.03)423 0.01 
Special items— — 17,489 0.38 8,983 0.18 178,407 3.88 
Nonoperating special items— — 7,011 0.15 — — 7,011 0.15 
Tax effect of adjustments16,842 0.31 31,189 0.68 69,363 1.37 48,017 1.04 
  Dilutive share impact— 0.01 — — — — — — 
Adjusted net loss$(48,690)$(0.95)$(172,664)$(3.76)$(313,134)$(6.18)$(378,127)$(8.23)

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Three months ended September 30,Nine months ended September 30,
2021202020212020
TotalMarginTotalMarginTotalMarginTotalMargin
(in thousands, except margin data)
Income (Loss) Before Income Taxes, as reported$19,169 3.8 %$(143,584)(189.0)%$(65,949)(6.0)%$(471,293)(67.8)%
Adjusted for:
Government grant recognition(78,256)(15.4)(129,088)(169.9)(320,645)(29.1)(240,648)(34.6)
Loss on debt extinguishment— — — — 3,994 0.4 — — 
Changes in fair value of fuel derivative contracts— — (1,765)(2.3)(382)— (966)(0.1)
Unrealized (gains) losses on foreign debt(1,945)(0.4)5,119 6.8 (20,896)(1.9)7,541 1.0 
Unrealized (gains) losses on non-designated foreign exchange positions— — 623 0.8 (1,352)(0.1)423 0.1 
Special items— — 17,489 23.0 8,983 0.8 178,407 25.7 
Nonoperating special items— — 7,011 9.2 — — 7,011 1.0 
Adjusted Loss Before Income Taxes$(61,032)(12.0)%$(244,195)(321.4)%$(396,247)(36.0)%$(519,525)(74.7)%

Operating Costs per Available Seat Mile (CASM)

We have listed separately in the table below our fuel costs per ASM and our non-GAAP unit costs, excluding fuel and special items. These amounts are included in CASM, but for internal purposes we consistently use unit cost metrics that exclude fuel and special items (if applicable) to measure and monitor our costs.

CASM and CASM-excluding aircraft fuel and non-recurring items are summarized in the table below: 
 Three months ended September 30,Nine months ended September 30,
 2021202020212020
 (in thousands, except as otherwise indicated)
GAAP Operating Expenses$465,381 $197,055 $1,113,068 $1,133,263 
Adjusted for:
Government grant recognition78,256 129,088 320,645 240,648 
Special items— (17,489)(8,983)(178,407)
Operating expenses excluding non-recurring items$543,637 $308,654 $1,424,730 $1,195,504 
Aircraft fuel, including taxes and delivery(108,785)(14,544)(240,361)(135,025)
Operating expenses excluding aircraft fuel and non-recurring items$434,852 $294,110 $1,184,369 $1,060,479 
Available Seat Miles4,229,461 718,405 10,298,035 6,107,424 
CASM - GAAP11.00 ¢27.43 ¢10.81 ¢18.56 ¢
Government grant recognition1.85 17.97 3.11 3.94 
Special items— (2.44)(0.09)(2.92)
Aircraft fuel, including taxes and delivery(2.57)(2.02)(2.33)(2.22)
CASM excluding aircraft fuel and non-recurring items10.28 ¢40.94 ¢11.50 ¢17.36 ¢
 

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Adjusted EBITDA

We believe that adjusting earnings for interest, taxes, depreciation and amortization, non-recurring operating expenses (such as changes in unrealized gains and losses on financial instruments) and one-time charges helps investors better analyze our financial performance by allowing for company-to-company and period-over-period comparisons that are unaffected by company-specific or one-time occurrences.
Three months ended September 30,Nine months ended September 30,
2021202020212020
(in thousands)
Net Income (Loss)$14,669 (97,099)$(52,199)(348,375)
Income tax expense (benefit)4,500 (46,485)(13,750)(122,918)
Depreciation and amortization33,899 36,734 104,368 115,516 
Interest expense and amortization of debt discounts and issuance costs29,897 11,596 83,905 26,612 
EBITDA, as reported82,965 (95,254)122,324 (329,165)
Adjusted for:
Government grant recognition(78,256)(129,088)(320,645)(240,648)
Changes in fair value of fuel derivative instruments— (1,765)(382)(966)
Unrealized (gains) losses on non-designated foreign exchange positions— 623 (1,352)423 
Unrealized (gains) losses on foreign debt(1,945)5,119 (20,896)7,541 
Special items— 17,489 8,983 178,407 
Nonoperating special items— 7,011 — 7,011 
Loss on extinguishment of debt— — 3,994 — 
Adjusted EBITDA$2,764 $(195,865)$(207,974)$(377,397)

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires management 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 as of the date of the financial statements. Actual results may differ from these estimates under different assumptions and/or conditions.

Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties that potentially result in materially different results under different assumptions and conditions. There have been no material changes to our critical accounting policies during the nine months ended September 30, 2021. For more information on our critical accounting policies, see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 3.                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
There have been no material changes in market risk from the information provided in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk", in our 2020 Annual Report on Form 10-K.

ITEM 4.                                                CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), which have been designed to permit us to effectively identify and timely disclose important information. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2021 to provide reasonable assurance that the information required to be disclosed by us in reports we file under the Exchange Act, is recorded, processed, summarized and reported within the
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time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three and nine months ended September 30, 2021, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II.  OTHER INFORMATION
 
ITEM 1.                                                LEGAL PROCEEDINGS.
 
We are not a party to any litigation that is expected to have a significant effect on our operations or business.
 
ITEM 1A.                                       RISK FACTORS.

RISK FACTOR SUMMARY

Our business operations are subject to numerous risks and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following:

Business Risks
the material adverse impact of the ongoing global COVID-19 pandemic on our operations and financial performance

Economic Risks
global economic volatility
our dependence on tourism to, from, and amongst the Hawaiian Islands
our dependence on the price and availability of fuel
our exposure to foreign currency exchange rate fluctuations

Liquidity Risks
credit market conditions
our debt, including covenants that restrict our financial and business operations
certain operating and other restrictions under our agreements with the U.S. Department of the Treasury (the Treasury)
requirements for us to maintain reserves under our credit card processing agreements

Competitive Environment Risks
the extremely competitive environment in which we operate
the concentration of our business
the competitive advantages held by network carriers in the North America market
the effect of increased capacity provided by our competitors on our Neighbor Island routes
the effect of competition from domestic and foreign carriers on our International routes

Information Technology and Third-Party Risks
compliance with U.S. and foreign laws and regulations relating to privacy, data protection, and data security and security standards imposed by our commercial partners
actual or perceived failure to protect customer or other personal or confidential information
our increasing dependence on technology and automated systems to operate our business
our reliance on third-party contractors to provide certain facilities and services

Labor Relations and Related Costs Risks
our dependence on satisfactory labor relations
our ability to attract and retain qualified personnel and key executives

Strategy and Brand Risks
our ability to successfully implement our route and network strategy
damage to our reputation or brand image
adverse publicity

Airline Industry, Regulation and Related Costs Risks
the substantial operating leverage of the airline industry and other conditions beyond its control
any inability to maintain adequate facilities and infrastructure at airports within the state of Hawai'i
substantial seasonal and cyclical volatility of our business
terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities
extensive government regulation, new regulations and taxes impacting the airline industry
climate change, including increased regulation and the impact of severe weather events
federal budget constraints
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compliance with various environmental laws and regulations required of the airline industry
our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject
litigation or regulatory action in the normal course of business or otherwise
changes in tax laws or regulations and our ability to use our net operating loss carryforwards
increases in our insurance costs or reductions in coverage
extended interruptions or disruptions in service

Fleet and Fleet-Related Risks
our dependence on a limited number of suppliers for aircraft, aircraft engines and parts
significant future financial commitments and operating costs related to our agreements to purchase Boeing 787-9 aircraft
delays in scheduled aircraft deliveries or other loss of fleet capacity
any impairment and other related charges related to the value of our long-lived assets

Common Stock Risks
fluctuations in our share price
our inability to repurchase our common stock or pay dividends on our common stock under the terms of our PSP agreements
limitations on voting and ownership by non-U.S. citizens in our certificate of incorporation and exclusive forum provisions in our bylaws
provisions of our certificate of incorporation and bylaws that may delay or prevent a change of control

Risks Related to Securities Offerings
effect of future sales or issuances of our common stock, or offers by us to repurchase any of our securities, on the public markets
the publication of research about us by analysts
the effect of our indebtedness and liabilities related to our debt offerings on the cash flow available for our operations and to satisfy our obligations related such debt
 
BUSINESS RISKS

The global COVID-19 pandemic has had and is expected to continue to have a material adverse impact on our operations and financial performance. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely affect our business operations, liquidity, financial performance, results of operations, financial position or the achievement of our strategic objectives.

Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused the global slowdown of economic activity (including the decrease in demand for goods and services), and significant volatility in and disruption to financial markets. While we have experienced a recent increase in demand for travel to and within the state of Hawai'i, we cannot predict developments in the COVID-19 pandemic and responses thereto, including related to the emergence of new variants of the virus, vaccine mandates or recommendations related to travel to and within the state of Hawai`i. As such, the economic consequences of future developments are uncertain, rapidly changing and difficult to predict. The pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on and requirements related to travel, transport and our workforce); the pace, effectiveness and utilization of vaccinations, including state or federal vaccine mandates placed on travelers or our employees; the impact of the pandemic and actions taken in response to it on global and regional economies and travel; the availability of federal, state, or local funding programs; general economic uncertainty in global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.

The COVID-19 pandemic has subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:

Financial risks: In response to the COVID-19 pandemic, we have experienced a significant decrease in demand for air travel and reduced load capacity on flights currently operated. For the three months ended September 30, 2021, our revenue was $508.8 million, up $432.9 million from the same period in 2020. We cannot guarantee that we will continue to see an increase in revenue as circumstances related to the COVID-19 pandemic continue to develop.
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Operations- and customer-related risks: Across our business, we faced operational challenges, including reduced demand for air travel, significant reductions in our flight schedule, decreased passenger traffic on our current routes, the need to protect employee and customer health and safety, the impacts on our business of vaccination mandates, workplace disruptions, need for contract modifications and cancellations, and other restrictions on business operations and the movement of people, including State of Hawai'i and county quarantine, testing and vaccination requirements, federal requirements for international travelers, and restrictions imposed on travel by other governments. Although some of these operational challenges have lessened as demand for air travel has increased, we are unable to predict future demand, including related to the emergence of new strains of the virus. Unpredictability in the demand for air travel as a result of the ongoing COVID-19 pandemic may result in decreases to anticipated levels of demand for air travel, which decreases could be material. We expect levels of passenger traffic and revenue, as compared to pre-COVID-19 pandemic levels, to remain depressed, particularly with respect to international markets due to delays in resumption of international travel. We expect to incur additional costs if we continue to increase the number of flights offered as passenger traffic to the Hawaiian Islands increases, which we will incur before the anticipated additional revenue is earned. While the rollout of COVID-19 vaccinations during the first quarter of 2021 may have caused an increase in demand for air travel, the further uptake and effectiveness of vaccines, particularly in light of emerging strains of the COVID-19 virus, remains unknown and may impact customer demand for air travel negatively. Additionally, our workforce, and that of other sectors in the travel industry may be significantly impacted by vaccination policies and requirements, which could have a negative impact on our operations. We have implemented enhanced measures to protect the health and safety of our passengers and employees and may be required or determine to take additional safety measures to minimize the transmission of COVID-19 that may further impact our operations and results of operations.

Legal and regulatory risks: While we are endeavoring to take all reasonable precautions and have instituted numerous health and safety measures to protect our guests and our employees, there can be no assurance that guests will not be exposed to COVID-19 while traveling, or that our employees will not be exposed to COVID-19 while working. Should such exposure be determined to have been caused while traveling or working, notwithstanding the steps we take to protect our guests and employees, we may be subject to civil lawsuits or employee grievances that give rise to legal liability. We also receive requests for, and provide, workplace reasonable accommodation, including with respect to our employee vaccination requirements, pursuant to federal and state law. While we carry employment practices liability insurance, we may become subject to claims related to such reasonable accommodation requests, which may result in litigation. Furthermore, while the airline industry is committed to the safety of our guests and employees and has taken and will continue to take all necessary precautions, there can be no assurance that federal legislation or federal regulation will not be enacted that increase our costs, our ongoing compliance burdens, and our exposure to claims of non-compliance. For example, federal employees and federal contractors like us and our subcontractors are now subject to federal vaccination requirements. If sufficient numbers of our employees or federal employees supporting our operations do not get vaccinated or qualify for accommodation, or otherwise fail to comply with applicable health and safety measures, our operations and results of operations may be materially adversely affected.

At this time, we are also not able to predict whether the COVID-19 pandemic will result in permanent changes to our customers’ behavior, including but not limited to such changes as a lasting or permanent reduction in leisure travel and more broadly a general reluctance to travel by consumers, each of which could have a material impact on our business. To date, the COVID-19 pandemic has produced the following trends, each possibly having an effect on future operations:

Travelers have indicated they are wary of airports and commercial aircraft, where they may view the risk of contagion as increased; and

Travelers may be dissuaded from flying due to restrictions on movement and possible enhanced COVID-19-related screening measures which have been or may be implemented across multiple markets we serve.

The COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect. The COVID-19 pandemic may also exacerbate other risks described in this “Risk Factors” section, including, but not limited to, our dependence on leisure travel to Hawai'i, our competitiveness, demand for air travel generally and our services specifically, shifting consumer preferences and our substantial outstanding indebtedness.

ECONOMIC RISKS

Our business is affected by global economic volatility, including the current economic downturn precipitated by the COVID-19 pandemic.

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Our business and results of operations are significantly impacted by general world-wide economic conditions, including the current economic downturn related to the COVID-19 pandemic. Our business depends on the demand for travel to, from and within the Hawaiian Islands and such demand for discretionary air travel has declined and remains unpredictable, which has negatively impacted our results of operations and financial condition. Further deterioration or instability in demand resulting from travel restrictions or recommendations or vaccine mandates, ongoing economic uncertainty or further recession may result in sustained reduction in our passenger traffic and/or increased competitive pressure on fares in the markets we serve, which could continue to negatively impact our results of operations and financial condition. There can be no assurance that we will be able to offset such revenue reductions by reducing our costs or seeking additional federal payroll support relief or other potential financing arrangements or other programs or opportunities, or that we will have sufficient cash flows to support our debt obligations.

Our business is highly dependent on tourism to, from, and amongst the Hawaiian Islands and our financial results have been impacted and may continue to be impacted by the current and any future downturn in tourism levels.

Our principal base of operations is in Hawai'i and our revenue is linked primarily to the number of travelers (mainly tourists) to, from and amongst the Hawaiian Islands. As a result of the COVID-19 pandemic and government mandates related to travel and business operations, we experienced a significant decline in the demand for travel to, from and amongst the Hawaiian Islands. The State of Hawai'i continues to impose quarantine, testing and vaccination requirements, federal requirements and foreign governments restrictions remain in effect for international travelers. There can be no assurance whether, at some point, the state of Hawai'i may limit or suspend the Safe Travels Program or vaccination exemptions from pre-travel testing and quarantine requirements, or whether federal quarantine requirements could be modified or expanded should the prevalence of the COVID-19 pandemic worsen. While travel restrictions have eased somewhat with the use of COVID-19 testing and the rollout of COVID-19 vaccinations, certain restrictions, including with respect to the use of COVID-19 testing and vaccination exemptions, may be reinstated, or altered, or the state of Hawai`i may recommend that visitors avoid air travel to Hawai`i, as the infection rates of COVID-19 change, which may have a significant impact on our business operations. Furthermore, statements by public officials urging residents and travelers to reduce or limit travel to Hawai`i or other markets to which we fly could have a significant impact on tourism and our business operations. Additionally, even with the lifting of certain restrictions associated with travel to and between the Hawaiian Islands, we expect to continue to experience depressed levels of passenger traffic and revenue, as compared to pre-COVID-19 pandemic levels, particularly with respect to international markets due to delays in resumption of international travel. We will need to incur costs as we begin to increase our number of flights as passenger traffic to and within the Hawaiian Islands increases, which we will incur before the anticipated additional revenue is earned.

Hawai'i tourism levels are generally affected by the economic and political climate impacting air travel and tourism markets generally, including the availability of hotel accommodations, the popularity of tourist destinations relative to other vacation destinations, and other global factors including health crises, natural disasters, safety, and security. As a result of the COVID-19 pandemic, there has been a significant decline in air travel due to government mandates and general public health concerns. Additionally, tourism has declined as various public events, attractions and venues have been closed or cancelled. While we have seen some increased tourism activity in the state of Hawai'i, we cannot predict if and when tourism levels will recover to levels prior to the COVID-19 pandemic. Additionally, from time to time, various events and industry-specific problems such as labor strikes have had a negative impact on tourism generally or in Hawai'i specifically. The occurrence of natural disasters, such as hurricanes, earthquakes, volcanic eruptions, and tsunamis, in Hawai'i or other parts of the world, could also have an adverse effect or compound the existing adverse effect of the COVID-19 pandemic on tourism. In addition, the potential or actual occurrence of terrorist attacks, wars, and/or the threat of other negative world events have had, and may in the future have, a material adverse effect on or compound the current effect of the COVID-19 pandemic on tourism.

Our business is highly dependent on the price and availability of fuel.

Our results and operations are heavily impacted by the price and availability of jet fuel. The cost and availability of jet fuel remains volatile and is subject to political, economic, and market factors that are generally outside of our control. Prices may be affected by many factors including, without limitation, the impact of political instability, crude oil production and refining capacity, unexpected changes in the availability of petroleum products due to disruptions to distribution systems or refineries, unpredicted increases in demand due to weather or the pace of global economic growth, inventory reserve levels of crude oil and other petroleum products, the relative fluctuation between the U.S. dollar and other major currencies, and the actions of speculators in commodity markets. The cost of jet fuel has been especially volatile recently due to the negative impact of the COVID-19 pandemic on the demand for oil. Because of the effects of these factors on the price and availability of jet fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. Also, due to the competitive nature of the airline industry, there can be no assurance that we will be able to increase our fares or other fees to sufficiently offset any increase in fuel prices.

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While, we may enter into derivative agreements to protect against the volatility of fuel costs, there is no assurance that such agreements will protect us during unfavorable market conditions or that counterparties will be able to perform under these hedge arrangements.

See Item 7A “Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for further information regarding our exposure to the price of fuel.

Our business is exposed to foreign currency exchange rate fluctuations.

Prior to the COVID-19 pandemic, our business had been expanding internationally with an increasing percentage of our passenger revenue generated from our international routes. The fluctuation of the U.S. dollar relative to foreign currencies can significantly affect our results of operations and financial condition. To manage the effects of fluctuating exchange rates, we periodically enter into foreign currency forward contracts and execute payment of expenditures in those locations in local currency. As of September 30, 2021, we had Japanese Yen denominated debt totaling $231.4 million. If our business is able to expand internationally, there is no assurance that these agreements will protect us against foreign currency exchange rate fluctuations during unfavorable market conditions or that our counterparties will be able to perform under these hedge arrangements.

See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for further information regarding our exposure to foreign currency exchange rates.

LIQUIDITY RISKS

Our financial liquidity could be adversely affected by credit market conditions.

Our business requires access to capital markets to finance equipment purchases, including aircraft, and to provide liquidity in seasonal or cyclical periods of weaker revenue generation. In particular, we will face specific funding requirements with respect to our obligation under purchase agreements with Boeing to acquire new aircraft. We may finance these upcoming aircraft deliveries; however, the unpredictability of global credit market conditions, including related to the current COVID-19 pandemic, may adversely affect the availability of financing or may result in unfavorable terms and conditions.

Our current unencumbered aircraft can be financed to increase our liquidity, but such financings may be subject to unfavorable terms. In light of current market conditions, any such financings are likely to reflect loan-to-value ratios and interest rates and other terms and conditions less favorable than our recent aircraft financings.

Additionally, our credit rating was recently downgraded by ratings agencies and there can be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our business or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets.

We can offer no assurance that financing we may need in the future will be available when required or that the economic terms on which it is available will not adversely affect our financial condition. If we cannot obtain financing or we cannot obtain financing on commercially reasonable terms, our business and financial condition may be adversely affected.

Our debt could adversely affect our liquidity and financial condition, and include covenants that impose restrictions on our financial and business operations.

As of September 30, 2021, we had approximately $1.9 billion in outstanding commercial debt, excluding funds borrowed under the CARES Act and the CAA 2021. Our debt and related covenants could:

require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other operational purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit, along with the financial and other restrictive covenants in the agreements governing our debt, our ability to borrow additional funds;
place us at a competitive disadvantage compared to other less leveraged competitors and competitors with debt agreements on more favorable terms than us; and
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adversely affect our ability to secure additional financing in the future on acceptable terms or at all, which would impact our ability to fund our working capital, capital expenditures, acquisitions or other general corporate purpose needs.

These agreements require us to meet certain covenants. If we breach any of these covenants we could be in a default under these facilities, which could cause our outstanding obligations under these facilities to accelerate and become due and payable immediately, and could also cause us to default under our other debt or lease obligations and lead to an acceleration of the obligations related to such other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under other credit facilities.

Our ability to comply with the provisions of financing agreements can be affected by events beyond our control and a default under any such financing agreements if not cured or waived, could have a material adverse effect on us. In the event our debt is accelerated, we may not have sufficient liquidity to repay these obligations or to refinance our debt obligations, resulting in a material adverse effect on our financial condition.

We have entered into agreements with the Treasury pursuant to the CARES Act, the CAA 2021 and the ARP 2021 that have certain operating and other restrictions.

As a condition of receiving grants and loans under the PSP3 Agreement, we agreed to, among other things: refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through the later of September 30, 2021 or the date on which we have expended all PSP funds; limit executive compensation through April 2023; suspend payment of dividends and stock repurchases through September 30, 2022; and comply with certain reporting requirements. We are also required to continue to provide air service to markets served prior to March 1, 2020 until March 1, 2022, to the extent determined reasonable and practicable by the DOT and subject to exemptions granted to us by the DOT given the absence of demand for such services.

The restrictions placed on us as part of our participation in the PSP and subsequent extensions thereof, including restrictions on use of funds, staffing, pay reduction, stock buy-backs, dividends, certain transactions, and service requirements may negatively affect our financial and business operations.

We are required to maintain reserves under our credit card processing agreements which could adversely affect our financial and business operations.

Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. As of September 30, 2021, there were no holdbacks held by our credit card processors.

In the event of a material adverse change in our business, the holdback could incrementally increase to an amount up to 100% of the applicable credit card activity for all unflown flights, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver, or otherwise mitigate the increase in restricted cash, it could adversely affect our liquidity and also cause a covenant violation under other debt or lease obligations and have a material adverse effect on our financial condition.

COMPETITIVE ENVIRONMENT RISKS

We operate in an extremely competitive environment.

The airline industry is characterized by low profit margins, high fixed costs, and significant price competition. We compete with other airlines on all of our Domestic and International routes. The commencement of, or increase in, service on our routes by existing or new carriers at aggressive prices could negatively impact our operating results, including as demand for air travel rebuilds as COVID-19 infection rates decline. Most of our competitors are much larger and have greater financial resources and brand recognition than we do. Aggressive marketing tactics or a prolonged fare competition initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets. Additionally, our competitors have been and may continue to be more successful in navigating the challenges related to COVID-19, including having easier access to additional capital and more favorable lending terms, which could impact our ability to compete successfully in the future. Since airline markets have few natural barriers to entry, we also face the constant threat of new entrants in all of our markets.

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Additional capacity to or within Hawai'i, whether from network carriers or low-cost carriers, could decrease our share of the markets in which we operate, could cause a decline in our yields, or both, including in light of industry-wide reductions in air travel due to the COVID-19 pandemic, which could have a material adverse effect on our results of operations and financial condition.

The concentration of our business within Hawai'i, and between Hawai'i and the U.S. mainland, provides little diversification of our revenue and could be exacerbated by the effects of the COVID-19 pandemic.

During the three months ended September 30, 2021, approximately 94.9% of our passenger revenue was generated from our Domestic routes. Most of our competitors, particularly major network carriers with whom we compete on North American routes, enjoy greater geographical diversification of their passenger revenue. As Domestic routes account for a significantly higher proportion of our revenue than they do for most of our competitors, a proportionately higher decline in demand for our domestic routes generally due to the COVID-19 pandemic is likely to have a relatively greater adverse effect on our financial results than on those of our competitors. Additionally, reductions in the level of demand for travel to, from, and within Hawai'i, such as those caused by government restrictions on travel to and business operations within Hawai'i, have reduced the revenue we are able to generate from our routes and adversely affected our financial results. Sustained reduction in our Domestic routes and continued industry capacity of major network carriers on routes to, from and within Hawai'i is likely to continue to adversely affect our financial results.

Our business is affected by the competitive advantages held by network carriers in the North America market.

During the three months ended September 30, 2021, approximately 78.9% of our passenger revenue was generated from our North America routes. The majority of competition on our North America routes is from network carriers such as Alaska Airlines, American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, all of whom have a number of competitive advantages. Primarily, network carriers generate passenger traffic from and throughout the U.S. mainland, which enables them to attract higher customer traffic levels as compared to us.

In contrast, we lack a comparable direct network to feed passengers to our North America flights and are therefore more reliant on passenger demand in the specific cities we serve. We also rely on our code-share partner agreements (e.g. with JetBlue) to provide customers access to and from North American destinations currently unserved by us. Most network carriers operate from hubs, which can provide a built-in market of passengers depending on the economic strength of the hub city and the size of the customer group that frequents the airline. Our Honolulu and Maui hubs do not originate a large proportion of North American travel, nor do they have the population or potential customer franchise of a larger city to provide us with a significant built-in market. Passengers in the North American market, for the most part, do not originate in Honolulu, but on the U.S. mainland, making Honolulu primarily a destination rather than an origin of passenger traffic.

Our Neighbor Island routes are affected by increased capacity provided by our competitors.

During the three months ended September 30, 2021, approximately 16.0% of our passenger revenue was generated from our Neighbor Island routes. Prior to the COVID-19 pandemic, certain of our competitors increased capacity to and within Hawai'i by introducing new routes and increasing the frequency of existing routes from North America to Hawai'i and by the introduction of additional flights within the neighbor islands. We are unable to predict competitor capacity related to air travel to Hawai'i or between the neighbor islands, including any impact that the COVID-19 pandemic may have on such capacity. Any increased competitor capacity that decreases our share of traffic to Hawai'i or between the neighbor islands could ultimately have a material adverse effect on our results of operations and financial condition.

Our International routes are affected by competition from domestic and foreign carriers.

During the three months ended September 30, 2021, approximately 5.1% of our passenger revenue was generated from our International routes. When our operations are not constrained by restrictions related to the COVID-19 pandemic, our competitors on these routes include both domestic and foreign carriers. Both domestic and foreign competitors have a number of competitive advantages that may enable them to attract higher customer traffic levels as compared to us.

Many of our domestic competitors are members of airline alliances, which provide customers access to each participating airline’s international network, allowing for convenience and connectivity to their destinations. These alliances formed by our domestic competitors have increased in recent years. In some instances, our domestic competitors have been granted antitrust exemptions to form joint venture arrangements in certain geographies, further deepening their cooperation on certain routes. To mitigate this risk, we rely on code-share agreements with partner airlines to provide customers access to international destinations currently unserved by us.
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Many of our foreign competitors are network carriers that benefit from network feed to support international routes on which we compete. In contrast, we lack a comparable direct network to feed passengers to our international flights, and are therefore more reliant on passenger demand in the specific destinations that we serve. Most network carriers operate from hubs, which can provide a built-in home base market of passengers. Passengers on our International routes, for the most part, do not originate in Hawai'i, but rather internationally, in these foreign carriers’ home bases. We also rely on our code-share agreements and our relationships with travel agencies and wholesale distributors to provide customers access to and from International destinations currently unserved by us.

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INFORMATION TECHNOLOGY AND THIRD-PARTY RISKS

If we do not maintain the privacy and security of personal information or other information relating to our customers or others, or fail to comply with applicable U.S. and foreign privacy, data protection, or data security laws or security standards imposed by our commercial partners, our reputation could be damaged, we could incur substantial additional costs, and we could become subject to litigation or regulatory penalties.

We receive, retain, transmit and otherwise process personal information and other information about our customers and other individuals, including our employees and contractors, and we are subject to increasing legislative, regulatory and customer focus on privacy, data protection, and data security both domestically and internationally. Numerous laws and regulations in the U.S. and in various other jurisdictions in which we operate relate to privacy, data protection, and security, including laws and regulations regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers and other individuals. The scope of these laws and regulations is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other obligations of ours.

A number of our commercial partners, including payment card companies, have imposed data security standards or other obligations relating to privacy, data protection, or data security upon us. We strive to comply with applicable laws, regulations, policies, and contractual and other legal obligations relating to privacy, data protection, and data security. However, these legal, contractual, and other obligations may be interpreted and applied in new ways and/or in manners that are inconsistent, and may conflict with other rules or practices. Data privacy, data protection, and data security are active areas, with laws and regulations in these areas being frequently proposed, enacted, and amended, and existing laws and regulations subject to differing and evolving interpretations. New laws and regulations in these areas likely will continue to be enacted.

Any failure or perceived failure by us to comply with laws or regulations, our privacy or data protection policies, or other privacy-, data protection-, or information security-related obligations to customers, or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in governmental investigations and enforcement actions, governmental or private litigation, other liability, our loss of the ability to process payment card transactions, or us becoming subject to higher costs for such transactions, or public statements critical of us by consumer advocacy groups, competitors, the media or others that could cause our current or prospective customers to lose trust in us, any of which could have an adverse effect on our business. Additionally, if third-party business partners that we work with, such as vendors, violate applicable laws, applicable policies or other privacy-, data protection-, or security-related obligations, such violations may also put our customers’ or others’ information at risk and could in turn have an adverse effect on our business. Governmental agencies may also request or take customer data for national security or informational purposes, and also can make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business.

We will continue our efforts to comply with new and increasing privacy, data protection, and information security obligations; however, it is possible that such obligations may require us to expend additional resources, and may be difficult or impossible for us to meet. Any failure to comply with applicable U.S. or foreign privacy, data protection, or data security laws or regulations, any privacy or security standards imposed by our commercial partners, or any other obligations we are or may become subject to relating to privacy, data protection, or information security, or any allegation or assertion relating to any of the foregoing may result in claims, regulatory investigations and proceedings, private litigation and proceedings, and other liability, all of which may adversely affect our reputation, business, results of operations and financial condition.

Our actual or perceived failure to protect customer information or other personal information or confidential information could result in harm to our business.

Our business and operations involve the storage, transmission and processing of information about our customers, our employees and contractors, our business partners, and others, as well as our own confidential information. We may become the target of cyber-attacks by third parties seeking unauthorized access to any of these types of information or to disrupt our business or operations. Computer malware, viruses, fraudulent sales of frequent flier miles, and general hacking have become more prevalent in our industry. While we have taken steps to protect customer information and other confidential information to which we have access, there can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We and our third-party service providers may be unable to anticipate attempted security breaches and to implement adequate preventative measures, and our security measures or those of our third-party service providers could be breached, we could suffer data loss, unauthorized access to or use of the systems or networks used in our business and operations, and unauthorized, accidental, or unlawful access to, or disclosure, modification,
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misuse, loss or destruction of, our or our customers’ information. We may also experience security breaches or other incidents that may remain undetected for an extended period. Further, third parties may also conduct attacks designed to disrupt or deny access to the systems and networks used in our business and operations.

Actual or perceived security breaches or other security incidents could result in unauthorized use of or access to systems and networks, unauthorized, accidental, or unlawful access to, or disclosure, modification, misuse, loss or destruction of, our or our customers’ information, and may lead to litigation, claims, indemnity obligations, regulatory investigations and other proceedings, severe reputational damage adversely affecting customer or investor confidence and causing damage to our brand, indemnity obligations, disruption to our operations, damages for contract breach, and other liability, and may adversely affect our revenues and operating results. Additionally, our service providers may suffer security breaches or other incidents that may result in unauthorized access or otherwise compromise data stored or processed for us that may give rise to any of the foregoing.

Any such actual or perceived security breach or other incident may lead to the expenditure of significant financial and other resources in efforts to investigate or correct a breach, address and eliminate vulnerabilities, and to prevent future security breaches or incidents, as well as significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, costs in connection with payment card replacement, and other liabilities. Certain breaches affecting payment card information or the environment in which such information is processed may also result in a loss of our ability to process credit cards or increased costs associated with doing so. We have incurred and expect to incur ongoing expenditures in an effort to prevent information security breaches and other security incidents.

We cannot be certain that our insurance coverage will be adequate for information security liabilities actually incurred or to cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We are increasingly dependent on technology and automated systems to operate our business.

We depend heavily on technology and automated systems to effectively operate our business. These systems include flight operations systems, communications systems, airport systems, reservations systems, management and accounting systems, commercial websites, including www.hawaiianairlines.com, and other IT systems, many of which must be able to accommodate high traffic volumes, maintain secure information and provide accurate flight information, as well as process critical financial transactions. Any substantial, extended, or repeated failures of these systems could negatively affect our customer service, compromise the security of customer information or other information stored on, transmitted by, or otherwise processed by these systems, result in the loss of or damage to important data, loss of revenue and increased costs, and generally harm our business. Additionally, loss of key talent required to maintain and advance these systems could have a material impact on our operations. Like other companies, our systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power disruptions, software or equipment failures, terrorist attacks, cybersecurity incursions, computer viruses and hackers. There can be no assurance that the measures we have taken to reduce the adverse effects of certain potential failures or disruptions are adequate to prevent or remedy disruptions of our systems or prevent or mitigate all attacks. In addition, we will need to continuously make significant investments in technology to periodically upgrade and replace existing systems. If we are unable to make these investments or fail to successfully implement, upgrade or replace our systems, our business could be adversely impacted. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition that may result from system interruptions or system failures.

We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.

There are a limited number of qualified employees and personnel in the airline and information technology industry, especially within the Hawai'i market. Due to these limitations, we have historically relied on outside vendors for a variety of services and functions critical to our business, including aircraft maintenance and parts, code-sharing, reservations, computer services including hosting and software maintenance, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, and the distribution and sale of airline seats. Our reliance on outside vendors may continue to increase in the future.

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The failure of any of our third-party service providers to adequately perform their service obligations, or other interruptions of services, including those related to the impacts of the COVID-19 pandemic on their businesses, are likely to reduce our revenues, increase expenses, and/or prevent us from operating our flights and providing other services to our customers. Additionally, our business and financial performance would be materially harmed if our customers believe that our services are unreliable or unsatisfactory.

LABOR RELATIONS AND RELATED COSTS RISKS

We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline’s results of operations. A significant portion of our workforce is represented by labor unions. We may make strategic and operational decisions that may require the consent of one or more of these labor unions, and these labor unions could demand additional wages, benefits or other consideration in return for their consent.

In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, and dispatchers. We cannot ensure that future agreements with our employees’ labor unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect our business. For example, in April 2020, the flight attendants of Hawaiian, represented by the Association of Flight Attendants, ratified an amended collective bargaining agreement, which among other things, includes a ratification payment, pay scale increases, and a one-time medical savings account contribution to eligible flights attendants upon retirement.

Our operations may be adversely affected if we are unable to attract and retain qualified personnel and key executives.

We believe that our future success is dependent on the knowledge and expertise of our key executives and highly qualified management, technical, and other personnel. Attracting and retaining such personnel in the airline industry is highly competitive. We cannot be certain that we will be able to retain our key executives or attract other qualified personnel in the future, including in light of the restrictions on executive compensation imposed on us under the PSP and subsequent extensions thereof. Any inability to retain our key executives, or other senior technical personnel, or attract and retain additional qualified executives, could have a negative impact on our operations.

In addition, as we rebuild our operations as passenger demand recovers, and expand our operations through the acquisition of new aircraft and introduction of service to new markets, it may be challenging to attract a sufficient number of qualified personnel including pilots, mechanics and other skilled labor. As we compete with other carriers for qualified personnel, we also face the challenge of attracting individuals who embrace our team-oriented, friendly and customer-driven corporate culture. Our inability to attract and retain qualified personnel who embrace our corporate culture could have a negative impact on our reputation and overall operations.

STRATEGY AND BRAND RISKS
Our failure to successfully implement our route and network strategy could harm our business.
Our route and network strategy (how we determine to deploy our fleet) includes initiatives to increase revenue, decrease costs, mature our network, and improve distribution of our sales channels. It is critical that we execute upon our planned strategy in order for our business to attain economies of scale and to sustain or improve our results of operations. If we are unable to utilize and fill increased capacity provided by additional aircraft entering our fleet, hire and retain skilled personnel, or secure the required equipment and facilities in a cost-effective manner, including as a result of the COVID-19 pandemic, we may be unable to successfully develop and grow our new and existing markets, which may adversely affect our business and operations.

We continue to strive toward aggressive cost-containment goals which are an important part of our business strategy to offer the best value to passengers through competitive fares while maintaining acceptable profit margins and return on capital. We believe a lower cost structure will better position us to fund our strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, our financial results may suffer.

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Any damage to our reputation or brand image could adversely affect our business or financial results.

Maintaining a good reputation globally is critical to our business. Our reputation or brand image could be adversely impacted by, among other things, any failure to maintain our safety record, our high ethical, social and environmental sustainability practices for all of our operations and activities, our impact on the environment, public pressure from investors or policy groups to change our policies, such as movements to institute a “living wage,” customer perceptions of our advertising campaigns, sponsorship arrangements or marketing programs, customer perceptions of our use of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in our services could adversely affect our business and financial results, as well as require additional resources to rebuild our reputation.

Moreover, the outbreak and spread of COVID-19 have adversely impacted consumer perceptions of the health and safety of travel, and in particular airline travel, and these negative perceptions could continue even after the COVID-19 pandemic subsides. Actual or perceived risk of infection while traveling could have a material adverse effect on the public’s perception of us, which could harm our reputation and business. We have taken various measures to reassure our team members and the traveling public of the safety of air travel, including those related to State of Hawai'i and county quarantine and testing requirements, and other measures, such as airport health screening measures, requiring that passengers wear face coverings, the provision of protective equipment for team members and enhanced cleaning procedures onboard aircraft and in airports. We expect that we will continue to incur costs related to the COVID-19 pandemic as we sanitize aircraft, implement additional hygiene-related protocols and take other actions to limit the threat of infection among our employees and passengers. However, we cannot assure that these or any other actions we might take in response to the COVID-19 pandemic will be sufficient to restore the confidence of consumers in the safety of air travel.

Our reputation and financial results could be harmed in the event of adverse publicity, including the event of an aircraft accident or incident.

Our customer base is broad and our business activities have significant prominence, particularly in Hawai'i and other destinations we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, third-party aircraft components or other events or circumstances affecting our operations could negatively affect the public image of our company and the willingness of customers to purchase services from us, which could affect our financial results.

Additionally, we are exposed to potential losses that may be incurred in the event of an aircraft accident or incident. Any such accident or incident involving our aircraft or an aircraft operated by one of our code-share partners could involve not only the repair or replacement of a damaged aircraft or aircraft parts, and its consequential temporary or permanent loss of revenue, but also significant claims of injured passengers and others. We are required by the DOT to carry liability insurance, and although we currently maintain liability insurance in amounts consistent with the industry, we cannot be assured that our insurance coverage will adequately cover us from all claims and we may be forced to bear substantial losses incurred with an accident. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.

AIRLINE INDUSTRY, REGULATION AND RELATED COSTS RISKS

The airline industry has substantial operating leverage and is affected by many conditions that are beyond its control, which could harm our financial condition and results of operations.

Due to the substantial fixed costs associated with operating an airline, there is a disproportionate relationship between the cost of operating each flight and the number of passengers carried. However, the revenue generated from a particular flight is directly related to the number of passengers carried and the respective average fares applied. Accordingly, a decrease in the number of passengers carried and, when applicable, the aggregate effect of decreasing flights scheduled, causes a corresponding decrease in revenue that is likely to result in a disproportionately greater decrease in profits. Therefore, the reduction in airline passenger traffic as a result of the COVID-19 pandemic and any future reductions as a result of the following or other factors, which are largely outside of our control, will likely harm our business, financial condition, and results of operations:

a decline in general economic conditions
the threat of terrorist attacks and conflicts overseas
actual or threatened war and political instability
the need for increased security measures or breaches in security
adverse weather and natural disasters
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changes in consumer preferences, perceptions, or spending patterns
increased costs related to security and safety measures
increased fares as a result of increases in fuel costs
outbreaks of contagious diseases or fear of contagion
congestion or major construction at airports and actual or potential disruptions in the air traffic control system

Our results of operations are and may continue to be volatile due to the conditions identified above. We cannot ensure that our financial resources will be sufficient to absorb the effects of the COVID-19 pandemic or any unexpected events, including those identified above.

Our operations may be disrupted if we are unable to obtain and maintain adequate facilities and infrastructure at airports within the state of Hawai'i.

We must be able to maintain and/or obtain adequate gates, maintenance capacity, office space, operations areas, and ticketing facilities at the airports within the state of Hawai'i to be able to operate our existing and proposed flight schedules. Failure to maintain such facilities and infrastructure may adversely impact our operations and financial performance.

Our business is subject to substantial seasonal and cyclical volatility.

Our results of operations reflect the impact of seasonal volatility primarily due to passenger leisure and holiday travel patterns. Moreover, due to the widespread impact of the COVID-19 pandemic on the demand for air travel generally and travel to and within Hawai'i specifically, we have seen a significant decline in demand for air travel in 2020 and 2021 as compared to prior years. As Hawai'i is a popular vacation destination, demand from North America, our largest source of visitors, is typically stronger during June, July, August and December and considerably weaker at other times of the year. Because of fluctuations in our results from seasonality, operating results for a historical period are not necessarily indicative of operating results for a future period and operating results for an interim period are not necessarily indicative of operating results for an entire year.

Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect us and the airline industry.

Terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks, hostilities or act of war, could adversely affect the airline industry, including us, and could result in a significant decrease in demand for air travel, increased security costs, increased insurance costs covering war-related risks, and increased flight operational loss due to cancellations and delays. Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse effect on our business, financial condition and results of operations, and on the airline industry in general.

The airline industry is subject to extensive government regulation, new regulations, and taxes which could have an adverse effect on our financial condition and results of operations.

Airlines are subject to extensive regulatory requirements that result in significant costs. New, and modifications to existing, laws, regulations, taxes and airport rates, and charges imposed by domestic and foreign governments have been proposed from time to time that could significantly increase the cost of airline operations, restrict operations or reduce revenue. The Federal Aviation Administration (FAA) from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections, and maintenance procedures to be conducted on older aircraft. A failure to be in compliance, or a modification, suspension or revocation of any of our DOT/FAA authorizations or certificates, could have a material adverse impact on our operations.

We cannot predict the impact that laws or regulations may have on our operations, nor can we ensure that laws or regulations enacted in the future will not adversely affect our business. Further, we cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to incur significant capital and operating expenditures.

In addition to extensive government regulations, the airline industry is dependent on certain services provided by government agencies (DOT, FAA, U.S. Customs and Border Protection (CBP) and the Transportation Security Administration (TSA)). Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may continue to do so in the future.
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We are subject to risks associated with climate change, including increased regulation of our CO2 emissions and the potential increased impacts of severe weather events on our operations and infrastructure.

There is increasing global regulatory focus on climate change and emissions of greenhouse gases, including CO2. In particular, the International Civil Aviation Organization (ICAO) is in the process of adopting rules, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), of which the U.S. federal government has opted to participate in the voluntary phases from 2021-2026. As part of the CORSIA program, we are currently monitoring our international emissions for reporting purposes, and such data will be used in calculations to determine subsequent carbon offsetting requirements under the CORSIA program. Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could increase operating costs in the airline industry and, as a result, adversely affect our operations.

In the event that CORSIA does not come into force as expected, we and other airlines could become subject to an unpredictable and inconsistent array of national or regional emissions restrictions, creating a patchwork of complex regulatory requirements that may affect global competitors differently. Concerns over climate change may result in the adoption of municipal, state, regional, and federal requirements or in changing business environments that may result in increased costs to the airline industry and us. In addition, several countries and U.S. states have adopted or are considering adopting programs to regulate greenhouse gas emissions. On January 20, 2021, the United States rejoined the Paris Climate Accord. Further, the current Presidential administration has made climate change mitigation an important policy priority, and may adopt additional regulatory changes that could impact the airline industry and our business. Certain airports have adopted, and others could in the future adopt, greenhouse gas emission or climate-neutral goals that could impact our operations or require us to make changes or additional investments in our infrastructure.

All such climate change-related regulatory activity and developments may adversely affect our business and financial results by requiring us to reduce our emissions, make capital investments to modernize aspects of our operations, purchase carbon offset credits, or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs. We may not be able to increase revenue in proportion with such additional costs.

We could also incur significant costs to improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.

Federal budget constraints may adversely affect our industry, business, results of operations and financial position.

Many of our airline operations are regulated by governmental agencies, including the FAA, the DOT, the CBP, the TSA, and others. If the federal government were to experience issues in reaching budgetary consensus in the future resulting in mandatory furloughs and/or other budget constraints, our business and results of operations could be materially negatively impacted, including as a result of actual or potential disruption in the air traffic control system, actual or perceived delays at various airports, and delays in deliveries of new aircraft, which may materially adversely impact our industry, our business, results of operations and financial positions.

The airline industry is required to comply with various environmental laws and regulations, which could inhibit our ability to operate and could also have an adverse effect on our results of operations.

Many aspects of airlines’ operations are subject to increasingly stringent federal, state, local, and foreign laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response Act and the Compensation and Liability Act. Compliance with these and other environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties. Governments globally are increasingly focusing on the environmental impact caused by the consumption of fossil fuels and as a result have proposed or enacted legislation which may increase the cost of providing airline service or restrict its provision. We expect the focus on environmental matters to increase.

Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. At this time, we cannot predict whether any such legislation or regulation would apportion costs between one or more jurisdictions in which we operate flights. We are monitoring and evaluating the potential impact of such legislative and regulatory developments. In addition to direct costs, such regulation may have a greater effect on the airline industry through increases in fuel costs. The
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impact to us and our industry from such actions is likely to be adverse and could be significant, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the atmosphere or have a greater impact on climate change than other industries.

Our operations may be adversely affected by our expansion into non-U.S. jurisdictions and the related laws and regulations to which we are subject.

The expansion of our operations into non-U.S. jurisdictions has expanded the scope of the laws and regulations to which we are subject, both domestically and internationally. Compliance with the laws and regulations of foreign jurisdictions and the restrictions on operations that these laws, regulations or other government actions may impose could significantly increase the cost of airline operations or reduce revenue. For example, various jurisdictions have imposed or are currently imposing restrictions that impede or restrict travel in response to the COVID-19 pandemic and a number of our destinations in Asia have been revising their privacy and consumer laws and regulations. Limitations placed on our business as a result of these or other laws and regulations or failure to comply with evolving laws or regulations could result in significant penalties, criminal charges, costs to defend ourselves in a foreign jurisdiction, restrictions on operations and reputational damage. In addition, we operate flights on international routes regulated by treaties and related agreements between the U.S. and foreign governments, which are subject to change as they may be amended from time to time. Modifications of these arrangements could result in an inability to obtain or retain take-off or landing slots for our routes, route authorization and necessary facilities. Any limitations, additions or modifications to government treaties, agreements, regulations, laws or policies related to our international routes could have a material adverse impact on our financial position and results of operations.

We may be party to litigation or regulatory action in the normal course of business or otherwise, which could have an adverse effect on our operations and financial results.

From time to time, we are a party to or otherwise involved in legal or regulatory proceedings, claims, government inspections, investigations or other legal matters, both domestically and in foreign jurisdictions. Resolving or defending legal matters, however, can take months or years. The duration of such matters can be unpredictable with many variables that we do not control including adverse party or government responses. Litigation and regulatory proceedings are subject to significant uncertainty and may be expensive, time-consuming and disruptive to our operations. In addition, an adverse resolution of a lawsuit, regulatory matter, investigation or other proceeding could have a material adverse effect on our financial condition and results of operations. We may be required to change or restrict our operations or be subject to injunctive relief, significant compensatory damages, punitive damages, penalties, fines or disgorgement of profits, none of which may be covered by insurance. We may have to pay out settlements that also may not be covered by insurance. There can be no assurance that any of these payments or actions will not be material. In addition, publicity of ongoing legal and regulatory matters may adversely affect our reputation.

Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, the Treasury and state and local tax authorities. Changes in U.S. tax laws or their interpretations (which may have retroactive application) could materially increase the amount of taxes we owe, thereby negatively impacting our results of operations as well as our cash flows from operations. Furthermore, our implementation of new practices and processes designed to comply with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially adversely impacting our business, financial position and results of operations.

As we continue to grow internationally, we may also be subject to taxation in jurisdictions around the world with increasingly complex tax laws, the application of which may be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, potentially adversely affecting our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the relevant authorities could claim that various withholding requirements apply to us or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could adversely impact us and our results of operations.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2020, we had NOLs available to reduce future taxable income of approximately $40.4 million for regular federal income tax purposes that have indefinite carryover and approximately $424.9 million for state income tax purposes that
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will expire, if unused, beginning in 2024. The majority of our state NOLs relate to the state of Hawai'i, most of which have indefinite carryover, but are limited to 80% utilization.

Our ability to use our NOLs will depend on the amount of taxable income generated in future periods. If our financial results continue to be adversely impacted by the COVID-19 pandemic, there can be no assurance that an increase in the valuation allowance on our net deferred tax assets will not be required in the future. Such valuation allowance could be material. Additionally, due to the COVID-19 pandemic and other economic factors, the NOLs may expire before we can generate sufficient taxable income to use them.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our ability to use NOLs to reduce future taxable income and liabilities may be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future.

Our insurance costs are susceptible to significant increases, and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.

We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers’ compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets, including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not change or that we will not bear substantial losses from accidents or damage to, or loss of, aircraft or other property due to other factors such as natural disasters. We could incur substantial claims resulting from an accident or damage to, or loss of, aircraft or other property due to other factors such as natural disasters in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition. As a result of the COVID-19 pandemic, we have experienced, and may continue to experience, increases in our policy premiums as our policies become eligible for renewal.

Extended interruptions or disruptions in service have and could continue to have a material adverse impact on our operations.

Our financial results have been and may continue to be adversely affected by factors outside our control, including, but not limited to, flight cancellations, significant delays in operations, and facility disruptions, such as those caused by the current COVID-19 pandemic. Our principal base of operations is in Hawai'i and a significant interruption or disruption in service has had and may continue to have a serious impact on our business and results of operations. In addition to international health crises, such as the COVID-19 pandemic, natural disasters, such as hurricanes, earthquakes and tsunamis, may impact the demand for transportation in the markets in which we operate.

FLEET AND FLEET-RELATED RISKS
We are dependent on our limited number of suppliers for aircraft, aircraft engines and parts.

We are dependent on a limited number of suppliers (e.g. Airbus, Boeing, Rolls Royce, Pratt & Whitney) for aircraft, aircraft engines, and aircraft-related items. We are vulnerable to malfunction, failure or other problems associated with the supply and performance of these aircraft and parts and/or related operational disruptions, such as those caused by the COVID-19 pandemic. We do not yet know the full impact of operational disruptions of our suppliers and believe that such disruptions could result in reputational harm, increased parts and maintenance costs, and adverse effects on our financial position and results of operations.

Our agreements to purchase Boeing 787-9 aircraft represent significant future financial commitments and operating costs.
As of September 30, 2021, we had the following firm order commitments and purchase rights for additional aircraft:

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Aircraft TypeFirm OrdersPurchase RightsExpected Delivery Dates
A321neo aircraft— 9N/A
B787-9 aircraft1010Between 2022 and 2026

We have made substantial pre-delivery payments for aircraft under existing purchase agreements and are required to continue these pre-delivery payments as well as make payments for the balance of the purchase price through delivery of each aircraft. Due to the impact of the COVID-19 pandemic, we entered into an amendment to the Boeing 787-9 purchase agreement on October 26, 2020, which provides for, amongst other things, a change in the aircraft delivery schedule from 2021 through 2025 to 2022 through 2026, with the first delivery scheduled in the third quarter of 2022. These commitments substantially increase our future capital spending requirements and may require us to increase our level of debt in future years. We are continuing to evaluate our options to finance these orders. There can be no assurance that we will be able to obtain such financing on favorable terms, or at all.

Delays in scheduled aircraft deliveries or other loss of fleet capacity may adversely impact our operations and financial results.

The success of our business depends on, among other things, the ability to effectively operate a certain number and type of aircraft. As noted above, we are uncertain about the future of our contractual commitments to purchase additional aircraft for our fleet. Our inability to purchase and introduce new aircraft into our fleet could negatively impact our business, operations and financial performance. Even if we proceed with some or all of our contractual commitments to purchase additional aircraft, delays in scheduled aircraft, due to the COVID-19 pandemic or other circumstances, or our failure to integrate newly purchased aircraft into our fleet as planned may require us to utilize our existing fleet longer than expected. Such extensions may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs.

We may never realize the full value of our long-lived assets such as aircraft and non-aircraft equipment, resulting in impairment and other related charges that may negatively impact our financial position and results of operations.

Economic and intrinsic triggers, which include the effects of the COVID-19 pandemic, extreme fuel price volatility, an uncertain economic and credit environment, unfavorable trends in historical or forecasted results of operations and cash flows, as well as other uncertainties, may cause us to record material impairments of our long-lived assets. Additionally, we could be subject to impairment charges in the future that could have an adverse effect on our financial position and results of operations in future periods. The risk of future material impairments has grown significantly as result of the effects of the COVID-19 pandemic on our business.

During the first quarter of 2020, the adverse economic impact and declining passenger demand attributed to the COVID-19 pandemic drove down our stock price to 52-week lows and significantly reduced our cash flows. We determined that the estimated fair value of our business was less than its carrying value. The deficit between the fair value and the carrying value of the assets exceeded the amount of goodwill on our financial statements and, therefore, we recognized a goodwill impairment charge of $106.7 million during the three months ended March 31, 2020.

As part of our response to COVID-19, discussed above, including substantial capacity reductions and the temporary grounding of the majority of our fleet, as well as reduced cash flow projections, we identified indicators of impairment of our long-lived assets. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors.

As of September 30, 2021, we had approximately $13.5 million in indefinite-lived intangible assets subject to impairment. The fair value of our indefinite-lived intangible asset continues to exceed its carrying value.

Given the ongoing impact of the COVID-19 pandemic, we continue to evaluate our current fleet and other long-lived assets for impairment accordingly. As of September 30, 2021, our remaining long-lived assets continued to generate future cash flows from operation of the fleet through the respective retirement dates in excess of their respective carrying values.

COMMON STOCK RISKS

Our share price is subject to fluctuations.

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The market price of our stock is influenced by many factors, many of which are outside of our control, and include other factors discussed in the Risk Factors section, as well as the following:

our operating results and financial condition
how our operating results and financial condition compare to securities analyst expectations, particularly with respect to metrics for which we do not give guidance, including whether those results significantly fail to meet or exceed securities analyst expectations
changes in the competitive environment in which we operate
fuel price volatility including the availability of fuel
announcements concerning our competitors including bankruptcy filings, mergers, restructurings or acquisitions by other airlines
increases or changes in government regulation
general and industry specific market conditions
changes in financial estimates or recommendations by securities analysts
sales of our common stock or other actions by investors with significant shareholdings

In recent years the stock market has experienced volatile price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may affect the price of our common stock.

In the past, securities class action litigation has often been instituted against a company following periods of volatility in its stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of our common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.

We cannot repurchase our common stock pursuant to our share repurchase program or pay dividends on our common stock for the foreseeable future.

Under the terms of our PSP3 Agreement, we are required to suspend payment of dividends and refrain from engaging in stock repurchases through September 20, 2022. We announced on March 18, 2020 that we suspended stock repurchases under our previously announced repurchase program, which expired on December 31, 2020. As such, we do not anticipate any future repurchases under our currently approved repurchase program and we cannot provide any assurance that we will initiate any repurchase program again in the future. Additionally, although we have historically issued quarterly dividends, we cannot provide any assurance that we will declare dividends in the future, even after the PSP restrictions are no longer applicable, based on our operating results, financial condition, capital requirements, and general business conditions.

Our certificate of incorporation includes a provision limiting voting and ownership by non-U.S. citizens and our bylaws include a provision specifying an exclusive forum for stockholder disputes.

To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our certificate of incorporation restricts voting of shares of our common stock by non-U.S. citizens. Our certificate of incorporation provides 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 certificate of incorporation further provides 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 June 30, 2021, we believe we were in compliance with the foreign ownership rules.

Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, any other state or federal court located in the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws (as each may be amended or restated from time
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to time); or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine. Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Accordingly, stockholders may be limited in the forum in which they are able to pursue legal actions against us.

Certain provisions of our certificate of incorporation and bylaws may delay or prevent a change of control, which could materially adversely affect the price of our common stock.

Our certificate of incorporation and bylaws contain provisions that may make it difficult to remove our Board of Directors and management, and may discourage or delay a change of control, which could materially and adversely affect the price of our common stock. These provisions include, among others:

the ability of our Board of Directors to issue, without further action by the stockholders, series of undesignated 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;
advance notice procedures for stockholder proposals to be considered at stockholders’ meetings and for nominations of candidates for election to our Board of Directors;
the ability of our Board of Directors to fill vacancies on the board;
a prohibition against stockholders taking action by written consent;
a prohibition against stockholders calling special meetings of stockholders; and
super-majority voting requirements to modify or amend specified provisions of our certificate of incorporation.

RISKS RELATING TO SECURITIES OFFERINGS

If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade the outlook of our common stock, the market price of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade the outlook for our common stock or issue other negative commentary about us or our industry. Furthermore, if one or more of these analysts cease coverage of us, we could lose visibility in the market. In addition, analysts and other market observers assessing our performance and prospects will take into account our existing and future amounts of debt, securities offerings, and any offers by us to repurchase our securities. As a result of one or more of these factors, the market price of our common stock could decline and cause you to lose all or a portion of your investment.

In connection with the issuance of Hawaiian’s enhanced equipment trust certificates, our indebtedness and liabilities could limit the cash flow available for our operations, and consequently expose us to risks that could materially adversely affect the resources available to us and Hawaiian to satisfy our obligations under such certificates.

In July 2020, we offered enhanced equipment trust certificates (the Certificates) issued by pass-through trusts (the EETC Offering) and, the equipment notes held in each trust and passed through to the certificate holders of such trust are senior secured obligations of ours. As of September 30, 2021, the outstanding principal balance of our EETC issuances was $470.1 million. Offerings of structured finance securities, such as the EETC Offering may present risks similar to those of the other types of debt obligations in which we or Hawaiian may invest and, in fact, such risks may be of greater significance in the case of such structured finance securities. In addition, the performance of the Certificates will be affected by a variety of factors, including its priority in the capital structure of the issuer thereof, and the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of the servicer of the securitized assets. If we or Hawaiian fail to comply with these covenants or to make payments under such indebtedness when due, then we or Hawaiian would be in default under that indebtedness, which could, in turn, result in ours or Hawaiian’s other indebtedness becoming immediately payable in full.

In connection with the issuance of the senior secured notes due 2026, our indebtedness and liabilities could limit the cash flow available for Hawaiian’s operations, and consequently expose us to risks that could materially adversely affect the resources available to us to satisfy our obligations under the Notes.

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In February 2021, we conducted a private offering of 5.75% senior secured notes due 2026 (the Notes) collateralized by certain loyalty and brand assets (Notes Offering). The indebtedness of Hawaiian and its subsidiaries increased significantly as a result of the Notes Offering. As of September 30, 2021, Hawaiian had 2.0 billion of total indebtedness (excluding finance lease obligations of approximately $131.2 million and operating lease obligations of $522.9 million). We incurred $1.2 billion principal amount of indebtedness as a result of the Notes Offering. We may also incur additional indebtedness to meet future financing needs. The indebtedness of Hawaiian and its subsidiaries could have significant negative consequences for our security holders and the resources available to satisfy our obligations under the Notes, including the following:

greater difficulty satisfying our obligations with respect to the Notes;
increasing Hawaiian’s vulnerability to adverse economic and industry conditions;
limiting Hawaiian’s ability to obtain additional financing;
requiring the dedication of a substantial portion of Hawaiian’s cash flow from operations to service Hawaiian’s indebtedness, which will reduce the amount of cash available for other purposes;
limiting Hawaiian’s flexibility to plan for, or react to, changes in its business;
placing Hawaiian at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital; and
potentially causing Hawaiian’s credit ratings to be reduced and causing our and Hawaiian’s debt and equity securities to significantly decrease in value.

Hawaiian’s business, including the HawaiianMiles Program, may not generate sufficient funds, and we and Hawaiian may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our and Hawaiian’s indebtedness, including the Notes, and our and Hawaiian’s cash needs may increase in the future. In addition, future indebtedness that we or Hawaiian may incur may contain financial and other restrictive covenants that limit our ability to operate our business, including with respect to the HawaiianMiles Program, raise capital or make payments under our or Hawaiian’s indebtedness. If we or Hawaiian fail to comply with these covenants or to make payments under ours or Hawaiian’s indebtedness when due, then we or Hawaiian would be in default under that indebtedness, which could, in turn, result in ours and Hawaiian’s other indebtedness becoming immediately payable in full.

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ITEM 2.                                                UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On March 18, 2020, we announced the suspension of our repurchase program and pursuant to our receipt of financial assistance under federal Payroll Support Programs, we are prevented from executing stock repurchases through September 30, 2022. We had no stock repurchase activity during the three and nine months ended September 30, 2021.

ITEM 3.                                                DEFAULTS UPON SENIOR SECURITIES.
 
None.
 
ITEM 4.                                                MINE SAFETY DISCLOSURES.
 
Not applicable.

ITEM 5.                                                OTHER INFORMATION.
 
None.


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ITEM 6.                                                EXHIBITS.
 
Exhibit No. Description
31.1 
31.2 
32.1 
32.2 
101.INS 
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Valuation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data Files (formatted as inline XBRL and contained in Exhibit 101)
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SIGNATURES
 
Pursuant to the requirements 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. 
 HAWAIIAN HOLDINGS, INC.
   
   
Date:October 27, 2021By:/s/ Shannon L. Okinaka
  Shannon L. Okinaka
  Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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