| Schedule of Reorganization under Chapter 11 |
The effect of the Company’s emergence from bankruptcy has been applied to the financial statements as of close of business on March 12, 2025. As used herein, the following terms refer to the Company and its operations: | | | | | | | "Predecessor" | The Company, prior to the Emergence Date | | "Current Predecessor Period" | The Company's operations, January 1, 2025 – March 12, 2025 | | "Prior Predecessor Quarter" | The Company's operations, April 1, 2024 - June 30, 2024 | | "Successor" | The Company, after the Emergence Date | | "Successor Period" | The Company's operations, March 13, 2025 - June 30, 2025 | | "Current Successor Quarter" | The Company's operations, April 1, 2025 - June 30, 2025 | | |
| | | | | | | | | | | | Predecessor | | | | | Reorganization (Gain) Expense | | Period from 1/1/25 through 3/12/25 | | Loss on Equity Rights Offering ("ERO") distribution and backstop issuance | | $ | 115.8 | | | Retained Professional fees | | 29.7 | | | Reclass of ERO related expense and Exit RCF financing costs | | 19.8 | | | Extinguishment of unvested stock compensation awards | | 7.6 | | | Write off of prior RCF prepaid loan fees | | 3.0 | | | Miscellaneous fees | | 0.6 | | | Recognition of Exit Secured Notes and Exit RCF financing costs | | (13.9) | | | Fresh start valuation adjustment | | (22.5) | | | (Gain) on Class 4 settlement | | (232.3) | |
| | | | | | | | (Gain) on Class 5 settlement | | (329.3) | | | Reorganization (Gain) Expense, net | | $ | (421.5) | |
The condensed consolidated balance sheet as of the Fresh Start Reporting Date was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | Predecessor | | Reorganization Items | | Fresh Start Adjustment | | Successor | | Assets | | | | | | | | | Current assets: | | | | | | | | | Cash and cash equivalents | $ | 678,382 | | | $ | (289,775) | | (1) | $ | — | | | $ | 388,607 | | | Restricted cash | 171,325 | | | 5,293 | | (2) | — | | | 176,618 | | | Short-term investment securities | 119,315 | | | — | | | — | | | 119,315 | | | Accounts receivable, net | 201,681 | | | — | | | — | | | 201,681 | | | | | | | | | | | Prepaid expenses and other current assets | 259,522 | | | (2,229) | | (3) | — | | | 257,294 | | | Assets held for sale | 447,271 | | | — | | | — | | | 447,271 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Total current assets | $ | 1,877,498 | | | $ | (286,711) | | | $ | — | | | $ | 1,590,787 | | | | | | | | | | | Property and equipment: | | | | | | | | | Flight equipment | $ | 2,739,143 | | | $ | — | | | $ | (850,445) | | (12) | $ | 1,888,698 | | | Ground property and equipment | 787,057 | | | — | | | (345,190) | | (13) | 441,866 | | | Less accumulated depreciation | (1,062,116) | | | — | | | 1,062,116 | | (14) | — | | | $ | 2,464,084 | | | $ | — | | | $ | (133,520) | | | $ | 2,330,564 | | | Operating lease right-of-use assets | 4,631,428 | | | — | | | (194,510) | | (15) | 4,436,918 | | | Intangible assets | 550 | | | — | | | 82,932 | | (16) | 83,482 | | | Pre-delivery deposits on flight equipment | 85,495 | | | — | | | — | | | 85,495 | | | Deferred heavy maintenance, net | 246,576 | | | — | | | (120,871) | | (17) | 125,705 | | | Other long-term assets | 67,043 | | | — | | | — | | | 67,043 | | | Total assets | $ | 9,372,673 | | | $ | (286,711) | | | $ | (365,969) | | | $ | 8,719,994 | | | | | | | | | | | Liabilities and Shareholders' Equity (Deficit) | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable | $ | 52,242 | | | $ | (5,566) | | (4) | $ | — | | | $ | 46,676 | | | Air traffic liability | 518,668 | | | — | | | — | | | 518,668 | | | Current maturities of long-term debt, net, and finance leases | 471,698 | | | (309,000) | | (5) | 2,991 | | (18) | 165,689 | | | Current maturities of operating leases | 259,713 | | | — | | | (17,483) | | (15) | 242,230 | | | Other current liabilities | 623,035 | | | (39,250) | | (6) | (1,536) | | (19) | 582,249 | | | Total current liabilities | $ | 1,925,357 | | | $ | (353,816) | | | $ | (16,029) | | | $ | 1,555,512 | | | | | | | | | | | Long-term debt and finance leases, less current maturities | $ | 1,704,517 | | | $ | 526,841 | | (7) | $ | (177,234) | | (18) | $ | 2,054,124 | | | Operating leases, less current maturities | 4,380,845 | | | — | | | (172,065) | | (15) | 4,208,781 | | | Deferred income taxes | 52,556 | | | — | | | 16,852 | | (20) | 69,408 | | | Deferred gains and other long-term liabilities | 120,795 | | | — | | | (22,996) | | (19) | 97,799 | | | Total liabilities not subject to compromise | $ | 8,184,070 | | | $ | 173,025 | | | $ | (371,472) | | | $ | 7,985,623 | | | | | | | | | | | Liabilities subject to compromise | $ | 1,635,104 | | | $ | (1,635,104) | | (8) | $ | — | | | $ | — | | | | | | | | | | | Shareholders’ equity: | | | | | | | | | Predecessor common stock | $ | 11 | | | $ | (11) | | (9) | $ | — | | | $ | — | | | Predecessor Additional paid-in capital | 1,174,925 | | | (1,174,925) | | (9) | — | | | — | | | Predecessor Treasury stock at cost | (81,285) | | | 81,285 | | (9) | — | | | — | | Successor common stock $0.0001 par value | — | | | 2 | | (10) | — | | | 2 | | | Successor Additional paid-in capital | — | | | 734,368 | | (10) | — | | | 734,368 | | | Retained earnings | (1,540,278) | | | 1,534,648 | | (11) | 5,630 | | (21) | — | | | Accumulated other comprehensive income (loss) | 127 | | | — | | | (127) | | (22) | — | | | Total shareholders’ equity | $ | (446,501) | | | $ | 1,175,368 | | | $ | 5,503 | | | $ | 734,370 | | | Total liabilities and shareholders’ equity | $ | 9,372,673 | | | $ | (286,711) | | | $ | (365,969) | | | $ | 8,719,994 | |
Balance Sheet Reorganization Adjustments (in thousands) (1) Changes in cash and cash equivalents included the following: | | | | | | | Funds received from the Equity Rights Offering | $ | 350,000 | | | Repayment of Debtor in Possession financing principal and accrued interest | (310,555) | |
| | | | | | | Repayment of prepetition Revolving Credit Facility | (300,856) | | | Funding to the professional fee escrow account | (5,293) | | | Payment of professional fees at Emergence | (8,191) | | | Payment of accrued interest on prepetition Senior Secured Notes | (12,826) | | | Payment of accrued interest on prepetition Convertible Senior Notes | (2,013) | | | Payment of Exit RCF Administrative Agent Fees | (41) | | | Net change in cash and cash equivalents | $ | (289,775) | |
(2) Changes in restricted cash include the following:
| | | | | | | Funding to the professional fee escrow account | $ | 5,293 | | | | | Net change in restricted cash | $ | 5,293 | |
(3) Changes in prepaid expenses and other current assets are related to certain debt issuance costs related to the Exit Revolving Credit Facility.
(4) Changes in accounts payable were due to the payment of $8.2 million in professional fees and recognition of $2.6 million of success fees earned at Emergence.
(5) The change in current maturities of long-term debt was due to the repayment of the $309.0 million principal balance of the Debtor in Possession facility at Emergence.
(6) Changes to other liabilities included the following:
| | | | | | | | | Accrual of professional fees earned at Emergence | $ | 13,000 | | | Settlement of the Backstop Commitment Premium in Successor shares | (35,000) | | | Payment of accrued interest on prepetition Senior Secured Notes | (12,826) | | | Payment of accrued interest on prepetition Convertible Senior Notes | (2,013) | | | Payment of accrued interest on the Debtor in Possession facility | (1,555) | | | Payment of accrued interest on prepetition Revolving Credit Facility | (856) | | | Net change in other liabilities | $ | (39,250) | |
(7) Changes in long-term debt include the following:
| | | | | | | | | Issuance of Exit Secured Notes | $ | 840,000 | | | Recognition of deferred financing costs related to the Exit Secured Notes | (13,159) | | | Repayment of the prepetition Revolving Credit Facility principal | (300,000) | | | Net change in long-term debt | $ | 526,841 | |
(8) Liabilities subject to compromise settled in accordance with the Plan:
| | | | | | | | | Class 4 Senior Secured Notes claims settled via issuance of Successor shares | $ | (1,110,000) | | | Class 5 Convertible Senior Notes claims settled via issuance of Successor shares | (525,104) | | | Total liabilities subject to compromise settled in accordance with the Plan | $ | (1,635,104) | |
The resulting gain on liabilities subject to compromise was determined as follows:
| | | | | | | | | Prepetition debt obligations settled at Emergence | $ | 1,635,104 | | | Issuance of Exit Secured Notes to settle Class 4 and Class 5 claims | (840,000) | | | Issuance of Successor shares to settle Class 4 claims | (177,694) | |
| | | | | | | Issuance of Successor shares to settle Class 5 claims | (55,836) | | | Gain on liabilities subject to compromise | $ | 561,574 | |
(9) Changes to Predecessor common stock, additional paid-in-capital, and treasury stock are due to the extinguishment of Predecessor equity per the Plan.
(10) Reflects the Successor equity including the issuance of 16,067,305 shares of Common Stock and 24,255,256 Warrants, consisting of 3,617,385 Tranche 1 Warrants and 20,637,871 Tranche 2 Warrants pursuant to the Plan.
| | | | | | | Issuance of Successor equity contemplated in Class 4 and Class 5 settlements | $ | 138,754 | | | Issuance of Successor equity associated with the Rights Offering, Backstop Commitment, and Backstop Premium | 153,870 | | Fair value of Tranche 2 Warrants contemplated in Class 4 and Class 5 settlements | 94,775 | | Fair value of Tranche 2 Warrants associated with the Rights Offering, Backstop Commitment, and Backstop Premium | 281,089 | | | | Fair value of Tranche 1 Warrants associated with Rights Offering, Backstop Commitment, and Backstop premium | 65,881 | | Total change in Successor common stock and additional paid-in capital | $ | 734,370 | | | Less: par value of Successor common stock | (2) | | | Change in Successor additional paid-in capital | $ | 734,368 | |
The value of Successor equity issued per the Plan and ERO was derived from the Selected Enterprise Value as shown in the table below (in millions): | | | | | | | Fresh Start Reporting Date | Enterprise Value | $ | 6,450 | | Minus: Debt and operating leases | (6,671) | | Plus: Excess cash and cash equivalents | 508 | | Plus: Non-operating assets | 447 | | Successor Equity Value | $ | 734 | |
(11) Changes to retained earnings included the following:
| | | | | | | | | Extinguishment of Predecessor equity | $ | 1,093,651 | | | Gain on settlement of liabilities subject to compromise | 561,574 | | | Gain on issuance of Successor shares via the Equity Rights Offering | (115,840) | | | Recognition of deferred financing costs related to the Exit Secured Notes | 13,159 | | | Recognition of deferred financing costs related to the Exit Revolving Credit Facility | 775 | | | Professional fees earned at Emergence | (15,625) | | | Write off of remaining old RCF prepaid loan fees | (3,003) | | | Recognition of Exit RCF Administrative Agent Fees | (41) | | | Net change to retained earnings | $ | 1,534,648 | |
Balance Sheet Fresh Start Adjustments (in thousands)
(12) The change in flight equipment represents the fair value adjustments to the Company's fixed assets due to the adoption of fresh start accounting. The following table summarizes the fair value of flight equipment by asset class: | | | | | | | Airframes | $ | 1,382,116 | | | Engines | 301,906 | | | Spare rotables and repairables | 204,676 | | Total flight equipment | $ | 1,888,698 | |
(13) The change in ground property and equipment represents the fair value adjustment to the Company's fixed assets due to the adoption of fresh start accounting. The following table summarizes the fair value of ground property and equipment by asset class:
| | | | | | | Other equipment and vehicles | $ | 108,598 | | | Internal use software | 50,587 | | | Buildings | 230,003 | | | Leasehold improvements | 19,485 | | | Land | 33,193 | | | Total ground property and equipment | $ | 441,866 | |
(14) The Company's accumulated depreciation incurred in the Predecessor periods has been eliminated with the adoption of fresh start accounting.
(15) The change in operating lease right of use assets is due to the change in the Company's incremental borrowing rate used in the calculation of operating lease right of use assets and operating lease liabilities, as well as adjustment for off-market terms.
(16) The change in intangible assets represents the fair value adjustment to the Company's air carrier slots due to the adoption of fresh start accounting. The air carrier slots were valued at $83.5 million as of the Emergence Date.
(17) Changes to deferred heavy maintenance, net are due to the write-off of $120.9 million of capitalized deferred heavy maintenance costs related to the Company's owned aircraft with the adoption of fresh start accounting. The aircraft and spare engines values as of the emergence date, were determined using a market approach, and included recent half-life and maintenance adjusted values.
(18) Changes to long-term debt include adjustments to the carrying values of the Company's debt instruments to their fair value as of the Fresh Start Reporting Date. The fair value adjustments to the carrying value for each type of debt instrument are noted below:
| | | | | | | Successor Exit Secured Notes | $ | (24,488) | | | EETC Notes, all tranches | (54,118) | | | Fixed Rate and Senior Term Loans | (5,540) | | | Unsecured Term Loans | (45,007) | | | Finance lease liabilities due to Failed Sale Leasebacks | (45,090) | | | Net change to long-term debt and finance leases | $ | (174,243) | |
(19) The change in other current liabilities and deferred gains and other long-term liabilities is due to the elimination of $24.5 million in the financial liability originally recorded to account for off-market terms on sale leaseback transactions completed in prior periods, commensurate with the adjustment of operating lease liabilities due to the change in the Company's incremental borrowing rate.
(20) The change to deferred income taxes is due to the increase of the net deferred tax liability of $16.9 million resulting from the changes in fair value of assets and liabilities due to the adoption of fresh start accounting.
(21) Change to retained earnings included the following: | | | | | | | Valuation adjustment to the Company's assets due to the adoption of fresh start accounting | $ | (171,459) | | | Valuation adjustment to the Company's debt and financing lease obligations due to the adoption of fresh start accounting | 174,243 | | | Impact of IBR change to right of use assets | (194,510) | | | Impact of IBR change to operating lease liabilities | 189,549 | | | Impact of deferred gain on sale leaseback write off | 24,532 | | | Impact to deferred tax balances | (16,852) | | | Elimination of accumulated other comprehensive income | 127 | | | Net change to retained earnings | $ | 5,630 | |
(22) Changes to accumulated other comprehensive income (loss) represent the write-off of Predecessor balance due to the adoption of fresh start accounting.
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