Use these links to rapidly review the document
TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One) | ||
ý |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2011 |
||
or |
||
o |
|
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
(State or other jurisdiction of incorporation or organization) |
71-0879698
(I.R.S. employer identification no.) |
|
3375 Koapaka Street, Suite G-350, Honolulu, Hawaii (Address of principal executive offices) |
|
96819 (Zip code) |
Registrant's telephone number, including area code: (808) 835-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
---|---|---|
Common Stock ($.01 par value) |
NASDAQ Stock Market, LLC
(NASDAQ Global Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer ý |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Rule Act 12b-2). Yes o No ý
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $289 million, computed by reference to the closing sale price of the Common Stock on the NASDAQ Stock Market, LLC, on June 30, 2011, the last business day of the registrant's most recently completed second fiscal quarter.
As of January 31, 2012, 50,729,573 shares of Common Stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for Annual Meeting of Stockholders to be held on May 24, 2012 will be incorporated by reference into Part III of this Form 10-K.
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K 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: any expectations of operating expenses, deferred revenue, interest rates, income taxes, deferred tax assets, valuation allowance or other financial items; statements regarding factors that may affect our operating results; estimates of fair value measurements; statements related to aircraft maintenance and repair costs and deposits and timing of maintenance activities; statements related to cash flow from operations and seasonality; estimates of required funding of and contributions to our defined benefit pension and disability plan; estimates of annual fuel expenses and measure of the effects of fuel prices on our business; statements regarding the availability and cost of fuel; statements regarding our wages and benefits and labor costs and agreements; statements regarding costs of compliance with regulations promulgated by the FAA, DOT and other regulatory agencies; statements related to airport rent rates and landing fees; statements regarding aircraft rent expense; statements regarding our total capacity and yields on routes; statements regarding compliance with potential environmental regulations; statements regarding potential dilution of our securities; statements regarding cost liability and deferred revenue estimates related to the frequent flyer program; statements related to our hedging program; statements concerning the impact of, and changes to, accounting principles, policies and estimates; statements regarding our tax valuation allowance; statements regarding credit card holdback; statements regarding the availability of financing; statements regarding our capital expenditures; statements regarding potential violations under the Company's debt or lease obligations; statements regarding our ability to comply with covenants under our financing arrangements; statements related to risk management, credit risks and air traffic liability; statements related to future U.S. and global economic conditions or performance; statements related to changes in our fleet plan and related cash outlays; statements related to expected delivery of new aircraft; statements related to commissions and selling expenses; statements related to potential route expansion; statements related to aircraft and passenger servicing; statements related to service expansion and related operating expenses; statements related to the effects of any litigation on our operations or business; and statements as to 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," 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 factors 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.
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 include those discussed under the heading "Risk Factors" in Item 1A in this Annual Report on Form 10-K and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this document are based on information available to us as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof.
2
Overview
Hawaiian Holdings, Inc. (the "Company," "Holdings," "we," "us" and "our") is a holding company incorporated in the State of Delaware. The Company's primary asset is the sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and became our indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002. Hawaiian became a Delaware corporation and the Company's direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005.
Hawaiian is 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 United States (the North America 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, Hawaiian also operates various charter flights. Hawaiian is the largest airline headquartered in Hawaii 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 Services as of October 31, 2011, latest data available. At December 31, 2011, Hawaiian's fleet consisted of sixteen Boeing 717-200 aircraft for its Neighbor Island routes and sixteen Boeing 767-300 aircraft and five Airbus A330-200 aircraft for its North America, International and charter routes.
Flight Operations
Our flight operations are based in Honolulu, Hawaii. At the end of 2011, we operated approximately 187 scheduled flights per day with:
Fuel
Our operations and financial results are significantly affected by the availability and price of jet fuel. The following table sets forth statistics about Hawaiian's aircraft fuel consumption and cost, including the impact of Hawaiian's fuel hedging program under Accounting Standard Codification (ASC) 815, "Accounting for Derivative Instruments and Hedging Activities" (ASC 815).
Year
|
Gallons
consumed |
Total cost,
including taxes |
Average cost
per gallon |
Percent of
operating expenses |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|
|
||||||||||
2011 |
164,002 | $ | 513,284 | $ | 3.13 | 31.5 | % | ||||||
2010 |
140,995 | $ | 322,999 | $ | 2.29 | 26.5 | % | ||||||
2009 |
137,589 | $ | 243,909 | $ | 1.77 | 22.7 | % |
3
As illustrated by the table above, fuel costs constitute a significant portion of our operating expenses. Approximately 64% of our fuel is based on Singapore jet fuel prices, 33% is based on U.S. West Coast jet fuel prices and 3% on other jet fuel prices. We purchase aircraft fuel at prevailing market prices, but seek to manage market risk through the execution of a hedging strategy. To manage economic risks associated with fluctuations in aircraft fuel prices, we periodically enter into derivative financial instruments such as heating oil and WTI and Brent crude oil caps/call options and collars. During 2011, our fuel derivatives were not designated for hedge accounting under ASC 815 and were marked to fair value. As such, $6.9 million in net losses from our fuel hedging activities during 2011 were not recorded as an increase to aircraft fuel expense in operating activities, but rather as a nonoperating expense.
Additional information regarding our fuel program and hedging position is included in Item 7A"Quantitative and Qualitative Disclosures about Market Risk" and in Note 4 to the consolidated financial statements.
Aircraft Maintenance
Our aircraft maintenance programs consist of a series of phased or continuous checks for each aircraft type. These checks are performed at specified intervals measured by calendar months, time flown or by the number of takeoffs and landings, or cycles operated. In addition, we perform inspections, repairs and modifications of our aircraft in response to Federal Aviation Administration (FAA) directives. Checks range from "walk around" inspections before each flight departure to major overhauls of the airframes which can take several weeks to complete. Aircraft engines are subject to phased maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certain airframe and engine parts and components are time or cycle controlled, and such parts and components are replaced or refurbished prior to the expiration of their time or cycle limits. We have contracts with third-parties to provide certain maintenance on our aircraft and aircraft engines.
Marketing and Ticket Distribution
In an effort to lower our distribution costs and reduce our reliance on travel agencies, we continued to pursue e-commerce initiatives during 2011. Since 2003, we have substantially increased the use of our website, www.HawaiianAirlines.com , as a distribution channel. In addition, we provide internet check-in and self-service kiosks to improve the customer check-in process. Our website offers our customers information on our flight schedules, our HawaiianMiles frequent flyer program, the ability to book reservations on our flights or connecting flights with any of our code-share partners, the status of our flights as well as the ability to purchase tickets or travel packages. We also publish fares with web-based travel services such as Orbitz, Travelocity, Expedia, Hotwire and Priceline. These comprehensive travel planning websites provide customers with convenient online access to airline, hotel, car rental and other travel services.
Frequent Flyer Program
The HawaiianMiles frequent flyer program was initiated in 1983 to encourage and develop customer loyalty. HawaiianMiles allows passengers to earn mileage credits by flying with us and our partner carriers. In addition, members earn mileage credits for patronage with our other program partners, including credit card issuers, hotels, car rental firms and general merchants, pursuant to our exchange partnership agreements. We also sell mileage credits to other companies participating in the program.
HawaiianMiles members have a choice of various awards based on accumulated mileage credits, with most of the awards being for free air travel on Hawaiian. Travel awards range from a 7,500 mile
4
award, which is redeemable for a SuperSaver one-way neighbor island flight, to a 210,000 mile award, which is redeemable for a anytime one-way first class travel between the mainland U.S. and Sydney, Australia; Manila, Philippines; Tokyo and Osaka, Japan; and Seoul, South Korea.
Effective September 1, 2009, frequent flyer miles in HawaiianMiles accounts with no activity (frequent flyer miles earned or redeemed) for eighteen months automatically expire. Prior to this change, frequent flyer miles automatically expired after thirty-six months of inactivity in the HawaiianMiles member's account.
The number of free travel awards used for travel on Hawaiian was approximately 492,000 and 485,000 in 2011 and 2010, respectively. The amount of free travel awards as a percentage of total revenue passengers equaled approximately 5.7% and 6.0% in 2011 and 2010, respectively. We believe displacement of revenue passengers is minimal due to our ability to manage frequent flyer seat inventory, and the relatively low ratio of free award usage to total revenue passengers.
Code-Sharing and Other Alliances
We have marketing alliances with other airlines that provide reciprocal frequent flyer mileage accrual and redemption privileges and code-sharing on certain flights (one carrier placing its name and flight numbers, or code, on flights operated by the other carrier). These programs enhance our revenue opportunities by:
Our marketing alliances with other airlines as of December 31, 2011 were as follows:
|
HawaiianMiles
Frequent Flyer Agreement |
Other Airline
Frequent Flyer Agreement |
Code-share
Hawaiian Flight # on Flights Operated by Other Airline |
Code-share
Other Airline Flight # on Flights Operated by Hawaiian |
||||
---|---|---|---|---|---|---|---|---|
American Airlines (American) |
No | Yes | No | Yes | ||||
American Eagle |
No | Yes | Yes | No | ||||
Continental Airlines (Continental) |
No | No | Yes | Yes | ||||
Delta Air Lines (Delta) |
Yes | Yes | No | Yes | ||||
Island Air |
Yes | No | Yes | No | ||||
Korean Air |
Yes | Yes | Yes | Yes | ||||
United Airlines (United) |
No | Yes | No | Yes | ||||
US Airways |
No | Yes | No | Yes | ||||
Virgin Atlantic Airways |
Yes | Yes | No | No | ||||
Virgin Australia |
No | No | No | Yes | ||||
Virgin Blue |
No | Yes | No | No |
In January 2012, we implemented code-sharing and frequent flyer agreements with All Nippon Airways (ANA). Also, in January 2012 we entered into various commercial agreements with JetBlue that provide for interline connections and in the future encompass code-sharing and a reciprocal frequent flyer partnership.
Although these programs and services increase our ability to be more competitive, they also increase our reliance on third parties.
5
Competition
The airline industry is extremely competitive. We believe that the principal competitive factors in the airline industry are:
North America We face multiple competitors on our North America routes including major network carriers such as Alaska Airlines, American, United Continental, Delta and US Airways. Various charter companies also provide unscheduled service to Hawaii mostly under public charter arrangements.
International Currently, we are the only provider of nonstop service between Honolulu and each of Pago Pago, American Samoa and Papeete, Tahiti. We also operate roundtrip flights between Honolulu and Sydney, Australia, competing directly with Qantas Airways and its low-cost affiliate Jetstar, and between Honolulu and Manila, Philippines, competing directly with Philippine Airlines. In addition, we operate roundtrip flights between Honolulu and Tokyo's Haneda International Airport competing directly with Japan Airlines and All Nippon Airways and with Delta, United, and China Airlines which operates from Narita, Japan. In July 2011, we launched roundtrip service between Honolulu and Osaka's Kansai International Airport competing directly with Japan Airlines and Delta. In January 2011, we launched roundtrip service between Honolulu and Seoul's Incheon International Airport competing directly with Korean Airlines and Asiana Airlines.
Neighbor Island Neighbor Island routes are served by several carriers including Island Air, Mesa Air Group (through its go! Mokulele joint venture), Pacific Wings and a number of "air taxi" companies. In October 2009, Mesa and Mokulele Airlines announced a joint venture to provide neighbor island service under the go! Mokulele brand name that includes flights between Honolulu and Kahului, Lihue, Hilo and Kona. In January 2012, we operated approximately 150 daily Neighbor Island flights.
Employees
As of December 31, 2011, Hawaiian had 4,314 active employees compared to 4,023 active employees as of December 31, 2010. Wages and benefits expense represented approximately 19.7% and 24.4% of our total operating expenses in 2011 and 2010, respectively. As of December 31, 2011,
6
approximately 86.9% of our employees were covered by labor agreements with the following organized labor groups:
Employee Group
|
Represented by | Number of Employees | Agreement amendable on (*) | ||||
---|---|---|---|---|---|---|---|
Flight deck crew members |
Air Line Pilots Association (ALPA) |
526 | September 15, 2015 | ||||
Cabin crew members |
Association of Flight Attendants (AFA) |
1,237 |
April 1, 2011 |
||||
Maintenance and engineering personnel |
International Association of Machinists and Aerospace Workers (IAM) |
631 |
April 20, 2014 |
||||
Customer service representatives |
IAM |
1,321 |
January 1, 2014 |
||||
Flight dispatch personnel |
Transport Workers Union (TWU) |
32 |
November 1, 2013 |
Seasonality
Our operations and financial results are subject to substantial seasonal and cyclical volatility, primarily because of leisure and holiday travel patterns. Hawaii is a popular vacation destination for travelers. Demand levels are typically weaker in the first quarter of the year with stronger demand periods occurring during June, July, August and December. We may adjust our pricing or the availability of particular fares to obtain an optimal passenger load factor depending on seasonal demand differences.
Customers
Our business is not dependent upon any single customer; or a few customers; the loss of any one would not have a material adverse effect on our business.
Regulation
Our business is subject to extensive and evolving federal, state and local laws and regulations. Many governmental agencies regularly examine our operations to monitor compliance with applicable laws and regulations. Governmental authorities can enforce compliance with applicable laws and regulations and obtain injunctions or impose civil or criminal penalties or modify, suspend or revoke our operating certificates in case of violations.
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 make significant capital and operating expenditures. However, most of these expenditures are made in the normal course of business and do not place us at any competitive disadvantage. The primary U.S. federal statutes affecting our business are discussed below.
7
Industry Regulations
We are subject to the regulatory jurisdiction of the U.S. Department of Transportation (DOT) and the Federal Aviation Administration (FAA). We operate under a Certificate of Public Convenience and Necessity issued by the DOT (authorizing us to provide commercial aircraft service) as well as a Part 121 Scheduled Carrier Operating Certificate issued by the FAA. Both certificates may be altered, amended, modified, suspended or revoked by the DOT/FAA for our failure to comply with the terms and conditions of a certificate. Such action may only be taken after notice and an opportunity for comment is provided, except in emergency situations where such actions may be immediately effective. The DOT has jurisdiction over international routes and international fares for some countries (based upon treaty relations with those countries), consumer protection policies including baggage liability and denied-boarding compensation, and unfair competitive practices as set forth in the Airline Deregulation Act of 1978. The FAA has regulatory jurisdiction over flight operations, including equipment, ground facilities, security systems, maintenance and other safety matters. Pursuant to these regulations, we have established, and the FAA has approved, a maintenance program for each type of aircraft we operate that provides for the ongoing maintenance of our aircraft, ranging from frequent routine inspections to major overhauls. In April 2011, the Department of Transportation announced new airline passenger protection rules requiring airlines to reimburse passengers for fees for lost baggage, provide greater compensation for involuntarily bumped passengers, expand the current ban on lengthy tarmac delays, allow passengers the option to change or cancel a reservation within 24 hours if the ticket is purchased at least a week in advance of departure and the disclosure of government taxes and certain fees in advertised fares. These new rules build on the passenger protections issued in December 2009. While rules on the tarmac delays and compensation for involuntarily bumped passengers were effective as of August 2011, all other new rules became effective in January 2012. In December 2011, the FAA approved changes to pilots' current flight schedules including the number of flight hours and scheduled duty time allowed as well as mandating minimum off duty hours and rest breaks. These recently approved rules will not be effective until the end of 2013. We cannot predict the impact that laws or regulations may have on our operations or assure you that laws or regulations enacted in the future will not adversely affect us.
Maintenance Directives
The FAA approves all airline maintenance programs, including modifications to the programs. In addition, the FAA licenses the repair stations and mechanics that perform inspections, repairs and overhauls, as well as the inspectors who monitor the work.
The FAA frequently issues airworthiness directives, often in response to specific incidents or reports by operators or manufacturers, requiring operators of specified equipment types to perform prescribed inspections, repairs or modifications within stated time periods or numbers of cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, wiring requirement for aging aircraft, fuel tank flammability, cargo compartment fire detection/suppression systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements. We cannot predict what new airworthiness directives will be issued and what new regulations will be adopted, or how our business will be affected by any such directives or regulations. We expect that we may incur expenses to comply with new airworthiness directives and regulations.
We believe we are in compliance with all requirements necessary to be in good standing with our air carrier operating certificate issued by the FAA and our certificate of Public Convenience and Necessity issued by the DOT. A modification, suspension or revocation of any of our DOT/FAA authorizations or certificates would have a material adverse impact on our operations.
8
Airport Security
The Aviation and Transportation Security Act (ATSA) mandates that the Transportation Security Administration (TSA) provide for the screening of all passengers and property, including mail, cargo, carry-on and checked baggage, and other articles that will be carried aboard a passenger aircraft. Under the ATSA, substantially all security screeners at airports are federal employees and significant other elements of airline and airport security are now overseen and performed by federal employees, including security managers, law enforcement officers and Federal Air Marshals. The ATSA also provides for increased security on flight decks of aircraft and requires Federal Air Marshals to be present on certain flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to U.S. Customs and Border Protection and enhanced background checks. The TSA also has the authority to impose additional fees on the air carriers, if necessary, to cover additional federal aviation security costs. Since 2002, the TSA has imposed an Aviation Security Infrastructure Fee on all airlines in operation prior to 2000 to assist in the cost of providing aviation security. The fees assessed are based on airlines' actual security costs for the year ended December 31, 2000. The TSA may increase these fees through rulemaking, but has not yet initiated such a proceeding. The existing fee structure will remain in place until further notice. 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 do so again in the future.
Environmental and Employee Safety and Health
We are subject to various laws and government regulations concerning environmental matters and employee safety and health in the U.S. and other countries in which we do business. 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, and the Comprehensive Environmental Response, Compensation, and Liability Act. Certain of our operations are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The U.S. Environmental Protection Agency (EPA), OSHA, and other federal agencies have been authorized to promulgate regulations that affect our operations. In addition to these federal activities, various states have been delegated certain authority under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to or stricter than federal requirements, such as California.
The EPA is authorized to regulate aircraft emissions and has historically implemented emissions control standards previously adopted by the International Civil Aviation Organization. Our aircraft comply with the existing EPA standards as applicable by engine design date. Concern about climate change and greenhouse gases may result in additional regulation of aircraft emissions in the U.S. and abroad. As a result, we may become subject to taxes, charges or additional requirements to obtain permits or purchase allowances or emission credits for greenhouse gas emissions in various jurisdictions, which could result in taxation or permitting requirements from multiple jurisdictions for the same operations. Ongoing discussions between the United States and other nations were advanced following the United Nations Climate Change Conference of 2011 held in Durban, South Africa, which led to the decision by all parties to adopt a universal legal agreement on climate change no later than 2015.
Cap and trade restrictions have also been proposed in Congress. In addition, other legislative or regulatory action to regulate greenhouse gas emissions is possible. In particular, the EPA has found
9
that greenhouse gases threaten the public health and welfare, which could result in regulation of greenhouse gas emissions from aircraft. In the event that legislation or regulation is enacted in the U.S. or in the event similar legislation or regulation is enacted in jurisdictions where we operate or where we may operate in the future, it could result in significant costs for us and the airline industry. 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. Under these systems, certain credits may be available to reduce the costs of permits in order to mitigate the impact of such regulations on consumers, but we cannot predict whether we or the airline industry in general will have access to offsets or credits. 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 that could result from fuel suppliers passing on increased costs that they incur under such a system.
We seek to minimize the impact of carbon emissions from our operations through reductions in our fuel consumption and other efforts. We have reduced the fuel needs of our aircraft fleet through the retirement and replacement of certain elements of our fleet and with newer, more fuel efficient aircraft. In addition, we have implemented fuel saving procedures in our flight and ground support operations that further reduce carbon emissions. We are also supporting efforts to develop alternative fuels and efforts to modernize the air traffic control system in the U.S., as part of our efforts to reduce our emissions and minimize our impact on the environment.
Noise Abatement
Under the Airport Noise and Capacity Act, the DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate and foreign commerce, or the national transportation system. Certain airports, including the major airports at Los Angeles, San Diego, San Francisco, San Jose and Sydney, Australia, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. Local authorities at other airports could consider adopting similar noise regulations. In some instances, these restrictions have caused curtailments in services or increases in operating costs, and such restrictions could limit our ability to expand our operations.
Taxes
The airline industry is subject to various passenger ticket, cargo and fuel taxes, which change from time to time. Certain of these taxes are assessed directly to the air carrier (e.g., excise taxes on fuel), while certain other of these taxes are pass-through taxes (e.g., excise taxes on air transportation of passengers and cargo). A long-term reauthorization of The Federal Aviation Act has again been enacted by Congress through September 30, 2015. Taxes authorized by that Act have been extended to that date. Congress may, in the course of approving a reauthorization of The Federal Aviation Act or further extensions of the Act, restructure the taxes and fees that airlines, passengers and aircraft owners pay in order to operate the United States aviation system. In addition, Congress may consider how to upgrade the air traffic control system and how to attempt to reduce costly delays, which may require additional fees from all users of the air traffic control system and may allow airports to increase their passenger facility charges (PFCs) from $4.50 per boarding to a higher figure. We cannot predict what future actions Congress may take in response to the proposal or whether any such actions by Congress, or any similar activity by the State of Hawaii, will have a material effect on our costs or revenue.
Civil Reserve Air Fleet Program
The U.S. Department of Defense regulates the Civil Reserve Air Fleet (CRAF) and government charters. We have elected to participate in the CRAF program whereby in 2011 we agreed to make up
10
to five of our Boeing 767 aircraft and in 2012 up to six of our aircraft (four Boeing 767 and two Airbus A330 aircraft) available to the federal government for use by the U.S. military under certain stages of readiness related to national emergencies. The program is a standby arrangement that lets the U.S. Department of Defense U.S. Transportation Command call on as many as six contractually committed Hawaiian aircraft and crews to supplement military airlift capabilities in 2012.
A Stage 1 mobilization of the CRAF program is the lowest activation level and would require us to make one passenger aircraft available. Under the requirements of a Stage 2 mobilization, additional passenger aircraft would be required (two Boeing 767 aircraft in 2012). The remaining aircraft subject to the CRAF program would be mobilized under a Stage 3 mobilization, which for us in 2012 would involve a total of four Boeing 767 and two Airbus A330 aircraft. While the government would reimburse us for the use of these aircraft, the mobilization of aircraft under the CRAF program could have a significant adverse impact on our results of operations. None of our aircraft are presently mobilized under this program.
Other Regulations
The State of Hawaii is uniquely dependent upon air transportation. The 2008 shutdowns of air carriers Aloha Airlines and ATA Airlines affected the State of Hawaii, and its legislature has responded by enacting legislation that reflects and attempts to address its concerns. For example, House Bill 2250 HD1, Act 1 of the 2008 Special Session, establishes a statutory scheme for the regulation of Hawaii neighbor island air carriers, provided that federal legislation is enacted to permit its implementation. Congress has not enacted any legislation that would allow this legislation to go into effect. Additionally, several aspects of airline operations are subject to regulation or oversight by federal agencies other than the FAA and the DOT. Federal antitrust laws are enforced by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by our cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. We and other airlines certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Airline Deregulation Act to certain airline employees who have been furloughed or terminated (other than for cause). The Federal Communications Commission issues licenses and regulates the use of all communications frequencies assigned to us and the other airlines. There is increased focus on consumer protection both on the federal and state level. We cannot predict the cost of such requirements on our operations.
Additional laws and regulations are proposed from time to time, which could significantly increase the cost of airline operations by imposing additional requirements or restrictions. U.S. law restricts the ownership of U.S. airlines to corporations where no more than 25% of the voting stock may be held by non-U.S. citizens and the airline must be under the actual control of U.S. citizens. The President and two thirds of the Board of Directors and other managing officers must also be U.S. citizens. Regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots and authorizations. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. We cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be adopted, if any, or how we will be affected by those changes.
Available Information
General information about us, including the charters for the committees of our Board of Directors, can be found at http://www.hawaiianair.com/about/ . Our Board of Directors has adopted a code of ethics entitled "Code of Business Ethics and Conduct" that applies to all of our employees, officers and directors. Our code of ethics can be found at http://www.hawaiianair.com/about/ . Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any
11
amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the Securities and Exchange Commission (SEC). Information on our website is not incorporated into this Annual Report on Form 10-K or our other securities filings and is not a part of such filings.
In addition to the risks identified elsewhere in this report, the following risk factors apply to our business, results of operations and financial conditions:
Risks Relating to our Business
Our business is affected by global economic volatility.
Our business and results of operations are significantly impacted by the general world-wide economic conditions. Demand for discretionary purchases in general, and air travel and vacations to Hawaii in particular, remains unpredictable. A deterioration in demand may result in a reduction in our passenger traffic and/or increased competitive pressure on fares in the markets we serve, either of which could negatively affect our revenue and liquidity and have a negative effect on our results of operations and financial condition. We cannot assure that we would be able to offset such revenue reductions by reducing our costs.
In addition, significant negative or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon the Company's liquidity, revenues, costs and operating results.
In addition to its effect on demand for our services, the global economic recession and bank crises in recent years severely disrupted the global capital markets, resulting in a diminished availability of financing. If economic conditions again worsen and experience further disruptions, we may be unable to obtain financing on acceptable terms, or at all, to refinance maturing debt and to satisfy future capital commitments.
Our business is highly dependent on the price and availability of fuel.
Fuel costs represented 31.5%, 26.5%, and 22.7% of Hawaiian's operating expenses for the years ended December 31, 2011, 2010 and 2009, respectively. The cost of jet fuel has been increasing and remains volatile. Approximately 64% of our fuel is based on Singapore jet fuel prices, 33% is based on U.S. West Coast jet fuel prices and 3% on other jet fuel prices. As of December 31, 2011, Singapore jet fuel prices were $3.05 and U.S West Coast jet fuel prices were $2.97, compared to an average of $2.15 and $2.22, respectively, during 2010. Based on gallons expected to be consumed in 2012, for every one cent change in the cost per gallon of jet fuel, Hawaiian's annual fuel expense increases or decreases by approximately $2.0 million. Prices and availability of jet fuel are 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 and crude oil production, unexpected changes in the availability of petroleum products due to disruptions at distribution systems or refineries, unpredicted increases in demand due to weather or the pace of global economic growth, inventory 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. For example, political turmoil and real or perceived threats of military conflict in northern Africa, or the Middle East, may significantly increase the price we pay for jet fuel in the future. Further increases in jet fuel prices or disruptions in fuel supplies, whether as a result of political instability in major fuel exporting countries, natural disasters or otherwise, could have a material adverse effect on our results of operations, financial position or liquidity.
12
From time to time, we enter into hedging agreements to protect against rising fuel costs. If fuel prices fall significantly below the levels at the time we enter into hedging contracts, we may be required to post a significant amount of collateral, which could have an impact on the level of our unrestricted cash and cash equivalents.
We operate in an extremely competitive environment.
The domestic airline industry is characterized by low profit margins, high fixed costs and significant price competition. We currently compete with other airlines on our Neighbor Island, North America and International routes. The commencement of, or increase in, service on our routes by existing or new carriers could negatively impact our operating results. Many of our competitors are larger and have greater financial resources and name recognition than we do. Aggressive marketing tactics or a prolonged fare war initiated by one or more of these competitors could adversely affect our financial resources and our ability to compete in these markets.
In recent years, many of our competitors have dramatically reduced operating costs through a combination of operational restructuring, business simplification and vendor and labor negotiations. Several airlines, including United and US Airways were able to reduce labor costs, restructure debt and lease agreements, and implement other financial improvements through the bankruptcy process. During 2011, American Airlines filed for Chapter 11 bankruptcy and it is in the process of reorganizing its operations to reduce its costs. Other carriers, including Continental, have also reduced operating costs outside of the bankruptcy process. In addition, certain of our competitors have merged to create larger and more-financially sound airlines including Delta (through its merger with Northwest Airlines) and United (through its merger with Continental). Through consolidation, carriers have the opportunity to achieve cost reductions by eliminating redundancy in their networks and their operating structures. With reduced costs, these competitors are more capable of operating profitably in an environment of reduced fares and may, as a result, increase service in our primary markets or reduce fares to attract additional customers. Because airline customers are price sensitive, we cannot assure that we will be able to attract a sufficient number of customers at sufficiently high fare levels to generate profitability, or that we will be able to reduce our operating costs sufficiently to remain competitive with these other airlines.
Since airline markets have few natural barriers to entry, we also face the threat of new entrants in all of our markets, including low-cost carrier (LCC) competition. Allegiant, a low-cost carrier, has announced that it acquired Boeing 757 aircraft expressly for the purpose of expanding its operations to Hawaii with service expected to be initiated in 2012. In addition, Southwest Airlines has announced that it would consider adding service to Hawaii after ordering Boeing 737-800 aircraft expected to be delivered in 2012 that are suitable for the mission. Furthermore, a more fundamental and immediate consequence for us of potential competition of LCCs is the response from full service network carriers, which have met the competition from LCCs in their markets by significantly reducing costs and adjusting their route networks to divert resources to long-haul markets such as Hawaii, where LCC competition has been less severe. The result is that the network carriers have at the same time reduced their costs of operation and increased capacity in the Hawaii market. Additional capacity to Hawaii, whether from network carriers or LCCs, could result in a decrease in our share of the markets in which we operate, a decline in our yields, or both, which could have a material adverse effect on our results of operations and financial condition.
13
Our business is affected by the competitive advantages held by network carriers in the North America market.
In the North America market, most of our competition comes from network carriers such as Alaska, American, Delta, United and US Airways. Network carriers have a number of competitive advantages relative to us that may enable them to obtain higher fares or attract higher customer traffic levels than us:
The Neighbor Island market has recently experienced decreasing demand.
The demand for Neighbor Island service has reduced in recent years as other airlines have increased direct service from the mainland to the neighbor islands, obviating the need for Neighbor Island transfers. In addition, the occurrence of a natural disaster, such as an earthquake or tsunami, could also reduce the demand for Neighbor Island service. A further decline in the level of Neighbor Island passenger traffic could have a material adverse effect on our results of operations and financial condition.
Our business is highly dependent on tourism, and our financial results could suffer if there is a downturn in tourism levels.
Our principal base of operations is in Hawaii and our revenue is linked primarily to the number of travelers (mostly tourists) to, from and among the Hawaiian Islands. Hawaii tourism levels are affected by, among other things, the political and economic climate in Hawaii's main tourism markets, the availability of hotel accommodations, promotional spending by competing destinations, the popularity of Hawaii as a tourist destination relative to other vacation destinations, and other global factors, including natural disasters, safety and security. From time to time, various events and industry specific problems, such as strikes, have had a negative impact on tourism in Hawaii. The occurrence of natural disasters, such as earthquakes and tsunamis, in Hawaii or other parts of the world, could also have a material adverse effect on Hawaii tourism. In addition, the potential or actual occurrence of terrorist attacks, wars such as those in Afghanistan and Iraq, and the threat of other negative world events have had, and may in the future again have, a material adverse effect on Hawaii tourism. No assurance can be given that the level of passenger traffic to Hawaii will not decline in the future. A decline in the level of Hawaii passenger traffic could have a material adverse effect on our results of operations and financial condition.
14
Our business is subject to substantial seasonal and cyclical volatility.
Our profitability and liquidity are sensitive to seasonal volatility primarily because of leisure and holiday travel patterns. As Hawaii is a popular vacation destination, demand is typically stronger during June, July, August and December and considerably weaker at other times of the year. Our results of operations generally reflect this seasonality, but are also affected by numerous other factors that are not necessarily seasonal. These factors include the extent and nature of fare changes and competition from other airlines, changing levels of operations, national and international events, fuel prices and general economic conditions, including inflation. Because a substantial portion of both personal and business airline travel is discretionary, the industry tends to experience adverse financial results during periods of economic downturn. The United States experienced a general economic deterioration from 2008 before recovering modestly. Tourism arrivals to Hawaii from the states served by Hawaiian showed positive signs of recovery, but remain below levels achieved prior to the economic decline.
The concentration of our business in Hawaii, and between Hawaii and the western United States, provides little diversification of our revenue.
Most of our revenue is generated from air transportation between the islands of Hawaii and the western United States, or within the Hawaiian Islands. Many of our competitors, particularly major network carriers with whom we compete on the North America routes, enjoy greater geographical diversification of their revenue. A reduction in the level of demand for travel within Hawaii, or to Hawaii from the western United States or the U.S. mainland in general, or an increase in the level of industry capacity on these routes may reduce the revenue we are able to generate and adversely affect our financial results. As these routes account for a significantly higher proportion of our revenue than they do for many of our competitors, such a reduction would have a relatively greater adverse impact on our financial results.
Our failure to successfully implement our growth strategy and related cost-reduction goals could harm our business.
Our growth strategy involves purchasing additional aircraft, expanding into new markets and initiating service on routes that we currently do not serve. It is critical that we achieve our growth 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 hire and retain skilled personnel or to secure the required equipment and facilities, or if we are not able to otherwise successfully implement our growth strategy, our business and operations could be adversely affected.
We continue to strive toward aggressive cost-containment goals that are an important part of our business strategy of offering the best value to passengers through competitive fares while at the same time achieving acceptable profit margins and return on capital. We believe that having a lower cost structure better positions us to be able to fund our growth strategy and take advantage of market opportunities. If we are unable to adequately contain our non-fuel unit costs, we likely will not be able to achieve our growth plan and our financial results may suffer.
Our share price has been subject to extreme fluctuations, and stockholders could have difficulty trading shares.
The market price of our stock can be influenced by many factors, a number of which are outside of our control. Some of the primary factors in the volatility of our stock price are:
15
Additionally, in recent years the stock market has experienced extreme 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 the company's 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 the shares of common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.
The issuance of common stock upon conversion of convertible notes could cause dilution to the interests of our existing stockholders.
As of December 31, 2011, we had $86.25 million aggregate principal amount of convertible notes outstanding. Upon conversion, we will have the right, at our election, to pay or deliver cash, shares of the Company's common stock or a combination thereof. Holders may convert their convertible notes at their option at any time prior to November 15, 2015, if specific conditions are met. Holders may require us to repurchase all or a portion of the convertible notes upon a fundamental change, primarily a change in control or a termination of trading, at a cash repurchase price equal to 100% of the principal amount of the convertible notes plus accrued and unpaid interest. The number of shares issued could be significant and such an issuance could cause significant dilution to the interests of the existing stockholders. In addition, if we elect to pay the repurchase price in cash, our liquidity could be adversely affected. See Note 6 to the consolidated financial statements for additional information related to these convertible notes.
We are increasingly dependent on technology to operate our business.
We depend heavily on computer systems and technology to operate our business, including flight operations systems, communications systems, airport systems, reservations systems and commercial websites, including www.hawaiianair.com . Any substantial or repeated failures of our computer, website or communications systems could negatively affect our customer service, compromise the security of customer information, result in the loss of important data, loss of revenue, and increased costs, and generally harm our business. Like other companies, our computer and communications systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power, software or equipment failures, terrorist attacks, 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.
If we do not maintain the privacy and security of customer-related information, we could damage our reputation, incur substantial additional costs and become subject to litigation.
We receive, retain, and transmit certain personal information about our customers. In addition, our online operations at www.hawaiianair.com depend on the secure transmission of confidential information over public networks, including credit card information. A compromise of our security systems or those of other business partners that results in our customers' personal information being obtained by unauthorized persons could adversely affect our reputation with our customers, as well as
16
our operations, results of operations, financial position and liquidity, and could result in litigation against us or the imposition of penalties. In addition, a security breach could require that we expend significant additional resources related to the security of information systems and could result in a disruption of our operations.
We are subject to various risks as a result of our fleet concentration in Boeing 717s and Boeing 767s.
Our fleet currently consists primarily of Boeing 717 and Boeing 767 aircraft. In 2006, Boeing Commercial Airplanes (Boeing) discontinued the production of the Boeing 717 aircraft model. In addition, the rate of production of Boeing 767 aircraft has significantly decreased. As a result, the availability of parts and maintenance support for Boeing 717 and Boeing 767 aircraft may become limited in future years. Additionally, we may experience increased costs in later years associated with parts acquisition for and/or maintenance support of these aircraft. Other carriers operating with a more diversified fleet may be better able to withstand such an event, if such an event occurred in the future.
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.
We have engaged an increasing number of third-party service providers to perform a number of functions that are integral to our business. These services include aircraft maintenance and parts, code-sharing, reservations, computer services, accounting, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling, personnel training, distribution and sale of airline seat inventory, among other vital functions and services. The failure of any of our third-party service providers to adequately perform our service obligations, or other interruptions of services, may reduce our revenues and increase expenses or prevent us from operating our flights and providing other services to our customers. In addition, our business and financial performance could be materially harmed if our customers believe that our services are unreliable or unsatisfactory.
17
customers. Any failure of these providers to adequately perform their service obligations, or other unexpected interruptions of services, may reduce our revenue and increase our expenses, or prevent us from operating our flights profitably and providing other services to our customers. In addition, our business and financial performance could be materially harmed if our customers believe that our services are unreliable or unsatisfactory. In addition, to the extent we are unable to maintain the outsourcing or subcontracting of certain services for our business, we would incur substantial costs, including costs associated with hiring new employees, in order to return these services in-house.
We are dependent on satisfactory labor relations.
Labor costs are a significant component of airline expenses and can substantially impact an airline's results. Labor and related benefit costs represented approximately 19.7%, 24.4% and 25.3% of our operating expenses for the years ended December 31, 2011, 2010, and 2009, respectively. We may experience pressure to increase wages and benefits for our employees in the future. We may make strategic and operational decisions that require the consent of one or more of our labor unions. We cannot assure you that these labor unions will not require 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. The agreement with our flight attendant group has been amendable since April 1, 2011 and contract negotiations are ongoing. We cannot assure you that future agreements with our employees' 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 us. If we are unable to reach an agreement with any unionized work group, we may be subject to future work interruptions and/or stoppages, which may hamper or halt operations.
Our operations may be adversely affected if we are unable to attract and retain key executives, including our Chief Executive Officer.
We are dependent on our ability to attract and retain key executives, particularly Mark B. Dunkerley, our Chief Executive Officer, who signed an amended employment agreement in May 2010 which provided for a 3.5 year term of employment ending on November 7, 2013. Competition for such personnel in the airline industry is highly competitive, and we cannot be certain that we will be able to retain our Chief Executive Officer or other key executives or that we can attract other qualified
18
personnel in the future. Any inability to retain our Chief Executive Officer and other key executives, or attract and retain additional qualified executives, could have a negative impact on our operations.
Our substantial debt could adversely affect our financial condition.
We have a significant amount of debt. Our total debt at December 31, 2011 was $461.5 million. Our substantial debt obligations may adversely affect our ability to incur additional debt in the future on acceptable terms or at all, which we may need to fund working capital, capital expenditures, acquisitions or other purposes. In addition, if our financial leverage increases materially, the related risks that we now face will intensify. Our substantial debt balance as well as the related financial covenants:
Our operations may not generate sufficient cash to enable us to service our debt. A failure to make a required payment or to comply with the covenants and other provisions in the agreements governing our debt could result in events of default under such agreements, which could permit acceleration of our debt. Any required repayment of our debt as a result of acceleration would reduce the amount of our current cash on hand. In addition, we may not have sufficient cash on hand to pay all such amounts due in the event of an acceleration.
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 intend to obtain additional debt financing for our upcoming aircraft deliveries. Additionally, we will face specific funding challenges upon the expiration of indebtedness related to the purchase of three previously leased Boeing 767-300 aircraft in 2013 and with respect to our obligation under a purchase agreement with Airbus to acquire wide-body A330-200 aircraft and A350XWB (Extra Wide Body) -800 aircraft. Credit market conditions remained unsettled from 2008, affecting the availability of financing and increasing the cost of financing that can be acquired. We can offer no assurance that the financing we need 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 reasonably terms, our financial condition will be adversely affected.
See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , for further information regarding our liquidity.
19
Our agreement to purchase Airbus A330-200 and A350XWB-800 aircraft significantly increases our future financial commitments and operating costs and creates implementation risk associated with the change from our current Boeing 767-300 fleet.
We currently have an agreement with Airbus to purchase sixteen A330-200 aircraft for delivery between 2012 and 2015 and six A350XWB-800 aircraft for delivery beginning in 2017, along with three purchase rights for additional A330-200 aircraft and six purchase rights for additional A350XWB-800 aircraft. We also have lease agreements for four additional A330-200 aircraft, three aircraft that were delivered in 2010 and one upcoming delivery in 2012. We have made substantial pre-delivery payments for the purchased aircraft and are required to continue these pre-delivery payments as well as payments for the balance of the purchase price through delivery of each of the aircraft.
These commitments substantially increase our future capital spending requirements and may require us to substantially increase our level of debt in future years. There can be no assurance that we will be able to raise capital to finance these requirements or that such financing can be obtained on favorable terms, or at all.
The addition of the Airbus aircraft to our fleet will require us to incur additional costs related to the acquisition of spare engines and replacement parts, maintenance of the aircraft, training of crews and ground employees, the addition of these aircraft types to our operating certificate and other implementation activities. There can be no assurance that we will be able to recover these costs through the future operation of these aircraft in our fleet or that we will not experience delays in the implementation process which could adversely affect our operations or financial performance.
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 operate a certain number and type of aircraft, including the introduction of the Airbus aircraft. If for any reason we are unable to secure deliveries of the Airbus aircraft on contractually scheduled delivery dates and successfully introduce these aircraft into our fleet, then our business, operations and financial performance could be negatively impacted. Our failure to integrate the Airbus aircraft into our fleet as planned might require us to seek extensions of the terms for certain of our leased aircraft. 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 and other costs.
Certain of our financing agreements and our credit card processing agreements include covenants that impose substantial restrictions on our financial and business operations.
The terms of certain of our financing agreements restrict our ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate, dispose of assets, prepay indebtedness, make investments, make acquisitions, enter into certain transactions with affiliates, in the case of Hawaiian, pay dividends or make distributions to our parent company and repurchase stock. These agreements also require us to meet certain financial covenants. If we breach any of these covenants, it could result 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 our other debt or lease obligations. The existence of such a default could also preclude us from borrowing funds under our 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 impact 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 impact on us.
20
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. These holdbacks, which are included in restricted cash in our Consolidated Balance Sheets, totaled $30.9 million at December 31, 2011. The agreement with our largest credit card processor also contains financial triggers for additional holdbacks, which are based on, among other things, the amount of unrestricted cash, the level of debt service coverage and operating income measured quarterly on a trailing 12-month basis. As of December 31, 2011, we were subject to a 25% holdback as we met the operating income financial trigger with our primary credit card processing arrangement. No amounts were subject to this holdback at December 31, 2010. Under the terms of this credit card agreement, the level of credit card holdback is subject to adjustment based on actual performance relative to these specific financial triggers. Depending on our performance relative to these financial triggers in the future, the holdback could incrementally increase to an amount up to 100% of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in restricted cash, it could also cause a violation under our other debt or lease obligations and have a material adverse impact on us.
Our business has substantial operating leverage.
The airline industry operates on low gross profit margins and revenue that varies substantially in relation to fixed operating costs. Due to high fixed costs, the expenses of each flight do not vary proportionately with the number of passengers carried, but the revenue generated from a particular flight is directly related to the number of passengers carried and the level of average fares. Accordingly, a decrease in the number of passengers carried would cause a corresponding decrease in revenue (if not offset by higher fares), and it may result in a disproportionately greater decrease in profits.
Our obligations for funding our defined benefit pension plans are significant and are affected by factors beyond our control.
We sponsor three defined benefit pension plans, as well as a separate plan to administer pilots' disability benefits. Two of the pension plans were frozen effective October 1, 1993, and our collective bargaining agreement with our pilots provides that pension benefit accruals for certain pilots became frozen effective January 1, 2008. Nevertheless, our unfunded pension and disability obligation was $193.7 million as of December 31, 2011. We made contributions of $12.9 million and $37.9 million for 2011 and 2010, respectively, and anticipate a minimum required funding of $10.2 million to the defined benefit pension and disability plans during 2012. The timing and amount of funding requirements depend upon a number of factors, including labor negotiations and changes to pension plan benefits as well as factors outside our control, such as asset returns, interest rates and changes in pension laws.
Airline bankruptcy restructuring, strategic combinations or industry consolidation could have an impact on our competitive environment in ways yet to be determined.
The environment in the airline industry changes from time to time as carriers implement varying strategies in pursuit of profitability, including consolidation to expand operations and increase market strength and entering into global alliance arrangements. The merger, bankruptcy or reorganization of one or more of our competitors may result in rapid changes to the identity of our competitors in particular markets, a substantial reduction in the operating costs of our competitors, or the entry of new competitors into some or all of the markets we serve or currently are seeking to serve. We are unable to predict exactly what effect, if any, changes in the strategic landscape might have on our business, financial condition and results of operations.
21
Our reputation and financial results could be harmed in the event of adverse publicity.
Our customer base is broad and our business activities have significant prominence, particularly in the State of Hawaii and the other cities we serve. Consequently, negative publicity resulting from real or perceived shortcomings in our customer service, employee relations, business conduct, or other events 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 revenue and financial results.
Our financial results may be negatively affected by increased airport rent rates and landing fees at the airports within the State of Hawaii as a result of the State's modernization plan.
The State of Hawaii has begun to implement a modernization plan encompassing the airports we serve within the State. Our landing fees and airport rent rates have increased to fund the modernization program. Additionally, we expect the costs for our Neighbor Island operations to increase proportionately more than the costs related to our North America and International operations because of phased adjustments to the airport's funding mechanism, which will result in the cost changes having a proportionately higher impact on us than our competitors which do not have significant Neighbor Island operations. We can offer no assurance that we will be successful in offsetting these cost increases through other cost reductions or increases in our revenue and, therefore, can offer no assurance that our future financial results will not be negatively affected by them.
The State of Hawaii, which is uniquely dependent upon and affected by air transportation, now seeks to impose new laws and regulations on the airline industry that could have an adverse effect on our financial condition and results of operations.
Hawaii is uniquely dependent upon and affected by air transportation. The bankruptcies and shutdowns of air carriers such as Aloha Airlines and ATA affected the State, and its legislature has responded by enacting legislation that reflects and attempts to address its concerns. House Bill 2250 HD1, Act 1 of the 2008 Special Session, establishes a statutory scheme for the regulation of Hawaii neighbor island air carriers, provided that federal legislation is enacted to permit its implementation. Among other things, this new law establishes an air carrier commission of five unpaid members, appointed by Hawaii's Governor, within the State Department of Transportation. The commission would examine and certify all neighbor island carriers and regulate fares, flight schedules, all property transfers and ownership transactions of certified carriers. Vetoed by the then Hawaii State Governor and subsequently overridden by the Hawaii State Legislature on July 8, 2008, this new law is subject to the enactment of federal legislation permitting its implementation. No such federal legislation has been initiated and cannot be predicted whether it will be initiated or adopted in the future.
In June 2011, Senate Bill 754 was signed into law as Act 105, Session Laws of Hawaii 201. This law suspends certain exemptions from payment of Hawaii general excise and use taxes currently enjoyed by many businesses, including Hawaiian, for a period of two years from July 1, 2011 to June 30, 2013. This law could increase our State tax liability and result in a reduction in expected earnings.
Risks Relating to the Airline Industry
The airline industry is affected by many conditions that are beyond its control, including delays, cancellations and other conditions, which could harm our financial condition and results of operations.
Our business and the airline industry in general are impacted by conditions that are largely outside of our control, including among others:
22
Because airlines have a high percentage of fixed costs and flight expenses do not vary significantly with the number of passengers carried, a relatively small change in the number of passengers can have a disproportionate effect on the airline's operations and financial results. Therefore, any general reduction in airline passenger traffic as a result of any of the above-mentioned or other factors could harm our business, financial condition and results of operations.
Our operations may be adversely impacted by potential security concerns and related costs.
Since the terrorist attacks of September 11, 2001, the airline industry has experienced profound changes, including substantial revenue declines and cost increases, which have resulted in industry-wide liquidity issues. Additional terrorist attacks, even if not made directly on the airline industry or the fear of such attacks, or any hostilities or act of war, could further adversely affect the airline industry, including us, and could:
Any future terrorist attacks or the implementation of additional security-related fees could have a material adverse impact 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 and new regulations 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. Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenue. For example, the ATSA, which became law in November 2001, mandates the federalization of certain airport security procedures and imposes additional security requirements on airlines. The 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. In April 2011, the Department of Transportation announced new airline passenger protection rules that require airlines to reimburse passengers for fees for lost baggage, provide greater compensation for involuntarily bumped passengers, expand the current ban on lengthy tarmac delays, and disclose certain fees. These new rules, which are now in effect, build on the passenger protections issued in December 2009. In December 2011, the Federal Aviation Administration (FAA) approved changes to pilots' current flight schedules including the number of
23
flight hours and scheduled duty time. These recently approved rules will not be effective until 2013. We expect to continue incurring expenses to comply with applicable regulations. We cannot predict the impact that laws or regulations may have on our operations or assure you that laws or regulations enacted in the future will not adversely affect us.
Many aspects of airlines' operations also 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 and the Comprehensive Environmental Response, Compensation and Liability Act. 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. Future regulatory developments in the U.S. and abroad could adversely affect operations and increase operating costs in the airline industry. For example, potential future actions that may be taken by the U.S. government, foreign governments, or the International Civil Aviation Organization to limit the emission of greenhouse gases by the aviation sector are unknown at this time, but the effect on us and our industry is likely to be adverse and could be significant. The U.S. Congress is considering climate change legislation and the Environmental Protection Agency issued a rule which regulates larger emitters of greenhouse gases. We cannot predict the impact that future environment regulations may have on our operations or assure you that regulations enacted in the future will not adversely affect us. The 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 upper atmosphere or have a greater impact on climate change than other industries.
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 be changed 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.
After the events of September 11, 2001, aviation insurers significantly reduced the maximum amount of insurance coverage available to commercial air carriers for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events (war-risk coverage). At the same time, they significantly increased the premiums for such coverage as well as for aviation insurance in general. As a result, war-risk insurance in amounts necessary for our operations, and at premiums that are not excessive, is not currently available in the commercial insurance market and we have therefore purchased from the U.S. government third-party war-risk insurance coverage. Explicit authority to issue war-risk insurance has been extended to September 30, 2012. Should the government discontinue this coverage, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. If we
24
are unable to obtain adequate war risk insurances our business could be materially and adversely affected.
We are at risk of losses and adverse publicity in the event of an aircraft accident.
We are exposed to potential losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss of revenue, but also significant potential claims of injured passengers and others. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
Aircraft
As of December 31, 2011, our total fleet consisted of sixteen Boeing 717-200 aircraft for our Neighbor Island routes and sixteen Boeing 767-300 and five Airbus 330-200 aircraft for our North America, International and charter routes. The following table summarizes our total fleet as of December 31, 2011:
Aircraft Type
|
Leased | Owned | Total |
Seating
Capacity (Per Aircraft) |
Simple
Average Age (In Years) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
A330-200 |
3 | 2 | 5 | 294 | 1.05 | ||||||||||
767-300ER/EM |
9 | 7 | 16 | 252-264 | 16.5 | ||||||||||
717-200 |
1 | 15 | 16 | 118-123 | 10.3 | ||||||||||
Total |
13 | 24 | 37 | ||||||||||||
See Note 7 to the consolidated financial statements for additional information regarding our aircraft lease agreements.
In November 2011, we amended our purchase agreement with Airbus, pursuant to which we exercised all remaining A330-200 aircraft purchase rights, acquired four additional A330-200 purchase rights, exercisable between calendar year 2011 and 2014, and immediately exercised one such additional purchase right for a total of five additional A330-200 aircraft scheduled for delivery between 2013 and 2015. At December 31, 2011, Hawaiian has (a) firm aircraft orders with Airbus for sixteen A330-200 aircraft for delivery between 2012 and 2015 and six A350XWB-800 aircraft for delivery between 2017 and 2020, and (b) purchase rights with respect to three additional A330-200 aircraft and six additional A350XWB-800 aircraft.
In August 2011, we entered into an agreement with a third-party aircraft lessor for the sale and leaseback of three Airbus A330-200 aircraft with scheduled delivery dates in the second quarter of 2012 and the first half of 2013. These sale and leaseback transactions have initial lease terms of twelve years with the option to extend an additional twenty-four months.
In June 2011, we entered into three separate eight-year lease agreements for an additional three Boeing 717-200 aircraft; one aircraft was delivered during the fourth quarter of 2011 and two aircraft were delivered in the first quarter of 2012. In addition, during 2011, we entered into a twelve-year operating lease agreement for an Airbus A330-200 aircraft with an expected delivery date in the second quarter of 2012.
25
Our firm orders and executed lease agreements consist of the following deliveries:
|
B717
Aircraft |
A330-200 Aircraft |
A350XWB-
800 Aircraft |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Delivery Year
|
Leases | Leases | Firm Order | Firm Order | Total | |||||||||||
2012 |
2 | 1 | 3 | * | | 6 | ||||||||||
2013 |
| | 5 | * | | 5 | ||||||||||
2014 |
| | 5 | | 5 | |||||||||||
2015 |
| | 3 | | 3 | |||||||||||
2016 |
| | | | | |||||||||||
2017 |
| | | 2 | 2 | |||||||||||
2018 |
| | | 2 | 2 | |||||||||||
2019 |
| | | 1 | 1 | |||||||||||
2020 |
| | | 1 | 1 | |||||||||||
|
2 | 1 | 16 | 6 | 25 | |||||||||||
The Airbus aircraft deliveries will replace expiring leased Boeing 767-300ER aircraft and retiring Boeing 767-300 aircraft and provide for incremental growth opportunity for our fleet. During 2011, two leased Boeing 767-300ER aircraft were returned upon expiration of their leases. Six of the remaining nine Boeing 767-300ER leased aircraft are expected to be returned upon expiration of their respective leases through 2016.
Ground Facilities
Our principal terminal facilities, cargo facilities and hangar and maintenance facilities are located at the Honolulu International Airport (HNL). The majority of the facilities at HNL are leased on a month-to-month basis. We are also charged for the use of terminal facilities at the four major Neighbor Island airports owned by the State of Hawaii. Some terminal facilities, including gates and holding rooms, are considered by the State of Hawaii to be common areas and thus are not exclusively controlled by us. Other facilities, including station managers' offices, Premier Club lounges and operations support space, are considered exclusive-use space by the State of Hawaii.
We are party to signatory agreements with the Port of Portland and a facilities sharing agreement with the City of Phoenix for terminal space, and operating agreements with the Port of San Diego, McCarran International Airport in Las Vegas, Nevada, the City of Los Angeles, the County of Sacramento, the City of Oakland, Societe D'Equipment De Tahiti Et Des Iles (SETIL) for Faa'a International Airport in Papeete, Tahiti, Japan, Haneda International Airport in Tokyo, Japan, Kansai International Airport in Osaka, Japan, and Incheon International Airport in Seoul, South Korea. We are party to a License Agreement with Jet-Blue Airlines in San Diego, California and Phoenix, Arizona, for the use of ticket counter space and other operational areas. We are party to lease agreements with the Government of American Samoa in Pago Pago, and Sydney Airport Corporation, Limited, in Sydney, Australia. We also have agreements in place for alternate landing sites with the Port of Moses Lake, King County (Boeing Field) in Seattle, Ontario International Airport in California, Fairbanks International Airport in Alaska and the Guam International Airport in Guam.
26
The table below sets forth the airport locations we utilize pursuant to various lease agreements as of December 31, 2011:
Name of Airport
|
Location | |||
---|---|---|---|---|
Phoenix Sky Harbor International Airport |
Phoenix | Arizona | ||
Los Angeles International Airport |
Los Angeles | California | ||
Oakland International Airport |
Oakland | California | ||
Sacramento International Airport |
Sacramento | California | ||
San Diego International Airport |
San Diego | California | ||
San Francisco International Airport |
San Francisco | California | ||
Norman Y. Mineta San Jose International Airport |
San Jose | California | ||
Hilo International Airport |
Hilo | Hawaii | ||
Honolulu International Airport |
Honolulu | Hawaii | ||
Kahului Airport |
Kahului | Hawaii | ||
Kona International Airport |
Kona | Hawaii | ||
Lihue Airport |
Lihue | Hawaii | ||
McCarran International Airport |
Las Vegas | Nevada | ||
Portland International Airport |
Portland | Oregon | ||
Seattle-Tacoma International Airport |
Seattle | Washington | ||
Pago Pago International Airport |
Pago Pago | American Samoa | ||
Faa'a International Airport |
Papeete | Tahiti | ||
Sydney Airport |
Sydney | Australia | ||
Ninoy Aquino International Airport |
Manila | Philippines | ||
Kansai International Airport |
Osaka | Japan | ||
Haneda International Airport |
Tokyo | Japan | ||
Incheon International Airport |
Seoul | South Korea |
Our corporate headquarters are located in leased premises adjacent to the Honolulu International Airport. During February 2011, we renegotiated our corporate headquarters operating lease which expires in 2026.
We are subject to legal proceedings arising in the normal course of our operations. We do not anticipate that the disposition of any currently pending proceeding will have a material effect on our operations, business or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
27
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Stock Market, LLC (NASDAQ) under the symbol "HA." The following table sets forth the range of high and low sales prices of our common stock as reported on the NASDAQ for the periods indicated.
|
High | Low | |||||
---|---|---|---|---|---|---|---|
2011 |
|||||||
First Quarter |
$ | 8.03 | $ | 5.99 | |||
Second Quarter |
6.15 | 5.40 | |||||
Third Quarter |
5.95 | 3.78 | |||||
Fourth Quarter |
6.41 | 3.96 | |||||
2010 |
|||||||
First Quarter |
$ | 8.09 | $ | 5.94 | |||
Second Quarter |
7.40 | 5.17 | |||||
Third Quarter |
6.10 | 4.81 | |||||
Fourth Quarter |
8.53 | 5.75 |
Holders
There were 1,130 stockholders of record of our common stock as of January 30, 2012, which does not reflect those shares held beneficially or those shares held in "street" name. On January 30, 2012, the closing price reported on the NASDAQ for our common stock was $6.82 per share. Past price performance is not indicative of future price performance.
Dividends and Other Restrictions
We paid no dividends in 2011 or 2010. Restrictions in our financing agreements and certain of our aircraft lease agreements limit our ability to pay dividends on our common stock. We do not anticipate paying periodic cash dividends on our common stock for the foreseeable future. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."
United States law prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier or controlling a U.S. air carrier. Our certificate of incorporation prohibits the ownership or control of more than 25% (to be increased or decreased from time to time, as permitted under the laws of the U.S.) of our issued and outstanding voting capital stock by persons who are not "citizens of the U.S". As of December 31, 2011, we believe we are in compliance with the law as it relates to voting stock held by non-U.S. citizens.
28
Stockholder Return Performance Graph
The following graph compares cumulative total stockholder return on our common stock, the S&P 500 Index and the AMEX Airline Index from December 31, 2007 to December 31, 2011. The comparison assumes $100 was invested on December 31, 2007 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes. We have paid no dividends on our common stock.
|
12/31/2007 | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Hawaiian Holdings Common Stock |
$ | 100.00 | $ | 125.10 | $ | 137.25 | $ | 153.73 | $ | 113.73 | ||||||
S & P 500 Index |
100.00 | 63.00 | 79.68 | 91.68 | 93.61 | |||||||||||
AMEX Airline Index(1) |
100.00 | 70.73 | 98.54 | 137.08 | 94.58 |
The stock performance depicted in the graph above is not to be relied upon as indicative of future performance. The stock performance graph shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the same by reference, nor shall it be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.
29
ITEM 6. SELECTED FINANCIAL DATA.
The Selected Financial Data should be read in conjunction with our accompanying audited consolidated financial statements and the notes related thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" below.
Hawaiian Holdings, Inc.
Selected Financial Data
|
Year ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||
|
(in thousands, except per share data)
|
|||||||||||||||
Summary of Operations: |
||||||||||||||||
Operating revenue |
$ | 1,650,459 | $ | 1,310,093 | $ | 1,183,306 | $ | 1,210,865 | $ | 982,555 | ||||||
Operating expenses(a)(b) |
1,630,176 | 1,218,815 | 1,075,822 | 1,118,967 | 975,721 | |||||||||||
Operating income |
20,283 | 91,278 | 107,484 | 91,898 | 6,834 | |||||||||||
Net income (loss)(c)(d)(e) |
(2,649 | ) | 110,255 | 116,720 | 28,586 | 7,051 | ||||||||||
Net Income (Loss) Per Common Stock Share: |
||||||||||||||||
Basic |
$ | (0.05 | ) | $ | 2.15 | $ | 2.26 | $ | 0.59 | $ | 0.15 | |||||
Diluted |
(0.05 | ) | 2.10 | 2.22 | 0.57 | 0.15 | ||||||||||
Weighted Average Number of Common Stock Shares Outstanding: |
||||||||||||||||
Basic |
50,733 | 51,232 | 51,656 | 48,555 | 47,203 | |||||||||||
Diluted |
50,733 | 52,482 | 52,504 | 50,527 | 47,460 | |||||||||||
Common Shares Outstanding at End of Year (h) |
50,730 | 50,221 | 51,479 | 51,517 | 47,241 | |||||||||||
Balance Sheet Items: |
||||||||||||||||
Total assets |
$ | 1,487,529 | $ | 1,117,499 | $ | 1,028,886 | $ | 929,134 | $ | 823,399 | ||||||
Property and equipment, net |
729,127 | 418,120 | 318,884 | 315,469 | 270,734 | |||||||||||
Long-term debt and capital lease obligations, excluding current maturities(f) |
424,436 | 171,884 | 190,335 | 232,218 | 215,926 | |||||||||||
Shareholders' equity(g) |
222,876 | 277,869 | 176,089 | 53,313 | 133,339 |
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections of future events. However, our actual results could differ materially from those discussed herein as a result of the risks that we face, including but not limited to those risks stated in "Risk Factors". See "Cautionary Note Regarding Forward-Looking Statements," above. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report.
Overview
Founded in 1929 as Inter-Island Airways, Ltd., Hawaiian Airlines, Inc. currently operates sixteen Boeing 717-200 aircraft, sixteen Boeing 767-300 aircraft, and five Airbus A330-200 aircraft serving 22 domestic and international destinations. We are the state's longest-serving airline, as well as the largest provider of passenger air service within Hawaii (Neighbor Island) and to Hawaii from the state's primary visitor markets in the U.S. mainland (North America). We offer nonstop service to Hawaii from more U.S. gateway cities (10) than any other airline, as well as service to Japan, South Korea, the Philippines, Australia, American Samoa, and Tahiti. Hawaiian also provides approximately 150 daily jet flights between the Hawaiian Islands.
We derive our revenue primarily from transporting passengers on our aircraft. Revenue is recognized when either the transportation is provided or when the related ticket expires unused. We measure capacity in terms of available seat miles, which represent the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing passenger revenue by revenue passenger miles. We strive to increase passenger revenue primarily by increasing our yield per flight or by filling a higher proportion of available seats, which produces higher revenue per available seat mile (RASM). Other revenue includes cargo, charter services, baggage fees, sale of frequent flyer miles, ticket change fees or cancellation fees and other incidental services.
The largest components of our operating expenses are aircraft fuel (including taxes and oil), wages and benefits provided to our employees and aircraft maintenance materials and repairs. The price and availability of aircraft fuel is extremely volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. Maintenance and repair costs are expensed when incurred unless covered by third-party power-by-the-hour services contract.
The domestic airline industry remained intensely competitive in 2011, with high fixed costs and significant price competition. The airline industry experienced a significant decrease in demand for
31
business and pleasure travelers due to the global economic decline in 2008 with modest recovery through 2011. The cost and volatility of fuel prices continue to challenge airline industry participants with increased prices over the past two years.
In our 83 rd year of operations, we strive to be "Hawaii's Destination Carrier" through our accomplishment of the following:
We anticipate that the challenging economic and competitive environment will continue into 2012 and our ability to remain profitable depends on, among other things, operating at costs equal to or lower than those of our competitors. Although we continue to grow, the highly competitive nature of the airline industry and the impact of ongoing economic weakness could affect our financial results in existing and new markets.
Our strategy for the next five years includes: (1) growing passenger revenue by expanding into routes to/from Hawaii previously unserved by us, (2) increasing our revenue by taking advantage of the superior cargo capabilities on our new Airbus A330-200 aircraft and accessing sources of other non-passenger revenue, and (3) focusing on cost competitiveness including but not limited to the transition from our Boeing 767s to Airbus A330-200 aircraft.
32
Results of Operations
We reported net loss of $2.6 million ($0.05 per diluted common stock share) on operating revenue of $1.65 billion for the year ended December 31, 2011, compared to net income of $110.3 million ($2.10 per diluted common stock share) on operating revenue of $1.31 billion for 2010. Our 2011 results reflect the impact of a non-recurring, pre-tax lease termination charges of $70.0 million related to the purchase of fifteen Boeing 717-200 aircraft previously under lease agreements. Our 2010 results reflect a tax benefit of $28.3 million resulting primarily from the release of our entire remaining tax valuation allowance of $57.5 million.
The table below presents certain statistical data to provide an overview of our financial and operational performance for the three years ended December 31, 2011, 2010 and 2009.
Hawaiian Holdings, Inc.
Selected Consolidated Statistical Data (unaudited)
|
Year ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands, except as otherwise indicated)
|
|||||||||
Scheduled Operations: |
||||||||||
Revenue passengers flown |
8,659 | 8,418 | 8,340 | |||||||
Revenue passenger miles (RPM) |
10,139,949 | 8,665,869 | 8,146,706 | |||||||
Available seat miles (ASM) |
12,022,194 | 10,134,601 | 9,708,939 | |||||||
Passenger revenue per ASM (PRASM) |
12.32 | ¢ | 11.40 | ¢ | 10.71 | ¢ | ||||
Passenger load factor (RPM/ASM) |
84.3 | % | 85.5 | % | 83.9 | % | ||||
Passenger revenue per RPM (Yield) |
14.60 | ¢ | 13.33 | ¢ | 12.77 | ¢ | ||||
Total Operations: |
||||||||||
Operating revenue per ASM |
13.71 | ¢ | 12.91 | ¢ | 12.18 | ¢ | ||||
Operating cost per ASM (CASM)(a) |
13.54 | ¢ | 12.01 | ¢ | 11.07 | ¢ | ||||
Aircraft fuel expense per ASM |
4.26 | ¢ | 3.18 | ¢ | 2.51 | ¢ | ||||
Revenue passengers flown |
8,666 | 8,424 | 8,345 | |||||||
Revenue block hours operated (actual) |
125,375 | 113,158 | 112,532 | |||||||
RPM |
10,151,218 | 8,675,427 | 8,151,708 | |||||||
ASM |
12,039,933 | 10,150,659 | 9,717,111 | |||||||
Gallons of jet fuel consumed |
164,002 | 140,995 | 137,589 | |||||||
Average cost per gallon of jet fuel (actual)(b) |
$ | 3.13 | $ | 2.29 | $ | 1.77 |
Operating Revenue
Operating revenue increased over the past three years to $1.65 billion, $1.31 billion and $1.18 billion for the years ended December 31, 2011, 2010 and 2009, respectively, driven primarily by increases in passenger revenue.
Passenger Revenue
Passenger revenue increased over the past three years to $1.48 billion, $1.15 billion and $1.04 billion for the years ended December 31, 2011, 2010 and 2009, respectively, primarily due to increased yields on our routes, an increase in the number of aircraft in our fleet and the expansion of
33
our longer haul International routes. The detail of these changes in passenger revenue are in the table below:
|
Year Ended December 31, 2011 as compared
to December 31, 2010 |
Year Ended December 31, 2010 as compared
to December 31, 2009 |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Change in
scheduled passenger revenue |
Change in
Yield |
Change in
RPM |
Change in
ASM |
Change in
scheduled passenger revenue |
Change in
Yield |
Change in
RPM |
Change in
ASM |
|||||||||||||||||
|
(millions)
|
|
|
|
(millions)
|
|
|
|
|||||||||||||||||
North America |
$ | 73.1 | 9.9 | % | 1.0 | % | 0.7 | % | $ | 21.7 | (1.3 | )% | 4.8 | % | 5.1 | % | |||||||||
Neighbor Island |
29.9 | 9.5 | (1.4 | ) | (0.3 | ) | 60.4 | 20.2 | (0.9 | ) | (7.3 | ) | |||||||||||||
International |
222.7 | 26.1 | 133.0 | 136.5 | 32.8 | 11.7 | 25.2 | 9.9 | |||||||||||||||||
Total scheduled |
$ | 325.7 | 9.5 | % | 17.0 | % | 18.6 | % | $ | 114.9 | 4.4 | % | 6.4 | % | 4.4 | % | |||||||||
North America North America revenue increased by $73.1 million in 2011 compared to 2010 due to increased yield. The $21.7 million increase in 2010 compared to 2009 is driven by increased capacity due to the delivery of three new Airbus A330-200 aircraft in April, May and November 2010, partially offset by a decrease in yield.
Neighbor Island Neighbor Island revenue increased by $29.9 million in 2011 compared to 2010 and $60.4 million in 2010 compared to 2009. The increased revenue is due to increased yield, partially offset by decreases in capacity.
International International revenue increased by $222.7 million in 2011 compared to 2010 and $32.8 million in 2010 compared to 2009. The increased revenue is primarily due to increases in both yield and capacity with the expansion of our International routes with new routes to Tokyo, Japan in the fourth quarter 2010, and Seoul, South Korea and Osaka, Japan in 2011, and increased frequency on our Sydney, Australia routes in 2011.
Other Operating Revenue
Other operating revenue increased over the past three years to $169.8 million, $155.1 million and $143.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. The increase in other operating revenue for 2011 compared to 2010 is primarily due to an increase in cargo revenue from the introduction of the larger capacity Airbus 330-200 aircraft that provided additional cargo capacity, cargo revenue from our new International routes and an increase in checked baggage revenue and incidental revenue, which was partially offset by decreases in our cancellation penalties revenue and the marketing component of our frequent flyer revenue. The increase in 2010 compared to 2009 is primarily due to the increase in checked baggage revenue partially offset by decreases in our cancellation penalties revenue and the marketing component of our frequent flyer revenue due to an increase in our revenue deferral rate in 2010. See further discussion in Note 2 to the consolidated financial statements.
34
Operating Expenses
Operating expenses were $1.63 billion, $1.22 billion, and $1.08 billion for the years ended December 31, 2011, 2010 and 2009, respectively. Increases (decreases) in operating expenses from 2010 to 2011 and 2009 to 2010 are detailed below.
|
Changes in operating expenses for the
Year Ended December 31, 2011 as compared to December 31, 2010 |
Changes in operating expenses for the
Year Ended December 31, 2010 as compared to December 31, 2009 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
$ | % | $ | % | |||||||||
|
(in thousands)
|
|
(in thousands)
|
|
|||||||||
Operating expense: |
|||||||||||||
Aircraft fuel, including taxes and oil |
$ | 190,285 | 58.9 | % | $ | 79,090 | 32.4 | % | |||||
Wages and benefits |
23,674 | 8.0 | 24,944 | 9.1 | |||||||||
Aircraft rent |
162 | 0.1 | 10,630 | 10.4 | |||||||||
Maintenance materials and repairs |
45,876 | 37.0 | (4,114 | ) | (3.2 | ) | |||||||
Aircraft and passenger servicing |
20,090 | 32.3 | 2,803 | 4.7 | |||||||||
Commissions and other selling |
18,067 | 23.1 | 12,902 | 19.8 | |||||||||
Depreciation and amortization |
8,550 | 14.8 | 5,064 | 9.6 | |||||||||
Other rentals and landing fees |
14,612 | 25.3 | 6,536 | 12.7 | |||||||||
Other |
20,031 | 19.0 | 5,138 | 5.1 | |||||||||
Lease termination charges |
70,014 | NM | | | |||||||||
Total |
$ | 411,361 | 33.8 | % | $ | 142,993 | 13.3 | % | |||||
NMNot Meaningful
Our operations have expanded by approximately 18.6% (measured in ASMs) in 2011 compared to 2010 primarily due to additional aircraft in our fleet (including aircraft that were only in operation for part of the year in 2010), as well as the introduction of the larger capacity Airbus A330-200 aircraft to our fleet (three aircraft added in 2010 and two in 2011). Our expansion is also due to three new International routes to Japan and to South Korea since November 2010, as well as increased frequency on our Australia route. As a result of this expansion, we have experienced corresponding increases in our variable expenses such as aircraft fuel, wages and benefits, maintenance materials and repairs, aircraft and passenger servicing, commissions and other selling expenses, other rentals and landing fees and other (which primarily consists of purchased services, professional and technical fees, and personnel).
We expect operating expenses to increase with the continued expansion of our services and the increase in the number of aircraft in our fleet.
35
Aircraft Fuel
Aircraft fuel expense increased $190.3 million, or 58.9%, in 2011 compared to 2010 and increased $79.1 million, or 32.4% in 2010 compared to 2009. The year-over-year variances are primarily attributable to the increase in the cost of aircraft fuel as well as an increase in consumption as illustrated in the following table:
|
Years Ended December 31, | % Change from Year Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | 2010 | 2009 | |||||||||||
|
(in thousands, except per-gallon amounts)
|
|
|
|||||||||||||
Fuel gallons consumed |
164,002 | 140,995 | 137,589 | 16.3 | % | 2.5 | % | |||||||||
Fuel price per gallon, including taxes and delivery |
$ | 3.13 | $ | 2.29 | $ | 1.77 | 36.7 | % | 29.4 | % | ||||||
Aircraft fuel expense |
$ | 513,284 | $ | 322,999 | $ | 243,909 | 58.9 | % | 32.4 | % | ||||||
During 2011, 2010, and 2009, our fuel derivatives were not designated for hedge accounting under ASC 815 and were marked to fair value through nonoperating income (expense) in the Consolidated Statements of Operations. We recorded losses on fuel derivatives of $6.9 million for the year ended December 31, 2011, compared to gains of $0.6 million and $2.3 million recorded for the years ended December 31, 2010 and 2009, respectively.
We believe economic fuel expense is the best 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. We define economic fuel expense as raw fuel expense plus (gains)/losses realized through actual cash payments to/(receipts from) hedge counterparties for fuel hedge derivatives settled in the period. Economic fuel expense for 2011, 2010 and 2009 is calculated as follows:
|
Years Ended December 31, | % Change from Year Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | 2010 | 2009 | |||||||||||
|
(in thousands, except per-gallon amounts)
|
|
|
|||||||||||||
Aircraft fuel expense |
$ | 513,284 | $ | 322,999 | $ | 243,909 | 58.9 | % | 32.4 | % | ||||||
Realized (gains) losses on settlement of fuel derivative contracts |
430 | 3,199 | 9,580 | (86.6 | )% | (66.6 | )% | |||||||||
Economic fuel expense |
$ | 513,714 | $ | 326,198 | $ | 253,489 | 57.5 | % | 28.7 | % | ||||||
Gallons of jet fuel consumed |
164,002 | 140,995 | 137,589 | 16.3 | % | 2.5 | % | |||||||||
Economic fuel costs per gallon |
$ | 3.13 | $ | 2.31 | $ | 1.84 | 35.5 | % | 25.5 | % | ||||||
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for additional discussion of our fuel costs and related hedging program.
Aircraft Rent
Aircraft rent expense increased by $0.2 million, or 0.1%, in 2011 compared to 2010, primarily due to the entire year-to-date recognition of aircraft rent expense for three leased Airbus A330-200 aircraft (leases commenced in April, May and November 2010) and lease return costs incurred with the return of the two leased Boeing 767-300 aircraft in May and October 2011. This increase was offset by the purchase of our fleet of Boeing 717-200 aircraft in June 2011, of which the majority were previously under operating lease agreements.
36
Aircraft rent expense increased by $10.6 million, or 10.4%, in 2010 compared to 2009, primarily due to the commencement of leases on three new Airbus A330-200 aircraft which were added to the fleet in April, May and November 2010.
Maintenance Materials and Repairs
Maintenance materials and repairs expense increased by $45.9 million, or 37.0%, in 2011 compared to 2010, primarily due to additional expenses under power-by-the-hour (PBH) arrangements for our Airbus A330-200 fleet additions during 2011, increases in our PBH rates for our Boeing 717s and 767s, heavy maintenance expense on our Boeing 767 aircraft and engines and heavy maintenance expense on our Boeing 717 aircraft due to the continuation of 10-year airframe checks on this fleet.
Maintenance materials and repairs decreased in 2010 compared to 2009 due to a decrease in our heavy maintenance expense on our Boeing 767 aircraft. These decreases were slightly offset by maintenance costs associated with our three new Airbus A330-200 aircraft, which we entered into revenue service during 2010, as well as an increase in our heavy maintenance expense on our Boeing 717 aircraft due to the commencement of 10-year airframe checks on this fleet.
We expect maintenance materials and repairs expense to increase in future years as we continue to take delivery of additional Airbus aircraft and integrate them into revenue service, as well as price escalation in certain of our PBH contracts.
Aircraft and Passenger Servicing
Aircraft and passenger servicing expenses increased $20.1 million, or 32.3%, in 2011 compared to 2010, primarily due to volume-related increases and increased service costs for our International routes. We expect aircraft and passenger servicing to increase in future periods as we continue to expand our fleet and increase the number of International routes. There were no significant changes to aircraft and passenger servicing from 2009 to 2010.
Commissions and Other Selling Expenses
Commissions and other selling expenses increased $18.1 million, or 23.1%, in 2011 compared to 2010 and $12.9 million, or 19.8%, in 2010 compared to 2009 primarily due to increased travel agency commissions for ticket sales on our International routes and increases in the volume of ticket sales purchased through credit cards and global distribution systems. The increase in 2009 to 2010 was partially offset by a reduction in the frequent flyer liability due to a change in the estimated miles expected to expire. We expect commissions and other selling expenses to increase in future periods as we continue to expand our fleet and increase the number of International routes.
Other Rentals and Landing Fees
Other rentals and landing fees increased $14.6 million, or 25.3%, in 2011 compared to 2010 and $6.5 million, or 12.7%, in 2010 compared to 2009, primarily due to increases in joint use and space rent at our Hawaii airports and increases in rent expense and landing fees due to the addition of new routes in 2010 and 2011.
Lease Termination
On June 27, 2011, we entered into a purchase agreement with the lessor for the purchase of fifteen Boeing 717-200 aircraft, each such aircraft including two Rolls-Royce BR700-715 engines, previously held through four capital and eleven operating lease agreements. The purchase price for the fifteen Boeing 717-200 aircraft of $230 million was comprised of financing of $192.8 million through secured loan agreements, a cash payment of $25.0 million and the non-cash application of maintenance
37
and security deposits held by the previous lessor and current debt financier of $12.2 million. See additional information on the loan agreements at Note 6 and Note 7 to the consolidated financial statements. We recognized the excess of the purchase price paid over the fair value of the aircraft under operating leases as a cost of terminating the leases under ASC 840 Leases (formerly FASB Interpretation No. 26, Accounting for Purchase of a Leased Asset by the Lessee during the Term of the Lease ) and elected to apply the same accounting policy to the aircraft under capital leases. We recorded the fifteen Boeing 717-200 at their fair value of $135 million on the Consolidated Balance Sheets and lease termination charges of $70.0 million on the Consolidated Statements of Operations.
The purchase of the fifteen Boeing 717-200 aircraft will result in lower aircraft rent expense in future periods that will be partially offset by increases in depreciation and amortization and interest expense in future periods.
Nonoperating Expense
Nonoperating expense was $21.4 million, $9.3 million, and $10.3 million for the years ended December 31, 2011, 2010, and 2009, respectively. The increase in nonoperating expense in 2011 compared to 2010 is primarily related to an increase in interest expense and amortization of debt discounts and issuance costs due to the additional financings we entered into in 2011 and losses recognized on our fuel derivatives. The decrease in nonoperating expense in 2010 compared to 2009 is primarily due to the release of uncertain tax positions and its related interest expense of $2.5 million recorded as an offset to interest expense as well as $2.7 million of interest that we began capitalizing as part of our A330-200 aircraft fleet in 2010.
Income Tax (Benefit) Expense
We recorded income tax expense of $1.6 million during 2011 and income tax benefits of $28.3 million and $19.5 million during 2010 and 2009, respectively. The 2011 tax expense is large relative to our small net loss position when compared to the 35% U.S. statutory rate. The income tax benefits in 2010 and 2009 were primarily driven by the release of our valuation allowance. See Note 8 to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Our liquidity is dependent on the cash we generate from operating activities and our financing arrangements. As of December 31, 2011 we had $304.1 million in cash and cash equivalents, representing an increase of $19.1 million from December 31, 2010. As of December 31, 2011 our restricted cash balance, which consisted almost entirely of cash held as collateral by entities that process our credit card transactions for advance ticket sales, increased $25.7 million from $5.2 million at December 31, 2010 due to an increase in cash holdback on our primary credit card processing agreement.
We have been able to generate sufficient funds from our operations to meet our working capital requirements and typically finance our aircraft through secured debt financing. At December 31, 2011, Hawaiian had approximately $462.0 million of debt and capital lease obligations, including approximately $37.5 million that will become due in the next 12 months. Hawaiian has a secured revolving credit facility (the Revolving Credit Facility) in an amount up to $75.0 million, and as of December 31, 2011, we had no outstanding borrowings under the Revolving Credit Facility and $56.9 million available (net of various outstanding letters of credit).
Cash Flows
Net cash provided by operating activities was $178.8 million for 2011, an increase of $28.5 million from 2010. The increase in cash provided is primarily due to increases in our air traffic liability balance
38
for increased future bookings related to advance ticket sales and a decrease in contributions to our pension and disability plans that was partially offset by increases in accounts receivable.
Net cash used in investing activities was $281.9 million for 2011 compared to $108.7 million for 2010. During 2011, we used $263.3 million for purchases of aircraft-related items and pre-delivery payments for the upcoming deliveries of Airbus A330-200 aircraft and engines and $18.6 million for other property and equipment. During 2010, we used $140.5 million of cash for purchases of property and equipment primarily related to pre-delivery payments for our upcoming Airbus A330-200 deliveries which was offset by net sales of investments of $31.8 million including $26.7 million for the sale of our auction rate securities.
Net cash provided by financing activities was $122.2 million for 2011 compared to $57.3 million net cash used for financing activities in 2010. During 2011, we received $132.0 million from term loans used to partially finance the purchase price of two Airbus A330-200 aircraft delivered in 2011 and $78.7 million in net cash proceeds from the issuance of the Convertible Notes and related call and warrant transactions, which was partially offset by cash repayments of long-term debt and capital lease obligations totaling $80.0 million and debt issuance costs of $8.7 million. During 2010, we used cash for repayments of long-term debt and capital lease obligations totaling $101.2 million which includes the refinancing of our Term Loan A and pay-off of our Term Loan B credit facilities in December 2010 totaling $75.2 million, and signed a new credit agreement in connection with the refinancing of our Term Loan A revolving credit facility under which we received $54.7 million in funds. In 2010, we also used cash for the purchase of shares of our common stock under our stock repurchase program totaling $10.0 million.
Capital Commitments
In November 2011, Hawaiian entered into an amendment to our Purchase Agreement with Airbus, exercised all four remaining purchase rights for A330-200 aircraft, acquired four additional A330-200 purchase rights exercisable between 2011 and 2014 and immediately exercised one such additional purchase right, resulting in new orders for a total of five additional A330-200 aircraft, which are scheduled to be delivered between 2013 and 2015. As of December 31, 2011, Hawaiian's firm aircraft orders consisted of sixteen wide-body Airbus A330-200 aircraft for delivery between 2012 and 2015 (including the five aircraft referred to above), six Airbus A350XWB-800 aircraft for delivery beginning in 2017 and six Rolls Royce spare engines scheduled for delivery through 2020. In addition, Hawaiian has purchase rights for an additional three A330-200 aircraft and six A350-XWB aircraft. Committed expenditures for these aircraft, engines and related flight equipment approximates $319 million in 2012, $463 million in 2013, $421 million in 2014, $253 million in 2015, $80 million in 2016 and $722 million thereafter.
For 2012, we expect our other capital expenditures which include software, improvements, ramp and maintenance equipment to total approximately $25 million to $30 million.
In order to complete the purchase of these aircraft and fund related costs, we must secure acceptable financing. We are currently exploring various financing alternatives and, while we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms, or at all. The inability to secure such financing could have a material adverse effect on us. We have secured financing commitments of $403 million for a portion of the purchase price of five upcoming A330-200 aircraft deliveries, with three expected deliveries in 2012 and two expected deliveries in 2013. These financing commitments are described in more detail below.
Airbus A330-200 Facility Agreement Commitments
Hawaiian has commitments for two separate secured loan agreements, entered into in June 2011, totaling $133 million to finance a portion of its capital commitments for two upcoming aircraft
39
deliveries in the first half of 2012. The loan agreements will bear interest at Hawaiian's election, at either a floating rate based on a margin over LIBOR or a fixed rate with maturity dates of April 2022 and March 2024.
The anticipated future principal payments and commitment fees for these facility agreements are approximately $8 million in 2012, $9 million in 2013, $10 million in 2014, $10 million in 2015, $10 million in 2016 and $87 million thereafter.
Purchase Aircraft Lease Financing Agreement and Aircraft Lease Commitments
In October 2011, Hawaiian entered into an agreement with a third-party aircraft lessor for the sale and leaseback of three Airbus A330-200 aircraft with scheduled delivery dates in the second quarter of 2012 and the first half of 2013 with total sale proceeds of $270 million included in the capital commitments section above. These sale and leaseback transactions have initial lease terms of twelve years with the option to extend an additional twenty-four months. Rent under each lease is payable monthly at a fixed rate to be determined at delivery of each aircraft.
In addition to aircraft purchase commitments and related financing described above, Hawaiian has two separate eight-year lease agreements for an additional two Boeing 717-200 aircraft with delivery dates in the first quarter of 2012 and a twelve-year lease agreement for an Airbus A330-200 aircraft with an expected delivery date in the second quarter 2012. The Company will determine whether these leases will be classified as capital or operating leases in the period it takes delivery of each aircraft.
The anticipated future payments for these leases are approximately $15 million in 2012, $38 million in 2013, $41 million in 2014, $41 million in 2015, $41 million in 2016 and $302 million thereafter.
Stock Repurchase Program
On July 1, 2010, the Executive Committee of our Board of Directors approved a stock repurchase program (Program) under which we could purchase up to $10 million of our outstanding common stock. Stock purchases under the Program could be made through the open market, established plans or through privately negotiated transactions, as market conditions permitted. The stock repurchase program was substantially completed in September 2010; we repurchased an aggregate of 1,868,563 shares at an aggregate cost of $10.0 million. The shares were subsequently retired in 2011.
Covenants under our Financing Arrangements
The terms of certain of our financing agreements restrict our ability to, among other things, incur additional indebtedness, grant liens, merge or consolidate, dispose of assets, prepay indebtedness, make investments, make acquisitions, enter into certain transactions with affiliates, pay dividends or make distributions to our parent company and repurchase stock. These agreements also require us to meet certain financial covenants. These financial tests include maintaining a minimum amount of unrestricted cash and achieving certain levels of fixed charge coverage. As of December 31, 2011, we were in compliance with these covenants. If we are not able to comply with these covenants, our outstanding obligations under these facilities could be accelerated and become due and payable immediately.
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales are held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our Consolidated Balance Sheets, totaled $30.9 million at December 31, 2011. The agreement with our largest credit card processor also contains financial triggers for additional holdbacks, which are based upon, among other things, the amount of unrestricted cash, level of debt service coverage and operating income measured quarterly on a trailing 12-month basis. As of December 31, 2011, we were subject to a 25% holdback as we met the operating income financial trigger with our primary credit card processing arrangement. No
40
amounts were subject to this holdback at December 31, 2010. Under the terms of the credit card agreement, the level of credit card holdback is subject to adjustment based on actual performance relative to these specific triggers. Based on our performance relative to these financial triggers for the year ended December 31, 2011, we expect the holdback to decrease to 0% of the applicable credit card air traffic liability, decreasing the restricted cash balance in the first quarter of 2012 by approximately $25 million. Depending on our performance relative to these financial triggers in the future, the holdback could incrementally increase to an amount up to 100% of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in the amount of restricted cash, it could also cause a covenant violation under our other debt or lease obligations and have a material adverse impact on us.
Pension and Other-Postretirement Benefit Plan Funding
As of December 31, 2011, the excess of the projected benefit obligations over the fair value of plan assets was approximately $323.5 million. We contributed $12.9 million, $37.9 million, and $10.5 million to our defined benefit pension plans and disability plan during 2011, 2010, and 2009, respectively, satisfying our minimum required 2011 plan year contributions. 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. In 2012, our minimum required contribution to our defined benefit pension plans and disability plan is $10.2 million.
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.
41
Contractual Obligations
Our estimated contractual obligations as of December 31, 2011 are summarized in the following table:
Contractual Obligations
|
Total |
Less than
1 Year |
1 - 3 Years | 3 - 5 Years |
More than
5 Years |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||||
Debt and capital lease obligations(1) |
$ | 624,884 | $ | 66,180 | $ | 167,772 | $ | 181,713 | $ | 209,219 | ||||||
Operating leasesaircraft and related equipment(2) |
549,394 | 82,798 | 147,269 | 124,769 | 194,558 | |||||||||||
Operating leasesnon-aircraft |
48,905 | 3,709 | 9,688 | 10,411 | 25,097 | |||||||||||
Purchase commitmentsCapital(3) |
2,258,466 | 318,690 | 883,670 | 333,692 | 722,414 | |||||||||||
Purchase commitmentsOperating(4) |
394,994 | 27,808 | 55,029 | 55,447 | 256,710 | |||||||||||
Projected employee benefit contributions(5) |
49,558 | 10,186 | 39,372 | | | |||||||||||
Total contractual obligations |
$ | 3,926,201 | $ | 509,371 | $ | 1,302,800 | $ | 706,032 | $ | 1,407,998 | ||||||
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties, and that potentially result in
42
materially different results under different assumptions and conditions. For a detailed discussion of the application of these and other accounting policies, see Note 2 to the consolidated financial statements.
Frequent Flyer Accounting
HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. We utilize the incremental cost method of accounting for free travel awards earned in connection with the purchase of passenger tickets. We record a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on partner airlines. We estimate the incremental cost of travel awards based on periodic studies of actual costs and apply these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental cost includes the costs of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical data on actual expirations.
We also sell mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representing the travel that will ultimately be provided when the mileage credits are redeemed and the other consisting of marketing-related activities that we conduct with the participating company. The fair value of the transportation portion of these mileage credits is deferred and recognized as passenger revenue over the period when transportation is expected to be redeemed and provided (currently estimated at nineteen months), based on estimates of its fair value. Amounts received in excess of the expected transportation's fair value are recognized immediately as other revenue at the time of sale. The estimated fair value of the air transportation component is based on several factors, including actual fares and customer habits in redeeming free travel awards.
Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company and then transferred into a member's HawaiianMiles account for immediate redemption of free travel awards. For those transactions, revenue is amortized over the period during which the mileage is projected to be used (currently estimated at five months).
On a periodic basis, we review and update the assumptions used in our frequent flyer accounting. On an annual basis, we update the deferral period, deferral rate and estimated breakage.
Pension and Other Postretirement and Postemployment Benefits
We account for our defined benefit pension and other postretirement and postemployment plans in accordance with ASC 715, "CompensationRetirement Benefits". ASC 715 requires companies to measure their plans' assets and obligations that determine their funded status at fiscal year-end, recognize the funded status of their benefit plans in the statement of financial position as an asset or liability, and recognize changes in the funded status of the plans in comprehensive income during the year in which the changes occur. ASC 715 does not change the amount of net periodic benefit expense recognized in our results of operations. Pension and other postretirement and postemployment benefit expenses are recognized on an accrual basis over employees' approximate service periods. Pension expense is generally independent of funding decisions or requirements.
We have elected temporary Airline Relief with regard to applying the funding rules for our qualified pension plans. This relief allows cash contribution requirements to be developed using rules that currently produce lower and more stable contribution requirements than available without this relief; however, this may not also be the case throughout the relief period. This relief expires in 2023 for the Salaried and IAM Pension Plans and 2018 for the Pilots Pension Plan.
43
The calculation of pension and other postretirement and postemployment benefit expenses and their corresponding liabilities requires the use of a number of important assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate and the expected health care cost trend rate. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions. These assumptions as of December 31 were:
|
2011 | 2010 | 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Pension: |
||||||||||
Discount rate to determine projected benefit obligation |
4.94 | % | 5.71 | % | 5.79 | % | ||||
Expected return on plan assets |
7.90 | % + | 7.90 | % | 7.90 | % | ||||
Pilot retirement age |
63.5 | 63.5 | 63.5 | |||||||
Postretirement: |
||||||||||
Discount rate to determine projected benefit obligation |
5.14 | % | 5.81 | % | 5.98 | % | ||||
Expected return on plan assets |
N/A | N/A | N/A | |||||||
Expected health care cost trend rate: |
||||||||||
Initial |
9.00 | % | 9.00 | % | 8.50 | % | ||||
Ultimate |
4.75 | % | 4.75 | % | 5.00 | % | ||||
Years to reach ultimate trend rate |
7 | 8 | 6 | |||||||
Disability: |
||||||||||
Discount rate to determine projected benefit obligation |
4.91 | % | 5.59 | % | 5.66 | % | ||||
Expected return on plan assets |
7.50 | % + | 7.50 | % | 7.50 | % |
The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans' assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Our expected long-term rate of return by category are as follows at December 31, 2011:
|
Expected
Long-Term Rate of Return |
|||
---|---|---|---|---|
Equity securitiesDomestic |
9.19 | % | ||
Equity securitiesForeign |
10.05 | % | ||
Fixed income securities |
3.80 | % |
We believe that our long-term asset allocation on average will approximate the targeted allocation. We regularly review our actual asset allocation and periodically rebalance the pension plan's investments to our targeted allocation when considered appropriate. Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on our pension plan assets by one percent (from 7.3% to 6.3%) and on our disability benefit plan assets (from 6.9% to 5.9%) would increase our estimated 2012 pension and disability benefit expense by approximately $2.1 million and $0.1 million, respectively.
We determine the appropriate discount rate for each of our plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due.
44
The pension and other postretirement benefit liabilities and future expense both increase as the discount rate is reduced. Lowering the discount rate by one percent would increase our pension and other postretirement benefit liabilities at December 31, 2011 by approximately $52.8 million and $27.4 million, respectively, and would increase our estimated 2012 pension and other postretirement benefit expense by approximately $2.8 million and $3.5 million, respectively.
The health care cost trend rate is based upon an evaluation of the Company's historical trends and experience taking into account current and expected market conditions. A one percent increase in the assumed health care cost trend rate would increase the other postretirement benefit obligation as of December 31, 2011 by approximately $23.0 million and our estimated 2012 other postretirement benefit expense by approximately $4.5 million. A one percent decrease in the assumed health care cost trend rate would decrease the other postretirement benefit obligation as of December 31, 2011 by approximately $18.6 million and our estimated 2012 other postretirement benefit expense by approximately $3.5 million.
Future changes in plan asset returns, plan provisions, assumed discount rates, pilot estimated retirement age, pension funding legislation and various other factors related to the participants in our pension plans will impact our future retirement benefit expense and liabilities. We cannot predict with certainty what these factors will be in the future.
Aircraft Maintenance and Repair Costs
Maintenance and repair costs for owned and leased flight equipment, including the overhaul of aircraft components, are charged to operating expenses as incurred. Engine overhaul costs covered by power-by-the-hour arrangements are paid and expensed as incurred, on the basis of hours flown per contract. Under the terms of our power-by-the-hour agreements, we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions.
Additionally, although our aircraft lease agreements specifically provide that we, as lessee, are responsible for maintenance of the leased aircraft, we do, under our existing aircraft lease agreements, pay maintenance reserves to aircraft lessors that are applied towards the cost of future maintenance events. These reserves are calculated based on a performance measure, such as flight hours, and are available for reimbursement to us upon the completion of the maintenance of the leased aircraft. If there are sufficient funds on deposit to reimburse us for the invoices initially paid by us and then submitted to the lessor, they are reimbursed to us. However, reimbursements are limited to the available deposits associated with the specific maintenance activity for which we are requesting reimbursement. Under certain of our existing aircraft lease agreements, if there are excess amounts on deposit at the expiration of the lease, the lessor is entitled to retain any excess amounts; whereas at the expiration of certain other of our existing aircraft lease agreements any such excess amounts are returned to us, provided that we have fulfilled all of our obligations under the lease agreements. The maintenance reserves paid under our lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor. In addition, we maintain the right to select any third-party maintenance provider. Therefore, we record these amounts as a deposit on our balance sheet and then recognize maintenance expense when the underlying maintenance is performed, in accordance with our maintenance accounting policy.
In accordance with EITF 08-03, ASC 840-10, on a quarterly basis we complete a forecast of maintenance costs for the next scheduled event on applicable leased aircraft and compare these estimates to our forecasted nonrefundable deposits to identify costs not expected to be recoverable. Any costs not expected to be recoverable are considered to be not "substantially and contractually related to maintenance of the leased asset". We then bifurcate and expense the proportionate share that is estimated to not be recoverable from existing and future nonrefundable deposits. In determining
45
whether it is probable that maintenance deposits will be used to fund the cost of the maintenance events, we conduct the following analysis:
Our assessment of the recoverability of our maintenance deposits is subject to change in the event that key estimates and assumptions supporting it change over time. Those key estimates and assumptions include our fleet plan and the projected total cost and, to a lesser extent, anticipated timing of the major maintenance activities covered by the maintenance reserves.
Based on current market conditions, we believe that further significant changes in our fleet plan are unlikely. Furthermore, based on historical trends and future projections, including those published by the manufacturers of our aircraft and engines, we believe it is unlikely that future maintenance costs for our aircraft will decline to such an extent that the maintenance deposits currently recorded on our Consolidated Balance Sheets would not be used to fund the cost of future maintenance events and, therefore, not be recoverable.
Tax Valuation Allowance
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of Hawaiian's deferred tax assets will not be realized. The ultimate realization of Hawaiian's deferred tax assets is dependent upon our ability to generate future taxable income during the periods in which those temporary differences become deductible. During the quarter ended December 31, 2010, Hawaiian analyzed its valuation allowance and, based upon this analysis, released its remaining valuation allowance based on recent earning performance and projections of future sources of taxable income that will be available to support recovery of recorded deferred tax assets. We continue to believe our projections of future taxable income are sufficient to support recognition of our deferred tax assets. The small net loss recognized in 2011 was primarily due to non-recurring and non-cash lease termination charges that do not impact our ability to generate future taxable income. For additional information on income taxes, see Note 8 to the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to certain market risks, including commodity price risk (i.e., jet fuel prices) and interest rate risk. We have market-sensitive instruments in the form of financial derivative instruments used to hedge Hawaiian's exposure to increases in jet fuel prices and variable interest rate debt. We have market risk for the changes in the fair value of our fixed-rate debt resulting from movements in interest rates. The adverse effects of potential changes in these market risks are discussed below. The sensitivity analyses presented do not consider the effects of such adverse changes on overall economic activity nor do they consider additional actions we might undertake to mitigate exposure to such
46
adverse changes. Actual results may differ. See the discussion of critical accounting policies above for other information related to these financial instruments.
Aircraft Fuel Costs
Aircraft fuel costs constitute a significant portion of our operating expense. Fuel costs represented 31.5%, 26.5% and 22.7% of our operating expenses for the years ended December 31, 2011, 2010 and 2009, respectively. Based on gallons expected to be consumed in 2012, for every one cent increase in the cost of jet fuel, our annual fuel expense would increase by approximately $2.0 million.
We use derivative contracts to manage our exposure to changes in the prices of jet fuel. During 2011, our fuel hedge program primarily consisted of heating oil and WTI and Brent crude oil caps/call options and collars. Caps are call option contracts that provide for a settlement in favor of the holder in the event that prices exceed a predetermined contractual level during a particular time period. We have combined some of our call option contracts with put option contract sales to create "collars" whereby a settlement may occur in our favor in the event prices for the underlying commodity exceed a predetermined contractual level (the call option strike price) during a particular time period or a settlement may be required from us in favor of our counterparty in the event that prices of the commodity fall below a predetermined contractual level (the put option strike price).
The aforementioned fuel derivative agreements were not designated as hedges under ASC 815. As of December 31, 2011, the fair value of these fuel derivative agreements reflected a net asset of $2.0 million that is reflected in prepaid expenses and other assets in the Consolidated Balance Sheets.
Hawaiian's future contracts and other fuel derivative agreements as of January 26, 2012 are outlined in the table below:
Fuel Derivative Contract Summary
|
Weighted Average
Contract Price |
Percentage of Projected
Fuel Requirements Hedged |
Fuel Barrels
Hedged |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
First Quarter 2012 |
|||||||||||||
Heating Oil |
(per gallon) | ||||||||||||
Call Options |
$ | 3.06 | 15 | % | 101,000 | ||||||||
Collars |
Cap | Floor | |||||||||||
|
$ | 3.09 | $ | 2.72 | 17 | % | 175,000 | ||||||
Crude Oil |
(per barrel) | ||||||||||||
Brent Options |
$ | 113.38 | 1 | % | 30,000 | ||||||||
WTI Call Options |
$ | 113.53 | 23 | % | 236,000 | ||||||||
Brent Collars |
Cap | Floor | |||||||||||
|
$ | 109.19 | $ | 96.98 | 1 | % | 9,000 | ||||||
WTI Collars |
Cap | Floor | |||||||||||
|
$ | 103.93 | $ | 89.88 | 5 | % | 48,000 | ||||||
Total |
62 | % | 599,000 |
47
|
Weighted Average
Contract Price |
Percentage of Projected
Fuel Requirements Hedged |
Fuel Barrels
Hedged |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Second Quarter 2012 |
|||||||||||||
Heating Oil |
(per gallon) | ||||||||||||
Call Options |
$ | 3.31 | 2 | % | 15,000 | ||||||||
Collars |
Cap | Floor | |||||||||||
|
$ | 3.03 | $ | 2.65 | 17 | % | 194,000 | ||||||
Crude Oil |
(per barrel) | ||||||||||||
Brent Options |
$ | 115.36 | 3 | % | 93,000 | ||||||||
WTI Call Options |
$ | 114.93 | 9 | % | 103,000 | ||||||||
Brent Collars |
Cap | Floor | |||||||||||
|
$ | 111.93 | $ | 97.05 | 11 | % | 42,000 | ||||||
WTI Collars |
Cap | Floor | |||||||||||
|
$ | 106.58 | $ | 89.88 | 4 | % | 48,000 | ||||||
Total |
46 | % | 495,000 | ||||||||||
Third Quarter 2012 |
|||||||||||||
Heating Oil |
(per gallon) | ||||||||||||
Call Options |
|||||||||||||
Collars |
Cap | Floor | |||||||||||
|
$ | 3.05 | $ | 2.66 | 13 | % | 168,000 | ||||||
Crude Oil |
(per barrel) | ||||||||||||
Brent Options |
$ | 120.91 | 8 | % | 108,000 | ||||||||
WTI Call Options |
$ | 112.56 | 1 | % | 7,000 | ||||||||
Brent Collars |
Cap | Floor | |||||||||||
|
$ | 111.48 | $ | 96.56 | 3 | % | 42,000 | ||||||
WTI Collars |
Cap | Floor | |||||||||||
|
$ | 107.30 | $ | 90.30 | 2 | % | 28,000 | ||||||
Total |
27 | % | 353,000 | ||||||||||
Fourth Quarter 2012 |
|||||||||||||
Heating Oil |
(per gallon) | ||||||||||||
Call Options |
|||||||||||||
Collars |
Cap | Floor | |||||||||||
|
$ | 3.07 | $ | 2.65 | 6 | % | 71,000 | ||||||
Crude Oil |
(per barrel) | ||||||||||||
Brent Options |
$ | 122.20 | 9 | % | 108,000 | ||||||||
WTI Call Options |
|||||||||||||
Brent Collars |
Cap | Floor | |||||||||||
|
$ | 111.00 | $ | 95.01 | 3 | % | 42,000 | ||||||
WTI Collars |
Cap | Floor | |||||||||||
Total |
18 | % | 221,000 | ||||||||||
First Quarter 2013 |
|||||||||||||
Crude Oil |
(per barrel) | ||||||||||||
Brent Options |
$ | 123.35 | 1 | % | 16,000 |
We expect to continue our program of hedging some of our future fuel consumption with a combination of futures contracts, swaps, caps, collars and other option based structures.
We do not hold or issue derivative financial instruments for trading purposes. We are exposed to credit risks in the event our heating oil and crude oil caps counterparties fail to meet their obligations; however, we do not expect these counterparties to fail to meet their obligations.
48
Interest Rates
Our results of operations are affected by fluctuations in interest rates due to our variable rate debt and interest income earned on our cash deposits and short-term investments. As of December 31, 2011, our variable rate debt agreements include the Revolving Credit Facility and secured loan agreements, the terms of which are discussed in Note 6 to the consolidated financial statements.
At December 31, 2011, we had $77.3 million of variable-rate debt indexed to the following interest rate:
Index
|
Rate | |||
---|---|---|---|---|
One-Month LIBOR |
0.2836 | % |
Changes in market interest rates have a direct and corresponding effect on our pre-tax earnings and cash flows associated with our floating rate debt and interest-bearing cash accounts. Based on the balances of our cash and cash equivalents, restricted cash, and variable-rate debt as of December 31, 2011, a change in interest rates would not have a material impact on our results of operations. Should that relationship change in the future, our exposure to changes in interest rate fluctuations would likely increase.
At December 31, 2011, we had approximately $384.2 million of fixed-rate debt including the Convertible Notes and facility agreements for aircraft purchases as further discussed in Note 6 to the consolidated financial statements. Market risk for fixed-rate long-term debt is estimated as the potential increase in fair value resulting from a hypothetical 10 percent decrease in interest rates, and amounted to approximately $2.6 million as of December 31, 2011.
Foreign Currency
We generate revenues and incur expenses in foreign currencies. Changes in foreign currency exchange rates impact our results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Our most significant foreign currency is the Japanese yen. Based on expected 2012 revenues and expenses denominated in Japanese yen, a 10% strengthening in the value of the U.S. Dollar would result in a decrease in operating income of approximately $26 million. The variance is due to our Japanese yen denominated revenues exceeding our Japanese yen denominated expenses.
At December 31, 2011 and 2010, we did not have any foreign currency hedges.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders
Hawaiian Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Hawaiian Holdings, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hawaiian Holdings, Inc. at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hawaiian Holdings, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2012, expressed an unqualified opinion thereon.
|
/s/ ERNST & YOUNG LLP |
Honolulu,
Hawaii
February 9, 2012
51
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2011, 2010 and 2009
|
2011 | 2010 | 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands, except per share data)
|
|||||||||
Operating Revenue: |
||||||||||
Passenger |
$ | 1,480,663 | $ | 1,154,972 | $ | 1,040,111 | ||||
Other |
169,796 | 155,121 | 143,195 | |||||||
Total |
1,650,459 | 1,310,093 | 1,183,306 | |||||||
Operating Expenses: |
||||||||||
Aircraft fuel, including taxes and oil |
513,284 | 322,999 | 243,909 | |||||||
Wages and benefits |
321,241 | 297,567 | 272,623 | |||||||
Aircraft rent |
112,883 | 112,721 | 102,091 | |||||||
Maintenance materials and repairs |
169,851 | 123,975 | 128,089 | |||||||
Aircraft and passenger servicing |
82,250 | 62,160 | 59,357 | |||||||
Commissions and other selling |
96,264 | 78,197 | 65,295 | |||||||
Depreciation and amortization |
66,262 | 57,712 | 52,648 | |||||||
Other rentals and landing fees |
72,445 | 57,833 | 51,297 | |||||||
Other |
125,682 | 105,651 | 100,513 | |||||||
Lease termination charges |
70,014 | | | |||||||
Total |
1,630,176 | 1,218,815 | 1,075,822 | |||||||
Operating Income |
20,283 | 91,278 | 107,484 | |||||||
Nonoperating Income (Expense): |
||||||||||
Interest expense and amortization of debt discounts and issuance costs |
(24,521 | ) | (16,835 | ) | (20,653 | ) | ||||
Interest income |
1,514 | 3,634 | 5,555 | |||||||
Capitalized interest |
7,771 | 2,665 | | |||||||
Gains (losses) on fuel derivatives |
(6,862 | ) | 641 | 2,292 | ||||||
Gains on investments |
| 1,168 | 2,226 | |||||||
Other, net |
733 | (562 | ) | 292 | ||||||
Total |
(21,365 | ) | (9,289 | ) | (10,288 | ) | ||||
Income (Loss) Before Income Taxes |
(1,082 | ) | 81,989 | 97,196 | ||||||
Income tax (benefit) expense |
1,567 | (28,266 | ) | (19,524 | ) | |||||
Net Income (Loss) |
$ | (2,649 | ) | $ | 110,255 | $ | 116,720 | |||
Net Income (Loss) Per Common Stock Share: |
||||||||||
Basic |
$ | (0.05 | ) | $ | 2.15 | $ | 2.26 | |||
Diluted |
$ | (0.05 | ) | $ | 2.10 | $ | 2.22 | |||
Weighted Average Number of Common Stock Shares Outstanding: |
||||||||||
Basic |
50,733 | 51,232 | 51,656 | |||||||
Diluted |
50,733 | 52,482 | 52,504 | |||||||
See accompanying Notes to Consolidated Financial Statements.
52
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2011 and 2010
|
2011 | 2010 | |||||
---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||
ASSETS |
|||||||
Current Assets: |
|||||||
Cash and cash equivalents |
$ | 304,115 | $ | 285,037 | |||
Restricted cash |
30,930 | 5,224 | |||||
Total cash, cash equivalents and restricted cash |
335,045 | 290,261 | |||||
Accounts receivable, net of allowance for doubtful accounts of $630 and $744 as of December 31, 2011 and 2010, respectively |
94,164 | 59,887 | |||||
Spare parts and supplies, net |
23,595 | 18,354 | |||||
Deferred tax assets, net |
15,336 | 40,651 | |||||
Prepaid expenses and other |
31,391 | 37,367 | |||||
Total |
499,531 | 446,520 | |||||
Property and equipment, net |
|||||||
Flight equipment |
647,497 | 359,368 | |||||
Pre-delivery deposits on flight equipment |
156,290 | 108,444 | |||||
Other property and equipment |
106,939 | 97,896 | |||||
|
910,726 | 565,708 | |||||
Less accumulated depreciation and amortization |
(181,599 | ) | (147,588 | ) | |||
Total |
729,127 | 418,120 | |||||
Other Assets: |
|||||||
Long-term prepayments and other |
47,321 | 38,629 | |||||
Deferred tax assets, net |
59,519 | 38,847 | |||||
Intangible assets, net of accumulated amortization of $154,302 and $130,951 as of December 31, 2011 and 2010, respectively |
45,368 | 68,720 | |||||
Goodwill |
106,663 | 106,663 | |||||
Total Assets |
$ | 1,487,529 | $ | 1,117,499 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current Liabilities: |
|||||||
Accounts payable |
$ | 80,636 | $ | 69,300 | |||
Air traffic liability |
303,382 | 250,861 | |||||
Other accrued liabilities |
67,267 | 63,506 | |||||
Current maturities of long-term debt and capital lease obligations |
37,535 | 16,888 | |||||
Total |
488,820 | 400,555 | |||||
Long-Term Debt and Capital Lease Obligations |
424,436 | 171,884 | |||||
Other Liabilities and Deferred Credits: |
|||||||
Accumulated pension and other postretirement benefit obligations |
320,742 | 213,704 | |||||
Other liabilities and deferred credits |
30,655 | 53,487 | |||||
Total |
351,397 | 267,191 | |||||
Commitments and Contingent Liabilities |
|||||||
Shareholders' Equity: |
|||||||
Special preferred stock, $0.01 par value per share, three shares issued and outstanding at December 31, 2011 and 2010 |
| | |||||
Common stock, $0.01 par value per share, 50,729,573 shares issued and outstanding as of December 31, 2011; 52,291,091 shares issued and 50,220,877 shares outstanding as of December 31, 2010 |
507 | 522 | |||||
Capital in excess of par value |
260,658 | 245,947 | |||||
Treasury stock, at cost, no shares at December 31, 2011 and 2,070,214 shares at December 31, 2010 |
| (10,752 | ) | ||||
Accumulated income |
64,051 | 77,431 | |||||
Accumulated other comprehensive loss, net |
(102,340 | ) | (35,279 | ) | |||
Total |
222,876 | 277,869 | |||||
Total Liabilities and Shareholders' Equity |
$ | 1,487,529 | $ | 1,117,499 | |||
See accompanying Notes to Consolidated Financial Statements.
53
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
For the Years ended December 31, 2011,
2010 and 2009
|
Common
Stock(*) |
Special
Preferred Stock(**) |
Treasury
Stock |
Capital In
Excess of Par Value |
Accumulated
Income (Deficit) |
Accumulated
Other Comprehensive Income (Loss) |
Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands, except share data)
|
|||||||||||||||||||||
Balance at December 31, 2008 |
$ | 515 | $ | | $ | | $ | 236,606 | $ | (148,631 | ) | $ | (35,177 | ) | $ | 53,313 | ||||||
Impact of adoption of EITF 08-03 |
| | | . | (913 | ) | | (913 | ) | |||||||||||||
Net income |
| | | | 116,720 | | 116,720 | |||||||||||||||
Net change related to employee benefit plans |
| | | | | 2,536 | 2,536 | |||||||||||||||
Unrealized income on short-term and long-term investments |
| | | | | 1,184 | 1,184 | |||||||||||||||
Comprehensive income |
120,440 | |||||||||||||||||||||
Issuance of 164,077 shares of common stock related to stock awards |
1 | | | 305 | | | 306 | |||||||||||||||
Share-based compensation expense |
| | | 3,454 | | | 3,454 | |||||||||||||||
Treasury stock buy-back to acquire 201,651 shares |
| | (754 | ) | | | | (754 | ) | |||||||||||||
Excess tax benefits from exercise of stock options |
| | | 243 | | | 243 | |||||||||||||||
Balance at December 31, 2009 |
$ | 516 | $ | | $ | (754 | ) | $ | 240,608 | $ | (32,824 | ) | $ | (31,457 | ) | $ | 176,089 | |||||
Net income |
| | | | 110,255 | | 110,255 | |||||||||||||||
Net change related to employee benefit plans, net of tax of $2,040 |
| | | | | (3,105 | ) | (3,105 | ) | |||||||||||||
Unrealized income on short-term and long-term investments, net of tax of $468 |
| | | | | (717 | ) | (717 | ) | |||||||||||||
Comprehensive income |
106,433 | |||||||||||||||||||||
Issuance of 609,187 shares of common stock related to stock awards |
6 | | | (132 | ) | | | (126 | ) | |||||||||||||
Exercise of warrants to acquire 1,000 shares of common stock |
| | | 7 | | | 7 | |||||||||||||||
Share-based compensation expense |
| | | 5,001 | | | 5,001 | |||||||||||||||
Treasury stock buy-back to acquire 1,868,563 shares |
| | (9,998 | ) | | | | (9,998 | ) | |||||||||||||
Excess tax benefits from exercise of stock options |
| | | 463 | | | 463 | |||||||||||||||
Balance at December 31, 2010 |
522 | | (10,752 | ) | 245,947 | 77,431 | (35,279 | ) | 277,869 | |||||||||||||
Net loss |
| | | | (2,649 | ) | | (2,649 | ) | |||||||||||||
Net change related to employee benefit plans, net of tax of $38,822 |
| | | | | (67,061 | ) | (67,061 | ) | |||||||||||||
Comprehensive loss |
(69,710 | ) | ||||||||||||||||||||
Issuance of 508,696 shares of common stock related to stock awards |
6 | | | (1,122 | ) | | | (1,116 | ) | |||||||||||||
Share-based compensation expense |
| | | 4,302 | | | 4,302 | |||||||||||||||
Convertible note |
| | | 19,504 | | | 19,504 | |||||||||||||||
Purchase of convertible note hedges |
| | | (19,504 | ) | | | (19,504 | ) | |||||||||||||
Convertible note issuance costs net of deferred tax benefit of $302 |
| | | (463 | ) | | | (463 | ) | |||||||||||||
Sale of common stock warrants |
| | | 11,948 | | | 11,948 | |||||||||||||||
Treasury stock retirement of 2,070,214 shares |
(21 | ) | | 10,752 | | (10,731 | ) | | | |||||||||||||
Excess tax benefits from exercise of stock options |
| | | 46 | | | 46 | |||||||||||||||
Balance at December 31, 2011 |
$ | 507 | $ | | $ | | $ | 260,658 | $ | 64,051 | $ | (102,340 | ) | $ | 222,876 | |||||||
See accompanying Notes to Consolidated Financial Statements.
54
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2011, 2010 and 2009
|
2011 | 2010 | 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||
Cash Flows From Operating Activities: |
||||||||||
Net income (Loss) |
$ | (2,649 | ) | $ | 110,255 | $ | 116,720 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||
Amortization of intangible assets |
23,352 | 23,486 | 23,451 | |||||||
Depreciation and amortization of property and equipment |
48,875 | 40,325 | 35,260 | |||||||
Deferred income taxes |
43,768 | (51,990 | ) | (25,000 | ) | |||||
Stock compensation |
4,302 | 5,001 | 3,454 | |||||||
Lease termination charges |
70,014 | | | |||||||
Amortization of debt discounts and issuance costs |
3,932 | 2,713 | 3,196 | |||||||
Gain on sale of investments |
| (1,168 | ) | | ||||||
Pension and postretirement benefit cost, net |
1,676 | (22,425 | ) | 6,571 | ||||||
Issuance of forward sold miles |
(8,747 | ) | (12,463 | ) | (2,656 | ) | ||||
Other, net |
(7,530 | ) | (5,615 | ) | (2,863 | ) | ||||
Changes in operating assets and liabilities: |
||||||||||
Restricted cash |
(25,706 | ) | 20,507 | 2,312 | ||||||
Accounts receivable |
(35,408 | ) | (11,326 | ) | (20,719 | ) | ||||
Spare parts and supplies |
(7,181 | ) | (1,777 | ) | (3,792 | ) | ||||
Prepaid expenses and other current assets |
(7,033 | ) | (3,607 | ) | 2,517 | |||||
Accounts payable |
11,336 | 22,953 | 2,962 | |||||||
Air traffic liability |
61,268 | 32,729 | (6,274 | ) | ||||||
Other accrued liabilities |
3,240 | 2,117 | 5,158 | |||||||
Other assets and liabilities, net |
1,255 | 582 | (3,846 | ) | ||||||
Net cash provided by operating activities |
178,764 | 150,297 | 136,451 | |||||||
Cash Flows From Investing Activities: |
||||||||||
Additions to property and equipment, including pre-delivery deposits |
(281,903 | ) | (140,460 | ) | (40,174 | ) | ||||
Purchases of short-term investments |
| (109,623 | ) | (41,056 | ) | |||||
Sales of short and long-term investments |
| 141,410 | 45,290 | |||||||
Net cash used in investing activities |
(281,903 | ) | (108,673 | ) | (35,940 | ) | ||||
Cash Flows From Financing Activities: |
||||||||||
Proceeds from exercise of stock options |
226 | 1,477 | 306 | |||||||
Convertible Notes: |
||||||||||
Issuance of convertible notes |
86,250 | | | |||||||
Purchase of call options and sale of common stock warrants, net |
(19,504 | ) | | | ||||||
Proceeds from issuance of warrants |
11,948 | | | |||||||
Long-term borrowings |
132,000 | 54,746 | | |||||||
Treasury stock repurchase |
| (9,998 | ) | (754 | ) | |||||
Repayments of long-term debt and capital lease obligations |
(80,023 | ) | (101,176 | ) | (27,526 | ) | ||||
Debt issuance costs |
(8,726 | ) | (2,837 | ) | | |||||
Forward sale of miles |
| | 24,086 | |||||||
Tax benefit from stock option exercise |
46 | 463 | 243 | |||||||
Net cash provided by (used in) financing activities |
122,217 | (57,325 | ) | (3,645 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
19,078 | (15,701 | ) | 96,866 | ||||||
Cash and cash equivalentsBeginning of Year |
285,037 | 300,738 | 203,872 | |||||||
Cash and cash equivalentsEnd of Year |
$ | 304,115 | $ | 285,037 | $ | 300,738 | ||||
See accompanying Notes to Consolidated Financial Statements.
55
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements
1. Business and Organization
Hawaiian Holdings, Inc. (the "Company," "Holdings," "we," "us" and "our") and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. The Company's primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian.
Hawaiian is 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 United States (the North America 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, Hawaiian operates various charter flights. Hawaiian is the largest airline headquartered in Hawaii 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 Services as of October 31, 2011, latest data available. As of December 31, 2011, Hawaiian's fleet consisted of sixteen Boeing 717-200 aircraft for its Neighbor Island routes and sixteen Boeing 767-300 and five Airbus A330-200 aircraft for its North America, International and charter routes.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including its principal subsidiary, Hawaiian, through which the Company conducts substantially all of its operations. All significant intercompany balances and transactions have been eliminated upon consolidation.
Cash Equivalents
The Company considers all investments with an original maturity of three months or less at the date of purchase to be cash equivalents.
Restricted Cash
At December 31, 2011 and 2010, restricted cash primarily consisted of cash deposits held by institutions that process credit card transactions for advance ticket sales (which funds are subsequently made available to Hawaiian as the related air travel is provided).
Spare Parts and Supplies
Spare parts and supplies primarily consisted of expendable parts for flight equipment and other supplies that are valued at average cost. An allowance for obsolescence for expendable parts is provided over the estimated useful lives of the related aircraft and engines for spare parts expected to be on hand at the date the aircraft are retired from service. An allowance is also provided to reduce the carrying costs of excess spare parts to the lower of cost or net realizable value. These allowances are based on management's estimates and are subject to change.
56
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:
Boeing 717-200 aircraft and engines |
7 - 10 years, 7 - 34% residual value | |
Boeing 767-300 aircraft and engines |
7 - 20 years, 0 - 10% residual value | |
Airbus A330-200 aircraft and engines |
25 years, 10% residual value | |
Major rotable parts |
Average lease term or useful life for related aircraft, 10% residual value | |
Improvements to leased flight equipment |
Shorter of lease term or useful life | |
Facility leasehold improvements |
Shorter of lease term, including assumed lease renewals when renewal is economically compelled at key airports or useful life | |
Furniture, fixtures and other equipment |
3 - 7 years, no residual value | |
Capitalized software |
3 - 7 years, no residual value |
Modifications that significantly enhance the operating performance and/or extend the useful lives of property and equipment are capitalized and amortized over the lesser of the remaining life of the asset or the lease term, as applicable. Costs associated with aircraft modifications that enhance the usefulness of the aircraft are capitalized and depreciated over the estimated remaining useful life at the remaining lease term of the aircraft or modification, whichever is less. Pre-delivery deposits are included in fixed assets when paid.
Aircraft Maintenance and Repair Costs
Aircraft maintenance and repairs are charged to operations as incurred, except for charges for maintenance and repairs incurred under power-by-the-hour maintenance contracts that are accrued and expensed when a contractual obligation exists, generally on the basis of hours flown.
The Company accounts for nonrefundable maintenance deposits as an asset until it is determined that any portion of the estimated total amount of the deposit is less than probable of being returned on leased aircraft. In addition, payments of maintenance deposits that are not "substantially and contractually related to the maintenance of the lease assets" are expensed as incurred. Any costs not expected to be recoverable are considered to be not "substantially and contractually related to maintenance of the lease asset". Therefore, the Company bifurcates deposit payments and expenses the proportionate share that is estimated to not be recoverable from existing and future nonrefundable deposits.
Goodwill and Indefinite-Lived Purchased Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized, but are tested for impairment at least annually using a "two-step process". In the first step, the fair value of the Company's reporting unit is compared to its carrying value. If the fair value of the Company's reporting unit exceeds the carrying value of its net assets, goodwill is not impaired and no further testing is required to be performed. If the carrying value of the net assets of the Company's reporting unit exceeds its fair value, then the second step of the impairment test must be performed in order to determine the implied fair value of the Company's reporting unit's goodwill. If the carrying value of the goodwill exceeds its implied fair value, then an impairment loss is recorded equal to the difference. Management reviewed the carrying values of goodwill and intangible assets pursuant to the applicable provisions of ASC 350, "IntangiblesGoodwill and Other," and has concluded that as of October 1, 2011, such carrying values were not impaired nor was there any need to adjust the remaining useful lives for those intangible assets subject to amortization. In the event that the Company determines that
57
the values of goodwill or intangible assets with indefinite lives have become impaired, the Company will incur an accounting charge during the period in which such determination is made. Changes in the estimated useful lives of intangible assets, if any, will be accounted for prospectively over such revised useful lives.
Impairment of Long-Lived Assets
Long-lived assets used in operations, consisting principally of property and equipment, and intangible assets subject to amortization, are tested for impairment when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The net carrying value of assets not recoverable is reduced to fair value if lower than carrying value. In determining the fair market value of the assets, the Company considers market trends, recent transactions involving sales of similar assets and, if necessary, estimates of future discounted cash flows.
Leased Aircraft Return Costs
Costs associated with returning leased aircraft are accrued when it is probable that a cash payment will be made and that amount is reasonably estimable. Any accrual is based on the time remaining on the lease, planned aircraft usage and the provisions included in the lease agreement, although the actual amount due to any lessor upon return will not be known with certainty until lease termination.
Revenue Recognition
Passenger revenue is recognized either when the transportation is provided or when tickets expire unused. The value of passenger tickets for future travel is included as air traffic liability.
Various taxes and fees assessed on the sale of tickets to end customers are collected by the Company as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted to the appropriate taxing authority.
Other operating revenue includes baggage fees, cargo revenue, charter revenue, ticket change fees, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies and other incidental sales.
Baggage fees, cargo and charter revenue are recognized when the transportation is provided. Ticket change fees are recognized at the time the fees are assessed. All other revenue is recognized as revenue when the related goods and services are provided.
Frequent Flyer Program
HawaiianMiles, Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. The Company utilizes the incremental cost method of accounting for free travel awards issued from the HawaiianMiles program. The Company records a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on partner airlines. The Company estimates the incremental cost of travel awards based on periodic studies of actual costs and applies these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental cost includes the costs of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical expiration data.
58
The Company also sells mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representing the travel that will ultimately be provided when the mileage credits are redeemed and the other consisting of marketing-related activities that we conduct with the participating company. The estimated fair value of the transportation portion of these mileage credits is deferred and recognized as passenger revenue over the period when transportation is expected to be provided (currently estimated at nineteen months). Amounts received in excess of the expected transportation's fair value are recognized immediately as other revenue at the time of sale as compensation for marketing services performed. The estimated fair value of the air transportation component is based on several factors, including the equivalent ticket value of similar Company fares and customer habits in redeeming free travel awards.
Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company and then transferred into a member's HawaiianMiles account for immediate redemption of free travel awards. For those transactions, revenue is amortized over the period during which the mileage is projected to be used (currently estimated at five months).
On an annual basis, the Company updates the deferral period, deferral rate, estimated breakage and incremental cost estimates based on the Company's historical data. The change to the 2011 assumptions did not have a significant impact to the Company's Consolidated Statement of Operations.
Commissions and Other Selling Expenses
Commissions and other selling expenses include credit card commissions, the costs of free travel earned on flights and other awards provided by HawaiianMiles , advertising and promotional expenses and computer reservation systems charges, as well as commissions paid to outside agents for the sales of passenger and cargo traffic. Sales commissions are deferred when paid and are subsequently recognized as expense when the related revenue is recognized. Prepaid sales commissions are included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. All other components of commissions and other selling expenses, including advertising costs, are expensed when incurred. Advertising expense was $9.2 million, $11.0 million, and $10.5 million for the years ended December 31, 2011, 2010, and 2009, respectively.
Capitalized Interest
Interest is capitalized upon acquisition of the aircraft, which includes any interest related to predelivery deposits and interest incurred for significant modifications made to the aircraft, and is depreciated over the estimated useful life of the asset once placed in service. The rate at which interest is capitalized is based on the Company's average borrowing rate, which was 6.6% in 2011 and 7.0% in 2010.
Earnings (Loss) Per Share
Net income (loss) per share is reported in accordance with ASC 260, "Earnings Per Share". Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period.
59
Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For further discussion on the convertible notes and warrants see Note 6Debt.
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands, except for per share data)
|
|||||||||
Denominator: |
||||||||||
Weighted average common shares outstandingBasic |
50,733 | 51,232 | 51,656 | |||||||
Assumed exercise of equity awards and warrants |
| 1,250 | 848 | |||||||
Weighted average common shares outstandingDiluted |
50,733 | 52,482 | 52,504 | |||||||
Net income (loss) per common share |
||||||||||
Basic |
$ | (0.05 | ) | $ | 2.15 | $ | 2.26 | |||
Diluted |
$ | (0.05 | ) | $ | 2.10 | $ | 2.22 | |||
The table below approximates those shares excluded from the computation of diluted earnings per share because the awards would be antidilutive.
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Stock Options |
527 | 187 | 1,034 | |||||||
Deferred Stock |
1 | 123 | | |||||||
Restricted Stock |
339 | 308 | 44 | |||||||
Convertible notes(2) |
8,450 | | | |||||||
Warrants(1)(2) |
8,450 | 1,493 | 4,480 |
Stock Compensation Plans
The Company has a stock compensation plan for its subsidiaries' officers, other employees, contractors, consultants and non-employee directors. The Company accounts for stock compensation awards under ASC 718, "Share Based Payment".
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.
60
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue ArrangementsA Consensus of the FASB Emerging Issues Task Force (ASU 2009-13). This guidance defines whether multiple deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable is based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. This accounting standard became effective for new and materially modified revenue arrangements for the sale of miles to third parties entered into by the Company after January 1, 2011. This standard is not applicable to miles earned in connection with travel which are accounted for on an incremental cost basis. During 2011, the Company did not have any significant new or materially modified agreements that were subject to this accounting standard, therefore, this accounting standard did not have an impact on its consolidated financial statements. The Company anticipates an impact from this standard when significant third-party mileage sales agreements are executed or materially modified in future periods. In 2011, the Company entered into a new significant revenue arrangement, effective January 1, 2012, to sell frequent flyer miles to a credit card partner. The Company will apply the provisions of ASU 2009-13 to the agreement effective January 1, 2012 and is currently evaluating the effect on its financial statements.
Recently Issued Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update 2011-04 , Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 amended Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820), to converge the fair value measurement guidance in GAAP and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, 2011. The Company is currently evaluating the effect that the provisions of ASU 2011-04 will have on its financial statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive IncomePresentation of Comprehensive Income (ASU 2011-05). This update changes the requirements for the presentation of other comprehensive income, eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity, amongst other things. ASU 2011-05 requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. These amendments are effective for fiscal years and interim periods beginning after December 15, 2011 and should be applied retrospectively. This ASU will not have a material effect on the Company's financial position or results of operations, but will change the Company's other comprehensive income disclosures effective January 2012.
In September 2011, the FASB issued Accounting Standards Update 2011-08, IntangiblesGoodwill and Other (ASU 2011-08). ASU 2011-08 amended Accounting Standards Codification, IntangiblesGoodwill and Other (ASC 350), to allow an entity the option to first assess the qualitative factors in testing goodwill for impairment, to determine whether or not it is necessary to perform the first step of the two-step impairment test originally outlined in ASC 350. This amendment is effective for fiscal years and interim periods beginning after December 15, 2011 and is to be applied prospectively. The Company will consider the provisions of ASU 2011-08 in its annual goodwill impairment test effective for the year ended December 31, 2012.
61
3. Fair Value Measurements
ASC 820 clarifies that fair value is 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 in which there is little or no market data and that are significant to the fair value of the assets or liabilities. |
The tables below present the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010:
|
Fair Value Measurements as of December 31, 2011 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | Level 1 | Level 2 | Level 3 | |||||||||
|
(in thousands)
|
||||||||||||
Cash equivalents: |
|||||||||||||
Money market securities |
$ | 208,594 | $ | 208,594 | $ | | $ | | |||||
Fuel derivative contracts, net*: |
|||||||||||||
Crude oil caps/call options |
1,511 | | 1,511 | | |||||||||
Crude oil collars |
231 | | 231 | | |||||||||
Heating oil caps/call options |
170 | | 170 | | |||||||||
Heating oil collars |
628 | | 628 | | |||||||||
Total assets measured at fair value |
$ | 211,134 | $ | 208,594 | $ | 2,540 | $ | | |||||
Fuel derivative contracts, net*: |
|||||||||||||
Crude oil collars |
$ | 90 | $ | | $ | 90 | $ | | |||||
Heating oil collars |
427 | | 427 | | |||||||||
Total liabilities measured at fair value |
$ | 517 | $ | | $ | 517 | $ | | |||||
62
|
Fair Value Measurements as of December 31, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | Level 1 | Level 2 | Level 3 | |||||||||
|
(in thousands)
|
||||||||||||
Cash equivalents: |
|||||||||||||
Money market securities |
$ | 94,659 | $ | 94,659 | $ | | $ | | |||||
U.S. government-sponsored enterprise notes |
133,048 | | 133,048 | | |||||||||
Fuel derivative contracts, net*: |
|||||||||||||
Crude oil caps |
6,609 | | 6,609 | | |||||||||
Crude oil collars |
2,174 | | 2,174 | | |||||||||
Total assets measured at fair value |
$ | 236,490 | $ | 94,659 | $ | 141,831 | $ | | |||||
Cash equivalents. The Company's cash equivalents consist of money market securities and U.S. government-sponsored enterprise notes. The money market securities are classified as Level 1 investments and are valued using inputs observable in markets for identical securities. The U.S. government-sponsored enterprise notes with contractual maturities less than three months are classified as Level 2 investments and valued using inputs observable in active markets for similar securities.
Long-term investments. During the quarter ended September 30, 2010, the Company sold all of its remaining auction rate securities for $26.7 million and recognized a pre-tax gain of approximately $1 million through nonoperating income (expense). These assets were previously classified as level 3 investments and valued using unobservable inputs.
The reconciliation of our assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the year ended December 31, 2010 is as follows:
|
Auction rate
securities (Level 3)(*) |
|||
---|---|---|---|---|
|
(in thousands)
|
|||
Balance as of December 31, 2009 |
$ | 29,921 | ||
Sale of long-term investments |
(26,672 | ) | ||
Redemption |
(4,075 | ) | ||
Accretion of discount |
844 | |||
Realized net gains (losses): |
||||
Included in earnings |
1,168 | |||
Reclassified from other comprehensive income |
(1,186 | ) | ||
Balance as of December 31, 2010 |
$ | | ||
Fuel derivative contracts. The Company's fuel derivative contracts consists of heating oil and West Texas Intermediate (WTI) and Brent crude oil caps/call options and collars (a combination of call options and put options) which are not traded on a public exchange. The fair value of these instruments is determined based on inputs available from public markets; therefore, they are classified as Level 2 in the fair value hierarchy.
63
Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis
See Note 7Leases, for information related to fair value measurements of nonfinancial assets on a nonrecurring basis performed during 2011.
4. Financial Instruments and Fuel Risk Management
Financial Instruments
The fair value of the Company's debt (excluding obligations under capital leases) with a carrying value of $461.5 million and $146.4 million at December 31, 2011 and 2010, respectively, was approximately $445.2 million and $140.0 million. The Company's fair value estimates were based on either market prices or the discounted amount of future cash flows using its current incremental rate of borrowing for similar liabilities.
The carrying amounts of cash and cash equivalents, restricted cash, other receivables and accounts payable approximate their fair value due to their short-term nature.
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 such as heating oil and WTI and Brent crude oil caps/call options and collars. During the years ended December 31, 2011, 2010 and 2009, the Company primarily used heating oil and crude oil caps/call options and collars to hedge its aircraft fuel expense. As of December 31, 2011, the Company had outstanding fuel derivative contracts covering 62.6 million gallons of jet fuel that will be settled over the next 12 months. These derivative instruments were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.
The following table shows the amount and location of realized and unrealized gains and losses that were recognized during 2011, 2010, and 2009, and where those gains and losses were recorded in the Consolidated Statements of Operations.
|
December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Fuel derivative contracts
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Gains (losses) on fuel derivatives recorded in nonoperating income (expense): |
||||||||||
Mark-to-fair value gains (losses) on undesignated fuel hedges: |
||||||||||
Realized gain (losses): |
||||||||||
Losses realized at settlement |
$ | (430 | ) | $ | (3,199 | ) | $ | (9,580 | ) | |
Reversal of prior period unrealized amounts |
(3,920 | ) | (226 | ) | 11,646 | |||||
Unrealized gains (losses) on contracts that will settle in future periods |
(2,512 | ) | 4,066 | 226 | ||||||
Gains (losses) on fuel derivatives recorded as nonoperating income (expense) |
$ | (6,862 | ) | $ | 641 | $ | 2,292 | |||
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, or present such amounts on a gross basis. Based on the fair value of our fuel derivative contracts, our counterparties may require us to post collateral when the price of the
64
underlying commodity decreases. The Company's accounting policy is to present its derivative assets and liabilities on a net basis including the collateral posted with the counterparty. The Company had no collateral posted with our counterparties as of December 31, 2011, 2010, and 2009.
The following table presents the fair value of the asset and liability as well as the location of the asset and liability balances within the Consolidated Balance Sheets.
|
|
Fair Value of Derivatives | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Assets as of | Liabilities as of | ||||||||||||
Derivatives not designated as hedging instruments under ASC 815
|
Balance Sheet Location |
December 31,
2011 |
December 31,
2010 |
December 31,
2011 |
December 31,
2010 |
||||||||||
|
|
(in thousands)
|
|||||||||||||
Fuel derivative contractsdue within one year |
Prepaid expenses and other | $ | 2,540 | $ | 8,783 | $ | 517 | $ | |
5. Intangible Assets
The following tables summarize the gross carrying values of intangible assets less accumulated amortization as of December 31, 2011 and 2010, and the useful lives assigned to each asset.
|
As of December 31, 2011 |
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross carrying
value |
Accumulated
amortization |
Net book value |
Approximate
useful life (years) |
|||||||
|
(in thousands)
|
|
|||||||||
Frequent flyer programmarketing relationships |
$ | 119,900 | $ | (105,228 | ) | $ | 14,672 | 7.5 | |||
Favorable aircraft and engine leases |
32,710 | (31,255 | ) | 1,455 | 7(*) | ||||||
Favorable aircraft maintenance contracts |
18,200 | (8,576 | ) | 9,624 | 14(*) | ||||||
Frequent flyer programcustomer relations |
12,200 | (7,268 | ) | 4,932 | 11 | ||||||
Hawaiian Airlines trade name |
13,000 | | 13,000 | Indefinite | |||||||
Operating certificates |
3,660 | (1,975 | ) | 1,685 | 12 | ||||||
Total intangible assets |
$ | 199,670 | $ | (154,302 | ) | $ | 45,368 | ||||
|
As of December 31, 2010 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Gross carrying
value |
Accumulated
amortization |
Net book value | |||||||
|
(in thousands)
|
|||||||||
Frequent flyer programmarketing relationships |
$ | 119,900 | $ | (89,244 | ) | $ | 30,656 | |||
Favorable aircraft and engine leases |
32,710 | (26,599 | ) | 6,111 | ||||||
Favorable aircraft maintenance contracts |
18,200 | (7,268 | ) | 10,932 | ||||||
Frequent flyer programcustomer relations |
12,200 | (6,164 | ) | 6,036 | ||||||
Hawaiian Airlines trade name |
13,000 | | 13,000 | |||||||
Operating certificates |
3,660 | (1,675 | ) | 1,985 | ||||||
Total intangible assets |
$ | 199,670 | $ | (130,950 | ) | $ | 68,720 | |||
Amortization expense related to the above intangible assets was $23.4 million, $23.5 million and $23.5 million for the years ended December 31, 2011, 2010, and 2009, respectively. Amortization of the favorable aircraft and engine leases and the favorable aircraft maintenance contracts is included in
65
aircraft rent and maintenance materials and repairs, respectively, in the accompanying Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009. The estimated future amortization expense as of December 31, 2011 of the intangible assets subject to amortization is as follows (in thousands):
2012 |
$ | 18,788 | ||
2013 |
2,640 | |||
2014 |
2,640 | |||
2015 |
2,640 | |||
2016 |
2,052 | |||
Thereafter |
3,608 | |||
|
$ | 32,368 | ||
6. Debt
Long-term debt as of December 31, 2011 and 2010 consisted of the following obligations:
|
2011 | 2010 | |||||
---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||
Airbus A330-200 Aircraft Facility Agreements, fixed interest rates of 5.3081% - 6.461%, quarterly principal and interest payments, the remaining balance of $14.7 million due at maturity in 2023 |
$ | 129,292 | $ | | |||
Boeing 717-200 Aircraft Facility Agreements, fixed interest rate of 8%, monthly principal and interest payments, the remaining balance of $39.7 million due at maturity on June 2019 |
185,730 | | |||||
Five year 5% unsecured convertible notes due in 2016, interest only semi-annual payments, $86.25 million due at maturity on March 15, 2016 |
86,250 | | |||||
Secured loan, variable interest rate of 3.66% at December 31, 2011, monthly interest only payments, the remaining balance of $52.2 million due at maturity on December 2013 |
77,318 | 88,846 | |||||
Revolving Credit Facility, variable interest rate of 6.25% at December 31, 2011, interest only monthly payments, balance due at maturity on December 10, 2014 |
| 54,746 | |||||
IRS note payable, interest at 5.0%, level quarterly principal and interest payments through June 1, 2011 |
| 2,821 | |||||
Capital lease obligations (see Note 7) |
435 | 42,382 | |||||
Total long-term debt and capital lease obligations |
$ | 479,025 | $ | 188,795 | |||
Less unamortized discounts on debt: |
|||||||
5% notes payable due June 1, 2011 |
| (23 | ) | ||||
Convertible note due March 2016 |
(17,054 | ) | | ||||
|
(17,054 | ) | (23 | ) | |||
Less current maturities |
(37,535 | ) | (16,888 | ) | |||
|
$ | 424,436 | $ | 171,884 | |||
66
Revolving Credit Facilities
In December 2010, Hawaiian, as borrower, with the Company as guarantor, entered into an Amended and Restated Credit Agreement with Wells Fargo Capital Finance, Inc., as arranger and administrative agent for the lenders, providing for a secured revolving credit facility (the Revolving Credit Facility) in an amount of up to $75.0 million. The Company used the proceeds received from the issuance of the Convertible Notes to pay-off the outstanding Revolving Credit Facility balance of $54.7 million. As of December 31, 2011, the Company had no outstanding borrowings under the Revolving Credit Facility and $56.9 million available (net of various outstanding letters of credit) and is in compliance with its financial covenants under the Revolving Credit Facility.
Convertible Notes
On March 23, 2011, the Company issued $86.25 million principal amount of convertible senior notes (the Convertible Notes) due March 15, 2016. The Convertible Notes were issued at par and bear interest at a rate of 5.00% per annum. Interest is paid semi-annually, in arrears, on March 15 and September 15 each year, beginning on September 15, 2011.
Each $1,000 of principal of the Convertible Notes is convertible under certain circumstances, at an initial conversion rate of 126.8730 shares of the Company's common stock (or a total of approximately 10.9 million shares), which is the equivalent of approximately $7.8819 per share, subject to adjustment upon the occurrence of certain specified events as set forth in the indenture governing the terms of the Convertible Notes. Upon conversion, the Company will have the right, at the Company's election, to pay or deliver cash, shares of the Company's common stock or a combination thereof. Holders may convert their Convertible Notes at their option at any time prior to November 15, 2015, only if one of the following conditions has been met:
On or after November 15, 2015, and up through and including the second business day immediately preceding March 15, 2016, the Holders may convert their Convertible Notes into common stock.
Holders may require the Company to repurchase all or a portion of their Convertible Notes upon a fundamental change, primarily a change in control or termination of trading, at a cash repurchase price equal to 100% of the principal amount of the Convertible Notes plus accrued and unpaid interest, if any. The Company may not redeem the Convertible Notes prior to their maturity date.
When accounting for the Convertible Notes, the Company applied accounting guidance related to the accounting for convertible debt instruments that may be settled in cash upon conversion. This guidance required the Company to separately account for the liability and equity components of the Convertible Notes in a manner that reflects our nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance required bifurcation of a component of the debt,
67
classification of that component in equity, and then accretion of the resulting discount on the debt as part of interest expense reflected in the Consolidated Statements of Operations.
Accordingly, the Company recorded an adjustment to reduce the carrying value of the Convertible Notes by $19.5 million and recorded this amount in Shareholders' Equity. This adjustment was based on the calculated fair value of a similar debt instrument that did not have an associated equity component. The annual interest rate calculated for a similar debt instrument was 11.00%.
The total issuance costs for the Convertible Notes were $3.3 million, of which $2.5 million was allocated to the debt component and $0.8 million was allocated to the equity component. The issuance costs allocated to debt were capitalized and are being amortized to interest expense over the term of the Convertible Notes. The issuance costs allocated to equity were recorded as a reduction of additional paid-in-capital.
The carrying value of the Convertible Notes is $69.2 million, net of $17.1 million of unamortized discounts at December 31, 2011. The discount is being amortized to interest expense over the remaining term of the Convertible Notes. Interest expense for the year ended December 31, 2011 was $3.8 million in addition to non-cash interest expense for the year ended December 31, 2011 was $2.4 million related to the amortization of the discount allocated to the debt component.
Convertible Note Hedges and Warrants
In connection with the issuance of the Convertible Notes, the Company entered into separate convertible note hedge transactions (the Convertible Note Hedges) and separate warrant transactions (the Warrants) with certain financial investors to reduce the potential dilution of the Company's common stock and to offset potential payments by the Company to holders of the Convertible Notes in excess of the principal of the Convertible Notes upon conversion. The Convertible Note Hedges and Warrants are separate transactions, entered into by the Company with the financial institutions, and are not part of the Convertible Notes described above.
The Company paid $19.5 million for the Convertible Note Hedges. Under the terms of the Convertible Note Hedges, the counterparties to the Convertible Note Hedges will generally deliver to the Company amounts in excess of the principal amount of the Convertible Notes delivered upon conversion by the Company to the holders of the Convertible Notes in the same form of consideration elected to be delivered by the Company to the holders of the Convertible Notes under the indenture for the Convertible Notes. The Company may elect to settle the conversion feature of the Convertible Notes in cash or shares of common stock or in any combination of cash or shares of common stock as determined in accordance with the provisions of the indenture. The Convertible Note Hedges are currently exercisable and expire on March 15, 2016.
Concurrent with the issuance of the Convertible Notes, the Company sold Warrants to certain financial institutions that permit such financial institutions to acquire shares of the Company's common stock. The Warrants are exercisable by the financial institutions for 10.9 million shares of the Company's common stock at a current exercise price of $10.00 per share. The Company received $11.9 million in proceeds from the sale of the Warrants. The Warrants expire at various dates beginning in June 2016 and ending in September 2016. The Warrants provide for net share settlement by the Company, subject to the option of the Company to deliver cash in lieu of shares if certain conditions under the Warrants have been met.
The Company determined that the Convertible Note Hedges and Warrants meet the requirements of the FASB's accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a Company's own stock and other relevant guidance and, therefore, are classified as equity transactions. As a result, the Company recorded the purchase of the Convertible Note Hedges as a reduction in additional paid-in-capital and the proceeds of the Warrants as an increase to
68
additional-paid-in-capital in the Consolidated Balance Sheets, and the Company will not recognize subsequent changes in the fair value of the agreements in the consolidated financial statements.
Airbus A330-200 Facility Agreements
In 2011, the Company borrowed $132.0 million through two secured loan agreements to finance a portion of the purchase price of two Airbus A330-200 aircraft that Hawaiian took delivery of in April and October 2011. These loan agreements have fixed interest rates ranging from 5.3081% - 6.461%, with principal and interest payments due quarterly, and maturity dates in 2023. One of the facility agreements has a balloon payment of $14.7 million due at maturity in October 2023.
Boeing 717-200 Facility Agreements
On June 27, 2011, Hawaiian borrowed $192.8 million through fifteen separate secured loan agreements to finance a portion of the purchase price of fifteen Boeing 717-200 aircraft, each such aircraft including two Rolls-Royce BR700-715 engines, that Hawaiian previously leased under four capital and eleven operating leases. See additional discussion of the purchase agreement at Note 7 to the consolidated financial statements. The loan agreements bear interest at 8% per annum and are subject to a balloon payment of $39.7 million at the maturity date of June 2019.
As of December 31, 2011, the scheduled maturities of long-term debt are as follows (in thousands):
2012 |
$ | 37,465 | ||
2013 |
91,119 | |||
2014 |
27,960 | |||
2015 |
29,674 | |||
2016 |
115,933 | |||
Thereafter |
176,439 |
Cash payments for interest totaled $15.6 million, $10.1 million and $11.5 million in 2011, 2010 and 2009, respectively.
7. Leases
The Company leases aircraft, engines and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, maintenance facilities, training centers and general offices. Certain leases include escalation clauses and renewal options. When lease renewals are considered to be reasonably assured, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the life of the lease.
On June 27, 2011, Hawaiian terminated lease agreements and concurrently entered into a purchase agreement with the lessor covering fifteen Boeing 717-200 aircraft, each such aircraft including two Rolls-Royce BR700-715 engines. These aircraft were previously operated by Hawaiian under four capital and eleven operating lease agreements. The purchase price for the fifteen Boeing 717-200 aircraft was $230 million, comprised of financing of $192.8 million through secured loan agreements with Boeing Capital, cash payment of $25.0 million, and the non-cash application of maintenance and security deposits held by the previous lessor and current debt financier of $12.2 million. This purchase price was reduced by certain previously recorded lease valuation adjustments related to these aircraft. The Company recognized the excess of the purchase price paid over the fair value of the aircraft under operating leases as a cost of terminating the leases under ASC 840 Leases (formerly FASB Interpretation No. 26, Accounting for Purchase of a Leased Asset by the Lessee during the Term of the Lease ) and elected to apply the same accounting policy to the aircraft under capital leases. As a result, the Company reduced the value of the fifteen Boeing 717-200 to their fair value of $135 million on its
69
Consolidated Balance Sheets and recorded lease termination charges of $70.0 million on the Consolidated Statements of Operations. The Company determined the valuation of the aircraft based on a third-party appraisal that considered multiple inputs, including market transactions for similar aircraft and information specific to the condition of each aircraft. As a result, this fair value measurement was considered a Level 3 measurement as described in Note 3 to the consolidated financial statements. See additional information on the loan agreements at Note 6 to the consolidated financial statements.
As of December 31, 2011, the Company had lease contracts for 13 of its 37 aircraft. All 13 aircraft lease contracts were accounted for as operating leases in accordance with ASC 840, "Accounting for Leases". These aircraft leases have remaining lease terms ranging from approximately one year to nine years. Under these lease agreements, the Company is required to pay monthly specified amounts of rent plus maintenance reserves based on utilization of the aircraft. Maintenance reserves are amounts paid by the Company to the aircraft lessor as a deposit for certain future scheduled airframe, engine and landing gear overhaul costs. Maintenance reserves are reimbursable once the Company successfully completes such qualified scheduled airframe, engine and/or landing gear overhauls.
In February 2011, the Company renegotiated its operating lease for its general office space, extending the lease through 2026.
As of December 31, 2011, the scheduled future minimum rental payments under capital leases and operating leases with noncancelable basic terms of more than one year are as follows:
|
Capital Leases | Operating Leases | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Other | Aircraft | Other | |||||||
|
(in thousands)
|
|||||||||
2012 |
$ | 102 | $ | 82,798 | $ | 3,709 | ||||
2013 |
102 | 75,924 | 4,510 | |||||||
2014 |
102 | 71,345 | 5,178 | |||||||
2015 |
102 | 70,739 | 5,262 | |||||||
2016 |
102 | 54,030 | 5,149 | |||||||
Thereafter |
24 | 194,558 | 25,097 | |||||||
|
534 | $ | 549,394 | $ | 48,905 | |||||
Less amounts representing interest |
99 | |||||||||
Present value of minimum capital lease payments |
$ | 435 | ||||||||
Rent expense was $156.7 million, $146.3 million and $129.9 million during the years ended December 31, 2011, 2010 and 2009, respectively.
70
8. Income Taxes
The significant components of income tax expense (benefit) are as follows:
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Current |
||||||||||
Federal |
$ | (36,515 | ) | $ | 18,364 | $ | 4,110 | |||
State |
(5,686 | ) | 5,360 | 1,366 | ||||||
|
(42,201 | ) | 23,724 | 5,476 | ||||||
Deferred |
||||||||||
Federal |
$ | 37,150 | $ | (44,158 | ) | $ | (20,000 | ) | ||
State |
6,618 | (7,832 | ) | (5,000 | ) | |||||
|
43,768 | (51,990 | ) | (25,000 | ) | |||||
Income tax expense (benefit) |
$ | 1,567 | $ | (28,266 | ) | $ | (19,524 | ) | ||
Cash payments (refunds) for income taxes were ($21.3) million, $26.0 million and $23.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, the Company recorded income taxes receivable of $23.5 million and $4.5 million, respectively, for overpayments and net operating loss carrybacks. After these amounts are collected, no additional carrybacks are available.
The income tax expense (benefit) differed from amounts computed at the statutory federal income tax rate as follows:
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Income tax expense (benefit) computed at the statutory federal rate |
$ | (368 | ) | $ | 28,696 | $ | 34,019 | |||
Increase (decrease) resulting from: |
||||||||||
State income taxes, net of federal tax effect |
132 | 5,033 | 4,222 | |||||||
Nondeductible meals |
538 | 436 | 374 | |||||||
Change in tax lawMedicare Part D Subsidy |
| 1,341 | | |||||||
Change in valuation allowance |
| (57,530 | ) | (60,202 | ) | |||||
Change in FASB Interpretation No. 48 (FIN 48) liability |
(1,983 | ) | (5,980 | ) | 1,867 | |||||
Effect of change in state apportionment rates and tax rates |
2,624 | | | |||||||
Resolution of prior year tax matters |
618 | | | |||||||
Other |
6 | (262 | ) | 196 | ||||||
Income tax expense (benefit) |
$ | 1,567 | $ | (28,266 | ) | $ | (19,524 | ) | ||
During 2009, the Company recorded an income tax benefit of $60.2 million for the reduction in the valuation allowance, which included a $25.0 million partial release of the valuation allowance as of December 31, 2009. Included in this tax benefit was $18.2 million related to changes in the Company's tax accounting methods to accelerate tax deductions for certain costs. The valuation allowance was also affected by the changes in the components of accumulated other comprehensive loss which decreased the valuation allowance attributable to accumulated other comprehensive loss by $1.5 million in 2009.
71
During 2010, as a result of its continued positive earnings for the year, as well as positive forecasted earnings in the future, and certain tax planning strategies, management concluded that it was more likely than not that the Company would realize its deferred tax assets, and therefore, the Company released its remaining valuation allowance which amounted to approximately $57.5 million.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company's management assesses the realizability of its deferred tax assets, and records a valuation allowance when it is more likely than not that a portion, or all, of the deferred tax assets will not be realized. As a result of positive forecasted earnings in the future and certain tax planning strategies, management concluded that it was more likely than not that the Company will realize its deferred tax assets, and therefore, the Company has not recorded a valuation allowance as of December 31, 2011.
The components of the Company's deferred tax assets and liabilities as of December 31, 2011 and 2010 were as follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2011 | 2010 | |||||
|
(in thousands)
|
||||||
Deferred tax assets: |
|||||||
Accumulated pension and other postretirement benefits |
$ | 120,958 | $ | 84,684 | |||
Leases |
6,491 | 22,854 | |||||
Air traffic liability |
9,745 | 30,304 | |||||
Federal and state net operating loss carryforwards |
39,271 | 591 | |||||
Alternative minimum tax credit carryforwards |
4,563 | | |||||
Other assets and liablities |
22,466 | 30,636 | |||||
Net deferred tax assets |
$ | 203,494 | $ | 169,069 | |||
Deferred tax liabilities: |
|||||||
Intangible assets |
$ | (16,429 | ) | $ | (24,738 | ) | |
Plant and equipment, principally accelerated depreciation |
(104,754 | ) | (60,584 | ) | |||
Other |
(7,456 | ) | (4,248 | ) | |||
Total deferred tax liabilities |
(128,639 | ) | (89,570 | ) | |||
Net deferred tax asset |
$ | 74,855 | $ | 79,499 | |||
At December 31, 2011, the Company had available for federal income tax purposes an alternative minimum tax credit carryforward of approximately $4.6 million, which is available for an indefinite period, and federal and state net operating loss carryforwards of $127.7 million. The tax benefit of net operating loss carryforwards as of December 31, 2011 was $39.3 million, of which $0.4 million expires in 2026, $0.6 million expires in 2027 and $38.3 million expires in 2031.
In accordance with ASC 740, the Company reviews its uncertain tax positions on an ongoing basis. The Company may be required to adjust its liability as these matters are finalized, which could increase or decrease its income tax expense and effective income tax rates or result in an adjustment to the valuation allowance. The Company does not expect that the unrecognized tax benefit related to uncertain tax positions will significantly change within the next twelve months.
72
The table below reconciles beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions:
|
2011 | 2010 | 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||
Balance at January 1 |
$ | 1,983 | $ | 8,577 | $ | 6,710 | ||||
Increases related to prior year tax positions |
| 686 | 1,867 | |||||||
Decreases related to prior year tax positions |
(367 | ) | | | ||||||
Settlements with taxing authority |
(490 | ) | (1,133 | ) | | |||||
Effect of the exipration of statutes of limitation |
(1,126 | ) | (6,147 | ) | | |||||
Balance at December 31 |
$ | | $ | 1,983 | $ | 8,577 | ||||
The Company records interest and penalties relating to unrecognized tax benefits in other nonoperating expense in its Consolidated Statements of Operations. Interest and penalties amounted to none, $0.3 million and $0.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. The Company recorded an offset to interest expense of $0.6 million, $1.4 million and none during the years ended December 31, 2011, 2010 and 2009, respectively. The Company had accrued interest and penalties of none and $0.6 million at December 31, 2011 and 2010, respectively.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal income tax returns for tax years 2009 and beyond remain subject to examination by the Internal Revenue Service ("IRS"). The IRS commenced examination of the Company's federal income tax return for 2009 in the third quarter of 2011. As of December 31, 2011, the IRS had not proposed any adjustments to the Company's return. The IRS concluded its examination of the Company's federal income tax returns for tax years 2005, 2007 and 2008 during the year ended December 31, 2011. The Company is not currently under audit in any other taxing jurisdiction in which it operates and the related state and local income tax returns remain open to examination. The Company believes, however, that any potential assessment in these jurisdictions would be immaterial.
9. Benefit Plans
Defined Benefit Plans
Hawaiian sponsors various defined benefit pension plans covering the Air Line Pilots Association, International Association of Machinists and Aerospace Workers (AFL-CIO) (IAM) and other personnel (salaried, Transport Workers Union and Network Engineering Group). The plans for the IAM and other employees were frozen in exchange for defined contribution plans in prior years. Effective January 1, 2008, benefit accruals for pilots under age 50 as of July 1, 2005 were frozen and Hawaiian began making contributions to an alternate defined contribution retirement program for pilots. All of the pilots' accrued benefits under their defined benefit plan at the date of the freeze were preserved, but there are no further benefit accruals subsequent to the date of the freeze (with the exception of certain pilots who were both age 50 and older and participants of the plan on July 1, 2005). In addition, Hawaiian sponsors four unfunded defined benefit postretirement medical and life insurance plans and a separate plan to administer the pilots' disability benefits.
73
The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the Consolidated Balance Sheets as of December 31, 2011 and 2010:
|
2011 | 2010 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Pension | Other | Pension | Other | |||||||||
|
(in thousands)
|
||||||||||||
Change in benefit obligation |
|||||||||||||
Benefit obligation, beginning of period |
$ |
347,592 |
$ |
108,834 |
$ |
342,760 |
$ |
92,797 |
|||||
Service cost |
2,833 | 6,342 | 3,271 | 5,705 | |||||||||
Interest cost |
19,426 | 6,657 | 19,338 | 5,607 | |||||||||
Actuarial (gains) losses |
38,747 | 37,380 | (161 | ) | 7,294 | ||||||||
Benefits paid |
(17,311 | ) | (3,016 | ) | (17,616 | ) | (2,597 | ) | |||||
less: federal subsidy on benefits paid |
N/A | | N/A | 28 | |||||||||
Benefit obligation at end of year(a) |
$ | 391,287 | $ | 156,197 | $ | 347,592 | $ | 108,834 | |||||
Change in plan assets |
|||||||||||||
Fair value of assets, beginning of period |
$ |
231,824 |
$ |
8,684 |
$ |
195,702 |
$ |
6,678 |
|||||
Actual return on plan assets |
(11,283 | ) | (113 | ) | 17,652 | 786 | |||||||
Employer contribution |
10,929 | 4,315 | 36,086 | 3,817 | |||||||||
Benefits paid |
(17,311 | ) | (3,016 | ) | (17,616 | ) | (2,597 | ) | |||||
Fair value of assets at end of year |
$ | 214,159 | $ | 9,870 | $ | 231,824 | $ | 8,684 | |||||
Funded status at December 31, |
$ |
(177,128 |
) |
$ |
(146,327 |
) |
$ |
(115,768 |
) |
$ |
(100,150 |
) |
|
Amounts recognized in the statement of financial position consist of: |
|||||||||||||
Current benefit liability |
$ |
(17 |
) |
$ |
(2,696 |
) |
$ |
(17 |
) |
$ |
(2,176 |
) |
|
Noncurrent benefit liability |
(177,111 | ) | (143,631 | ) | (115,751 | ) | (97,974 | ) | |||||
|
$ | (177,128 | ) | $ | (146,327 | ) | $ | (115,768 | ) | $ | (100,150 | ) | |
Amounts recognized in other comprehensive loss |
|||||||||||||
Unamortized actuarial loss |
$ |
96,195 |
$ |
47,560 |
$ |
28,335 |
$ |
9,540 |
|||||
Prior service credit |
(59 | ) | (25 | ) | (62 | ) | (27 | ) | |||||
|
$ | 96,136 | $ | 47,535 | $ | 28,273 | $ | 9,513 | |||||
74
The following table sets forth the net periodic benefit cost for the years ended December 31, 2011, 2010 and 2009:
|
2011 | 2010 | 2009 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Pension | Other | Pension | Other | Pension | Other | |||||||||||||
|
(in thousands)
|
||||||||||||||||||
Components of Net Periodic Benefit Cost |
|||||||||||||||||||
Service cost |
$ |
2,833 |
$ |
6,342 |
$ |
3,271 |
$ |
5,705 |
$ |
3,274 |
$ |
4,245 |
|||||||
Interest cost |
19,425 | 6,657 | 19,338 | 5,607 | 18,952 | 4,742 | |||||||||||||
Expected return on plan assets |
(18,014 | ) | (774 | ) | (16,017 | ) | (624 | ) | (12,072 | ) | (444 | ) | |||||||
Recognized net actuarial (gain) loss |
184 | 278 | 165 | 40 | 584 | (373 | ) | ||||||||||||
Prior service (credit) cost |
(2 | ) | (2 | ) | (2 | ) | (2 | ) | (35 | ) | 51 | ||||||||
Net periodic benefit cost |
$ | 4,426 | $ | 12,501 | $ | 6,755 | $ | 10,726 | $ | 10,703 | $ | 8,221 | |||||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income |
|||||||||||||||||||
Current year actuarial (gain) loss |
$ |
68,045 |
$ |
38,297 |
$ |
(1,799 |
) |
$ |
7,143 |
$ |
(11,552 |
) |
$ |
9,097 |
|||||
Amortization of actuarial gain (loss) |
(184 | ) | (278 | ) | (165 | ) | (40 | ) | (584 | ) | 373 | ||||||||
Current year prior service (credit) cost |
| | | | 968 | (824 | ) | ||||||||||||
Amortization of prior service credit (cost) |
2 | 2 | 2 | 2 | 35 | (51 | ) | ||||||||||||
Total recognized in other comprehensive loss |
$ | 67,863 | $ | 38,021 | $ | (1,962 | ) | $ | 7,105 | $ | (11,133 | ) | $ | 8,595 | |||||
Total recognized in net periodic benefit cost and other comprehensive loss |
$ | 72,289 | $ | 50,522 | $ | 4,793 | $ | 17,831 | $ | (430 | ) | $ | 16,816 | ||||||
The following actuarial assumptions were used to determine the net periodic benefit expense and the projected benefit obligation at December 31:
|
Pension | Postretirement | Disability | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average assumption used to determine net periodic benefit expense and projected benefit obligations: |
|||||||||||||||||||
Discount rate to determine net periodic benefit expense |
5.71 |
% |
5.79 |
% |
5.81 |
% |
5.98 |
% |
5.59 |
% |
5.66 |
% |
|||||||
Discount rate to determine projected benefit obligation |
4.94 | % | 5.71 | % | 5.14 | % | 5.81 | % | 4.91 | % | 5.59 | % | |||||||
Expected return on plan assets |
7.90 | %++ | 7.90 | % | N/A | N/A | 7.50 | %++ | 7.50 | % | |||||||||
Rate of compensation increase |
Various | + | Various | + | N/A | N/A | Various | + | Various | + |
75
Estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2012 are $4.3 million and $2.6 million in pension benefits and other postretirement benefits, respectively. Amounts are generally amortized into accumulated other comprehensive loss over the average future service to expected retirement age (exception: Salaried and IAM pension plans use average expected future lifetime of plan participants).
At December 31, 2011 and December 31, 2010, the health care cost trend rate was assumed to be 9.0% and to decrease gradually to 4.75% in 2019. A one-percentage point change in the assumed health care cost trend rates would have the following annual effects:
|
1-Percentage
Point Increase |
1-Percentage
Point Decrease |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||
Effect on total service and interest cost for the year ended December 31, 2011 |
$ | 2,103 | $ | (1,663 | ) | ||
Effect on postretirement benefit obligation at December 31, 2011 |
23,042 | (18,577 | ) |
Plan Assets
The Company develops the expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plan's assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. The Company's expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from any security class will not have an unduly detrimental impact on the entire portfolio. The actual allocation of our pension plan assets, target allocation of assets by category and the expected long-term rate of return by category at December 31, 2011 are as follows:
As discussed in Note 3 to the consolidated financial statements, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2Observable 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 3Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities.
76
The table below presents the Company's pension plan and other postretirement plan investments (excluding cash) as of December 31, 2011 and 2010:
|
Fair Value Measurements
as of December 31, 2011 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | Level 1 | Level 2 | Level 3 | |||||||||
|
(in thousands)
|
||||||||||||
Pension Plan Assets: |
|||||||||||||
Cash equivalents |
$ | 25 | $ | 25 | $ | | $ | | |||||
Equity securities: |
|||||||||||||
Common stockDomestic |
38,860 | 38,860 | | | |||||||||
Common stockForeign |
28,105 | 28,105 | | ||||||||||
Real estate investment trustsDomestic |
3,450 | | 3,450 | | |||||||||
Real estate investment trustsForeign |
1,488 | | 1,488 | | |||||||||
Preferred stockForeign |
236 | 236 | | ||||||||||
Other equitiesDomestic |
253 | 253 | | | |||||||||
Other equitiesForeign |
88 | 88 | | | |||||||||
Equity Index Funds |
57,148 | 57,148 | |||||||||||
Fixed income securities: |
|||||||||||||
Government bondsDomestic |
4,848 | | 4,848 | | |||||||||
Government bondsForeign |
14,539 | | 14,539 | | |||||||||
Mortgage-based securities |
3,556 | | 3,556 | | |||||||||
Corporate bondsDomestic |
6,713 | | 6,713 | | |||||||||
Corporate bondsForeign |
5,270 | | 5,270 | | |||||||||
State and Local bonds |
448 | | 448 | | |||||||||
Fixed income fund |
40,517 | | 40,517 | | |||||||||
Common collective trust fund |
2,395 | | 2,395 | | |||||||||
Forward contracts |
(85 | ) | | (85 | ) | | |||||||
Insurance company pooled separate account |
4,640 | 4,640 | | ||||||||||
Total |
$ | 212,494 | $ | 67,567 | $ | 144,927 | $ | | |||||
Postretirement Assets: |
|||||||||||||
Common collective trust fund |
$ | 9,809 | $ | | $ | 9,809 | $ | | |||||
77
|
Fair Value Measurements
as of December 31, 2010 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total | Level 1 | Level 2 | Level 3 | |||||||||
|
(in thousands)
|
||||||||||||
Pension Plan Assets: |
|||||||||||||
Cash equivalents |
$ | 75 | $ | 75 | $ | | $ | | |||||
Equity securities: |
|||||||||||||
Common stockDomestic |
69,701 | 69,701 | | | |||||||||
Common stockForeign |
65,213 | 65,213 | | | |||||||||
Real estate investment trustsDomestic |
6,428 | | 6,428 | | |||||||||
Real estate investment trustsForeign |
4,017 | | 4,017 | | |||||||||
Other equities |
2,716 | 2,716 | | | |||||||||
Fixed income securities: |
|||||||||||||
Government bondsDomestic |
5,958 | | 5,958 | | |||||||||
Government bondsForeign |
25,366 | | 25,366 | | |||||||||
Mortgage-based securities |
2,353 | | 2,353 | | |||||||||
Corporate bondsDomestic |
23,496 | | 23,496 | | |||||||||
Corporate bondsForeign |
14,629 | | 14,629 | | |||||||||
State and Local bonds |
853 | | 853 | | |||||||||
Pooled and mutual funds |
2,296 | | 2,296 | | |||||||||
Forward contracts |
263 | | 263 | | |||||||||
Insurance company pooled separate account |
3,567 | 2,123 | 1,444 | | |||||||||
Total |
$ | 226,931 | $ | 139,828 | $ | 87,103 | $ | | |||||
Postretirement Assets: |
|||||||||||||
Pooled and mutual funds |
$ | 8,620 | $ | | $ | 8,620 | $ | | |||||
Cash equivalents, common stocks, preferred stock and other equities. These investments are valued at the closing price reported on the active market on which the individual securities are traded.
Equity Index Funds. The Company invests in Blackrock S&P 500 Fund and Thornberg International Equity Fund. The investment objective of these investments is to obtain a reasonable rate of return while investing, principally or entirely in foreign or domestic equity securities. These securities are not available in an active market; however, the fair value is determined based on the net asset value of the underlying investments as traded in an exchange and active market.
Fixed Income Fund. The Company invests in PIMCO Total Return Fund. The investment objective is to obtain a reasonable rate of return while investing, principally in foreign or domestic bonds. The PIMCO Total Return Fund is not available in an exchange and active market; however the fair value is determined based on the net asset value of the underlying investments as traded in an exchange and active market.
Insurance Company Pooled Separate Account. The investment objective of the Insurance Company Pooled Separate Account is to invest in short-term cash equivalent securities to provide a high current income consistent with the preservation of principal and liquidity. The Insurance Company Pooled Separate Account is not available in an exchange and active market; however, the fair value is determined based on the net asset value of the underlying investments as traded in an exchange and active market.
Common collective trust (CCT). The investment objective of the Short Term Investment Fund is to obtain a reasonable rate of return while investing, principally or entirely, in foreign or domestic bonds, debentures, mortgages, equipment or other trust certificates, notes obligations issued by or guaranteed by the United States Government or its agencies, bank certificates of deposit, bankers'
78
acceptances and repurchase agreements, high grade commercial paper and other instruments with money market characteristics with a fixed or variable interest rate. The CCT is valued based upon the quoted redemption value of units owned by the Plan at year end. The CCT is not available in an exchange and active market; however, the fair value is determined based on the net asset value of the underlying investments as traded in an exchange and active market.
Fixed income securities and real estate investment trusts. These investments are valued based on quoted prices for similar assets in active markets.
Forward contracts. Forward contracts consist of foreign currency forward contracts which represent commitments either to purchase or sell foreign currencies at a specified future date and at a specific price. These investments are valued based on quoted prices for similar assets and liabilities in active markets.
The Company made contributions of $12.9 million and $37.9 million in 2011 and 2010, respectively, to its defined benefit pension plans and disability plan. Based on current legislation and current assumptions, the Company anticipates contributing $10.2 million to Hawaiian's defined benefit pension plans and disability plan during 2012. The Company projects that Hawaiian's pension plans and other postretirement benefit plans will make the following benefit payments, which reflect expected future service, for the years ended December 31:
|
|
Other Benefits | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Pension
Benefits |
Gross |
Expected
Federal Subsidy |
|||||||
|
(in thousands)
|
|||||||||
2012 |
$ | 18,272 | $ | 3,660 | $ | (36 | ) | |||
2013 |
19,181 | 4,385 | (45 | ) | ||||||
2014 |
20,420 | 4,960 | (52 | ) | ||||||
2015 |
21,494 | 5,523 | (60 | ) | ||||||
2016 |
22,608 | 6,121 | (66 | ) | ||||||
2017-2021 |
129,214 | 40,970 | (493 | ) |
Defined Contribution Plans
The Company also sponsors separate defined contribution plans (401(k)) for its pilots, flight attendants and ground and salaried personnel. Depending upon the employee group, employer contributions consist of matching contributions based on percentages ranging from 2% to 5.04% for employer contributions and 0% to 5% for matching contributions (excludes pilots, which are awarded based on target benefit contributions) of eligible earnings or participant contributions depending on the terms of each plan. In 2010, the Company ratified new contracts with the Air Line Pilots Association (ALPA) which led to increases to the target benefit contributions during 2010. Contributions to the Company's defined contribution plans were $18.5 million, $16.5 million, and $14.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.
10. Capital Stock and Share Based Compensation
Common Stock
The Company has one class of common stock issued and outstanding. Each share of common stock is entitled to one vote per share.
No dividends were paid by the Company during the years ended December 31, 2011, 2010 and 2009. Provisions in certain of the Company's aircraft lease agreements restrict the Company's ability to pay dividends.
79
Special Preferred Stock
The IAM, AFA, and ALPA each hold one share of Special Preferred Stock, which entitles each union to nominate one director to the Company's Board of Directors. In addition, each series of the Special Preferred Stock, unless otherwise specified: (i) ranks senior to the Company's common stock and ranks pari passu with such series of Special Preferred Stock with respect to liquidation, dissolution and winding up of the Company and will be entitled to receive $0.01 per share before any payments are made, or assets distributed to holders of any stock ranking junior to the Special Preferred Stock; (ii) has no dividend rights unless a dividend is declared and paid on the Company's common stock, in which case the Special Preferred Stock would be entitled to receive a dividend in an amount per share equal to two times the dividend per share paid on the common stock; (iii) is entitled to one vote per share of such series and votes with the common stock as a single class on all matters submitted to holders of the Company's common stock; and (iv) automatically converts into the Company's common stock on a 1:1 basis, at such time as such shares are transferred or such holders are no longer entitled to nominate a representative to the Company's Board of Directors pursuant to their respective collective bargaining agreements.
Share Based Compensation
The Company has a stock compensation plan for its subsidiaries' officers, other employees, contractors, consultants and non-employee directors.
ASC 718, " Stock Based Compensation ", requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of such awards on the dates they are granted. The fair value of the awards are estimated using the following: (1) option-pricing models for grants of stock options, (2) Monte Carlo simulations for restricted stock units with a market condition, or (3) fair value at the measurement date (usually the grant date) for awards of stock subject to time and / or performance-based vesting. The resultant cost is recognized as compensation expense over the period of time during which an employee is required to provide services to the Company (the service period) in exchange for the award, the service period generally being the vesting period of the award.
In accordance with ASC 718, the Company records benefits of tax deductions in excess of recognized stock compensation expense as financing cash flows. For the years ended December 31, 2011, 2010 and 2009, there were excess tax benefits of $0.1 million, $0.5 million, and $0.2 million respectively, which are classified as financing cash flows in the accompanying Consolidated Statements of Cash Flows.
Total share-based compensation expense recognized by the Company under ASC 718 was $4.3 million, $5.0 million, and $3.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, $4.0 million of share-based compensation expense related to unvested stock options and other awards (inclusive of $0.3 million for stock options and other awards granted to non-employee directors) is attributable to future performance and has not yet been recognized. The related expense will be recognized over a weighted average period of approximately 1.1 years.
Performance and Market-Based Stock Awards
During 2011, the Company granted performance-based awards covering 238,627 shares of Company Common Stock (the Target Award) with a maximum payout of 477,254 shares of Common Stock (the Maximum Award) to employees pursuant to the Company's 2005 Stock Incentive Plan. The Company records expense for the performance awards based on the number of shares granted under the Target Award. These awards vest over a period of three years. The Company valued the performance-based awards using grant date fair values equal to the Company's share price on the
80
measurement date. In 2010, the Company granted 477,802 shares of performance-based awards and 238,901 shares of market-based awards. The Company valued the 2010 performance-based awards using grant date fair values equal to the Company's share price on the measurement date. The Company valued the 2010 market-based awards using a lattice model with the following assumptions: expected volatility of 68.5%, risk-free interest rate of 1.21%, expected life of 3.5 years and expected dividend yield of zero.
The following table summarizes information about performance and market-based stock awards:
|
Number of units |
Weighted
average grant date fair value |
|||||
---|---|---|---|---|---|---|---|
Non-vested at December 31, 2010 |
716,703 | $ | 6.53 | ||||
Granted during the period |
238,627 | 6.12 | |||||
Vested during the period |
(209,767 | ) | 6.71 | ||||
Forfeited during the period |
(11,000 | ) | 6.84 | ||||
Non-vested at December 31, 2011 |
734,563 | $ | 6.34 | ||||
Time-Based Stock Awards
During 2011, the Company awarded 333,349 time-based stock awards to employees and non-employee directors, pursuant to the Company's 2005 Stock Incentive Plan. These awards vest over a period of one to three years and have a grant date fair value equal to the Company's share price on the measurement date.
The following table summarizes information about outstanding time-based stock awards:
|
Number of units |
Weighted
average grant date fair value |
|||||
---|---|---|---|---|---|---|---|
Non-vested at December 31, 2010 |
543,050 | $ | 6.22 | ||||
Granted during the period |
333,349 | 5.96 | |||||
Vested during the period |
(295,957 | ) | 6.12 | ||||
Forfeited during the period |
(33,899 | ) | 6.33 | ||||
Non-vested at December 31, 2011 |
546,543 | $ | 6.11 | ||||
11. Commitments and Contingent Liabilities
Commitments
As of December 31, 2011, the Company had capital commitments consisting of firm aircraft orders for sixteen wide-body Airbus A330-200 aircraft, six Airbus A350XWB-800 aircraft and six Rolls Royce spare engines scheduled for delivery through 2020. The Company has purchase rights for an additional three A330-200 aircraft and six A350XWB-800 aircraft and can utilize these rights subject to production availability. The Company has operating commitments with a third-party to provide aircraft maintenance services which include fixed payments as well as variable payments based on flight hours for our Airbus fleet through 2027. The Company also has operating commitments with third-party service providers for reservations, IT, and accounting services through 2017.
81
Committed capital and operating expenditures include escalation and variable amounts based on estimated forecasts. The gross committed expenditures for upcoming aircraft deliveries and committed financings for those deliveries for the next five years and thereafter are detailed below as of the date of filing:
|
Capital | Operating |
Total Commited
Expenditures |
Less: Committed
Financing for Upcoming Aircraft Deliveries* |
Net Committed
Expenditures |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||||
2012 |
$ | 318,690 | * | $ | 27,808 | $ | 346,498 | $ | 223,000 | $ | 123,498 | |||||
2013 |
462,519 | * | 27,669 | 490,188 | 180,000 | 310,188 | ||||||||||
2014 |
421,151 | 27,360 | 448,511 | | 448,511 | |||||||||||
2015 |
253,241 | 27,401 | 280,642 | | 280,642 | |||||||||||
2016 |
80,451 | 28,046 | 108,497 | | 108,497 | |||||||||||
Thereafter |
722,414 | 256,710 | 979,124 | | 979,124 |
Airbus A330-200 Facility Agreement Commitments
Hawaiian has commitments for two separate secured loan agreements, entered into in June 2011, totaling $133 million to finance a portion of its capital commitments for two upcoming Airbus A330-200 aircraft deliveries in the first half of 2012. The loan agreements will bear interest at Hawaiian's election, at either a floating rate based on a margin over LIBOR or a fixed rate with maturity dates of April 2022 and March 2024.
The anticipated future principal payments and commitment fees for these facility agreements are approximately $8 million in 2012, $9 million in 2013, $10 million in 2014, $10 million in 2015, $10 million in 2016 and $87 million thereafter.
Purchased Aircraft Lease Financing Agreement and Aircraft Lease Commitments
In October 2011, Hawaiian entered into an agreement with a third-party aircraft lessor for the sale and leaseback of three Airbus A330-200 aircraft with scheduled delivery dates in the second quarter of 2012 and the first half of 2013 with total proceeds of approximately $270 million as of December 31, 2011. These sale and leaseback transactions have initial lease terms of twelve years with the option to extend an additional twenty-four months. Rent under each lease is payable monthly at a fixed rate to be determined at delivery of each aircraft.
In addition to aircraft purchase commitments and related financing described above, Hawaiian has two separate eight-year lease agreements for an additional two Boeing 717-200 aircraft with delivery dates in the first quarter of 2012 and a twelve-year operating lease agreement for an Airbus A330-200 aircraft with an expected delivery date in the second quarter 2012. The Company will determine whether these leases will be classified as capital or operating leases in the period it takes delivery of each aircraft.
The anticipated future payments for these leases are approximately $15 million in 2012, $38 million in 2013, $41 million in 2014, $41 million in 2015, $41 million in 2016 and $302 million thereafter.
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.
82
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 the contract. 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 their gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to its use of the real estate leased premises. The Company expects that it is covered by insurance (subject to deductibles) for most tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. Hawaiian cannot estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.
Credit Card Holdback
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales are held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our Consolidated Balance Sheets, totaled $30.9 million at December 31, 2011. The agreement with our largest credit card processor also contains financial triggers for additional holdbacks, which are based upon, among other things, the amount of unrestricted cash, level of debt service coverage and operating income measured quarterly on a trailing 12-month basis. As of December 31, 2011, we were subject to a 25% holdback as we met the operating income financial trigger with our primary credit card processing arrangement. No amounts were subject to this holdback at December 31, 2010. Under the terms of the credit card agreement, the level of credit card holdback is subject to adjustment based on actual performance relative to these specific triggers. Depending on our performance relative to these financial triggers in the future, the holdback could incrementally increase to an amount up to 100% of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in restriction of cash, it could also cause a covenant violation under our other debt or lease obligations and have a material adverse impact on us.
12. Geographic Information
The Company has no other significant operations other than the operations of its wholly-owned subsidiary, Hawaiian Airlines, Inc. Principally all operations of Hawaiian either originate and/or end in the State of Hawaii. 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 offers only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's chief operating decision maker makes resource allocation decisions to maximize the Company's consolidated financial results.
Revenues from other lines of business are below the quantitative threshold for reporting reportable segments and consist of revenues from Hawaiian Gifts, LLC. The difference between the financial information of the Company's one reportable segment and financial information included in the accompanying consolidated statements of operations as a result of this entity is not significant.
83
The Company's operating revenues by geographic region (as defined by the Department of Transportation, DOT) are summarized below:
|
Years Ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Domestic |
$ | 1,272,196 | $ | 1,177,474 | $ | 1,085,792 | ||||
Pacific |
378,263 | 132,619 | 97,514 | |||||||
Total operating revenue |
$ | 1,650,459 | $ | 1,310,093 | $ | 1,183,306 | ||||
Hawaiian attributes operating revenue by geographic region based upon the origin and destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which are mobile across geographic markets, and, therefore, have not been allocated to specific geographic regions.
13. Parent Company Only Financial Information
In accordance with Regulation S-X paragraph 210.5-04 (c), the Company is required to provide condensed financial information of Hawaiian Holdings, Inc. as a result of restrictions in Hawaiian's debt agreements. Following is the condensed financial information of Hawaiian Holdings, Inc., presented on a parent company only basis, as of December 31, 2011 and 2010 and for the years ended December 31, 2011, 2010 and 2009:
Condensed Statements of Operations
Years ended December 31, 2011, 2010 and 2009
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Operating expenses |
$ | 4,467 | $ | 4,098 | $ | 3,656 | ||||
Operating loss |
(4,467 | ) | (4,098 | ) | (3,656 | ) | ||||
Nonoperating income (loss) |
(6,081 | ) | 98 | 374 | ||||||
Loss before undistributed earnings of Hawaiian Airlines, Inc. |
(10,548 | ) | (4,000 | ) | (3,282 | ) | ||||
Undistributed net income of Hawaiian Airlines, Inc. and Subsidiaries |
7,899 | 114,255 | 120,002 | |||||||
Net income (loss) |
$ | (2,649 | ) | $ | 110,255 | $ | 116,720 | |||
84
Condensed Balance Sheets
December 31, 2011 and 2010
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2011 | 2010 | |||||
|
(in thousands)
|
||||||
ASSETS |
|||||||
Current Assets: |
|||||||
Cash |
$ | 97,219 | $ | 19,967 | |||
Other |
48 | 75 | |||||
Total |
97,267 | 20,042 | |||||
Gains in excess of Investment in Hawaiian Airlines, Inc |
149,406 | 204,219 | |||||
Due from Hawaiian Airlines, Inc |
44,383 | 53,942 | |||||
Deferred tax assets, net |
302 | | |||||
Other noncurrent assets |
2,211 | | |||||
Total assets |
$ | 293,569 | $ | 278,203 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current Liabilities: |
|||||||
Accounts payable |
$ | 202 | $ | 325 | |||
Other |
1,295 | 9 | |||||
Total |
1,497 | 334 | |||||
Long-term debt |
$ | 69,196 | $ | | |||
Shareholders' equity |
222,876 | 277,869 | |||||
Total liabilities and shareholders' equity |
$ | 293,569 | $ | 278,203 | |||
85
Condensed Statements of Cash Flows
Years ended December 31, 2011, 2010 and 2009
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2009 | |||||||
|
(in thousands)
|
|||||||||
Operating Activities: |
||||||||||
Net income (loss) |
$ | (2,649 | ) | $ | 110,255 | $ | 116,720 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||||
Equity in undistributed net income of Hawaiian Airlines, Inc. and Subsidiaries |
(7,899 | ) | (114,255 | ) | (120,002 | ) | ||||
Other operating activities, net |
4,026 | (48 | ) | 246 | ||||||
Net cash used in operating activities |
(6,522 | ) | (4,048 | ) | (3,036 | ) | ||||
Investing Activities: |
||||||||||
Net payments from Hawaiian Airlines |
8,244 | 4,507 | 3,252 | |||||||
Net cash provided by investing activities |
8,244 | 4,507 | 3,252 | |||||||
Financing Activities: |
||||||||||
Long-term borrowings |
86,250 | | | |||||||
Debt issuance costs |
(3,390 | ) | | | ||||||
Proceeds from exercise of stock options |
226 | 1,477 | 309 | |||||||
Proceeds from issuance of warrants |
11,948 | | | |||||||
Treasury stock repurchase |
| (9,998 | ) | (754 | ) | |||||
Purchase of call options related to convertible debt |
(19,504 | ) | | | ||||||
Tax benefit from stock option exercise |
| | 243 | |||||||
Net cash (used in) provided by financing activities |
75,530 | (8,521 | ) | (202 | ) | |||||
Net (decrease) increase in cash |
77,252 | (8,062 | ) | 14 | ||||||
CashBeginning of Year |
19,967 | 28,029 | 28,015 | |||||||
CashEnd of Year |
$ | 97,219 | $ | 19,967 | $ | 28,029 | ||||
Long-Term Debt
On March 23, 2011, the Company issued $86.25 million principal amount of convertible senior notes (the Convertible Notes) due March 15, 2016. In connection with the issuance of the Convertible Notes, the Company entered into separate convertible note hedge transactions (the Convertible Note Hedges) and separate warrant transactions (the Warrants) with certain financial investors to reduce the potential dilution of the Company's common stock and to offset potential payments by the Company to holders of the Convertible Notes in excess of the principal of the Convertible Notes upon conversion. The Convertible Note Hedges and Warrants are separate transactions, entered into by the Company with the financial institutions, and are not part of the Convertible Notes.
For further discussion on the Convertible Notes and Convertible Note Hedges and Warrants, see Note 6 to the consolidated financial statements.
86
14. Supplemental Financial Information (unaudited)
Unaudited Quarterly Financial Information:
Supplementary Financial Information
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||||||||
2011: |
|||||||||||||
Operating revenue |
$ | 365,609 | $ | 395,015 | $ | 455,859 | $ | 433,975 | |||||
Operating income (loss) |
(4,945 | ) | (70,181 | ) | 60,947 | 34,462 | |||||||
Nonoperating income (loss) |
6,431 | (12,392 | ) | (13,621 | ) | (1,783 | ) | ||||||
Net income (loss) |
855 | (50,042 | ) | 25,617 | 20,921 | ||||||||
Net income (loss) per common stock share: |
|||||||||||||
Basic |
0.02 | (0.99 | ) | 0.50 | 0.41 | ||||||||
Diluted |
0.02 | (0.99 | ) | 0.50 | 0.40 | ||||||||
2010: |
|||||||||||||
Operating revenue |
$ | 298,376 | $ | 315,889 | $ | 352,029 | $ | 343,799 | |||||
Operating income |
5,578 | 23,998 | 39,278 | 22,424 | |||||||||
Nonoperating income (loss) |
(5,209 | ) | (8,087 | ) | 2,882 | 1,125 | |||||||
Net income |
216 | 8,993 | 30,467 | 70,579 | |||||||||
Net income per common stock share: |
|||||||||||||
Basic |
| 0.17 | 0.60 | 1.41 | |||||||||
Diluted |
| 0.17 | 0.59 | 1.36 |
In the second quarter of 2011, the Company entered into a purchase agreement with the lessor for the purchase of fifteen Boeing 717-200 aircraft. The excess of the purchase price paid over the fair value of the aircraft, which was $70.0 million, was recognized as a cost of terminating the leases and recorded on the Consolidated Statements of Operations.
In the third quarter of 2010, the Company released approximately $5.7 million of its uncertain tax positions due to the expiration of the applicable statute of limitations on those tax positions which was recorded as an income tax benefit. In the fourth quarter of 2010, the Company analyzed its tax valuation allowance and, as a result, released its remaining valuation allowance of approximately $57.5 million, resulting in an income tax benefit of $47.0 million.
The sum of the quarterly earnings per share amounts does not equal the annual amount reported since per share amounts are computed independently for each quarter and for the full year based on respective weighted-average common shares outstanding and other dilutive potential common shares.
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management's 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 Exchange Act). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2011, and provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the 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.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Under the supervision and with the participation of our management, including our CEO and CFO, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011 was conducted. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework . Based on their assessment, we concluded that, as of December 31, 2011, the Company's internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management's assessment with the Audit Committee of our Board of Directors.
The effectiveness of our internal control over financial reporting as of December 31, 2011, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also has audited the Company's consolidated financial statements included in this Annual Report on Form 10-K. Ernst & Young's report on the Company's internal control over financial reporting appears below.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fourth quarter ended December 31, 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. 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
88
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, have been 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 controls effectiveness 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.
89
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
Hawaiian Holdings, Inc.
We have audited Hawaiian Holdings, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Hawaiian Holdings, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Hawaiian Holdings, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hawaiian Holdings, Inc. as of December 31, 2011 and 2010 and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2011 of Hawaiian Holdings, Inc. and our report dated February 9, 2012 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Honolulu,
Hawaii
February 9, 2012
90
In connection with Mr. Topping's employment as our Executive Vice President, Chief Financial Officer and Treasurer, we entered into an executive severance agreement with Mr. Topping, dated February 7, 2012, pursuant to which he will be entitled to a lump sum payment equal to 12 months' base salary in the event that his employment is terminated by us without cause or by Mr. Topping for good reason.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 2012 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 2012 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 2012 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 2012 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated herein by reference from our definitive proxy statement relating to our 2012 Annual Meeting of Stockholders.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
91
The information required by Schedule I, "Condensed Financial Information of Registrant" has been provided in Note 14 to the consolidated financial statements. All other schedules have been omitted because they are not required.
2.1 | Third Amended Joint Plan of Reorganization of Joshua Gotbaum, as Chapter 11 Trustee for Hawaiian Airlines, Inc., the Official Committee of Unsecured Creditors, HHIC, Inc., Hawaiian Holdings, Inc., and RC Aviation, LLC, dated as of March 11, 2005 (filed as Exhibit 2.01 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).* | ||
|
2.2 |
|
Order Confirming Third Amended Joint Plan of Joshua Gotbaum, as Chapter 11 Trustee for Hawaiian Airlines, The Official Committee of Unsecured Creditors, HHIC, Inc., the Company and RC Aviation, dated as of March 11, 2005, as amended (filed as Exhibit 2.02 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).* |
|
3.1 |
|
Amended and Restated Certificate of Incorporation of Hawaiian Holdings, Inc. (filed as Exhibit 3.1 to the Form S-1, File No. 333-129503, filed by Hawaiian Holdings, Inc. on November 7, 2005).* |
|
4.1 |
|
Indenture, dated March 23, 2011, between Hawaiian Holdings, Inc. and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
|
4.2 |
|
Supplemental Indenture, dated March 23, 2011, between Hawaiian Holdings, Inc. and U.S. Bank National Association, as trustee (filed as Exhibit 4.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
|
4.3 |
|
Form of 5.00% Senior Convertible Note due 2016 (filed as Exhibit 4.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011 and incorporated by reference to Exhibit 4.2 thereto).* |
|
10.3 |
|
Amendment No. 2 to Lease Agreement N475HA, dated September 30, 2004, between Wells Fargo Bank Northwest, National Association and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. also entered into Amendment No. 2 to Lease Agreement N476HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N477HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N478HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N479HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N480HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N481HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N484HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N485HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N486HA, dated September 30, 2004, and Amendment No. 2 to Lease Agreement N487HA, dated September 30, 2004, between Wells Fargo Bank, Northwest, National Association and Hawaiian Airlines, Inc. The amended leases are substantially identical to Amendment No. 2 to Lease Agreement N475HA, except with respect to the aircraft information and delivery dates. Pursuant to Regulation S-K Item 601, Instruction 2, these amendments were not filed.* |
92
10.4 | Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33421 (filed as Exhibit 1.5 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33422, a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33423, and a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33424, which lease agreements are substantially identical to Lease Agreement 33421, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed).* | ||
|
10.5 |
|
Amendment No. 1 to Lease Agreement, dated November 6, 2002, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33421 (filed as Exhibit 10.4 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer's Serial Number 33422, Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer's Serial Number 33423, and Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer's Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 33421, except with respect to aircraft information and delivery date, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* |
|
10.6 |
|
Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33421 (filed as Exhibit 10.5 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provision thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer's Serial Number 33422, Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer's Serial Number 33423, and Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer's Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 2 to Lease Agreement 33421, except with respect to aircraft information, delivery date and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* |
93
10.7 | Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33421 (filed as Exhibit 10.9 to the Form 10-K filed by the Company on March 16, 2007). Hawaiian Airlines, Inc. has also entered into Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer's Serial Number 33422, Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer's Serial Number 33423, and Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer's Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 3 to Lease Agreement 33421, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* | ||
|
10.8 |
|
Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 24257 (filed as Exhibit 1.4 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 24258, a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 25531, and a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 24259, which lease agreements are substantially identical to Lease Agreement 24257, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.* |
|
10.9 |
|
Amendment No. 1 to Lease Agreement, dated as of August 2003, between International Lease Finance Corporation and Hawaiian Airlines, Inc., Manufacturer's Serial Number 24257 (filed as Exhibit 10.6 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer's Serial Number 24258, Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer's Serial Number 25531, and Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer's Serial Number 24259, which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 24257, except with respect to aircraft information, delivery date and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* |
94
10.10 | Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33426 (filed as Exhibit 1.6 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33427, a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33428, and a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer's Serial Number 33429, which lease agreements are substantially identical to Lease Agreement 33426, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.* | ||
|
10.11 |
|
Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33466 (originally 33426) (filed as Exhibit 10.7 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, Manufacturer's Serial Number 33427 (originally 33467) and Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, Manufacturer's Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 33466 (originally 33426), except with respect to aircraft information and delivery dates, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* |
|
10.12 |
|
Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33466 (originally 33426) (filed as Exhibit 10.8 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, Manufacturer's Serial Number 33427 (originally 33467) and Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, Manufacturer's Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 2 to Lease Agreement 33466, except with respect to aircraft information, delivery dates and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* |
95
10.13 | Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer's Serial Number 33466 (originally 33426) (filed as Exhibit 10.9 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, Manufacturer's Serial Number 33427 (originally 33467) and Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, Manufacturer's Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 3 to Lease Agreement 33466 (originally 33426), except with respect to aircraft information and delivery date, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.* | ||
|
10.14 |
|
Form of Hawaiian Holdings, Inc. Stock Option Agreement for certain employees and executive officers (filed as Exhibit 10.14 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 29, 2009).*+ |
|
10.15.1 |
|
Form of Hawaiian Holdings, Inc. Restricted Stock Agreement for certain employees and executive officers (filed as Exhibit 10.14 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 29, 2009).*+ |
|
10.15.2 |
|
Form of Hawaiian Holdings, Inc. Restricted Stock Unit Award Agreement for certain employees and executive officers (filed as Exhibit 10.15.2 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011).*.+ |
|
10.15.3 |
|
Form of Hawaiian Holdings, Inc. Performance-Based Restricted Stock Unit Award Agreement for certain employees and executive officers (filed as Exhibit 10.15.3 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011).*+ |
|
10.16 |
|
Form of Hawaiian Holdings, Inc. Deferred Stock Unit Agreement for certain employees and executive officers (filed as Exhibit 10.14 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 29, 2009).*+ |
|
10.17 |
|
Form of Hawaiian Holdings, Inc. Award Agreement for directors (filed as Exhibit 10.14 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 29, 2009).*+ |
|
10.18 |
|
Hawaiian Holdings, Inc. 2005 Stock Incentive Plan (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on July 14, 2005).*+ |
|
10.19 |
|
Hawaiian Holdings, Inc. 2006 Management Incentive Plan (filed as an Exhibit to the Definitive Proxy Statement on Schedule 14A on April 14, 2006).*+ |
|
10.20 |
|
Employment Agreement, dated as of August 18, 2005, between the Company and Mark B. Dunkerley (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on August 19, 2005).*+ |
|
10.21 |
|
Amendment No. 1 to Amended and Restated Employment Agreement, dated as of December 26, 2007, by and between Mark B. Dunkerley and each of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc., but effective as of November 8, 2007 (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on December 31, 2007).*+ |
|
10.21.1 |
|
Amendment No. 2 to Amended and Restated Employment Agreement, dated as of May 6, 2010 by and between Mark B. Dunkerley and each of Hawaiian Holdings, Inc. and its wholly-owned subsidiary Hawaiian Airlines, Inc. (filed as Exhibit 10.1(1) to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 28, 2010).*+ |
96
10.21.2 | Employment Agreement, dated as of May 25, 2010, by and between Mark B. Dunkerley and each of Hawaiian Holdings, Inc. and its wholly-owned subsidiary Hawaiian Airlines, Inc. (filed as Exhibit 10.2(2) to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 28, 2010).*+ | ||
|
10.21.3 |
|
Type A Restricted Stock Award Agreement, dated as of May 25, 2010, by and between Mark B. Dunkerley and Hawaiian Holdings, Inc. (filed as Exhibit 10.3(2) to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 28, 2010).*+ |
|
10.21.4 |
|
Type B Restricted Stock Award Agreement, dated as of May 25, 2010, by and between Mark B. Dunkerley and Hawaiian Holdings, Inc. (filed as Exhibit 10.4(2) to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 28, 2010).*+ |
|
10.22 |
|
Employment Agreement, dated as of November 18, 2005, between Hawaiian Airlines, Inc. and Peter R. Ingram (filed as Exhibit 10.24 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*+ |
|
10.22.1 |
|
First Amendment to Employment Agreement, dated as of November 2008, by and between Peter R. Ingram and Hawaiian Airlines, Inc. (filed as Exhibit 10.23 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 26, 2009).*+ |
|
10.22.2 |
|
Second Amendment to Employment Agreement, dated as of April 6, 2009, by and between Peter R. Ingram and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 30, 2009).*+ |
|
10.23 |
|
Executive Severance Agreement, dated as of April 15, 2009, between Hawaiian Airlines, Inc. and David Osborne (filed as Exhibit 10.3 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 30, 2009).*+ |
|
10.24 |
|
Employment Agreement, dated as of July 11, 2005, between Hawaiian Airlines, Inc. and Barbara Falvey (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on May 9, 2007).*+ |
|
10.24.1 |
|
First Amendment to Employment Agreement, dated as of April 6, 2009, between Hawaiian Airlines, Inc. and Barbara Falvey (filed as Exhibit 10.2 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 30, 2009).*+ |
|
10.25 |
|
Form of Hawaiian Holdings, Inc. Indemnification Agreement for directors and executive officers (filed as Exhibit 10.25 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011).*+ |
|
10.26 |
|
Amended and Restated Credit Agreement, dated as of December 10, 2010, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., each of the lenders party thereto (the "Lenders") and Wells Fargo Capital Finance, Inc., as agent for the Lenders filed as Exhibit 10.26 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.26.1 |
|
Amendment Number Two to Amended and Restated Credit Agreement, dated as of March 16, 2011, entered into by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., each of the lenders party thereto ("the Lenders") and Wells Fargo Capital Finance, Inc., as agent for the Lenders (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 17, 2011).* |
97
10.26.2 | Amendment Number Three to Amended and Restated Credit Agreement, Waiver and Extension, dated as of June 28, 2011, entered into by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., each of the lenders party thereto (the "Lenders") and Wells Fargo Capital Finance, Inc., as agent for the Lenders (filed as Exhibit 10.4 to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 27, 2011).* | ||
|
10.26.3 |
|
Amendment Number Four to Amended and Restated Credit Agreement and Amendment Number One to Amended and Restated Security Agreement, dated as of October 13, 2011, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., Airline Contract Maintenance and Equipment, Inc. and each of the lenders party thereto (the "Lenders") and Wells Fargo Capital Finance, Inc., as agent for the Lenders. |
|
10.27 |
|
Amended and Restated General Continuing Guaranty, dated as of December 10, 2010, by Hawaiian Holdings, Inc. in favor of Wells Fargo Capital Finance, Inc., in its capacity as agent for the Lender Group and the Bank Product Providers (each as defined therein)(filed as Exhibit 10.27 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.28 |
|
Amended and Restated Security Agreement, dated as of December 10, 2010, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., those additional entities party thereto from time to time and Wells Fargo Capital Finance, Inc., in its capacity as agent for the Lender Group and the Bank Product Providers (each as defined therein)(filed as Exhibit 10.28 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.29 |
|
Amended and Restated Engine and Spare Parts Security Agreement, dated as of December 10, 2010, by and between Hawaiian Airlines, Inc. and Wells Fargo Capital Finance, Inc., in its capacity as agent for the Lender Group and the Bank Product Providers (each as defined therein) (filed as Exhibit 10.29 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.30 |
|
Consolidated, Supplemented, Amended and Restated Aircraft Security Agreement, dated as of December 10, 2010, by and between Hawaiian Airlines, Inc. and Wells Fargo Capital Finance, Inc., in its capacity as agent for the Lender Group and the Bank Product Providers (each as defined therein). (filed as Exhibit 10.30 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.31 |
|
Waiver, Extension, and Amendment under Credit Agreement, dated as of January 24, 2011, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., each of the lenders party thereto (the "Lenders") and Wells Fargo Capital Finance, Inc., as agent for the Lenders. (filed as Exhibit 10.31 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.32 |
|
Reserved |
|
10.33 |
|
Reserved |
|
10.34 |
|
Reserved |
98
10.35 | Reserved | ||
|
10.36 |
|
Registration Rights Agreement, dated as of June 1, 2005, by and between Hawaiian Holdings, Inc. and RC Aviation, LLC (filed as Exhibit 10.12 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).* |
|
10.37 |
|
Warrant, dated November 17, 2005, granted to RC Aviation, LLC (and subsequently distributed to its members) to purchase the Common Stock of Hawaiian Holdings, Inc. (filed as Exhibit 10.44 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).* |
|
10.38 |
|
Aircraft Purchase Agreement, dated as of February 16, 2006, by and among Wilmington Trust Company, not in its individual capacity but solely as owner trustee, Marathon Structured Finance Fund, L.P., and Hawaiian Airlines, Inc., relating to the purchase of three Boeing 767-332 aircraft bearing manufacturer's serial numbers 23275, 23277 and 23278 and FAA registration numbers N116DL, N118DL, and N119DL (filed as Exhibit 10.45 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).* |
|
10.39 |
|
Aircraft Purchase and Sale Agreement, dated as of February 24, 2006, by and between Wilmington Trust Company, not in its individual capacity but solely as owner trustee, and Hawaiian Airlines, Inc., relating to the purchase of one Boeing 767-332 aircraft bearing manufacturer's serial number 23276 and FAA registration number N117DL (filed as Exhibit 10.46 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).* |
|
10.40 |
|
Purchase Agreement, dated as of December 20, 2006, by and between AWMS I, a Delaware statutory trust, and Hawaiian Airlines, Inc., relating to the purchase of one Boeing 767-300ER aircraft bearing manufacturer's serial number 28139. Hawaiian Airlines, Inc. also entered into purchase agreements with AWMS I relating to the purchase of two Boeing 767-300ER aircraft bearing manufacturer's serial numbers 28140 and 28141, which purchase agreements are substantially identical to the purchase agreement related to the aircraft bearing manufacturer's serial number 28139, except with respect to the aircraft information, and pursuant to Regulation S-K Item 601, Instruction 2, these purchase agreements were not filed (filed as Exhibit 10.48 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 16, 2007).* |
|
10.41 |
|
Loan Agreement No. 28139, dated as of December 20, 2006, by and among Hawaiian Airlines, Inc., C.I.T. Leasing Corporation and such other lenders as may from time to time be party thereto. Hawaiian Airlines, Inc. also entered into Loan Agreement No. 28140 and Loan Agreement No. 28141, which loan agreements are substantially identical to Loan Agreement No. 28139, and pursuant to Regulation S-K Item 601, Instruction 2, these loan agreements were not filed (filed as Exhibit 10.49 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 16, 2007).* |
|
10.42 |
|
Security Agreement No. 28139, dated as of December 20, 2006, by and between Hawaiian Airlines, Inc. and C.I.T. Leasing Corporation. Hawaiian Airlines, Inc. also entered into Security Agreement 28140 and Security Agreement 28141, which security agreements are substantially identical to Security Agreement 28139, and pursuant to Regulation S-K Item 601, Instruction 2, these security agreements were not filed (filed as Exhibit 10.50 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 16, 2007).* |
|
10.43 |
|
Airbus A330/A350XWB Purchase Agreement, dated as of January 31, 2008, between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.52 to the Form 10-K filed by the Company on March 3, 2008 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
99
10.44 | Amendment No. 1 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 10-Q filed by the Company on August 6, 2008 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* | ||
|
10.44.1 |
|
Amendment No. 2 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 27, 2010).* |
|
10.44.2 |
|
Amendment No. 3 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.3 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 27, 2010) in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).*. |
|
10.44.3 |
|
Amendment No. 4 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.44.3 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.44.4 |
|
Amendment No. 5 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.44.4 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.44.5 |
|
Amendment No. 6 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. |
|
10.44.6 |
|
Amended and Restated Letter Agreement No. 3 to the Airbus A330/A350XWB Purchase Agreement dated as of January 31, 2008 between Airbus S.A.S. and Hawaiian Airlines, Inc. (filed as Exhibit 10.44.5 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 2, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.45 |
|
Lease Agreement N483HA, dated as of August 29, 2008, between Wells Fargo Bank Northwest, National Association, and Hawaiian Airlines, Inc. for one Boeing 717-200 aircraft (filed as Exhibit 10.45 to the Form 10-K filed by the Company on February 26, 2009 in redacted form pursuant to a request for confidential treatment for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into a Lease Agreement N489HA, dated October 9, 2008, with Wells Fargo Bank Northwest, National Association, and a Lease Agreement N490HA, dated December 1, 2008, with Wells Fargo Bank Northwest, National Association, each for one Boeing 717-200 aircraft, which leases are substantially identical to Lease Agreement N483HA, except with respect to aircraft identification information, delivery dates and certain other information as to which Hawaiian Airlines, Inc. has requested confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements are not being filed herewith.* |
100
10.46 | Lease Agreement (Aircraft No. 2), dated as of October 21, 2008, between Pegasus Aviation Finance Company and Hawaiian Airlines, Inc. for one Airbus A330-200 aircraft (the "Pegasus Lease Agreement") (filed as Exhibit 10.46 to the Form 10-K filed by the Company on February 26, 2009 in redacted form pursuant to a request for confidential treatment for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (Aircraft No. 2). Hawaiian Airlines, Inc. also entered into a Lease Agreement (Aircraft No. 1), dated as of October 21, 2008, with Pegasus Aviation Finance Company relating to the lease of a second Airbus A330-220 aircraft, the terms of which are substantially identical to the terms contained in the Pegasus Lease Agreement, except with respect to aircraft identification information, delivery dates and certain other information as to which Hawaiian Airlines, Inc. has requested confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, this lease agreement is not being filed herewith.* | ||
|
10.47 |
|
General Terms Agreement, dated as of October 27, 2008, between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited, and Hawaiian Airlines, Inc., relating to the purchase of Trent 772B Engines (filed as Exhibit 10.47 to the Form 10-K filed by the Company on February 26, 2009 in redacted form pursuant to a request for confidential treatment for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into an Agreement, dated as of October 27, 2008, between Rolls- Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. relating to the purchase of Trent XWB engines, the terms of which are substantially identical to the terms contained in the Rolls-Royce Agreement, except with respect to engine identification information and specifications, delivery dates and certain other information as to which Hawaiian Airlines, Inc. has requested confidential treatment and pursuant to Regulation S-K Item 601, Instruction 2, this agreement is not being filed herewith.* |
|
10.48 |
|
Amendment #1 to General Terms Agreement by and between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. dated October 27, 2008 (filed as Exhibit 10.10 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 26, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.48.1 |
|
Amendment #2 to General Terms Agreement by and between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. dated October 27, 2008 (filed as Exhibit 10.11 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 26, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.48.2 |
|
Amendment #3 to General Terms Agreement by and between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. dated October 27, 2008. |
|
10.49 |
|
Amendment #1 to the Side Letter Agreement Number One to General Terms Agreement by and between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. dated October 27, 2008 (filed as Exhibit 10.12 to the Form 10-Q/A filed by Hawaiian Holdings, Inc. on July 21, 2011).* |
|
10.49.1 |
|
Amendment #2 to the Side Letter Agreement Number One to General Terms Agreement by and between Rolls-Royce PLC, Rolls-Royce TotalCare Services Limited and Hawaiian Airlines, Inc. dated October 27, 2008. |
101
10.50 | Aircraft Lease Agreement, dated as of October 31, 2008, between C.I.T. Leasing Corporation and Hawaiian Airlines, Inc. for one Airbus A330-200 aircraft (filed as Exhibit 10.48 to the Form 10-K filed by the Company on February 26, 2009 in redacted form pursuant to a request for confidential treatment for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* | ||
|
10.51 |
|
Amendment No. 1 to Lease Agreement (Aircraft No. 2), dated as of November 10, 2008, between Pegasus Aviation Finance Company and Hawaiian Airlines, Inc. (filed as Exhibit 10.49 to the Form 10-K filed by Hawaiian Holdings, Inc. on February 26, 2009).* |
|
10.52 |
|
Amendment Number One to Aircraft Lease Agreement, dated as of November 10, 2008, between C.I.T. Leasing Corporation and Hawaiian Airlines, Inc. (filed as Exhibit 10.50 to the Form 10-K filed by the Company on February 26, 2009 in redacted form pursuant to a request for confidential treatment for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.53 |
|
Complete Fleet Services Agreement, dated as of December 14, 2009, between Delta Air Lines, Inc. and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on April 27, 2010).* |
|
10.54 |
|
Base Call Option Transaction Confirmation, dated as of March 18, 2011, by and among Hawaiian Holdings, Inc., UBS AG, London Branch and UBS Securities LLC, solely as agent of UBS AG, London Branch (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 21, 2011).* |
|
10.55 |
|
Base Call Option Transaction Confirmation, dated as of March 18, 2011, by and between Hawaiian Holdings, Inc. and JPMorgan Chase Bank, National Association (filed as Exhibit 10.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 21, 2011).* |
|
10.56 |
|
Base Warrants Transaction Confirmation, dated as of March 18, 2011, by and among Hawaiian Holdings, Inc., UBS AG, London Branch and UBS Securities LLC, solely as agent of UBS AG, London Branch (filed as Exhibit 10.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 21, 2011).* |
|
10.57 |
|
Base Warrants Transaction Confirmation, dated as of March 18, 2011, by and between Hawaiian Holdings, Inc. and JPMorgan Chase Bank, National Association (filed as Exhibit 10.4 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 21, 2011).* |
|
10.58 |
|
Additional Call Option Transaction, dated as of March 18, 2011, by and among Hawaiian Holdings, Inc., UBS AG, London Branch and UBS Securities LLC, solely as agent of UBS AG, London Branch (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
|
10.59 |
|
Additional Call Option Transaction, dated as of March 18, 2011, by and between Hawaiian Holdings, Inc. and JPMorgan Chase Bank, National Association (filed as Exhibit 10.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
|
10.60 |
|
Additional Warrants Transaction, dated as of March 18, 2011, by and among Hawaiian Holdings, Inc., UBS AG, London Branch and UBS Securities LLC, solely as agent of UBS AG, London Branch (filed as Exhibit 10.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
|
10.61 |
|
Additional Warrants Transaction, dated as of March 18, 2011, by and between Hawaiian Holdings, Inc. and JPMorgan Chase Bank, National Association (filed as Exhibit 10.4 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 23, 2011).* |
102
10.62 | Loan Agreement [1217], dated as of April 6, 2011, by and among Hawaiian Airlines, Inc., Natixis as administrative agent; Wells Fargo Bank Northwest, National Association, not in its individual capacity, except as expressly stated therein, as security trustee; Landesbank Hessen-Thüringen Girozentrale, KfW IPEX-Bank GmbH and Natixis Transport Finance, as joint lead arrangers; and any additional lenders from time to time party thereto (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 27, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Loan Agreement [1295], dated as of June 29, 2011 by and among Landesbank Hessen-Thüringen Girozentrale, as administrative agent; Wells Fargo Bank Northwest, National Association, not in its individual capacity, except as expressly stated therein, as security trustee; Landesbank Hessen-Thüringen Girozentrale, KFW IPEX-Bank GmbH and Natixis Transport Finance, as lenders; and any additional lenders from time to time party thereto, which loan agreement is substantially identical to Loan Agreement [1217], except with respect to total principal amount and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, this loan agreement was not filed.* | ||
|
10.63 |
|
Purchase Agreement, dated as of June 27, 2011, by and among Wells Fargo Bank Northwest, solely as owner trustee of trusts beneficially owned by BCC Equipment Leasing Corporation and MDFC Spring Company, and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 27, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.64 |
|
Facility Agreement [Hawaiian 717-200 [55001]], dated as of June 27, 2011 by and between Hawaiian Airlines, Inc. and Boeing Capital Loan Corporation (filed as Exhibit 10.3 to the Form 10-Q/A filed by Hawaiian Holdings, Inc. on December 14, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Facility Agreement [Hawaiian 717-200 [55002]],, dated as of June 27, 2011 ; Facility Agreement [Hawaiian 717-200 [55118]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55121]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55122]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55123]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55124]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55125]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55126]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55128]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55129]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55130]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55131]], dated as of June 27, 2011; Facility Agreement [Hawaiian 717-200 [55132]], dated as of June 27, 2011; and Facility Agreement [Hawaiian 717-200 [55151]], dated as of June 27, 2011, which facility agreements are substantially identical to Facility Agreement 55001, and pursuant to Regulation S-K Item 601, Instruction 2, these facility agreements were not filed.* |
103
10.65 | Lease Agreement 491HA, dated as of June 28, 2011, by and between Wells Fargo Bank Northwest, National Association, a national banking association organized under the laws of the United States of America, not in its individual capacity, but solely as owner trustee of a trust beneficially owned by BCC Equipment Leasing Corporation, and Hawaiian Airlines, Inc. (filed as Exhibit 10.5 to Form 10-Q/A filed by Hawaiian Holdings, Inc. on December 14, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Lease Agreement 492HA, dated as of June 28, 2011; and Lease Agreement 493HA, dated as of June 28, 2011, which lease agreements are substantially identical to Lease Agreement 491HA, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.* | ||
|
10.66 |
|
Facility Agreement [Hawaiian A330 [1259]], dated as of June 29, 2011, by and among Hawaiian Airlines, Inc.; Bank of Utah, as security trustee; and each of Norddeutsche Landesbank Girozentrale and BNP Paribas, as loan participants (filed as Exhibit 10.6 to the Form 10-Q/A filed by Hawaiian Holdings, Inc. on December 14, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Facility Agreement [Hawaiian A330 [1302]], dated as of June 29, 2011;, which facility agreement is substantially identical to Facility Agreement [Hawaiian A330 [1259]], except with respect to certain information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these facility agreements were not filed.* |
|
10.67 |
|
Contract Services Agreement, dated as of June 29, 2011, by and between Hawaiian Airlines, Inc. and Airline Contract Maintenance and Equipment, Inc. (filed as Exhibit 10.7 to the Form 10-Q filed by Hawaiian Holdings, Inc. on July 27, 2011 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).* |
|
10.68 |
|
Purchase Agreement (Aircraft No.1), dated as of October 14, 2011, by and among Wilmington Trust Company, a Delaware trust company, not in its individual capacity, but solely as Owner Trustee for the benefit of HKAC Leasing Limited, a private Irish limited company; HKAC Leasing Limited; and Hawaiian Airlines, Inc., a Delaware corporation. Hawaiian Airlines, Inc. also entered into Purchase Agreement (Aircraft No. 2) dated as of October 14, 2011 and Purchase Agreement (Aircraft No. 3) dated as of October 14, 2011, the terms of which are substantially identical to the terms of Purchase Agreement (Aircraft No 1), except with respect to aircraft identification information, delivery dates and certain other information as to which Hawaiian Airlines, Inc. has requested confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these purchase agreements are not being filed herewith. |
|
10.69 |
|
Executive Severance Agreement, dated as of February 7, 2012, between Hawaiian Airlines, Inc. and Scott E. Topping.+ |
|
10.70 |
|
Executive Severance Agreement, dated as of February 7, 2012, between Hawaiian Airlines, Inc. and Charles R. Nardello.+ |
|
10.71 |
|
Executive Severance Agreement, dated as of February 7, 2012, between Hawaiian Airlines, Inc. and Glenn G. Taniguchi.+ |
|
10.72 |
|
Executive Severance Agreement, dated as of February 7, 2012, between Hawaiian Airlines, Inc. and Hoyt H. Zia.+ |
104
105
Schedule IIHawaiian Holdings, Inc.
Valuation and Qualifying Accounts (in thousands)
Years Ended December 31, 2011, 2010 and 2009
|
|
COLUMN C
ADDITIONS |
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
COLUMN B |
|
COLUMN E | |||||||||||||
|
(1)
Charged to Costs and Expenses |
(2)
Charged to Other Accounts |
COLUMN D | |||||||||||||
|
Balance at
Beginning of Year |
Balance at
End of Year |
||||||||||||||
COLUMN A
|
Deductions | |||||||||||||||
Description
|
||||||||||||||||
Allowance for Doubtful Accounts |
||||||||||||||||
2011 |
$ | 744 | 1,491 | | (1,605 | )(a) | $ | 630 | ||||||||
2010 |
$ | 693 | 1,541 | | (1,490 | )(a) | $ | 744 | ||||||||
2009 |
$ | 983 | 719 | | (1,009 | )(a) | $ | 693 | ||||||||
Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies |
||||||||||||||||
2011 |
$ | 6,979 | 2,056 | (b) | (211 | )(c) | $ | 8,824 | ||||||||
2010 |
$ | 5,333 | 1,762 | (b) | | (116 | )(c) | $ | 6,979 | |||||||
2009 |
$ | 4,063 | 1,623 | (b) | | (353 | )(c) | $ | 5,333 | |||||||
Valuation Allowance on Deferred Tax Assets |
||||||||||||||||
2011 |
$ | 0 | | | | $ | 0 | |||||||||
2010 |
$ | 65,641 | (65,641 | ) | | | $ | 0 | ||||||||
2009 |
$ | 121,249 | (60,202 | ) | 4,594 | (d) | | $ | 65,641 | |||||||
106
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HAWAIIAN HOLDINGS, INC. | ||||
February 9, 2012 |
|
By |
|
/s/ SCOTT E. TOPPING Scott E. Topping Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 9, 2012.
Signature
|
Title
|
|
---|---|---|
|
|
|
/s/ MARK B. DUNKERLEY
Mark B. Dunkerley |
President and Chief Executive Officer, and Director (Principal Executive Officer) | |
/s/ SCOTT E. TOPPING Scott E. Topping |
|
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
/s/ LAWRENCE S. HERSHFIELD Lawrence S. Hershfield |
|
Chair of the Board of Directors |
/s/ GREGORY S. ANDERSON Gregory S. Anderson |
|
Director |
/s/ L. TODD BUDGE L. Todd Budge |
|
Director |
/s/ RANDALL L. JENSON Randall L. Jenson |
|
Director |
/s/ SAMSON POOMAIHEALANI Samson Poomaihealani |
|
Director |
/s/ BERT T. KOBAYASHI, JR. Bert T. Kobayashi, Jr. |
|
Director |
107
Signature
|
Title
|
|
---|---|---|
|
|
|
/s/ CRYSTAL K. ROSE
Crystal K. Rose |
Director | |
/s/ WILLIAM S. SWELBAR William S. Swelbar |
|
Director |
/s/ BRIAN E. BOYER Brian E. Boyer |
|
Director |
/s/ RICHARD N. ZWERN Richard N. Zwern |
|
Director |
108
AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT AGREEMENT
AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY AGREEMENT (this " Amendment "), dated as of October 13, 2011, is entered into by and among the lenders identified on the signature pages hereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each as a " Lender ", and, collectively, the " Lenders "), WELLS FARGO CAPITAL FINANCE, INC. , a California corporation, as agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, " Agent "), HAWAIIAN HOLDINGS, INC. , a Delaware corporation (" Parent "), HAWAIIAN AIRLINES, INC. , a Delaware corporation (" Borrower "), and AIRLINE CONTRACT MAINTENANCE AND EQUIPMENT, INC ., a Delaware corporation (" ACME "), and in light of the following:
WHEREAS , Parent, Borrower, Lenders, and Agent are parties to that certain Amended and Restated Credit Agreement, dated as of December 10, 2010 (as amended, restated, supplemented, or otherwise modified from time to time, the " Credit Agreement ");
WHEREAS , Parent, Borrower, ACME, and Agent are parties to that certain Amended and Restated Security Agreement, dated as of December 10, 2010 (as amended, restated, supplemented, or otherwise modified from time to time, the " Security Agreement ");
WHEREAS , Borrower and Airbus S.A.S. (together with its affiliates, " Airbus ") are parties to that certain Airbus A330/A350XWB Purchase Agreement, dated as of January 31, 2008 (as amended, the " Purchase Agreement "), pursuant to which Borrower has contracted to purchase certain Aircraft from Airbus together with certain warranties, indemnities and service life policies with respect to such Aircraft;
WHEREAS , Borrower, Rolls-Royce plc (" RR ") and Rolls-Royce TotalCare Services Limited (" RRTCSL ", and together with RR, " Rolls-Royce ") are parties to that certain General Terms Agreement, dated as of October 27, 2008 (as amended, the " General Terms Agreement "), pursuant to which Borrower has contracted to purchase certain Engines from Rolls-Royce together with certain warranties, indemnities and service life policies with respect to such Engines and with respect to the Engines installed on Airbus Aircraft operated by Borrower;
WHEREAS , the Credit Agreement and the Security Agreement permit Borrower to enter into certain sale and leaseback transactions involving Aircraft and Engines owned by Borrower;
WHEREAS , Borrower has informed Agent and the Lenders that it intends to enter into sale and leaseback transactions with Hong Kong Aviation Capital or an affiliate thereof (collectively, " HKAC ") or a trust, the beneficial ownership of which is held by HKAC (the " Purchaser "), involving (i) Borrower's right to purchase three (3) Airbus A330 Aircraft (including the Engines installed thereon) pursuant to the Purchase Agreement, and (ii) all warranties, indemnities and service life policies with respect to such Aircraft and Engines, and all other property reasonably related or appurtenant to such Aircraft and Engines, to be provided pursuant to the Purchase Agreement and the General Terms Agreement (collectively, the " Sale-Leaseback Property ");
WHEREAS , Borrower's contract rights under the Purchase Agreement and the General Terms Agreement constitute Collateral under the Security Agreement;
WHEREAS , the Credit Agreement contemplates that Permitted Sale-Leaseback Transactions would be structured as sales of the underlying Aircraft and Engines, and Airbus and the Purchaser have requested that Borrower assign to the Purchaser its rights under the Purchase Agreement to purchase the Sale-Leaseback Property such that the Purchaser would acquire such Sale-Leaseback Property at the time of delivery of the relevant Aircraft and Engines;
WHEREAS , it is contemplated that Borrower and Purchaser will enter into separate (x) purchase agreements with respect to the three (3) Aircraft (and related Engines) to be effective upon the execution thereof, and (y) purchase agreement assignments with respect to the three Aircraft (and related Engines) to be effective upon delivery of the relevant Aircraft and Engines (the execution, delivery and performance of such transactions, the " Contemplated Sale-Leaseback Transactions ");
WHEREAS, the entry into sale and leaseback documentation between Borrower and Purchaser and the consummation of the Contemplated Sale-Leaseback Transactions will result in the creation of an encumbrance in favor of the Purchaser on the Borrower's right to purchase the Sale-Leaseback Property;
WHEREAS , Borrower has requested that Agent and the undersigned Lenders (a) amend the Credit Agreement to permit sale and leaseback transactions involving the Borrower's right to purchase Aircraft and Engines and related warranties, indemnities and service life policies with respect to such Aircraft and Engines, (b) make certain other amendments to the Credit Agreement, and (c) make certain amendments to the Security Agreement; and
WHEREAS , upon the terms and conditions set forth herein, Agent and the undersigned Lenders are willing to accommodate Borrower's requests.
NOW, THEREFORE , in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Defined Terms. All initially capitalized terms used herein (including the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Credit Agreement (including Schedule 1.1 thereto), as amended hereby.
2. Amendments to Credit Agreement.
(a) The definition of " Permitted Sale-Leaseback Transaction " contained in Schedule 1.1 of the Credit Agreement is hereby amended and restated as follows:
"" Permitted Sale-Leaseback Transaction " means the sale or other disposition of, or the entry into a definitive agreement for the sale or disposition of, (i) Aircraft or Engines (other than (x) any Aircraft identified as Eligible Available Aircraft in the most recently delivered Borrowing Base Certificate or (y) any Engine identified as a component of an Eligible Available Aircraft or as an Eligible Spare Engine in the most recently delivered Borrowing Base Certificate) owned by Borrower, or (ii) the Borrower's right to purchase Aircraft or Engines pursuant to a purchase contract with an Aircraft or Engine manufacturer, in each case together with all parts and components attached to or installed on such Aircraft or Engines and related warranties, indemnities, service life policies, software and manuals reasonably related or appurtenant to such Aircraft, Engines, parts or components or such right to purchase such Aircraft or Engines, in a transaction in which the following conditions are satisfied: (a) immediately before and after giving effect to (x) such sale or (y) such entry into a definitive agreement, as may be applicable, no Event of Default shall have occurred and be continuing and no Event of Default would result from (x) such sale or (y) such entry into a definitive agreement, as may be applicable, (b) such sale is for fair market value or such definitive agreement provides for such sale to be for fair market value, (c) without limiting the requirements of clause (b) of this definition, in connection with any sale of Borrower's right to purchase Aircraft or Engines pursuant to a purchase contract with an Aircraft or Engine manufacturer, the cash consideration received by Borrower at or prior to delivery of the applicable Aircraft or Engines (or, prior to consummation of such sale, required to be paid to Borrower at or prior to deliver of the applicable Aircraft or Engines) shall include an amount equal to or greater than the aggregate amount of all deposits and pre-delivery payments
2
previously paid by Borrower to the Aircraft manufacturer or Engine manufacturer pursuant to the terms of such purchase contract, (d) Borrower leases back or has entered into a lease for such Aircraft or Engine, as applicable, at fair market value, (e) such sale is to a Person that is not an Affiliate of Borrower (or the counterparty to such definitive agreement is a Person that is not an Affiliate of Borrower) or if such sale is to a Person that is an Affiliate of Borrower (or the counterparty to such definitive agreement is an Affiliate of Borrower), such sale or the terms of such definitive agreement are no less favorable, taken as a whole, to Borrower than would be obtained in an arm's length transaction with a non-Affiliate, (f) with respect to any such Aircraft or Engine subject to any Liens, the cash consideration received by Borrower in connection with the Permitted Sale-Leaseback Transaction is equal to or greater than the amount necessary to satisfy all Liens and the obligations they secure (other than the Obligations or any Liens securing the Obligations) on such Aircraft or Engine (or the buyer of such Aircraft or Engine is purchasing such Aircraft or Engine subject to all such Liens), (g) with respect to Borrower's right to purchase Aircraft or Engines pursuant to a purchase contract with an Aircraft or Engine manufacturer which is subject to any Liens, the cash consideration received by Borrower in connection with the Permitted Sale-Leaseback Transaction is equal to or greater than the amount necessary to satisfy all Liens and the obligations they secure (other than the Obligations or any Liens securing the Obligations), on such right to purchase Aircraft or Engines pursuant to a purchase contract with an Aircraft or Engine manufacturer (or the buyer of such Aircraft or Engine is purchasing such Aircraft or Engine subject to all such Liens), and (h) such transaction is permitted to be consummated pursuant to the terms of the documentation governing any Permitted Parent Indebtedness."
(b) The definition of " Permitted Liens " contained in Schedule 1.1 of the Credit Agreement is hereby amended by (i) deleting the word "and" in clause (x) of such section, (ii) replacing the ";" at the end of clause (y) of such section with the language ", and", and (iii) adding the language below immediately after the end of clause (y) of such section:
"(z) Liens on Borrower's contractual rights to purchase the Aircraft to be purchased from Airbus S.A.S. or its affiliates (including, without limitation, Borrower's right to purchase such Aircraft and all related warranties, indemnities and service life policies with respect to such Aircraft and the Engines related to such Aircraft pursuant to any agreement between Borrower and Airbus S.A.S. or its affiliates or any agreement between Borrower and Rolls-Royce plc, Rolls-Royce TotalCare Limited, or any of their affiliates); provided that (i) such Liens arise out of a Permitted Sale-Leaseback Transaction, (ii) such Liens only attach to the contract rights (and all related warranties, indemnities and service life policies with respect thereto) that are the subject of such Permitted Sale-Leaseback Transaction, and (iii) such Liens do not secure Indebtedness;"
3. Amendment to Security Agreement. The last paragraph of Section 2 of the Security Agreement is hereby amended by (a) replacing the reference to "(viii)" in the last sentence of such section with a reference to "(ix)", and (b) replacing the "." at the end of the first sentence of such paragraph with the language immediately below:
"; or (ix) Borrower's contractual rights to purchase the Aircraft to be purchased from Airbus S.A.S. or its affiliates (including, without limitation, Borrower's right to purchase such Aircraft and all related warranties, indemnities and service life policies with respect to such Aircraft and the Engines related to such Aircraft pursuant to any agreement between Borrower and Airbus S.A.S. or its affiliates or any agreement between Borrower and Rolls-Royce plc, Rolls-Royce TotalCare Limited, or any of their affiliates) solely to the extent that (x) such contract rights are subject to a Lien permitted pursuant to clause (z) of the definition of Permitted Lien, (y) such contract rights are the subject of a Permitted Sale-Leaseback Transaction, and (z) the contract governing the Permitted Sale-Leaseback Transaction
3
expressly prohibits the grant of a security interest or lien on such contractual rights (provided, that, (A) the foregoing exclusions of this clause (ix) shall in no way be construed (1) to apply when such prohibition or restriction is no longer in effect, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Agent's security interest or lien to attach thereto notwithstanding the prohibition or restriction contained in such contract governing such Permitted Sale-Leaseback Transaction and (B) the foregoing exclusions of this clause (ix) shall in no way be construed to limit, impair, or otherwise affect any of Agent's continuing security interests in and liens upon any rights or interests of any Grantor in or to any proceeds, substitutions, or replacements of such contract rights, to the extent not covered, or to the extent permitted if covered, by the contract governing such Permitted Sale-Leaseback Transaction)."
4. Conditions Precedent to Amendment. The satisfaction of each of the following shall constitute conditions precedent to the effectiveness of the Amendment (the first date upon which all such conditions have been satisfied, the " Amendment Effective Date "):
(a) Agent shall have received this Amendment, duly executed by Parent, Borrower, Agent, and the Required Lenders and the same shall be in full force and effect.
(b) Agent shall have received the reaffirmation and consent of each Guarantor attached hereto as Exhibit A , duly executed and delivered by an authorized officer of each Guarantor.
(c) The representations and warranties herein and in the Credit Agreement and the other Loan Documents shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).
(d) No Default or Event of Default shall have occurred and be continuing.
(e) Borrower shall pay concurrently herewith all fees, costs, expenses and taxes then payable pursuant to Section 17.10 of the Credit Agreement, so long as Agent has provided written notice to Borrower of the amount thereof on or before the date of this Amendment.
5. Representations and Warranties. Each of Parent, Borrower, and each Grantor (as defined in the Security Agreement) hereby represents and warrants to Agent and the Lenders as follows:
(a) It (i) is duly organized and existing and in good standing under the laws of the jurisdiction of its organization, (ii) is qualified to do business in any state where the failure to be so qualified could reasonably be expected to result in a Material Adverse Change, (iii) is duly qualified to do business as a foreign corporation in good standing in each state in which it has intrastate Routes or has its principal office or a major overhaul facility except, in each case, where failure to be so qualified would not have a material adverse effect on the Borrower or its business, and (iv) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Amendment and to carry out the transactions contemplated hereby.
(b) The execution, delivery, and performance by it of this Amendment (i) has been duly authorized by all necessary action on the part of such Person, and (ii) does not and will not (A) violate any material provision of federal, state, or local law or regulation applicable to such Person or its Subsidiaries, the Governing Documents of such Person or its Subsidiaries, or any material order, judgment, or decree of any court or other Governmental Authority binding on such Person, (B) conflict with, result in a breach of, or constitute (with due notice or lapse of time or
4
both) a default under any Material Contract of such Person or its Subsidiaries except to the extent that any such conflict, breach or default could not individually or in the aggregate reasonably be expected to have a Material Adverse Change, (C) require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than notices and filings as may be required under the Securities Exchange Act of 1934, as amended, (D) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Person, other than Permitted Liens, or (E) require any approval of such Person's interestholders or any approval or consent of any Person under any Material Contract of such Person, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to cause a Material Adverse Change.
(c) This Amendment has been duly executed and delivered by such Person. This Amendment and each Loan Document to which such Person is a party is the legally valid and binding obligation of such Person, enforceable against such Person in accordance with its respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally.
(d) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein has been issued and remains in force by any Governmental Authority against Parent, Borrower, or any Guarantor.
(e) No Default or Event of Default has occurred and is continuing, and no condition exists which constitutes a Default or an Event of Default.
(f) The representations and warranties of such Person in the Credit Agreement and the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date).
(g) This Amendment has been entered into without force or duress, of the free will of such Person, and the decision of such Person to enter into this Amendment is a fully informed decision and such Person is aware of all legal and other ramifications of such decision.
(h) It has read and understands this Amendment, has consulted with and been represented by independent legal counsel of its own choosing in negotiations for and the preparation of this Amendment, has read this Amendment in full and final form, and has been advised by its counsel of its rights and obligations hereunder.
6. Payment of Costs and Fees. Borrower agrees to pay all Lender Group Expenses in connection with the preparation, negotiation, execution and delivery of this Amendment and any documents and instruments relating hereto.
7. Release.
(a) Each of Parent, Borrower and each other Guarantor hereby acknowledge and agrees that as of September 30, 2011, the aggregate outstanding principal amount of the Advances under the Credit Agreement was $0 and the Letter of Credit Usage was $5,591,932.91 and that such Obligations are payable pursuant to the Credit Agreement as modified hereby without defense, offset, withholding, counterclaim, or deduction of any kind. Parent and each other Guarantor hereby acknowledges, confirms and reaffirms (i) that all of such Obligations constitute Guarantied
5
Obligations (as defined in the Guaranty), and (ii) all obligations owing by it to the Lender Group under any Loan Document to which it is a party, in each case, are unconditionally owing by it to the Agent, without offset, defense, withholding, counterclaim, or deduction of any kind, nature, or description whatsoever.
(b) Effective on the date hereof, each of Borrower and each Guarantor, for itself and on behalf of its successors, assigns, and officers, directors, employees, agents and attorneys, and any Person acting for or on behalf of, or claiming through it, hereby waives, releases, remises and forever discharges Agent and each Lender, each of their respective Affiliates, and each of their respective successors in title, past, present and future officers, directors, employees, limited partners, general partners, investors, attorneys, assigns, subsidiaries, shareholders, trustees, agents and other professionals and all other persons and entities to whom any member of the Lenders would be liable if such persons or entities were found to be liable to Borrower or such Guarantor (each a " Releasee " and collectively, the " Releasees "), from any and all past, present and future claims, suits, liens, lawsuits, adverse consequences, amounts paid in settlement, debts, deficiencies, diminution in value, disbursements, demands, obligations, liabilities, causes of action, damages, losses, costs and expenses of any kind or character, whether based in equity, law, contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (each a " Claim " and collectively, the " Claims "), whether known or unknown, fixed or contingent, direct, indirect, or derivative, asserted or unasserted, matured or unmatured, foreseen or unforseen, past or present, liquidated or unliquidated, suspected or unsuspected, which Borrower or such Guarantor ever had from the beginning of the world to the date hereof, now has, or might hereafter have against any such Releasee which Claims relate, directly or indirectly, to any act or omission by any Releasee that occurred on or prior to the date of this Amendment and relate, directly or indirectly, to the Credit Agreement, any other Loan Document, or to any acts or omissions of any such Releasee with respect to the Credit Agreement or any other Loan Document, or to the lender-borrower relationship evidenced by the Loan Documents, except for the duties and obligations set forth in this Amendment or the Loan Documents. As to each and every Claim released hereunder, each of Borrower and each Guarantor hereby represents that it has received the advice of legal counsel with regard to the releases contained herein, and having been so advised, specifically waives the benefit of the provisions of Section 1542 of the Civil Code of California which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."
As to each and every Claim released hereunder, each of Borrower and each Guarantor also waives the benefit of each other similar provision of applicable federal or state law (including without limitation the laws of the state of New York), if any, pertaining to general releases after having been advised by its legal counsel with respect thereto.
Each of Borrower and each Guarantor acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such Claims and agrees that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts. Each of Borrower and each Guarantor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
(c) Each of Borrower and each Guarantor, for itself and on behalf of its successors, assigns, and officers, directors, employees, agents and attorneys, and any Person acting for or on behalf of, or claiming through it, hereby absolutely, unconditionally and irrevocably, covenants and agrees
6
with and in favor of each Releasee above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by such Person pursuant to the above release. Each of Borrower and each Guarantor further agrees that it shall not dispute the validity or enforceability of the Credit Agreement or any of the other Loan Documents or any of its obligations thereunder, or the validity, priority, enforceability or the extent of Agent's Lien on any item of Collateral under the Credit Agreement or the other Loan Documents. If Borrower, any Guarantor or any of their respective successors, assigns, or officers, directors, employees, agents or attorneys, or any Person acting for or on behalf of, or claiming through it violate the foregoing covenant, such Person, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys' fees and costs incurred by such Releasee as a result of such violation.
8. Choice of Law and Venue; Jury Trial Waiver.
(a) THE VALIDITY OF THIS AMENDMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AMENDMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED , HOWEVER , THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8(b) .
(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF PARENT AND BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AMENDMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(d) EACH OF PARENT AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK AND THE STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
7
JUDGMENT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AMENDMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
9. Counterpart Execution. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of this Amendment by telefacsimile or other electronic method of transmission shall be equally effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment.
10. Effect on Loan Documents.
(a) The Credit Agreement and the Security Agreement, each as amended hereby, and each of the other Loan Documents, as amended as of the date hereof, shall be and remain in full force and effect in accordance with their respective terms and hereby are ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate, except as expressly set forth herein, as a waiver of, consent to, or a modification or amendment of, any right, power, or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document. Except for the amendments to the Credit Agreement and the Security Agreement expressly set forth herein, the Credit Agreement and the other Loan Documents shall remain unchanged and in full force and effect. The amendments, consents, waivers and modifications set forth herein are limited to the specified hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall neither excuse future non-compliance with the Loan Documents nor operate as a waiver of any Default or Event of Default, shall not operate as a consent to any further or other matter under the Loan Documents and shall not be construed as an indication that any future waiver of covenants or any other provision of the Credit Agreement or any other Loan Document will be agreed to, it being understood that the granting or denying of any waiver which may hereafter be requested by Borrower remains in the sole and absolute discretion of the Agent and the Lenders.
(b) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. Upon and after the effectiveness of this Amendment, each reference in the Security Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Security Agreement, and each reference in the other Loan Documents to "the Security Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Security Agreement, shall mean and be a reference to the Security Agreement as modified and amended hereby.
(c) This Amendment is a Loan Document.
(d) Unless the context of this Amendment clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and
8
"including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or". The words "hereof", "herein", "hereby", "hereunder", and similar terms in this Amendment refer to this Amendment as a whole and not to any particular provision of this Amendment. Section, subsection, clause, schedule, and exhibit references herein are to this Amendment unless otherwise specified. Any reference in this Amendment to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). The words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights. Any reference herein to any Person shall be construed to include such Person's successors and assigns.
11. Entire Agreement. This Amendment, and the terms and provisions hereof, the Credit Agreement and the other Loan Documents constitute the entire understanding and agreement between the parties hereto with respect to the matters amended hereby and supersedes any and all prior or contemporaneous amendments or understandings with respect to the matters amended hereby, whether express or implied, oral or written.
12. Reaffirmation of Obligations. Each of Parent, each Grantor (as defined in the Security Agreement), and Borrower hereby reaffirms its obligations under each Loan Document to which it is a party. Each of Parent Grantor (as defined in the Security Agreement), and Borrower hereby further ratifies, reaffirms, acknowledges, agrees, and confirms the validity and enforceability of all of the Liens and security interests granted, pursuant to and in connection with the Security Agreement or any other Loan Document, to Agent, as collateral security for the Obligations under the Loan Documents in accordance with their respective terms, and acknowledges that all of such Liens and security interests, and all Collateral heretofore pledged as security for such Obligations, continue to be and remain collateral for such Obligations from and after the date hereof.
13. Ratification. Each of Parent Grantor (as defined in the Security Agreement), and Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement and the Loan Documents effective as of the date hereof and as amended hereby.
14. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Amendment and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
[signature pages follow]
9
IN WITNESS WHEREOF , the parties hereto have caused this Amendment to be executed and delivered as of the date first above written.
HAWAIIAN HOLDINGS, INC.,
a Delaware corporation, as Parent and as a Grantor |
||||
|
|
By: |
|
/s/ PETER R. INGRAM |
Name: | Peter R. Ingram | |||
Title: | Chief Financial Officer and Treasurer | |||
|
|
HAWAIIAN HOLDINGS, INC., a Delaware corporation, as Borrower and as a Grantor |
||
|
|
By: |
|
/s/ PETER R. INGRAM |
Name: | Peter R. Ingram | |||
Title: | Executive Vice President, Chief Financial Officer and Treasurer | |||
|
|
AIRLINE CONTRACT MAINTENANCE AND EQUIPMENT, INC., a Delaware corporation, as Borrower and as a Grantor |
||
|
|
By: |
|
/s/ PETER R. INGRAM |
Name: | Peter R. Ingram | |||
Title: | Treasurer |
[SIGNATURE
PAGE TO AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT
AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY
AGREEMENT]
WELLS FARGO CAPITAL FINANCE, INC.,
a California corporation, as Agent and as a Lender |
||||
|
|
By: |
|
/s/ AMELIE YEHROS |
Name: | Amelie Yehros | |||
Title: | SVP |
[SIGNATURE
PAGE TO AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT
AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY
AGREEMENT]
BANK OF HAWAII, as a Lender | ||||
|
|
By: |
|
/s/ EDWARD CHIN |
Name: | EDWARD CHIN | |||
Title: | VICE PRESIDENT |
[SIGNATURE
PAGE TO AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT
AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY
AGREEMENT]
BURDALE CAPITAL FINANCE, INC., as a Lender | ||||
|
|
By: |
|
/s/ ANTIMO BARBIERI |
Name: | Antimo Barbieri | |||
Title: | Director | |||
|
|
By: |
|
/s/ STEVEN SANICOLA |
Name: | Steven Sanicola | |||
Title: | Director |
[SIGNATURE
PAGE TO AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT
AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY
AGREEMENT]
All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in that certain Amended and Restated Credit Agreement, dated as of December 10, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement ") by and among the lenders identified on the signature pages thereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter as a " Lender " and, collectively, the " Lenders "), WELLS FARGO CAPITAL FINANCE, INC. , a California corporation, as agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, " Agent "), HAWAIIAN HOLDINGS, INC. , a Delaware corporation (" Parent "), and HAWAIIAN AIRLINES, INC. , a Delaware corporation (" Borrower "). Reference is made to that certain Amendment Number Four to Amended and Restated Credit Agreement and Amendment Number One to Amended and Restated Security Agreement, dated as of October 13, 2011 (the " Amendment "), by and among Parent, Borrower, Agent and the Lenders signatory thereto. The undersigned Guarantor hereby (a) represents and warrants to the Agents and the Lenders that the execution, delivery, and performance of this Reaffirmation and Consent (i) are within its powers, (ii) have been duly authorized by all necessary action, (iii) do not and will not (A) violate any material provision of federal, state or local law or regulation applicable to it, the Governing Documents of it, or any material order, judgment or decree of any court or other Governmental Authority binding on it or its Subsidiaries, (B) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of such Guarantor except to the extent such conflict, breach or default could not individually or in the aggregate reasonably be expected to have a Material Adverse Change, (C) require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than notices and filings as may be required under the Securities Exchange Act of 1934, as amended, (D) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (E) require any approval of its interestholders or any approval or consent of any Person under any Material Contract of such Guarantor, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to cause a Material Adverse Change; (b) consents to the amendment of the Credit Agreement and the Security Agreement as set forth in the Amendment and any waivers granted therein, and agrees to the terms of the release set forth in Section 7 thereof; (c) acknowledges, ratifies, and reaffirms its obligations owing to the Agent and the Lenders under any Loan Document to which it is a party; (d) agrees that each of the Loan Documents to which it is a party is and shall remain in full force and effect, as amended by the Amendment; and (e) reaffirms, acknowledges, agrees and confirms that is has granted to Agent a perfected security interest in the Collateral in order to secure all of its present and future Guarantied Obligations (as defined in the Guaranty) and acknowledges and agrees that such security interest, and all Collateral heretofore pledged as security for the Obligations, continue to be and remain in full force and effect on and after the date hereof. Without limiting the generality of the foregoing, each of the undersigned hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement and the other Loan Documents to which it is a party effective as of the date hereof. All Obligations owing by each of the undersigned are unconditionally owing by such Person to Agent and the Lenders, without offset, defense, withholding, counterclaim or deduction of any kind, nature or description whatsoever. Although each of the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, they each understand that neither Agent nor any Lender has any obligations to inform it of such matters in the future or to seek its acknowledgment or agreement to future amendments, and nothing herein shall create such a duty. Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an
1
original executed counterpart of this Reaffirmation and Consent. Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent. The validity of this Reaffirmation and Consent, its construction, interpretation and enforcement, and the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the laws of the State of New York. This Reaffirmation and Consent is a Loan Document.
[signature page follows]
2
IN WITNESS WHEREOF, the undersigned have each caused this Reaffirmation and Consent to be executed as of the date of the Amendment.
HAWAIIAN HOLDINGS, INC.,
a Delaware corporation |
||||
|
|
By: |
|
|
Name: | ||||
Title: | ||||
|
|
AIRLINE CONTRACT MAINTENANCE AND EQUIPMENT, INC., a Delaware corporation |
||
|
|
By: |
|
|
Name: | ||||
Title: |
[SIGNATURE PAGE TO REAFFIRMATION AND CONSENT TO AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED CREDIT AGREEMENT AND AMENDMENT NUMBER ONE TO AMENDED AND RESTATED SECURITY AGREEMENT]
Amendment N°6
to the Airbus A330/A350XWB Purchase Agreement
Dated as of January 31, 2008
Between
AIRBUS S.A.S.
And
HAWAIIAN AIRLINES, INC.
This Amendment N°6 between Airbus S.A.S. and Hawaiian Airlines, Inc., (hereinafter referred to as the " Amendment ") is entered into as of November 14, 2011, by and between Airbus S.A.S., organized and existing under the laws of the Republic of France, having its registered office located at 1, Rond-Point Maurice Bellonte, 31700 Blagnac, France (hereinafter referred to as the " Seller "), and Hawaiian Airlines, Inc. a corporation, organized and existing under the laws of the State of Delaware, United States of America, having its principal corporate offices located at 3375 Koapaka Street, Ste. G-350, Honolulu, Hawaii, 96819, USA (hereinafter referred to as the " Buyer ")
WITNESSETH
WHEREAS, the Buyer and the Seller have entered into an Airbus A330/A350XWB Purchase Agreement dated as January 31, 2008 which agreement, as previously amended by and supplemented with all exhibits, appendices, letter agreements and amendments, including Amendment No. 1 dated as of June 26, 2008, Amendment No. 2 dated as of November 27, 2009, Amendment No. 3 dated as of March 3, 2010, Amendment No. 4 dated as of August 3, 2010 and Amendment No. 5 dated as of November 22, 2010 (collectively, the " Agreement "), relates to the sale by the Seller and the purchase by the Buyer of certain aircraft; and
WHEREAS, the Buyer and the Seller wish to amend certain provisions of the Agreement as set forth herein.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
Capitalized terms used herein and not otherwise defined herein will have the meanings assigned to them in the Agreement. The terms "herein," "hereof" and "hereunder" and words of similar import refer to this Amendment.
INTENTIONALLY LEFT BLANK
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed seperately with the Securities and Exchange Commission.
Page 1
|
|
|
---|---|---|
Aircraft N°1 [**] |
[**] 2011 | |
Aircraft N°2 |
[**] 2011 | |
Aircraft N°3 |
[**] 2012 | |
Aircraft N°4 [**] |
[**] 2012 | |
Aircraft N°5 |
[**] 2012 | |
Aircraft N°6 |
[**] 2013 | |
Aircraft N°7 [**] |
[**] 2013 | |
Aircraft N°8 |
[**] 2013 | |
Aircraft N°9 [**] |
[**] 2013 | |
Aircraft N°10 [**] |
[**] 2013 | |
Aircraft N°11 |
[**] 2014 | |
Aircraft N°12 [**] |
[**] 2014 | |
Aircraft N°13 [**] |
[**] 2014 | |
Aircraft N°14 [**] |
[**] 2014 | |
Aircraft N°15 [**] |
[**] 2014 | |
Aircraft N°16 [**] |
[**] 2015 | |
Aircraft N°17 [**] |
[**] 2015 | |
Aircraft N°18 [**] |
[**] 2015 |
(B) The definition of "Aircraft" in Clause 0 of the Agreement is hereby deleted and replaced with the following definition between QUOTE and UNQUOTE:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed seperately with the Securities and Exchange Commission.
Page 2
Aircraft any or all of the A330-200 Aircraft, A330-300 Aircraft, A350XWB-800 Aircraft or the A350XWB-900 Aircraft, to be sold by the Seller and purchased by the Buyer pursuant to this Agreement, as applicable.
Clause 5.2.3 of the Agreement, as set forth in Letter Agreement No. 4, as amended, is hereby deleted in its entirety and replaced with the following between QUOTE and UNQUOTE:
Paragraph 4.5 of Letter Agreement No. 7 is hereby deleted in its entirety and replaced with the following between QUOTE and UNQUOTE:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed seperately with the Securities and Exchange Commission.
Page 3
The effectivity of this Amendment is subject to the Buyer signing this Amendment on or before November 14, 2011, and the Seller receiving payment of all amounts due hereunder on or before November 16, 2011.
The provisions of this Amendment are binding on both parties upon execution hereof. The Agreement will be deemed amended to the extent herein provided, and, except as specifically amended hereby, will continue in full force and effect in accordance with its original terms. This Amendment supersedes any previous understandings, commitments, or representations whatsoever, whether oral or written, related to the subject matter of this Amendment.
Both parties agree that this Amendment will constitute an integral, nonseverable part of said Agreement, that the provisions of said Agreement are hereby incorporated herein by reference, and that this Amendment will be governed by the provisions of said Agreement, except that if the Agreement and this Amendment have specific provisions that are inconsistent, the specific provisions contained in this Amendment will govern.
This Amendment is subject to the confidentiality provisions set forth in Clause 22.9 of the Agreement.
This Amendment may be signed in any number of separate counterparts. Each counterpart, when signed and delivered (including counterparts delivered by facsimile transmission), will be an original, and the counterparts will together constitute one and the same instrument. If the foregoing correctly sets forth your understanding, please execute the original and one (1) copy hereof in the space provided below.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed seperately with the Securities and Exchange Commission.
Page 4
If the foregoing correctly sets forth your understanding, please execute the original and one (1) copy hereof in the space provided below.
Very truly yours,
AIRBUS S.A.S. | ||||
By: |
|
/s/ Christophe Mourey |
|
|
Its: |
|
Senior Vice President Contracts |
|
|
Accepted and Agreed |
|
|
||
Hawaiian Airlines, Inc. |
|
|
||
By: |
|
/s/ Peter Ingram |
|
|
Its: |
|
Executive Vice President, Chief Commercial Officer |
|
|
and |
|
|
|
|
By: |
|
/s/ Charles R. Nardello |
|
|
Its: |
|
Senior Vice PresidentOperations |
|
|
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 5
|
|
|
Rolls-Royce plc
PO Box 31,Derby DE24 8BJ,England Telephone: +44 (0) 1332 242424 Fax: +44 (0) 01332 249936 www.rolls-royce.com |
Hawaiian Airlines, Inc
.
3375 Koapaka Street,
Suite G350,
Honolulu, Hawaii 96819,
USA
November 16, 2011
AMENDMENT THREE TO GENERAL TERMS AGREEMENT REFERENCE DEG 5327
Reference is made to the General Terms Agreement reference DEG5327 dated October 27, 2008 ("Agreement") between Rolls-Royce plc ("Rolls-Royce") and Hawaiian Airlines, Inc. ("Hawaiian").
This Amendment to the Agreement records the agreement of the Parties in respect of additional Firm Aircraft, which Hawaiian has agreed to take delivery of and will be incorporated in the Agreement. Except as specifically amended or defined herein, defined terms used in this Amendment shall have the meanings assigned to them in the Agreement.
NOW THEREFORE IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
The following definitions are hereby deleted in their entirety and replaced by the following new definitions:
"Firm Aircraft" means the 18 (eighteen) firmly ordered Airbus A330-200 aircraft powered by Engines, which Hawaiian has entered into a purchase agreement with Airframer for delivery in accordance with the schedule set out in Section 1 of Exhibit A of this Agreement as may be amended from time to time by the parties.
"Leased Aircraft" means (i) the four leased A330-200 Aircraft powered by Engines which Hawaiian has entered into (or anticipates entering into) a lease agreement for delivery to Hawaiian in accordance with the schedule set out in Section 2 of Exhibit A of the Agreement, as may be amended from time to time by the Parties, and (ii) any additional A330-200 Aircraft powered by Engines that Hawaiian may lease. [**]
"Purchase Right Aircraft" means the 3 (three) purchase right Airbus A330-200 aircraft powered by Engines, which may be purchased from Airframer by Hawaiian for delivery in accordance with the schedule set out in Section 1 of Exhibit A of this Agreement as may be amended from time to time.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 1
2. EXHIBIT A AIRCRAFT DELIVERY SCHEDULE
Exhibit A Aircraft Delivery Schedule to the Agreement is hereby deleted in its entirety and replaced by Appendix 1 to this Amendment.
3. SPARE ENGINES
[**]
[**]
4. [**]
5. [**]
6. [**]
7. ASSIGNMENT
The terms and conditions of this Amendment are personal to Hawaiian and may not, under any circumstances, be assigned, novated or otherwise transferred to any third party, except as provided in [**] Clause 14.4 of the Agreement. Any purported assignment, novation or other transfer of the terms and conditions of this Amendment shall be void.
8. GENERAL
All rights, obligations and liabilities under this Amendment shall be subject to and in accordance with the provisions of the Agreement and, except as specifically amended herein, the provisions of the Agreement shall remain in full force and effect and this Amendment is made without prejudice to either of the Parties' existing rights (unless expressly stated in this Amendment) set forth or arising under the Agreement. In the event of any conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall prevail.
For the avoidance of doubt, any default by Hawaiian under this Amendment shall be considered a default under the Agreement.
9. CONFIDENTIALITY
The provisions of this Amendment are confidential in accordance with Clause 10 of the Agreement, mutatis mutandis, and shall not (except as provided in Clauses 10.7 and 14.12 of the Agreement) be disclosed to any third party without the prior written consent of the other party.
10. INTEGRATION
This Amendment constitutes a "writing" within the meaning of Clause 14.5 of the Agreement, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to the subject matter hereof.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 2
11. INCORPORATION BY REFERENCE
The terms and provisions of Clauses 14.3, 14.5, 14.6, 14.7, 14.8, 14.9 and 14.13 of the Agreement are hereby incorporated by reference, mutatis mutandis , as though fully set forth herein.
[signature page follows]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 3
As WITNESS WHEREOF the Parties have caused this Amendment to be signed on their behalf by the hands of their duly authorised officers the day and year first before written.
Signed for and on behalf of: | Signed for and on behalf of: | |||||
HAWAIIAN AIRLINES, INC. |
|
ROLLS-ROYCE plc |
||||
By |
|
/s/ Peter Ingram |
|
By: |
|
/s/ Harleen Jolly |
|
|
|||||
Printed | Peter Ingram | Printed | Harleen Jolly | |||
|
|
|||||
Title: | Executive Vice President, Chief Commercial Officer | Title: | AVPAmericas | |||
|
|
|
|
Signed for and on behalf of: |
||
HAWAIIAN AIRLINES, INC. | ROLLS-ROYCE TOTALCARE SERVICES LIMITED | |||||
By |
|
/s/ Charles R. Nardello |
|
By: |
|
/s/ SJ Hollingsworth |
|
|
|||||
Printed | Charles R. Nardello | Printed | SJ Hollingsworth | |||
|
|
|||||
Title: | Senior Vice PresidentOperations | Title: | Director |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 4
APPENDIX 1
EXHIBIT A Aircraft Delivery Schedule
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 5
APPENDIX 2
EXHIBIT E-1
SCHEDULE 1DELIVERY SCHEDULE AND BASE PRICE
[**]
In the event that further Leased Aircraft enter the fleet, then the above delivery schedule shall be amended such that Hawaiian always meets the Minimum Spare Engine Level as defined below. [**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 6
|
|
|
Rolls-Royce plc
PO Box 31,Derby DE24 8BJ,England Telephone: +44 (0) 1332 242424 Fax: +44 (0) 01332 249936 www.rolls-royce.com |
Hawaiian Airlines, Inc.
3375 Koapaka Street,
Suite G350,
Honolulu, Hawaii 96819,
USA
November 16, 2011
AMENDMENT TWO TO SIDE LETTER AGREEMENT NUMBER ONE TO GENERAL TERMS AGREEMENT REFERENCE DEG 5327
Reference is made to Side Letter Agreement Number One to the General Terms Agreement reference DEG5327 dated October 27, 2008 ("SLA1") between Rolls-Royce plc ("Rolls-Royce") and Hawaiian Airlines, Inc. ("Hawaiian").
This Amendment to SLA1 records the agreement of the Parties in respect of the Purchase Right Aircraft which Hawaiian has agreed to take delivery of and will be incorporated in the General Terms Agreement reference DEG5327 dated October 27, 2008 ("Agreement"). Except as specifically amended or defined herein, defined terms used in this Amendment shall have the meanings assigned to them in SLA1 or the Agreement (as defined in SLA1).
NOW THEREFORE IT IS AGREED AS FOLLOWS:
1. Clause 2 [**]
Clause 2.1 is hereby deleted in its entirety and replaced by the following new Clause 2.1:
[**]
2. ASSIGNMENT
The terms and conditions of this Amendment are personal to Hawaiian and may not, under any circumstances, be assigned, novated or otherwise transferred to any third party, except as provided in [**] of Clause 14.4 of the Agreement. Any purported assignment, novation or other transfer of the terms and conditions of this Amendment shall be void.
3. GENERAL
All rights, obligations and liabilities under this Amendment shall be subject to and in accordance with the provisions of the Agreement and SLA1 and, except as specifically amended herein, the provisions of the Agreement and SLA1 shall remain in full force and effect and this Amendment is made without prejudice to either of the Parties' existing rights (unless expressly stated in this
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 1
Amendment) set forth or arising under the Agreement or SLA1. In the event of any conflict between the terms of this Amendment on the one hand and the Agreement and/or SLA1 on the other hand, the terms of this Amendment shall prevail.
For the avoidance of doubt, any default by Hawaiian under this Amendment shall be considered a default under the Agreement.
4. CONFIDENTIALITY AND LAW
New York Law shall govern this Amendment. The provisions of this Amendment are confidential and shall not (except as provided in Clauses 10.7 of the Agreement) be disclosed to any third party without the prior written consent of the other party.
5. INTEGRATION
This Amendment constitutes a "writing" within the meaning of Clause 14.5 of the Agreement, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to the subject matter hereof.
[signature page follows]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 2
As WITNESS WHEREOF the Parties have caused this Amendment to be signed on their behalf by the hands of their duly authorised officers the day and year first before written.
Signed for and on behalf of: | Signed for and on behalf of: | |||||
HAWAIIAN AIRLINES, INC. |
|
ROLLS-ROYCE plc |
||||
By |
|
/s/ Peter Ingram |
|
By: |
|
/s/ Harleen Jolly |
|
|
|||||
Printed | Peter Ingram | Printed | Harleen Jolly | |||
|
|
|||||
Title: |
Executive Vice President,
Chief Commercial Officer |
Title: | AVPAmericas | |||
|
|
|
|
Signed for and on behalf of: |
||
HAWAIIAN AIRLINES, INC. | ROLLS-ROYCE TOTALCARE SERVICES LIMITED | |||||
By |
|
/s/ C.R. Nardello |
|
By: |
|
/s/ D. Goma |
|
|
|||||
Printed | Charles R. Nardello | Printed | Dell Goma | |||
|
|
|||||
Title: | Senior Vice PresidentOperations | Title: | Director |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Page 3
PURCHASE AGREEMENT
(AIRCRAFT NO. 1)
THIS PURCHASE AGREEMENT (AIRCRAFT NO. 1) (this " Agreement ") is entered into as of the 14 th day of October, 2011, among WILMINGTON TRUST COMPANY , a Delaware trust company, not in its individual capacity, but solely as Owner Trustee (in such capacity, " Purchaser ") for the benefit of HKAC LEASING LIMITED , a private Irish limited company (" Owner Participant "), OWNER PARTICIPANT , and HAWAIIAN AIRLINES, INC. , a Delaware corporation (" Seller ").
WHEREAS , Seller and Airbus S.A.S. (" Airbus ") entered into that certain Airbus A330/A350 XWB Purchase Agreement, dated as of January 31, 2008, as amended from time to time (the " Airbus Purchase Agreement "), pursuant to which Seller, as purchaser thereunder, has agreed to purchase from Airbus, as seller thereunder, certain Airbus aircraft and related goods and services including, among other things, the Aircraft (as hereinafter defined);
WHEREAS , Seller wishes to assign to Purchaser, on the terms and conditions set forth herein, Seller's right to accept delivery of, purchase and take title to the Aircraft and the Airframe Warranties under the Airbus Purchase Agreement and the Engine Warranties under the TCA (collectively, the " Assigned Property ");
WHEREAS , in consideration of the assignment to Purchaser of the Assigned Property, Purchaser is willing to assume Seller's obligation to pay the Purchase Price with respect to the Aircraft to Airbus under the Airbus Purchase Agreement on the terms and subject to the conditions set forth herein; and
WHEREAS , concurrent with the assignment of the Assigned Property and the payment of the Purchase Price to Airbus, Purchaser shall lease the Aircraft to Seller, and Seller shall lease the Aircraft from Purchaser subject to the terms of the Operating Lease Agreement (Aircraft No. 1) among Purchaser, as lessor, Seller, as lessee, and Owner Participant, as owner participant, to be entered into concurrently herewith substantially in the form attached as Exhibit A hereto (the " Lease Agreement ").
NOW, THEREFORE , in consideration of the mutual covenants, agreements, representations and warranties herein contained, Owner Participant, Seller and Purchaser agree as follows:
Section 1. Definitions. In this Agreement, unless the contrary intention is stated, a reference to: (i) words importing the plural shall include the singular and vice versa; and (ii) any document shall include that document as amended, novated, assigned, or supplemented. Capitalized terms used but not defined in this Agreement shall have the meaning ascribed to them in the Lease Agreement (as hereinafter defined).
" Acceptance Certificate " means a certificate of acceptance for the Aircraft in the form attached as Schedule 2 to the Purchase Agreement Assignment.
" Agreement " has the meaning set forth in the preamble.
" Airbus " has the meaning set forth in the preamble.
" Airbus Consent " means the consent and agreement among Seller, Purchaser and Airbus to be entered into on or about the Delivery Date, in substantially the form attached as Schedule 3 to the Purchase Agreement Assignment.
" Airbus Purchase Agreement " has the meaning set forth in the preamble.
" Aircraft " means, collectively, the Airframe and the Engines attached thereto, as more fully described in the Acceptance Certificate [**] , together where the context permits, references to the "Aircraft" shall include a separate reference to the Airframe, all Engines, Parts, components and systems thereof, the equipment installed thereon including but not limited to the BFE, and the Maintenance Manuals and Technical Records. For the avoidance of doubt, the Aircraft excludes the LDMCR, title to which shall be retained by Seller, provided that the LDMCR shall be installed on the Aircraft at Delivery.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
[Purchase Agreement]
" Airframe " means: (a) the Airbus A330-200 airframe more fully described in the Acceptance Certificate; (b) any and all Parts incorporated or installed in or attached to such airframe at Delivery; and (c) the BFE, if any.
" Airframe Warranties " means the warranty rights in respect of the Airframe given by Airbus to Seller pursuant to [**] the Airbus Purchase Agreement, as are and remain available on Delivery Date, a true, correct and complete copy of which shall be attached to the Airbus Consent and which comprises all of the assignable warranty rights in respect of the Airframe given to Seller.
" Assigned Property " has the meaning set forth in the preamble.
" Delivery " means the delivery of (a) title to the Aircraft from Airbus to Purchaser pursuant to the Purchase Agreement Assignment and (b) possession of the Aircraft from Purchaser to Seller in accordance with the terms and conditions of the Lease Agreement.
" Delivery Date " means the date of Delivery.
" Delivery Location " has the meaning set forth in Section 4.
" Engine " means each of the Rolls-Royce Trent Model 772B-60 EP engines more fully described in the Acceptance Certificate and any and all Parts incorporated or installed in or attached to such Engine at Delivery.
" Engine Warranties " means the warranty rights in respect of the Engines given by Rolls-Royce to Seller pursuant to [**] the TCA.
" Lease Agreement " has the meaning set forth in the preamble.
" Owner Participant " has the meaning set forth in the preamble.
" Person " means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Government Entity or other entity of whatever nature.
" Purchase Agreement Assignment " means the aircraft purchase agreement assignment between Seller and Purchaser to be entered into after the date hereof, in substantially the form attached as Exhibit B hereto.
" Purchaser " has the meaning set forth in the preamble.
" Purchase Price " has the meaning set forth on Schedule 1 attached hereto.
" Related Airbus Consent " means the consent and agreement among Seller, Purchaser or an Affiliate of Purchaser and Airbus, to be dated on or prior to the Delivery Date, in substantially the form attached as Schedule 3 to each Related Purchase Agreement Assignment.
" Related Aircraft " means the two Airbus A330-200 model aircraft, together with the two Rolls-Royce Trent 772B-60 engines to be installed thereon at delivery thereof, to be purchased by Seller under the Airbus Purchase Agreement [**] and which purchase rights are being assigned to Purchaser or an Affiliate of Purchaser concurrently herewith pursuant to the Related Purchase Agreements.
" Related Lease Agreements " means each of the lease agreements executed concurrently herewith between Seller, as lessee, and Purchaser or an Affiliate of Purchaser, as lessor, and Owner Participant or an Affiliate of Owner Participant, as owner participant, in respect of the Related Aircraft.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
2
[Purchase Agreement]
" Related Purchase Agreement " means each of the purchase agreements executed concurrently herewith between Seller, as seller, Purchaser or an Affiliate of Purchaser, as purchaser, Owner Participant or an Affiliate of Owner Participant, as owner participant, in respect of the Related Aircraft.
" Related Purchase Agreement Assignment " means each of the purchase agreement assignments to be entered into after the date hereof among Seller, as assignor, Purchaser or an Affiliate of Purchaser, as assignee, and Owner Participant or an Affiliate of Owner Participant, as owner participant, in respect of the Related Aircraft.
" Rolls-Royce " means Rolls-Royce plc.
" Seller " has the meaning set forth in the preamble.
" Warranties " means the Airframe Warranties and the Engine Warranties.
Section 2. Sale and Purchase of the Aircraft. Subject to the terms and conditions hereof, on the Delivery Date (a) Seller agrees to (i) assign to Purchaser the Assigned Property pursuant to the Purchase Agreement Assignment and (ii) lease from Purchaser the Aircraft pursuant to the Lease Agreement and (b) Purchaser agrees to (i) purchase the Assigned Property and pay the Purchase Price to Airbus with respect to the Aircraft and accept the assignment of Warranties from Seller and (ii) lease the Aircraft to Seller pursuant to the Lease Agreement.
Section 3. Consideration for the Sale. At Delivery, in consideration for Seller's assignment of the Assigned Property to Purchaser pursuant to the Purchase Agreement Assignment and Seller's lease of the Aircraft from Purchaser pursuant to the Lease Agreement as contemplated in Section 2 hereof (subject to the satisfaction or written waiver by the Purchaser of the conditions precedent set forth in Section 9 hereof), Purchaser shall pay to Airbus at such account as Airbus or Seller shall advise to Purchaser in writing no less than two Business Days prior to Delivery, the Purchase Price in full for the Assigned Property.
Section 4. Delivery. Delivery shall take place in Toulouse, France (the " Delivery Location ") on the Delivery Date.
4.01 Condition. The Aircraft shall be delivered to the Purchaser hereunder factory new from Airbus in the Airbus Aircraft Specification and in accordance with Schedule 1 to the Lease Agreement and evidence thereof (or waiver thereof by Purchaser) shall be conclusively demonstrated by Purchaser's execution of the Lease Supplement and Seller's execution of the Acceptance Certificate (as Purchaser's agent pursuant to the Purchase Agreement Assignment) on the Delivery Date (subject to any discrepancies that Airbus, Seller and Purchaser agree are inconsistent with the requirements of the Airbus Purchase Agreement and this Agreement and are listed by Seller and Airbus in the Acceptance Certificate and by Seller and Purchaser in the schedule to the Lease Supplement for correction by the Airbus subsequent to delivery of the Aircraft). Seller shall use commercially reasonable efforts to cause Airbus to permit Purchaser or its authorized representatives to observe Airbus' technical acceptance process for the Aircraft and to attend and observe the acceptance tests and inspections of the Aircraft contemplated by the Airbus Purchase Agreement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
3
[Purchase Agreement]
4.02 Obligation to Purchase. Purchaser's obligation to purchase the Assigned Property is subject to and expressly conditions upon, Seller satisfying all of its obligations under the Lease Agreement other than accepting Delivery of the Aircraft from Purchaser on the Delivery Date under the Lease Agreement (which acceptance shall be taken to occur simultaneously with such Delivery).
4.03 Event of Loss. If an Event of Loss with respect to the Aircraft occurs prior to the Scheduled Delivery Date, Seller will notify Purchaser promptly following receipt of notice from Airbus and, unless Airbus has notified Seller of a new Delivery Date that is before the Longstop Date, this Agreement shall automatically terminate whereupon neither party will have any further liability to the other except that Purchaser will return to Seller the Security Deposit or Security Deposit LC (if previously paid or delivered to Purchaser), as applicable, in accordance with Section 5.5(b) of the Lease Agreement and any prepaid Rent, in each case, without deduction for any costs and expenses. If after an Event of Loss with respect to the Aircraft prior to Delivery, Airbus advises Lessee of a new Scheduled Delivery Date prior to the Longstop Date, such new date shall be the Scheduled Delivery Date and this Agreement shall continue in full force and effect.
4.04 Default Prior to Delivery. If, prior to the Delivery Date, (a) any of Purchaser, Owner Participant or their respective Affiliates shall default on any of its obligations under a Related Purchase Agreement, Related Purchase Agreement Assignment or a Related Lease Agreement, including, without limitation, their obligation to purchase the applicable Related Aircraft from Airbus or to lease the applicable Related Aircraft to Seller, then Seller may terminate this Agreement and each other Operative Document immediately upon providing written notice to Purchaser, (b) Airbus terminates the Airbus Purchase Agreement in its entirety or with respect to the Aircraft, then Seller may terminate this Agreement and each other Operative Document immediately upon providing written notice to Purchaser, or (c) if (i) a Lease Default under Section 10.1(a) of a Related Lease Agreement has occurred, (ii) a Lease Event of Default has occurred under any Related Lease Agreement, (iii) Seller fails to take delivery of a Related Aircraft in breach of the terms hereof and of the applicable Related Lease Agreement after such Related Aircraft has been tendered for delivery in accordance with the terms thereof, or (iv) Purchaser terminates the Lease Agreement for any other reason in accordance with the terms thereof, then Purchaser may terminate this Agreement and each other Operative Document immediately upon providing written notice to Seller.
4.05 Insolvency Event Termination. In the event that Airbus ceases to do business or commences any process of liquidating all or substantially all of its assets and Seller terminates the Airbus Purchase Agreement in its entirety or with respect to the Aircraft in accordance with the terms thereof, then either Seller or Purchaser may terminate this Agreement and all other Operative Documents by written notice to the other whereupon none of the parties will have any further liability to the other except that Purchaser will return to Seller the Security Deposit or Security Deposit LC (if previously paid or delivered to Purchaser), as applicable, in accordance with Section 5.5(b) of the Lease Agreement and any prepaid Rent, in each case, without deduction for any costs and expenses.
Section 5. Representations and Warranties of Seller. Seller represents and warrants to Purchaser and Owner Participant, as of the date hereof and as of Delivery, as follows:
5.01 Ownership. Seller is the sole legal and beneficial owner of the Assigned Property.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
4
[Purchase Agreement]
5.02 No Liens. There are no Liens over and Seller will not create or allow to subsist any Lien over the whole or any part of the Assigned Property other than in accordance with this Agreement or the other Operative Documents and the Assigned Property is free and clear of all Liens other than Lessor Liens.
5.03 Warranties. The Warranties are in full force and effect and are enforceable in accordance with their terms and at Delivery (i) there will be annexed to the Airbus Consent a true correct and complete copy of the Airframe Warranties and (ii) Seller will, or will cause Rolls-Royce to, deliver a true correct and complete copy of the Engine Warranties to Purchaser.
5.04 Airbus Purchase Agreement. The Airbus Purchase Agreement is in full force and effect and is enforceable in accordance with its terms, and neither Seller, nor to Seller's knowledge, Airbus is in default under the Airbus Purchase Agreement.
Section 6. Seller Covenants. Seller covenants to Purchaser and Owner Participant as follows:
6.01 No Amendment or Termination. Seller has not and will not enter into any agreement with Airbus which would substantially amend, modify, rescind or terminate the Airbus Purchase Agreement in respect of the Aircraft without the prior written consent of Purchaser, including any change to the Scheduled Delivery Month, other than to order additional parts, equipment or furnishings for the Aircraft that would not materially affect the marketability, value or utility of the Aircraft.
6.02 Performance. Seller has performed and will perform all of its duties and obligations under the Airbus Purchase Agreement (other than with respect to the payment of the Purchase Price).
6.03 Closing. Seller shall use all reasonable efforts to fulfill or obtain the fulfillment of conditions set forth herein as they relate to Seller on or prior to the Delivery Date.
6.04 No Amendment of Warranties. Seller will not amend or consent to any amendment of the Warranties without the prior written consent of Purchaser.
Section 7. Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller, as of the date hereof and as of Delivery, as follows:
7.01 Sophisticated Investor. Purchaser (i) is a sophisticated entity with respect to the purchase of the Aircraft or is being advised by such a Person, (ii) is able to bear the economic risk associated with the purchase of the Aircraft, (iii) has such knowledge and experience, and has made investments of a similar nature, so as to be aware of the risks and uncertainties inherent in the purchase of rights and assumption of liabilities of the type contemplated in this Agreement or is being advised by a Person with such knowledge and experience, and (iv) has independently and without reliance upon Seller, and based on such information as Purchaser has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Purchaser has relied upon Seller's express representations, warranties, covenants, agreements and indemnities in this Agreement. Purchaser acknowledges that Seller has not given Purchaser any investment advice, credit information or opinion on whether the purchase of the Aircraft is prudent.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
5
[Purchase Agreement]
7.02 No Breach. Upon execution of the Purchase Agreement Assignment, Purchaser will not be in breach of its obligations thereunder.
Section 8. Purchaser Covenants. Purchaser covenants to Seller as follows:
8.01 Prospective International Interests. Purchaser shall not (and shall not permit any Financier or Security Trustee to) register any interests in the Airframe or any Engine at the International Registry prior to Delivery of the Aircraft.
8.02 Closing. Purchaser shall use all reasonable efforts to fulfill or obtain the fulfillment of conditions set forth herein as they relate to Purchaser on or prior to the applicable Delivery Date.
Section 9. Conditions Precedent to the Obligation of Purchaser to Purchase the Aircraft. The obligation of Purchaser to purchase the Assigned Property and pay the Purchase Price to Airbus on the Delivery Date is subject to the fulfillment on or prior to Delivery of the following conditions, any one or more of which may be waived by Purchaser in writing:
9.01 Representations, Warranties and Covenants. The representations and warranties of Seller contained in this Agreement shall be true in all material respects on and as of Delivery with the same force and effect as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date). Seller shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Seller, on or prior to Delivery.
9.02 Delivery of Documents. The following documents shall have been delivered to Purchaser:
(a) a copy of the Acceptance Certificate, executed by Seller, as agent for Purchaser pursuant to the Purchase Agreement Assignment;
(b) a copy of the Engine Warranties, certified by an officer of Seller as being a true, correct and complete copy of such Engine Warranties; and
(c) all other agreements, instruments, certificates and other documents reasonably requested by Purchaser prior to Delivery to effect the transactions contemplated by this Agreement.
9.03 Liens. The Aircraft shall be free and clear of all Liens other than Lessor Liens.
9.04 Airbus Purchase Agreement. All conditions precedent under the Airbus Purchase Agreement and the Purchase Agreement Assignment (other than the payment of the Purchase Price to Airbus) to Airbus' obligation to deliver title to the Aircraft to Purchaser, including the payment of any pre-delivery payments required in respect of the Aircraft, shall have been satisfied and Purchaser shall have received evidence satisfactory to it that all such conditions precedent have been satisfied.
9.05 Lease Agreement. All conditions precedent to Purchaser's obligation to the lease of the Aircraft to Seller under the Lease Agreement shall have been satisfied or waived or deferred by Purchaser in its discretion.
9.06 Delivery. Airbus shall have tendered the Aircraft for Delivery at the Delivery Location in the condition required under the Airbus Purchase Agreement and Lease Agreement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
6
[Purchase Agreement]
Section 10. Conditions Precedent to the Obligation of Seller to Close. The obligation of Seller to assign the Assigned Property to Purchaser pursuant to this Agreement and the Purchase Agreement Assignment is subject to the fulfillment on or prior to Delivery of the following conditions, any one or more of which may be waived by Seller in writing:
10.01 Representations, Warranties and Covenants . The representations and warranties of Purchaser contained in this Agreement shall be true in all material respects on and as of Delivery with the same force and effect as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date). Purchaser and Owner Participant shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Purchaser and Owner Participant, as applicable, on or prior to Delivery.
10.02 Delivery of Funds and Documents . The Purchase Price shall have been paid by, or on behalf of, Purchaser to Airbus in immediately available funds; and all other agreements, instruments, certificates and other documents reasonably requested by Seller prior to Delivery to effect the transactions contemplated by this Agreement.
10.03 Lease Agreement . All conditions precedent to Seller's obligation to the lease of the Aircraft from Purchaser under the Lease Agreement shall have been satisfied or waived or deferred by Seller in its discretion.
10.04 Delivery . Airbus shall have tendered the Aircraft for Delivery at the Delivery Location in the condition required under the Airbus Purchase Agreement and Lease Agreement.
Section 11. DISCLAIMERS AND EXCLUSION OF LIABILITY.
11.01 DISCLAIMERS OF WARRANTIES. PURCHASER'S ACCEPTANCE OF THE AIRCRAFT IN ACCORDANCE WITH SECTION 4.01 SHALL BE CONCLUSIVE EVIDENCE THAT PURCHASER HAS FULLY INSPECTED THE AIRCRAFT, THE ENGINES AND EVERY PART THEREOF AND THAT THE AIRCRAFT, THE ENGINES, THE PARTS AND TECHNICAL RECORDS ARE TECHNICALLY ACCEPTABLE TO PURCHASER AND ARE IN A SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY PURCHASER EXCEPT AS CONTEMPLATED BY SECTION 4.01.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
7
[Purchase Agreement]
11.02 EXCLUSION. EXCEPT FOR THE WARRANTY OF GOOD, MARKETABLE TITLE TO THE ASSIGNED PROPERTY, FREE AND CLEAR OF ANY AND ALL LIENS, OTHER THAN PERMITTED LIENS, AT DELIVERY AND THE COMPLIANCE OF THE AIRCRAFT AT DELIVERY WITH THE SPECIFICATIONS SET FORTH HEREIN, IN THE AIRBUS PURCHASE AGREEMENT AND THE LEASE AGREEMENT (AS EVIDENCED BY SELLER'S EXECUTION AND DELIVERY OF THE ACCEPTANCE CERTIFICATE (AS PURCHASER'S AGENT PURSUANT TO THE PURCHASE AGREEMENT ASSIGNMENT) AND PURCHASER'S EXECUTION OF THE LEASE SUPPLEMENT AS CONTEMPLATED BY SECTION 4.01), THE AIRCRAFT IS TO BE SOLD AND DELIVERED "AS IS, WHERE IS", AND EACH OF PURCHASER AND OWNER PARTICIPANT AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT:
(a) SELLER HAS NOT AND WILL NOT BE DEEMED TO HAVE ACCEPTED, MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS AGREEMENT OR OTHERWISE), ANY CONDITIONS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT OR ANY ENGINE OR PART OR TECHNICAL RECORDS OR ANY SERVICES PROVIDED BY SELLER HEREUNDER, INCLUDING THE DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, QUALITY, FREEDOM FROM INFRINGEMENT OF PATENT OR OTHER PROPRIETARY RIGHTS, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER MATTER WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART, OR ANY TECHNICAL RECORD; AND
(b) SELLER SHALL NOT HAVE ANY OBLIGATION OR LIABILITY WHATSOEVER TO PURCHASER OR OWNER PARTICIPANT (WHETHER ARISING IN CONTRACT OR IN TORT, AND WHETHER ARISING BY REFERENCE TO NEGLIGENCE, OR STRICT LIABILITY OF SELLER OR OTHERWISE) FOR:
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR ANY OTHER DIRECT, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE; OR
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
8
[Purchase Agreement]
11.03 WAIVER. EACH OF PURCHASER AND OWNER PARTICIPANT HEREBY WAIVES, AS BETWEEN ITSELF AND SELLER, ALL OF ITS RIGHTS IN RESPECT OF ANY CONDITION, WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF SELLER AND ALL CLAIMS AGAINST SELLER HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF ANY OF THE MATTERS REFERRED TO IN SECTION 11.02 EXCEPT AS EXPRESSLY SET FORTH IN SECTION 11.02.
11.04 DISCLAIMER OF CONSEQUENTIAL DAMAGES. EACH OF PURCHASER AND OWNER PARTICIPANT AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, LOST PROFITS OR REVENUES OR CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY SELLER OF ANY OF THE AGREEMENTS CONTAINED IN THIS AGREEMENT.
11.05 CONFIRMATION. EACH OF PURCHASER AND OWNER PARTICIPANT CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS SECTION 11 AND ACKNOWLEDGES THAT THE PURCHASE PRICE AND OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT HAVE BEEN CALCULATED BASED ON ITS PROVISIONS.
11.06 Nothing in this Section11 shall be deemed or construed to modify or otherwise affect the respective rights and obligations of Airbus as manufacturer or seller under any agreement (as the same may be amended, assigned in whole or in part or supplemented from time to time in accordance therewith) with respect to the Aircraft.
Section 12. Purchaser Indemnitee. Purchaser shall indemnify, defend, reimburse and hold harmless, to the fullest extent permitted by law, Seller from and against any and all Claims which in any way may result from, pertain to or arise in any manner out of, or are in any manner related to Purchaser's failure to purchase the Assigned Property from Seller on the Delivery Date or to otherwise fulfill its obligations hereunder and under the Purchaser Agreement Assignment or the other Operative Documents.
Section 13. Seller Indemnitee. Seller shall indemnify, defend, reimburse and hold harmless, to the fullest extent permitted by law, Purchaser and Owner Participant from and against any and all Claims which in any way may result from, pertain to or arise in any manner out of, or are in any manner related to Seller's failure to assign the Assigned Property to Purchaser on the Delivery Date or to otherwise fulfill its obligations hereunder and under the Purchase Agreement Assignment or the other Operative Documents.
Section 14. Survival of Representations, Warranties and Indemnities. All representations and warranties made herein, and the indemnities set forth herein, shall survive Delivery.
Section 15. Further Assurances. Seller, Purchaser and Owner Participant each agrees to execute, acknowledge, deliver, file and record, or cause to be executed, acknowledged, delivered, filed and recorded, such further documents or other papers, and to do all such things and acts, as the other party may reasonably request in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby.
Section 16. Notices. Any notice or other communication required or permitted under this Agreement shall be given in accordance with the Lease Agreement at the addresses set forth therein for each party.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
9
[Purchase Agreement]
Section 17. Waivers and Amendments; Preservation of Remedies. No term or provision of this Agreement may be amended, modified, waived, discharged or terminated orally, but only by a written instrument signed by Purchaser, Seller and Owner Participant. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. No waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, shall preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.
Section 18. Governing Law and Jurisdiction.
18.01 Governing Law. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES (OTHER THAN THE PROVISIONS OF SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
18.02 Consent to Jurisdiction. Each of Seller, Owner Participant and Purchaser hereby irrevocably consents that any legal action or proceeding against Seller, Owner Participant or Purchaser or any of Seller's, Owner Participant's or Purchaser's assets with respect to this Agreement or any other Operative Document to which Seller, Owner Participant or Purchaser, as applicable, is a party may be brought in any jurisdiction where Seller, Owner Participant or Purchaser or any of their respective assets may be found, or in any court of the State of New York or any Federal court of the United States of America located in New York, New York, located in the Borough of Manhattan, United States, as Seller, Owner Participant or Purchaser may elect, and by execution and delivery of this Agreement each of Seller, Owner Participant and Purchaser hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
18.03 Process Agent and Service of Process. Seller, Owner Participant and Purchaser shall, not later than the execution of this Agreement, irrevocably designate, appoint and empower a duly authorized agent for service of process in the State of New York reasonably acceptable to Seller, Owner Participant and Purchaser, respectively, in any suit or proceeding with respect to this Agreement. A copy of any such process served on such agent shall be promptly forwarded by airmail by the person commencing such proceeding to Seller, Owner Participant or Purchaser, as applicable, at its address set forth herein, but the failure of Seller, Owner Participant or Purchaser, as applicable, to receive such copies shall not affect in any way the service of such process as aforesaid. Seller, Owner Participant and Purchaser further irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified airmail, postage prepaid, to Seller, Owner Participant or Purchaser, as applicable, at its address set forth herein. The foregoing, however, shall not limit the rights of Seller, Owner Participant or Purchaser to serve process in any other manner permitted by Law or to bring any legal action or proceeding or to obtain execution of judgment in any jurisdiction.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
10
[Purchase Agreement]
18.04 Jurisdiction and Forum. Each of Seller, Owner Participant and Purchaser agree that final judgment against any of them in any action or proceeding in connection with this Agreement shall be conclusive and may be enforced in any other jurisdiction within or outside the U.S. by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of parties' indebtedness. Seller, Owner Participant and Purchaser each hereby irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the State of New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in the State of New York has been brought in an inconvenient forum. To the extent that Seller, Owner Participant or Purchaser may in any jurisdiction in which proceedings may at any time be taken for the determination of any question arising under or for the enforcement of this Agreement (including any interlocutory proceedings or the execution of any judgment or award arising therefrom) be entitled to claim or otherwise be accorded for itself or its property, assets or revenues immunity from suit or attachment (whether in aid of execution, before judgment or otherwise) or other legal process, and to the extent that in any such jurisdiction, there may be attributed to Seller, Owner Participant or Purchaser, or their respective property, assets or revenues such immunity (whether or not claimed), Seller, Owner Participant and Purchaser each hereby irrevocably agrees not to claim and waives such immunity to the fullest extent permitted by the Law of such jurisdiction.
18.05 Waiver of Jury Trial. SELLER, OWNER PARTICIPANT AND PURCHASER EACH HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY OF THE OPERATIVE DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
Section 19. Binding Effect; Assignment. No party shall assign this Agreement to any other person without the prior written consent of the other party. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. No assignment of this Agreement or of any rights hereunder shall relieve the assigning party of any of its obligations or liabilities hereunder. This Agreement and each other Operative Document and the certificates, schedules, annexes and other documents executed and delivered at Delivery in connection herewith or therewith are the complete agreement of the parties regarding the subject matter hereof and thereof and supersede all prior understandings (written or oral), communications and agreements.
Section 20. Counterparts. This Agreement may be executed simultaneously in two or more counterparts and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Section 21. Severability. Any provision of this Agreement prohibited by or unlawful or unenforceable under any applicable Law actually applied by any court of competent jurisdiction shall, to the extent required by such applicable Law, be severed from this Agreement and rendered ineffective so far as is possible without modifying the remaining provisions of this Agreement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
11
[Purchase Agreement]
Section 22. Sales Tax. [**]
Section 23. Headings. The headings contained in this Agreement are for convenience of reference only, and shall not affect in any way the meaning or interpretation of this Agreement.
Section 24. Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) except as otherwise expressly set forth herein, this Agreement is executed and delivered by Wilmington, not in its individual capacity but solely as Owner Trustee and (b) except as otherwise set forth herein, under no circumstances shall Wilmington be personally liable for the breach or failure of any obligation made or undertaken by Purchaser under this Agreement except for a breach or failure caused by Wilmington's gross negligence or willful misconduct.
[Signature Page Follows]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
12
[Purchase Agreement]
IN WITNESS WHEREOF , the parties have executed and delivered this Agreement as of the date first above written.
HAWAIIAN AIRLINES, INC. | ||||
|
|
By: |
|
/s/ Peter Ingram |
|
||||
Title: | Executive Vice President, Chief Financial Officer, Treasurer | |||
|
|
By: |
|
/s/ C.R. Nardello |
|
||||
Title: | Senior Vice PresidentOperations | |||
|
|
WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee |
||
|
|
By: |
|
/s/ Jacqueline Solone |
|
||||
Title: | Financial Services Officer | |||
|
|
HKAC LEASING LIMITED |
||
|
|
By: |
|
/s/ Donal Boylan |
|
||||
Title: | Director | |||
|
|
By: |
|
|
|
||||
Title: |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
13
[Purchase Agreement]
SCHEDULE 1
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Schedule 1, Page 1
[Purchase Agreement]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Exhibit A, Page 1
[Purchase Agreement]
FORM OF PURCHASE AGREEMENT ASSIGNMENT
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
Exhibit B, Page 1
OPERATING LEASE AGREEMENT
(AIRCRAFT NO. 1)
dated as of: October 14, 2011
among
WILMINGTON TRUST COMPANY
not in its individual capacity,
except as expressly provided herein, but solely
as owner trustee,
as Lessor
HKAC LEASING LIMITED
as Owner Participant
and
HAWAIIAN AIRLINES, INC.
as Lessee
in
respect of one Airbus model A330-200 aircraft
with two Rolls Royce Trent 772B-60 EP engines,
with Manufacturer's serial number 1310
THIS OPERATING LEASE AGREEMENT HAS BEEN EXECUTED IN MULTIPLE COUNTERPARTS AND THIS IS COUNTERPART NO. . TO THE EXTENT, IF ANY, THAT THIS OPERATING LEASE AGREEMENT CONSTITUTES CHATTEL PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN LESSOR'S RIGHT, TITLE AND INTEREST IN AND TO THIS OPERATING LEASE AGREEMENT MAY BE PERFECTED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OF THIS OPERATING LEASE AGREEMENT OTHER THAN THE ORIGINAL EXECUTED COUNTERPART NO. 1.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
|
|
Page | ||||
---|---|---|---|---|---|---|
Section 1. |
Agreement to Lease |
1 | ||||
Section 2. |
Conditions Precedent |
1 |
||||
2.1 |
Lessor Conditions Precedent |
1 |
||||
2.2 |
Lessee Conditions Precedent |
4 | ||||
2.3 |
Waiver of Lessor Conditions Precedent |
6 | ||||
2.4 |
Waiver of Lessee Conditions Precedent |
6 | ||||
2.5 |
Acceptance and Delivery |
6 | ||||
2.6 |
Commencement |
7 | ||||
2.7 |
Lease Term and Extension Option |
7 | ||||
2.8 |
Risk |
8 | ||||
2.9 |
Cape Town Convention |
8 | ||||
2.10 |
True Lease |
9 | ||||
2.11 |
Assignable Warranties |
9 | ||||
2.12 |
Reassignment; Assignment of Lessee Warranties |
9 | ||||
2.13 |
Warranty Claims |
9 | ||||
Section 3. |
Quiet Enjoyment |
9 |
||||
Section 4. |
DISCLAIMERS, WAIVERS AND EXCLUSION |
9 |
||||
4.1 |
DISCLAIMER AND WAIVER |
9 |
||||
4.2 |
EXCLUSION |
10 | ||||
4.3 |
WAIVER |
10 | ||||
4.4 |
DISCLAIMER OF CONSEQUENTIAL DAMAGES |
11 | ||||
4.5 |
CONFIRMATION |
11 | ||||
Section 5. |
Rent |
11 |
||||
5.1 |
Basic Rent |
11 |
||||
5.2 |
Accounts and Prorating of Payments |
11 | ||||
5.3 |
Supplemental Rent |
11 | ||||
5.4 |
Security Deposit and Security Deposit LC |
12 | ||||
5.5 |
Return of Security Deposit and Security Deposit LC |
13 | ||||
5.6 |
Maintenance Reserves Payments |
13 | ||||
5.7 |
Reimbursement of Maintenance Reserves Payments |
16 | ||||
5.8 |
Maintenance Reserves Adjustment |
18 | ||||
Section 6. |
Payment |
18 |
||||
6.1 |
Manner of Payment |
18 |
||||
6.2 |
Unconditional Obligations |
18 | ||||
6.3 |
Default Interest |
19 | ||||
6.4 |
Payments in United States Dollars |
19 | ||||
Section 7. |
Representations, Warranties and Covenants |
20 |
||||
7.1 |
Lessee's Representations, Warranties and Covenants |
20 |
||||
7.2 |
Lessor's Representations, Warranties and Covenants |
23 | ||||
7.3 |
Wilmington's Representations, Warranties and Covenants |
24 | ||||
7.4 |
Owner Participant's Representations, Warranties and Covenants |
25 |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
|
|
Page | ||||
---|---|---|---|---|---|---|
Section 8. |
Covenants |
27 |
||||
8.1 |
General Covenants |
27 |
||||
8.2 |
Operation and Use |
29 | ||||
8.3 |
Maintenance, Alterations, Repairs, Pooling and Inspection |
29 | ||||
8.4 |
Monthly Report |
29 | ||||
8.5 |
Provision of Information |
29 | ||||
8.6 |
Insurance |
30 | ||||
Section 9. |
Loss or Damage to the Aircraft |
31 |
||||
9.1 |
Event of Loss |
31 |
||||
9.2 |
Payment on Event of Loss |
32 | ||||
9.3 |
Co-operation Regarding Claims |
32 | ||||
9.4 |
Payment of Rent on Event of Loss |
32 | ||||
9.5 |
Repairable Damage |
32 | ||||
9.6 |
Payment of Repairs |
33 | ||||
9.7 |
Engine Event of Loss |
33 | ||||
Section 10. |
Default |
33 |
||||
10.1 |
Events of Default |
33 |
||||
10.2 |
Lessor Rights upon Lease Event of Default |
35 | ||||
10.3 |
Present Value of Payments |
38 | ||||
10.4 |
Damages After Re-Lease or Sale |
39 | ||||
10.5 |
Remedies Cumulative |
39 | ||||
10.6 |
Lessor's Exercise of Remedies |
39 | ||||
10.7 |
Application of Payments Following Lease Default or Lease Event of Default |
39 | ||||
10.8 |
Use of Termination Date |
40 | ||||
Section 11. |
Redelivery and End of Lease Term |
40 |
||||
11.1 |
Redelivery of the Aircraft |
40 |
||||
11.2 |
Non-Compliance |
40 | ||||
11.3 |
Redelivery |
41 | ||||
11.4 |
Acknowledgement |
41 | ||||
11.5 |
Minor Discrepancies |
41 | ||||
11.6 |
Redelivery of Engines |
41 | ||||
Section 12. |
Subleasing and Wet Leasing |
41 |
||||
12.1 |
Subleasing |
41 |
||||
12.2 |
Wet-Leasing |
44 | ||||
12.3 |
Lessee's Obligations |
45 | ||||
Section 13. |
General Indemnity |
45 |
||||
13.1 |
Scope |
45 |
||||
13.2 |
Lessee's Release |
46 | ||||
13.3 |
Repayment |
46 | ||||
13.4 |
Payment |
46 | ||||
13.5 |
Exclusion |
46 |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
ii
|
|
Page | ||||
---|---|---|---|---|---|---|
13.6 |
After-Tax Nature of Indemnity |
47 | ||||
13.7 |
Survival |
47 | ||||
Section 14. |
Taxes; Tax Indemnity |
47 |
||||
14.1 |
Indemnity |
47 |
||||
14.2 |
Tax Filings; Information |
49 | ||||
14.3 |
Payment of Taxes and Indemnities |
50 | ||||
14.4 |
Contest |
50 | ||||
14.5 |
Refunds; Tax Savings |
51 | ||||
14.6 |
Effect of Lease Event of Default on Indemnified Party Payment Obligations |
52 | ||||
14.7 |
Withholding Tax Exemption Documentation |
53 | ||||
14.8 |
Non-Party Indemnified Parties |
53 | ||||
14.9 |
Survival |
53 | ||||
Section 15. |
[Reserved] |
53 |
||||
Section 16. |
Notices |
54 |
||||
Section 17. |
Lessor's Financing and Assignment |
55 |
||||
17.1 |
Lessor's Financing |
55 |
||||
17.2 |
Assignment |
56 | ||||
Section 18. |
Miscellaneous |
57 |
||||
18.1 |
Severability |
57 |
||||
18.2 |
Amendments |
58 | ||||
18.3 |
Lessor's Right to Perform; Lessor's Right to Delegate and Servicer |
58 | ||||
18.4 |
Counterparts |
58 | ||||
18.5 |
Delivery of Documents by Electronic Means |
58 | ||||
18.6 |
Survival |
58 | ||||
18.7 |
Entire Lease |
58 | ||||
18.8 |
Successors and Assigns |
59 | ||||
18.9 |
Brokers |
59 | ||||
18.10 |
Transaction Costs |
59 | ||||
18.11 |
Time is of the Essence |
59 | ||||
18.12 |
Language |
59 | ||||
18.13 |
Further Assurances |
60 | ||||
18.14 |
Rights at Law |
60 | ||||
18.15 |
Confidentiality |
60 | ||||
18.16 |
[Reserved] |
61 | ||||
18.17 |
Section 1110 |
61 | ||||
Section 19. |
Governing Law and Jurisdiction |
61 |
||||
19.1 |
Governing law |
61 |
||||
19.2 |
Consent to Jurisdiction |
61 | ||||
19.3 |
Process Agent and Service of Process |
62 | ||||
19.4 |
Jurisdiction and Forum |
62 | ||||
19.5 |
Waiver of Jury Trial |
62 | ||||
19.6 |
Waiver of Immunity |
63 |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
iii
|
|
Page | ||||
---|---|---|---|---|---|---|
Section 20. |
CRAF Program |
63 |
||||
20.1 |
Commitment to CRAF |
63 |
||||
20.2 |
Indemnification by United States Government |
63 | ||||
20.3 |
No Geographical Limits |
64 | ||||
20.4 |
Notice of Lease Default |
64 | ||||
20.5 |
Receipt of Payments |
64 | ||||
Section 21. |
Definitions and Interpretation |
64 |
||||
21.1 |
Definitions |
64 |
||||
21.2 |
Interpretation |
80 |
Schedule 1 | | Description of Aircraft | ||
Schedule 2 | | Basic Rent Schedule | ||
Schedule 3 | | Technical Records | ||
Schedule 4 | | Maintenance Reserves Table | ||
Schedule 5 | | List of Permitted Sublessees | ||
Schedule 6 | | Return Condition | ||
Schedule 7 | | Operation and Use | ||
Schedule 8 | | Maintenance, Alterations, Repairs, Pooling and Inspection | ||
Schedule 9 | | Insurance | ||
Schedule 10 | | Lease Supplement | ||
Schedule 11 | | Form of Monthly Report | ||
Schedule 12 | | Form of Landing Charges Letter |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
iv
OPERATING LEASE AGREEMENT
(AIRCRAFT NO. 1)
This Operating Lease Agreement (Aircraft No. 1) (this " Agreement ") is dated as of October 14, 2011 by and among:
WILMINGTON TRUST COMPANY , a Delaware trust company, not in its individual capacity except as expressly set forth herein but solely as owner trustee under the Trust Agreement, as lessor (" Lessor "), HKAC LEASING LIMITED , a private Irish limited company, as owner participant (" Owner Participant "), and HAWAIIAN AIRLINES, INC. , a Delaware corporation, as lessee (" Lessee ").
WHEREAS , Lessor desires to lease the Aircraft to Lessee, and Lessee desires to lease the Aircraft from Lessor, on the terms and conditions provided herein.
NOW, THEREFORE , in consideration of and subject to the mutual covenants, terms and conditions contained in this Agreement, Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor the Aircraft for the Lease Term (as hereinafter defined) and the parties further agree as follows:
Section 1. Agreement to Lease. Lessor agrees to lease the Aircraft to Lessee for the Lease Term and Lessee agrees to lease the Aircraft from Lessor for the Lease Term on the terms of this Agreement. The lease of the Aircraft under this Agreement includes the use by Lessee of all Technical Records.
Section 2. Conditions Precedent.
2.1 Lessor Conditions Precedent. The obligation of Lessor to lease the Aircraft to Lessee under this Agreement is subject to, save as provided below, on or prior to the Delivery Date:
(a) Lessor receiving the following documents in form and substance satisfactory to it:
(i) a certified copy of the certificate of incorporation and by-laws of Lessee;
(ii) extracts of minutes of a meeting of Lessee's board of directors or a copy of the resolution of Lessee's board of directors approving execution of, delivery of and performance by Lessee of the transactions contemplated by, the Operative Documents to which Lessee is a party;
(iii) a power of attorney of Lessee evidencing the authority of Lessee's representatives designated to accept delivery of the Aircraft and execute the Lease Supplement on behalf of Lessee on the Delivery Date;
(iv) an incumbency certificate of Lessee as to the person or persons authorized to execute and deliver the Operative Documents to which Lessee is a party on behalf of Lessee;
(v) a certificate of an officer of Lessee, dated as of the Delivery Date, stating that its representations and warranties set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representations and warranties expressly relates to an earlier date, true and correct as of such earlier date);
(vi) this Agreement and each of the following documents dated on or before the Delivery Date and duly executed by the parties thereto:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
[Operating Lease Agreement (Aircraft No. 1)]
(vii) a copy of the certificate of insurance (and, if relevant, certificate of reinsurance) for the Aircraft, together with a copy of the broker's (and any reinsurance broker's) letter of undertaking, evidencing that the Insurances have been effected and are in full force and effect;
(viii) copies of extracts of the TCA and the PBH related to the maintenance of the Engines and the APU (provided that such extracts of the TCA and PBH may be redacted to the extent previously provided to and agreed by Lessor), certified by an officer of Lessee as being true and correct extracts of such agreements;
(ix) the following opinions of counsel, in form and substance acceptable to Lessor (and addressed to Lessor, Security Trustee, Financiers, Owner Participant and Guarantor), dated the Delivery Date:
(A) an opinion of Akin Gump Strauss Hauer & Feld LLP, special counsel to Lessee;
(B) an opinion of internal counsel to Lessee;
(C) an opinion of Lessee's regulatory counsel;
(D) an opinion of Morris James LLP, special counsel to Wilmington and Lessor; and
(E) an opinion of McAfee & Taft, P.C., Special FAA Counsel;
(x) a copy of Lessee's Air Transport License and Lessee's Operator's Certificate listing the Aircraft thereon issued by the FAA;
(xi) a copy of the export certificate of airworthiness for the Aircraft duly issued by the DGAC;
(xii) the FAA Filed Documents (other than the Security Agreement) shall be in due form for filing and recordation with the aircraft registry of the FAA and shall have been delivered to Special FAA Counsel;
(xiii) the Financing Statements;
(xiv) an executed copy of the Bill of Sale;
(xv) to the extent the Aircraft will be operated outside the United States, the Landing Charges Letter or an equivalent signed statement of account of sums due from Lessee to any relevant air traffic control authority, duly executed on behalf of Lessee pursuant to which Lessee authorizes the addressee to issue to Lessor, upon request from time to time, a statement of account of all sums due by Lessee to the airport or any relevant authority in respect of the Aircraft;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
2
[Operating Lease Agreement (Aircraft No. 1)]
(xvi) evidence satisfactory to Lessor that Lessee has duly obtained any required license to import the Aircraft into the United States and has paid all import duties, if any, resulting from the transactions contemplated by this Agreement;
(xvii) evidence of the acceptance by Lessee's agent for service of process of its appointment as process agent for Lessee;
(xviii) the notice to be given by Lessee under Section 2.5(e) in respect of the Delivery Date;
(xix) the original chattel paper counterpart no. 1 of this Agreement and Lease Supplement shall have been delivered to Lessor or Security Trustee; and
(xx) a true, complete, and accurate copy of Internal Revenue Service Form 6166, certifying that Lessee is a U.S. tax resident;
(b) Lessor shall have good title to the Aircraft (subject to filing and recordation of the FAA Bill of Sale with the FAA), free and clear of Liens, except (i) the rights of Lessee under this Agreement and the Lease Supplement, and (ii) other Permitted Liens;
(c) at least one Business Day before the Delivery Date, Lessor receiving either:
(i) confirmation from the account bank specified by Lessor that Lessee has deposited the Security Deposit into the Security Deposit Account in cleared funds; or
(ii) a Security Deposit LC;
(d) Lessor receiving all sums due to Lessor from Lessee on or before the Delivery Date including, without limitation, the first payment of Basic Rent due on the Delivery Date;
(e) no event shall have occurred and be continuing, or would result from the lease of the Aircraft, which constitutes a Lease Default or Lease Event of Default;
(f) no Event of Loss with respect to the Airframe or any Engine shall have occurred and no circumstance, condition, act or event that, with the giving of notice or lapse of time or both, would give rise to or constitute an Event of Loss with respect to the Airframe or any Engine shall have occurred;
(g) each representation and warranty by Lessee under the Operative Documents to which Lessee is a party being true and accurate on the Delivery Date as if made on the date thereof (except to the extent that such representations and warranties relate solely to an earlier date);
(h) Lessor being satisfied that all filings, registrations, recordings and other actions (including all filings with the FAA and International Registry) have been or will promptly following delivery be taken which are necessary or which counsel providing the legal opinion referred to in Section 2.1(a)(ix)(E) has advised is customary or advisable to ensure effectiveness and enforceability of this Agreement, the other Operative Documents, and to protect the rights and interests of Lessor, Owner Participant and Lessee in the Aircraft and to protect the rights and interests of the Security Trustee and each Financier in the Aircraft as is customary and reasonable with respect to the financing of commercial aircraft in the U.S. aviation market;
(i) evidence satisfactory to Lessor that the nameplates referred to in Section 4 of Schedule 7 have been installed;
(j) Lessor receiving a copy of the Approved Maintenance Program;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
3
[Operating Lease Agreement (Aircraft No. 1)]
(k) [Reserved];
(l) Lessor shall be entitled to the benefits of Section 1110 (as currently in effect) with respect to the right to take possession of the Airframe and Engines and to enforce any of its other rights or remedies as provided in this Agreement in the event of a case under Chapter 11 of the Bankruptcy Code in which Lessee is a debtor;
(m) Lessee shall provide Lessor with (i) a copy of the export certificate of airworthiness issued for the Aircraft on the Delivery Date, (ii) a copy of the fly wire issued by the FAA promptly upon issuance thereof, and (iii) the Business Day following receipt (but no later than three Business Days after the Delivery Date), a copy of a current, valid standard Certificate of Airworthiness for the Aircraft duly issued by the FAA;
(n) no later than the date hereof, Lessor receiving a copy of the Purchase Agreement duly executed and delivered by Lessee and no breach by Lessee of any of its obligations thereunder shall have occurred;
(o) the satisfaction of all of the conditions precedent under the Airbus Purchase Agreement, the Purchase Agreement, the Purchase Agreement Assignment and the Engine Warranties Assignment that are to be performed by Lessee prior to Delivery of the Aircraft; and
(p) Lessor being satisfied as to the form of opinion of internal counsel to Airframe Manufacturer.
2.2 Lessee Conditions Precedent. The obligation of Lessee to lease the Aircraft from Lessor under this Agreement is subject to, save as provided below, on or prior to the Delivery Date:
(a) Lessee receiving the following documents in form and substance satisfactory to it:
(i) an incumbency certificate of Lessor as to the persons or persons authorized to execute and deliver this Agreement, and the other Operative Documents to which Lessor is a party and the signatures of such person or persons;
(ii) a copy of the resolutions of the board of directors of Wilmington, certified by the Secretary or an Assistant Secretary of Wilmington, duly authorizing the transactions contemplated hereby and the execution and delivery of each of the documents required to be executed and delivered on behalf of Lessor in connection with the transactions contemplated hereby;
(iii) a copy of the resolutions of the board of directors of Guarantor, certified by the Secretary or an Assistant Secretary of Guarantor, duly authorizing the transactions contemplated by the Guaranty and the execution and delivery of the Guaranty on behalf of Guarantor;
(iv) a copy of the articles of association or certificate of incorporation of Wilmington, certified by the Secretary or an Assistant Secretary of Wilmington;
(v) a copy of the memorandum and articles of association and certificate of incorporation of Guarantor, certified by the Secretary or an Assistant Secretary of Guarantor;
(vi) this Agreement and each of the following documents dated on or before the Delivery Date and duly executed by the parties thereto:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
4
[Operating Lease Agreement (Aircraft No. 1)]
(vii) a certified copy of the power of attorney of Guarantor authorizing the signatories of the such person to sign the Guaranty;
(viii) no later than the date hereof, Lessee receiving a pdf copy of the Guaranty duly executed by Guarantor, with the original to be delivered to Lessee within five Business Days;
(ix) a certificate of an officer of (1) Lessor and Wilmington, dated as of the Delivery Date, stating that Lessor's and Wilmington's representations and warranties set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representations and warranties expressly relates to an earlier date, true and correct as of such earlier date) and (2) Owner Participant, dated as of the Delivery Date, stating that its representations and warranties set forth in this Agreement are true and correct as of the Delivery Date (or, to the extent that any such representations and warranties expressly relates to an earlier date, true and correct as of such earlier date); and
(x) evidence of the acceptance by Lessor's and Owner Participant's agents for service of process of its appointment as process agent for Lessor and Owner Participant;
(b) Lessor shall have good title to the Aircraft (subject to filing and recordation of the FAA Bill of Sale with the FAA);
(c) written confirmation from Lessor of receipt of the Security Deposit;
(d) the Aircraft shall be in compliance with the Airbus Aircraft Specification subject to Section 2.5(b) and Schedule 1;
(e) the satisfaction of all of the conditions precedent under the Airbus Purchase Agreement, the Purchase Agreement, the Purchase Agreement Assignment and the Engine Warranties Assignment that are to be performed by Lessor;
(f) no later than the date hereof, a copy of the Purchase Agreement duly executed and delivered by Lessor and Owner Participant, and no breach by Lessor or Owner Participant of any of its obligations thereunder shall have occurred; and
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
5
[Operating Lease Agreement (Aircraft No. 1)]
(g) on or prior to the Delivery Date, (i) Lessor shall provide to Lessee a true, complete, and accurate Internal Revenue Service Form W-9, and (ii) Owner Participant shall provide to Lessee (with a copy to Lessor) a true, complete, and accurate Internal Revenue Service Form W-8BEN, W-8ECI, or W-8EXP, evidencing that Owner Participant is entitled under applicable Law to receive Rent, Supplemental Rent, Agreed Value, and other amounts payable to Lessor for the benefit of Owner Participant by Lessee pursuant to this Agreement without withholding any United States federal withholding Taxes that Lessee would be required by applicable Law to withhold in the absence of such form.
2.3 Waiver of Lessor Conditions Precedent.
(a) Lessor Conditions Precedent are for the sole benefit of Lessor and may be waived or deferred in whole or in part by Lessor.
(b) If any of Lessor Conditions Precedent are not satisfied on or by the Delivery Date and Lessor (in its absolute discretion) agrees to deliver the Aircraft to Lessee, Lessee shall (unless Lessor expressly agrees otherwise in writing) ensure that such condition is satisfied within such time period as may be agreed in writing between Lessor and Lessee. If such condition is not then satisfied it will be a Lease Event of Default (and the cure period at Section 10.1(d) shall not apply).
2.4 Waiver of Lessee Conditions Precedent.
(a) The Lessee Conditions Precedent are for the sole benefit of Lessee and may be waived or deferred in whole or in part by Lessee.
(b) If any of the Lessee Conditions Precedent are not satisfied on or by the Delivery Date and Lessee (in its absolute discretion) agrees to accept the Aircraft, Lessor shall (unless Lessee expressly agrees otherwise in writing) ensure that such condition is satisfied within such time period as may be agreed in writing between Lessee and Lessor.
2.5 Acceptance and Delivery.
(a) Lessor shall deliver the Aircraft to Lessee at the Delivery Location and Lessee shall accept the Aircraft on lease simultaneously with delivery of and transfer of title to the Aircraft by the Airframe Manufacturer to Lessor as evidenced by the Bill of Sale and FAA Bill of Sale. Lessee shall effect acceptance of the Aircraft hereunder by execution and delivery to Lessor of the Lease Supplement.
(b) The Aircraft shall be delivered to Lessee hereunder factory new from the Airframe Manufacturer in the Airbus Aircraft Specification and in accordance with Schedule 1, and evidence thereof (or waiver thereof by Lessee) shall be conclusively demonstrated by Lessee's execution of the Lease Supplement on the Delivery Date (subject to any minor discrepancies that Airframe Manufacturer, Lessor and Lessee agree are inconsistent with the requirements of the Airbus Purchase Agreement and this Agreement and are listed by Lessor and Lessee in the schedule to the Lease Supplement for correction by the Airframe Manufacturer subsequent to delivery of the Aircraft).
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
6
[Operating Lease Agreement (Aircraft No. 1)]
(c) Delivery of the Aircraft is subject to and expressly conditioned upon delivery of the Aircraft by the Airframe Manufacturer to Lessor. Lessor shall not be liable or responsible to Lessee for and Lessee hereby expressly waives any right to any Claims against Lessor or Owner Participant arising or the exercise of any remedies from or in connection with any delay by the Airframe Manufacturer in the delivery of, or failure to deliver, the Aircraft to Lessee under this Agreement, and Lessee shall not be released from its obligation to take delivery of the Aircraft under this Agreement as a result of any such delay except, in each case, in accordance with Section 2.5(g); provided that the foregoing release and waiver by Lessee shall not apply with respect to any Claims solely and directly attributable to (i) Lessor's or Owner Participant's wilful misconduct or gross negligence, (ii) in the event Delivery of the Aircraft is cancelled or delayed solely due to Lessor's failure to comply with the terms of the Purchase Agreement and/or the Purchase Agreement Assignment, including without limitation, Lessor's failure to pay the Purchase Price for the Aircraft to the Airframe Manufacturer or (iii) in the event delivery of the Aircraft does not occur solely due to Lessor's failure to comply with the terms of this Agreement.
(d) If an Event of Loss with respect to the Aircraft occurs prior to the Delivery Date, Lessee will notify Lessor promptly following receipt of notice from the Airframe Manufacturer and, unless the Airframe Manufacturer has notified Lessee of a new Scheduled Delivery Date that is before the Longstop Date, this Agreement shall automatically terminate whereupon neither party will have any further liability to the other except that Lessor will return to Lessee the Security Deposit or Security Deposit LC (if previously paid or delivered to Lessor), as applicable, in accordance with Section 5.5(b) and any prepaid Rent, in each case, without deduction for any costs and expenses. If after an Event of Loss with respect to the Aircraft prior to Delivery, the Airframe Manufacturer advises Lessee of a new Scheduled Delivery Date prior to the Longstop Date, such new date shall be the Scheduled Delivery Date and this Agreement shall continue in full force and effect.
(e) [ **] Lessee shall provide Lessor with written notice of the date on which the Airframe Manufacturer expects Delivery to take place (such date, as such date may be subsequently updated by Lessee providing notice to Lessor, the " Scheduled Delivery Date" ) as soon as practicable, but in any event no later than the earlier to occur of (x) five Business Days after Lessee's receipt of notice of such date from the Airframe Manufacturer and (y) ten Business Days prior to the date the Delivery Date is scheduled to occur.
(f) Upon Lessee's failure to take delivery of the Aircraft in breach of the terms hereof and of the Operative Documents, Lessor may terminate this Lease and exercise any and all other remedies hereunder and under applicable law.
(g) If delivery of the Aircraft to Lessee has not taken place by the Longstop Date as a result of a delay of Delivery constituting an "excusable delay" or an "inexcusable delay" (each as defined in the Airbus Purchase Agreement) all obligations of Lessee and Lessor (other than obligations of Lessee that may have arisen following Lessee issuing a Scheduled Delivery Date Notice under, and as defined in, Schedule 2) shall terminate on the Longstop Date and Lessor shall return to Lessee the Security Deposit (if any) held by Lessor.
2.6 Commencement. The leasing of the Aircraft commences upon the Delivery Date.
2.7 Lease Term and Extension Option.
(a) The term of this Agreement is the Lease Term.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
7
[Operating Lease Agreement (Aircraft No. 1)]
(b) Provided that no Lease Event of Default has occurred and is continuing at the time that such notice is given, Lessee may elect to extend the Lease Term until the Extension Termination Date by providing Lessor with irrevocable written notice to that effect by not later than the date which is 15 months prior to the Scheduled Termination Date, provided, that such notice shall not be effective unless Lessee and Lessor have agreed in writing not later than 15 months prior to the Scheduled Termination Date the Basic Rent that will be payable from the Scheduled Termination Date to the Extension Termination Date.
2.8 Risk. Lessee will be responsible for all risks associated with the use and operation of the Aircraft from the Delivery Date until Redelivery.
2.9 Cape Town Convention.
(a) In this Agreement, the Convention and the Protocol shall be read and interpreted together as a single instrument as required by Article 6(1) of the Convention. In this Section 2.9 the following expressions have the respective meanings given to them in Article 1 of the Consolidated Text:
aircraft engines; aircraft object; airframe; assignment; associated rights; buyer; contract of sale; creditor; international interest; leasing agreement; prospective international interest; prospective sale; registry authority; sale; security agreement; seller; title reservation agreement; State of registry; International Registry; and regulations.
(b) Lessor and Lessee agree that:
(i) the Aircraft shall be registered on the aircraft register of the State of Registration, which is the State of registry for the purposes of the Convention and Protocol;
(ii) the Airframe is an airframe and, accordingly, an aircraft object to which this Agreement relates for the purposes of the Cape Town Convention and for purposes of making registrations on the International Registry, has the generic model designation of "A330" (as required by the regulations) with manufacturer's serial number and U.S. registration mark as specified in the Lease Supplement and the Engines are aircraft engines and, accordingly, aircraft objects for the purposes of the Cape Town Convention and, for purposes of making registrations on the International Registry, have the generic model designations "TRENT700" (as required by the regulations) with manufacturer's serial numbers as specified in the Lease Supplement;
(iii) the international interest of Lessor, as a creditor, in the Airframe and each of the Engines, being the lessor under a leasing agreement of an aircraft object shall be registered on the International Registry;
(iv) the events which are referred to in Section 10.1 as Lease Events of Default are events that constitute a default or otherwise give rise to the rights and remedies specified in Articles 12 to 15 and 20 of the Consolidated Text;
(v) Lessor shall have the remedies referred to in Articles 15(1) and 20(1) of the Consolidated Text as set forth in Section 10.2(a); and
(vi) Lessor may assign the associated rights (as defined in Article 1 of the Consolidated Text), which associated rights consist of all rights to payment or other performance by Lessee (as debtor) under this Agreement and are associated with the Airframe and the Engines being aircraft objects for the purposes of the Cape Town Convention.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
8
[Operating Lease Agreement (Aircraft No. 1)]
2.10 True Lease. Lessor and Lessee intend that this Agreement constitutes a "true lease" and a lease for all U.S. federal income tax purposes.
2.11 Assignable Warranties. On the Delivery Date, Lessor will assign or make available to Lessee for the duration of the Lease Term the benefit of all assignable warranties given to Lessor by the Airframe Manufacturer, the Engine Manufacturer or any other Manufacturer or as such warranties have been assigned to Lessor by Lessee pursuant to the Purchase Agreement Assignment and/or the Engine Warranties Assignment. Lessor further agrees to assign or otherwise make available to Lessee such rights as Lessor may have under any warranty, service policy or product support plan of any Manufacturer, vendor, subcontractor, maintenance provider or supplier with respect to the Aircraft, any Engine or any Part, to the extent the same may legally be assigned or otherwise made available to Lessee.
2.12 Reassignment; Assignment of Lessee Warranties. On the Termination Date:
(a) the benefit of any warranty and other rights assigned or made available by Lessor to Lessee pursuant to this Agreement will be reassigned automatically and without further act or writing to Lessor or its designee; provided that upon the occurrence and continuation of a Lease Event of Default, Lessor may instruct the Airframe Manufacturer, the Engine Manufacturer or any other Manufacturer, by a reservation of rights, to make any payments of monies under any warranty claims made by Lessee directly to Lessor for further credit to Lessee upon and subject to Lessee's cure of such Lease Event of Default; and
(b) Lessee shall assign and shall be deemed to have assigned to Lessor on and as of the Termination Date, at no charge to Lessor, any and all warranties Lessee has obtained in connection with any maintenance or services performed on the Aircraft or any Item of Equipment during the Lease Term.
2.13 Warranty Claims. Lessee will diligently and promptly pursue any valid claims it may have under the warranties assigned to it hereunder with respect to the Aircraft and other Items of Equipment. At the request of Lessor, Lessee shall provide an itemized list to Lessor not later than the earlier of (x) 14 days prior to the Scheduled Termination Date and (y) the Termination Date of all such warranty claims made by Lessee during the Lease Term to the extent historical records of the same are maintained by Lessee.
Section 3. Quiet Enjoyment. So long as no Lease Event of Default has occurred and is continuing, neither Lessor nor anyone claiming through Lessor, including without limitation the Security Trustee or any Financier, may interfere with Lessee's possession and quiet enjoyment of the Aircraft.
Section 4. DISCLAIMERS, WAIVERS AND EXCLUSION.
4.1 DISCLAIMER AND WAIVER. LESSOR, OWNER PARTICIPANT AND LESSEE AGREE THAT THE DISCLAIMERS, WAIVERS AND CONFIRMATIONS SET OUT IN SECTIONS 4.2 TO 4.4 BELOW SHALL APPLY AT ALL TIMES DURING THE LEASE TERM. LESSEE'S ACCEPTANCE OF THE AIRCRAFT IN ACCORDANCE WITH SECTION 2.5 SHALL BE CONCLUSIVE EVIDENCE THAT LESSEE HAS FULLY INSPECTED THE AIRCRAFT, THE ENGINES AND EVERY PART THEREOF AND THAT THE AIRCRAFT, THE ENGINES, THE PARTS AND TECHNICAL RECORDS ARE TECHNICALLY ACCEPTABLE TO LESSEE AND ARE IN SUITABLE CONDITION FOR DELIVERY TO AND ACCEPTANCE BY LESSEE EXCEPT AS CONTEMPLATED BY SECTION 2.5(b).
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
9
[Operating Lease Agreement (Aircraft No. 1)]
4.2 EXCLUSION. THE AIRCRAFT IS TO BE LEASED AND DELIVERED HEREUNDER "AS IS, WHERE IS", AND LESSEE AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS AGREEMENT:
(a) NO INDEMNIFIED PARTY WILL HAVE ANY LIABILITY IN RELATION TO, AND NEITHER LESSOR NOR OWNER PARTICIPANT HAS NOR WILL BE DEEMED TO HAVE ACCEPTED, MADE OR GIVEN (WHETHER BY VIRTUE OF HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO ACQUIRE ANY STATUS UNDER OR IN RELATION TO THE LEASE OR OTHERWISE), ANY CONDITIONS, WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT OR ANY ENGINE OR PART OR TECHNICAL RECORDS OR ANY SERVICES PROVIDED BY LESSOR UNDER THE LEASE, INCLUDING THE DESCRIPTION, AIRWORTHINESS, COMPLIANCE WITH SPECIFICATIONS, OPERATION, MERCHANTABILITY, QUALITY, FREEDOM FROM INFRINGEMENT OF PATENT OR OTHER PROPRIETARY RIGHTS, FITNESS FOR ANY PARTICULAR USE OR PURPOSE, VALUE, DURABILITY, DATE PROCESSING, CONDITION, OR DESIGN, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, OR AS TO ANY OTHER MATTER WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE) WITH RESPECT TO THE AIRCRAFT, ANY ENGINE OR ANY PART, OR ANY TECHNICAL RECORD; AND
(b) NO INDEMNIFIED PARTY SHALL HAVE ANY OBLIGATION OR LIABILITY WHATSOEVER TO LESSEE (WHETHER ARISING IN CONTRACT OR IN TORT, AND WHETHER ARISING BY REFERENCE TO NEGLIGENCE, OR STRICT LIABILITY OF LESSOR OR OWNER PARTICIPANT OR OTHERWISE) FOR:
(i) ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR INDIRECTLY BY THE AIRCRAFT OR ANY ENGINE OR BY ANY INADEQUACY THEREOF OR DEFICIENCY OR DEFECT THEREIN OR BY ANY OTHER CIRCUMSTANCE IN CONNECTION THEREWITH;
(ii) THE USE, OPERATION OR PERFORMANCE OF THE AIRCRAFT OR ANY RISKS RELATING THERETO;
(iii) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS OR ANY OTHER DIRECT, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE; OR
(iv) THE DELIVERY, OPERATION, SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE AIRCRAFT, ANY ENGINE OR ANY PART.
4.3 WAIVER. LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND LESSOR AND OWNER PARTICIPANT, ALL ITS RIGHTS IN RESPECT OF ANY CONDITION, WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, ON THE PART OF LESSOR AND OWNER PARTICIPANT AND ALL CLAIMS AGAINST LESSOR AND OWNER PARTICIPANT HOWSOEVER AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF ANY OF THE MATTERS REFERRED TO IN SECTION 4.2.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
10
[Operating Lease Agreement (Aircraft No. 1)]
4.4 DISCLAIMER OF CONSEQUENTIAL DAMAGES. LESSEE AGREES THAT IT SHALL NOT BE ENTITLED TO RECOVER, AND HEREBY DISCLAIMS AND WAIVES ANY RIGHT THAT IT MAY OTHERWISE HAVE TO RECOVER, LOST PROFITS OR REVENUES OR CONSEQUENTIAL DAMAGES AS A RESULT OF ANY BREACH OR ALLEGED BREACH BY LESSOR OR OWNER PARTICIPANT OF ANY OF THE AGREEMENTS CONTAINED IN THIS AGREEMENT.
4.5 CONFIRMATION. LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS OF THIS SECTION 4 AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS PAYABLE UNDER THE LEASE HAVE BEEN CALCULATED BASED ON ITS PROVISIONS.
Section 5. Rent.
5.1 Basic Rent.
(a) On each Rent Payment Date, Lessee shall pay to Lessor the Basic Rent for that Rent Payment Period.
(b) [Reserved].
(c) Subject to Lessee's compliance with Schedule 2, the Basic Rent shall be calculated by Lessor in accordance with Schedule 2 on the date two Business Days prior to the Scheduled Delivery Date and following receipt by Lessor of a Scheduled Delivery Date Notice (the " Rent Calculation Date ") and shall be fixed throughout the Lease Term.
(d) Promptly following the Rent Calculation Date Lessor will send to Lessee a screen shot showing the Bloomberg page from which the Applicable Fixed Rate was extracted to calculate the Basic Rent and a certificate of Lessor as to the liquidity spread charged by Lessor's swap counterparty. Lessor's calculation of Basic Rent will, in the absence of manifest error, be conclusive.
5.2 Accounts and Prorating of Payments.
(a) Except for payment of Maintenance Reserves or Security Deposit, Lessee shall pay all amounts which are required to be paid under this Agreement into the Primary Account.
(b) Basic Rent and Monthly Maintenance Reserve Amounts for less than a complete month shall be prorated on a daily basis based on a month consisting of thirty (30) days. Basic Rent for a period of less than a complete month shall be payable on the applicable Rent Payment Date.
5.3 Supplemental Rent. Lessee shall pay to Lessor, or to whomsoever shall be entitled, any and all Supplemental Rent within ten days after written demand or such longer period as may be provided in such written demand.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
11
[Operating Lease Agreement (Aircraft No. 1)]
5.4 Security Deposit and Security Deposit LC.
(a) Lessee shall pay the Security Deposit to the Security Deposit Account no later than one Business Day before the Delivery Date and the Security Deposit will constitute a cash security deposit for Lessee's obligations under this Agreement. The Security Deposit Account shall be a U.S. Dollar account with a bank determined by Lessor and as notified to Lessee (the " Security Deposit Account ") and the Security Deposit may be commingled with Lessor's other funds and any interest earned on such Security Deposit will be for Lessor's account. Lessee hereby assigns, transfers and pledges to Lessor and hereby grants to Lessor a first priority security interest in the Security Deposit to secure all payments due by Lessee and the performance by Lessee of all of its obligations under this Agreement and the other Operative Documents to which Lessee is a party.
(b) Lessee may comply with its obligations under Section 5.4(a) by providing a Security Deposit LC for all of the Security Deposit to Lessor no later than one Business Day before the Delivery Date. The Security Deposit LC shall be in a form agreed by Lessor and issued in the name of Lessor, or if required by Lessor, Security Trustee, with a face amount equal to the Security Deposit. Provided no Lease Default or Lease Event of Default has occurred or is continuing, upon three Business Days notice to Lessor, Lessee may substitute the Security Deposit for a Security Deposit LC (an " LC Substitution "), provided that Lessee may make only one LC Substitution in any 12 month period and provided further that Lessor shall have three Business Days from the date it receives the Security Deposit LC in the form provided herein to return to the Lessee the Security Deposit. Provided no Lease Default or Lease Event of Default has occurred or is continuing, Lessee may, upon three Business Days notice to Lessor, substitute cash for all of the face amount of a Security Deposit LC (a " Cash Substitution "), provided that a Cash Substitution may only be made on the scheduled renewal date of any Security Deposit LC in lieu of providing a replacement Security Deposit LC.
(c) Each Security Deposit LC shall have an expiry date of at least one year after its issue date (or in the case of a Security Deposit LC to be issued during the final year of the Lease Term, an expiry date no earlier than one month after the expiry of the Lease Term).
(d) Lessee shall effect the extension or renewal of each Security Deposit LC not later than the date which is the earlier of:
(i) 30 days before its scheduled expiry; and
(ii) (if applicable) five Business Days after the credit rating of the issuer of the Security Deposit LC has fallen below the applicable ratings set out in the definition of Security Deposit LC.
If the extension or renewal has not occurred by that date, or Lessee has not provided the Lessor with cash equal to the amount of the Security Deposit LC, Lessor will be entitled to draw under the existing Security Deposit LC.
(e) If any Lease Event of Default shall have occurred and be continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement or under applicable Law, Lessor may immediately or at any time thereafter, without prior notice to Lessee, apply all or part of the Security Deposit (or if Lessee has provided a Security Deposit LC under Section 5.4(b) may make a demand under that Security Deposit LC and apply the proceeds of that demand in accordance with this Section 5.4(e)) in or towards the payment or discharge of any matured obligation owed by Lessee under this Agreement or the other Operative Documents, in such order as Lessor sees fit, or exercise any of the rights of set-off against all or part of the Security Deposit.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
12
[Operating Lease Agreement (Aircraft No. 1)]
(f) For the avoidance of doubt, Lessor may make demands under the Security Deposit LC in the same circumstances as it would have been able to access, in accordance with the provisions of this Agreement, the Security Deposit and apply the proceeds of such demand against the same amounts as the Security Deposit.
(g) For the avoidance of doubt, it is the intent of Lessor and Lessee that the Security Deposit or Security Deposit LC (as the case may be) is the property of Lessor. If and to the extent that, under applicable Law, the Security Deposit or Security Deposit LC (as the case may be) would be held to be the property of Lessee, the Security Deposit or Security Deposit LC (as the case may be) shall be held by Lessor as security for the full, timely and faithful performance by Lessee of its obligations hereunder and under the other Operative Documents to which it is a party.
(h) If Lessor has exercised any of the rights described in Section 5.4(e) above, Lessee shall promptly but in any event no later than five Business Days following written demand from Lessor pay to Lessor sufficient funds or reissue the Security Deposit LC (as the case may be) to restore the Security Deposit to the amount specified in the definition of Security Deposit.
(i) Lessor may assign its interest in the Security Deposit or Security Deposit LC (as applicable) to Security Trustee or to any other party in accordance with Section 17.1 or Section 17.2(b).
(j) Lessor is not required to notify Lessee prior to the application of all or any part of the Security Deposit.
5.5 Return of Security Deposit and Security Deposit LC.
(a) Upon return of the Aircraft in accordance with Section 11.1 and irrevocable payment in full by Lessee of all amounts due by it under the Operative Documents to which Lessee is a party, and provided no Lease Event of Default has occurred and is continuing, Lessor shall within five Business Days of the Redelivery either repay an amount equal to the balance of the Security Deposit to Lessee or return the Security Deposit LC to Lessee (as applicable).
(b) If an Event of Loss occurs, subject to irrevocable payment of the Agreed Value and all amounts then due and owing by Lessee under the Operative Documents to which Lessee is a party and provided that no Lease Event of Default has occurred and is continuing, Lessor shall within five Business Days of such payment either repay an amount equal to the balance of the Security Deposit to Lessee or return the Security Deposit LC to Lessee (as applicable).
5.6 Maintenance Reserves Payments.
(a) On each Maintenance Reserves Payment Date, Lessee shall pay to Lessor the Monthly Maintenance Reserves Amount calculated with respect to each Maintenance Item, which amount shall be remitted to the Maintenance Reserves Account as invoiced by Lessor under Section 5.6 (b) below.
(b) Lessor shall furnish to Lessee an invoice for the Monthly Maintenance Reserves Amount for each Maintenance Item at least two Business Days before the Maintenance Reserves Payment Date, calculated on the basis of:
(i) the utilization information contained in the Monthly Report for the preceding calendar month; or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
13
[Operating Lease Agreement (Aircraft No. 1)]
(ii) if the Monthly Report is not provided, the previous Monthly Report, or if there is none, an assumed utilization of 3,600 Flight Hours per annum and an assumed Flight Hour to Cycle ratio of 5:1. If the Monthly Report is subsequently provided, Lessor shall as soon as practicable provide a reconciliation of the amounts invoiced under this sub-paragraph (ii) against amounts that would have been invoiced under the Monthly Report, had it been available at the time of the original invoice, and Lessor shall promptly reimburse any excess Maintenance Reserves Payments paid, or Lessee shall promptly pay any shortfall in the Maintenance Reserves paid, as the case may be.
(c) The Maintenance Reserves Account shall be an account with a bank determined by Lessor and notified to Lessee.
(d) The Maintenance Reserves Payments, including any accrued interest, are paid by Lessee to Lessor in consideration for the use of the Aircraft by Lessee and the satisfaction of Lessor's obligations under this Agreement and once paid, the Maintenance Reserves Payments are irrevocably and unconditionally the property of Lessor which may be used or withdrawn at Lessor's absolute discretion (subject always to Lessor's obligations under Section 5.7) and which may be commingled with Lessor's other funds. Lessee hereby declares that to the extent that in any jurisdiction the Maintenance Reserves would be held to be the property of Lessee or if it is so determined those monies are a debt owed to Lessee or that Lessee shall have any interest in those monies, Lessor and Lessee agree that subclauses (i) and (ii) below shall apply:
(i) Pursuant to applicable Law, Lessee hereby assigns, transfers and pledges to Lessor and hereby grants to Lessor a first priority security interest in the Maintenance Reserves to secure all payments due by Lessee hereunder and the performance by Lessee of its obligations under this Agreement and the other Operative Documents to which Lessee is a party as security for Lessee's obligations hereunder and thereunder, including, without limitation, the obligations of Lessee to maintain and return the Aircraft and each Item of Equipment in the condition required by this Agreement; and
(ii) Lessee shall not assign, hypothecate or otherwise transfer its interests, if any, in the Maintenance Reserves.
(e) If any Lease Event of Default shall have occurred and be continuing, in addition to all rights and remedies accorded to Lessor elsewhere in this Agreement or under applicable Law, Lessor may immediately or at any time thereafter, while such Lease Event of Default is continuing, without prior notice to Lessee, apply all or part of the Maintenance Reserves in or towards the payment or discharge of any matured obligation owed by Lessee under this Agreement or the other Operative Documents to which Lessee is a party, in such order as Lessor sees fit, or exercise any of the rights of set-off against all or part of the Maintenance Reserves. If Lessor uses or applies all or any portion of such Maintenance Reserves, Lessee shall within one Business Day after written demand therefore deposit with Lessor in cash an amount sufficient to fully restore each such Maintenance Reserve to its original sum prior to such application plus any amount then due for payment by Lessee in respect of Maintenance Reserves.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
14
[Operating Lease Agreement (Aircraft No. 1)]
(f) Lessor may assign its interest in the Maintenance Reserves to Security Trustee or to any other party in accordance with Section 17.1 or Section 17.2(b), provided that Lessor shall remain obligated at all times to Lessee to perform its obligations under Section 5.7 hereof.
(g) Lessor acknowledges and consents to the existence of the TCA and:
(i) subject to sub-paragraph (ii) below, during the period in which the Engines are subject to the TCA, no Maintenance Reserve Payments shall be payable by Lessee in respect of Engine Performance Restoration; and
(ii) Lessee shall be obligated to make Maintenance Reserve Payments in respect of Engine Performance Restoration for any Engine on and from the date that the TCA relating to such Engine expires or is terminated or such Engine is released from the TCA or there is a TCA Payment Default in respect of the Engines, at the rate for Engine Performance Restoration as set forth on Schedule 4 (as escalated in accordance with Section 5.8(a)).
(h) Lessor acknowledges and consents to the existence of the PBH and:
(i) subject to sub-paragraph (ii) below, during the period in which the APU is subject to the PBH, no Maintenance Reserve Payments shall be payable by Lessee in respect of APU Performance Restoration; and
(ii) should the APU be released from the PBH at any time, Lessee shall (a) promptly (but no later than five Business Days of such release) make a Maintenance Reserve Payment with respect to the APU Performance Restoration to the Lessor equal to the number of APU Hours since the last APU Performance Restoration, or from new if no APU Performance Restoration has been performed, multiplied by the rate for APU Performance Restoration as set forth on Schedule 4 (as escalated in accordance with Section 5.8(a)) and (b) from the time the APU is released, make monthly Maintenance Reserve Payments to Lessor with respect to the APU at the rate for APU Performance Restoration as set forth on Schedule 4 (as escalated in accordance with Section 5.8(a)).
(i) The Monthly Reserve Payments with respect to Engine Life Limited Parts Replacement shall be deposited into the Maintenance Reserve Account. The amount deposited shall be allocated on the date of receipt to each Group A Engine LLP based on the proportion that each such Group A Engine LLP's then current Individual LLP Cost Per Cycle bears to the then current aggregate Engine LLP Cost Per Cycle.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
15
[Operating Lease Agreement (Aircraft No. 1)]
5.7 Reimbursement of Maintenance Reserves Payments.
(a) If Qualifying Maintenance (which for the avoidance of doubt does not include maintenance arising from foreign object damage, quick engine change maintenance (except for the actual act of either the removing or installing of such quick engine change at the maintenance facility of the Approved Maintenance Provider accomplishing such Engine Performance Restoration), kit maintenance or line replacement unit component maintenance or maintenance covered by warranty or insurance) is performed for a Maintenance Item by or on behalf of Lessee in accordance with the Approved Maintenance Program and provided that no Lease Default or Lease Event of Default has occurred and is continuing, Lessee may, within the earlier to occur of (i) six months of the maintenance being completed and (ii) the Termination Date, provided, however, in the event Lessee does not have sufficient information necessary to submit such claim to Lessor by the time of the Termination Date, Lessee shall nevertheless notify Lessor of such pending claim on or prior to the Termination Date and such claim for reimbursement may then be made by Lessee following the Termination Date, but in no event later than the date that occurs six months following the completion of the maintenance for which such claim is being made, request in writing, in accordance with the provisions of Section 5.7(b) below, (x) a reimbursement from the Maintenance Reserves Account of the net amounts it has paid to an Approved Maintenance Provider for that maintenance or (y) if agreed on a case by case basis by Lessor and Lessee, that Lessor make a direct payment to the applicable Approved Maintenance Provider from the Maintenance Reserves Account, after reduction for all rebates, discounts, allowances, incentives, credits, any warranties payable by the Airframe Manufacturer, Engine Manufacturer or any other Manufacturer or any other reduction in cost or costs arising from operational or maintenance mishandling.
(b) A request for reimbursement for a Maintenance Item by Lessee shall be accompanied by the following:
(i) an invoice for the relevant work or parts, reflecting the net amounts paid to the Approved Maintenance Provider;
(ii) evidence of payment of the invoiced amounts, if Lessee is seeking reimbursement from Lessor;
(iii) the agreed workscope maintenance plans; and
(iv) the final report and such other supporting documentation as typically provided by the Approved Maintenance Provider, including verification that the agreed work is completed in accordance with the terms of the Approved Maintenance Program.
Each of the foregoing shall be in a form reasonably satisfactory to Lessor (subparagraphs (i) though (iv) above are together the " Claim Documents "). Notwithstanding the above, Lessor and Lessee may agree a mutually satisfactory mechanism for the acceptance by Lessor of preliminary Claim Documents.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
16
[Operating Lease Agreement (Aircraft No. 1)]
(c) Subject to the other provisions of this Agreement, Lessor shall pay to Lessee by way of reimbursement out of the amounts standing to the credit of the Maintenance Reserves Account for that Maintenance Item (if any), an amount equal to the lesser of: (i) the cost of the scheduled maintenance for that Maintenance Item as set forth in the invoice provided pursuant to Section 5.7(b)(i) and (ii) the amount then in the Maintenance Reserves Account referable to that Maintenance Item (or, in the case of any Group A Engine LLP, the amount allocable for that Group A Engine LLP as determined in accordance with Section 5.6(i)), provided that:
(i) the entire amount in the Maintenance Reserves Account referable to the Airframe Structural 6 Year Check (if any) and Airframe Structural 12 Year Check shall be reimbursed to Lessee following completion of the Airframe Structural 12 Year Check regardless of the final invoice amount therefor;
(ii) the entire amount in the Maintenance Reserves Account referable to the Landing Gear Overhaul shall be reimbursed to Lessee following completion of the first Landing Gear Overhaul regardless of the final invoice amount therefor; and
(iii) with respect to reimbursements for replacement of a Group A Engine LLP, Lessee shall only be entitled to reimbursement from amounts allocable to such Group A Engine LLP (as determined in accordance with Section 5.6(i)) held in the Maintenance Reserve Account, up to a maximum of (i) in the case of a replacement with a full life Group A Engine LLP, Lessee will be reimbursed the entire allocable amount for such Group A Engine LLP, and (ii) in the case of a replacement with a used Group A Engine LLP, Lessee will be reimbursed a portion of the entire allocable amount for such Group A Engine LLP determined by calculating the remaining cycles for the replacement Group A Engine LLP minus the remaining cycles for the Group A Engine LLP being replaced, with the result divided by the full life cycle for such Group A Engine LLP with the resulting factor multiplied by the Engine Manufacturer's then applicable list price for such Group A Engine LLP.
(d) Any shortfall between the actual cost of scheduled maintenance for a Maintenance Item and the amount on deposit in the Maintenance Reserves Account referable to that Maintenance Item is to be borne by Lessee.
(e) If a claim for reimbursement for a Maintenance Item is duly made, Lessor shall within 20 Business Days pay the claimed amount to Lessee or, if applicable, the Approved Maintenance Provider, by way of reimbursement out of the accrued balance of the Maintenance Reserves Account for that Maintenance Item.
(f) If an Event of Loss occurs, subject to irrevocable payment by Lessee to Lessor of the Agreed Value in accordance with the terms of this Agreement and all other amounts due and owing by Lessee under the Operative Documents to which Lessee is a party, and provided that no Lease Event of Default has occurred and is continuing, Lessor will repay, within ten Business Days the balance of the Maintenance Reserves Account to Lessee.
(g) On the expiry of the Lease Term, all Maintenance Reserves standing to the credit of the Maintenance Reserves Account and not subject to the reimbursement or return provisions hereof shall remain the property of Lessor.
(h) For the avoidance of doubt, notwithstanding anything to the contrary in this Agreement, Lessor shall have no obligation to reimburse Lessee for any amount greater than the then current balance of the Maintenance Reserves Account referable to the relevant Maintenance Item.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
17
[Operating Lease Agreement (Aircraft No. 1)]
5.8 Maintenance Reserves Adjustment. The Monthly Maintenance Reserves Amounts set out in the Maintenance Reserves Table in Schedule 4 shall be adjusted on January 1, 2012 and thereafter annually (with any such adjustment being effective for the subsequent 12 month period) as appropriate to reflect the provisions of Sections 5.8(a) and (b) below) based on the following:
(a) Annual Maintenance Reserves Adjustment. The Monthly Maintenance Reserves Amount for each Maintenance Item shall be adjusted annually by the Annual Maintenance Reserves Adjustment applicable to such Maintenance Item, commencing on January 1, 2012 and on January 1 of each year of the Lease Term thereafter, as an agreed inflation adjustment.
(b) Material Revision to Maintenance Program. If the maintenance interval for any Maintenance Item subject to Maintenance Reserve Payments is revised by the OEM by either increasing or decreasing the maintenance interval for such Maintenance Item, Lessor shall, provided that Lessee's average cost over the previous 24 months for such Maintenance Item is consistent with the initial rate for that Maintenance Item, adjust the Monthly Maintenance Reserves Amount for such Maintenance Item proportionately upward or downward, as applicable to reflect the costs associated with obtaining relevant maintenance services as a result of the material revision. Lessor shall promptly notify Lessee of any such adjustment, which notice shall specify the revised Monthly Maintenance Reserves Amount for such Maintenance Item and the effective date of such revision and Lessee shall be bound by them absent manifest error.
(c) Engine Performance Restoration. The Monthly Maintenance Reserve Amount for Engine Performance Restoration set forth in Schedule 4 is based upon a Flight Hour to Cycle ratio of 5:1. Should the actual Flight Hour to Cycle ratio for any month be greater or less than 5:1, the Monthly Maintenance Reserve Amount for Engine Performance Restoration shall be adjusted upward or downward, respectively, based upon the rate set forth on Schedule 4 that most closely corresponds to the actual Flight Hour to Cycle Ratio.
Section 6. Payment.
6.1 Manner of Payment. Each payment to be made by Lessee to Lessor under the Operative Documents to which Lessee is a party (unless otherwise specified therein) shall be made by wire transfer in U.S.$ in immediately available funds and received for value on the due date into such bank account in the United States as Lessor or, following notice that Lessor has created Liens over any of its interests under the Operative Documents to which Lessee is a party, Security Trustee may from to time designate by prior written notice (the " Primary Account "). Payments under this Agreement shall only be taken to have been made when actually credited to the Primary Account. Payments of Basic Rent shall be made no later than 3:00 pm (New York time) on the relevant Rent Payment. Any payment of Basic Rent received after that time on a Business Day shall be taken to have been received on the following Business Day.
6.2 Unconditional Obligations. This Agreement is a net lease and Lessee's obligation to pay Rent and Supplemental Rent and to perform its other obligations hereunder and under the other Operative Documents to which it is a party shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation:
(a) any withholding, set-off, counterclaim, recoupment, defense or other right which Lessee may have against Lessor, Owner Participant or any other person for any reason whatsoever (whether in connection with the transactions contemplated hereby or any other transactions), including, without limitation, any breach by Lessor or Owner Participant of its warranties, agreements or covenants contained herein or in any of the other Operative Documents;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
18
[Operating Lease Agreement (Aircraft No. 1)]
(b) any defect in the title, registration, airworthiness, condition, design, operation, or fitness for use of, or any damage to or loss or destruction of, the Aircraft, or any interruption or cessation in the use or possession thereof by Lessee or any other person for any reason whatsoever;
(c) any Liens with respect to the Aircraft;
(d) an Event of Loss with respect to the Aircraft or any Item of Equipment;
(e) the invalidity or unenforceability or lack of due authorization or other infirmity of this Agreement or any absence of right, power or authority of Lessor, Owner Participant or Lessee to enter into this Agreement;
(f) any insolvency, bankruptcy, examinership, reorganization, administration, liquidation or similar proceedings affecting the enforcement of creditors rights generally by or against Lessor, Owner Participant or Lessee;
(g) any other circumstance or happening of any nature whatsoever, whether or not similar to any of the foregoing; or
(h) any imposition of Taxes.
Nothing in this Section 6.2 shall be construed to limit or otherwise prejudice Lessee's right to commence legal proceedings against Lessor or Owner Participant to recover damages from Lessor or Owner Participant, as applicable, for the breach by either or both of Lessor and Owner Participant of their respective obligations under this Agreement.
6.3 Default Interest.
(a) Lessee shall pay interest at the Default Rate for any Rent, Supplemental Rent or any other moneys payable by Lessee under the Operative Documents to which Lessee is a party which are not paid on the due date (by way of liquidated damages and not as a penalty). Such interest is computed for the actual number of days elapsed from (and including) the due date for payment to (but excluding) the date paid on the basis of a year of 360 days, and shall be paid on demand from Lessor.
(b) Interest payable under Section 6.3(a) which is not paid when due for payment may be added to the overdue amount at intervals of 30 days. Interest is payable on the increased overdue amount at the Default Rate and in the manner set out in Sections 6.3(a) and (b).
(c) Lessee's obligation to pay the outstanding amount on the date it becomes due for payment is not affected by Section 6.3(a).
6.4 Payments in United States Dollars. All amounts to be paid hereunder shall be paid in U.S. Dollars, in immediately available funds. The specification of U.S. Dollars in this transaction is of the essence and U.S. Dollars shall be the currency of account in any and all events. The obligations of Lessee hereunder shall not be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to U.S. Dollars and transferred to Lessor at Lessor's account under normal banking procedures does not yield the amount of U.S. Dollars owing to Lessor. If Lessor receives an amount in respect of Lessee's liability under this Agreement, or if such liability is converted into a claim, proof, judgment or order, in a currency other than U.S. Dollars, Lessee will indemnify Lessor and Owner Participant on an After-Tax Basis and as an independent obligation against any loss arising out of or as a result of such receipt or conversion. If the amount received by Lessor, when converted into U.S. Dollars (at the market rate at which Lessor is able on the relevant date to purchase U.S. Dollars in New York with that other currency) is less than the amount owed in U.S. Dollars, Lessee will, forthwith on demand, pay to Lessor (on an After-Tax Basis) an amount in Dollars equal to the deficit. In addition, Lessee waives any right it may have in any jurisdiction to pay any amount due or to become due hereunder in a currency other than U.S. Dollars.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
19
[Operating Lease Agreement (Aircraft No. 1)]
Section 7. Representations, Warranties and Covenants.
7.1 Lessee's Representations, Warranties and Covenants. Lessee represents, warrants and covenants to Lessor as at the date of this Agreement and on the Delivery Date, on the basis of the facts and circumstances as at the relevant date, that:
(a) Organization; Qualification. Lessee is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware and has the corporate power and authority to conduct the business in which it is currently engaged and to own or hold under lease its properties and to enter into and perform its obligations under Lessee Operative Agreements. Lessee is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it does business and in which the failure to be so qualified would give rise to a Material Adverse Change of Lessee.
(b) Corporate Authorization. Lessee has taken (or will take as and when required by the terms hereof), or caused to be taken (or cause to be taken when required by the terms hereof), all necessary corporate action (including, without limitation, the obtaining of any consent or approval of stockholders required by its certificate of incorporation or by-laws) to authorize the execution and delivery of each of Lessee Operative Agreements, and the performance of its obligations thereunder.
(c) No Violation. The execution and delivery by Lessee of Lessee Operative Agreements, the performance by Lessee of its obligations thereunder and the consummation by Lessee on the Delivery Date of the transactions contemplated thereby, do not and will not (a) violate any provision of its certificate of incorporation or by-laws of Lessee, (b) violate any applicable Law or judgment of any Government Entity having jurisdiction over Lessee or any of its activities or properties or (c) violate or constitute any default under, or result in the creation of any Lien (other than Permitted Liens) upon any property of Lessee under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, loan or other material agreement, instrument or document to which Lessee is a party or by which Lessee or any of its properties is bound.
(d) Approvals. The execution and delivery by Lessee of Lessee Operative Agreements, the performance by Lessee of its obligations thereunder and the consummation by Lessee on the Delivery Date of the transactions contemplated thereby do not and will not require the consent or approval of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (a) any trustee or other holder of any Debt of Lessee and (b) any Government Entity, except, in each case, for those that have been (or will on or before the Delivery Date have been) obtained (true and complete copies of which have been delivered to Lessor) or as listed in Section 7.1(h).
(e) Valid and Binding Agreements. Lessee Operative Agreements have been (or will be upon execution thereof) duly authorized, executed and delivered by Lessee and, assuming the due authorization, execution and delivery thereof by the other party or parties thereto, constitute the legal, valid and binding obligations of Lessee and are enforceable against Lessee in accordance with the respective terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
20
[Operating Lease Agreement (Aircraft No. 1)]
(f) Litigation. There is no action, suit, claim or proceeding now pending or, to the knowledge of Lessee, threatened, against Lessee, before any court, governmental body, arbitration board, tribunal or administrative agency, which is reasonably likely to be determined adversely to Lessee and if determined adversely to Lessee would result in a Material Adverse Change to Lessee.
(g) Financial Condition. The audited financial statements of Holdings for each financial year are certified by independent auditors and as delivered to Lessor have been prepared in accordance with GAAP which have been consistently applied and fairly present the financial position of Holdings and its consolidated subsidiaries (including Lessee) as at such date and the results of the operations of Lessee for the financial year ended on such date and, as at such date, Holdings did not have any significant liabilities (contingent or otherwise) or any unrealized or anticipated losses which are not disclosed by, or reserved against in, such financial statements and there has been no Material Adverse Change in Holdings or Lessee since publication of such financial statements.
(h) Registration and Recordation. Except for (a) the registration of the Aircraft with the FAA pursuant to the Act in the name of Lessor, (b) the filing for recordation of the FAA Filed Documents, (c) the filing of the Financing Statements (and continuation statements relating thereto at periodic intervals), (d) the taking of possession and retention by Security Trustee of the original chattel paper counterparts of this Agreement and Lease Supplement, (e) the affixation of the nameplates referred to in Section 4 of Schedule 7 of this Agreement, and (f) the registration of the International Interests with the International Registry in respect of the Aircraft, Engines, the Security Agreement, if any, and this Agreement, no other registration and no further filing or recording of this Agreement, the Security Agreement, if any, or any other instrument or document is necessary or advisable under the laws of the United States or any state therein to: (1) establish the priority, legality, validity or enforceability of the obligations of Lessee under this Agreement, or (2) fully protect, establish and perfect Lessor's title to and Lessor's and Security Trustee's interest in the Aircraft or their respective rights hereunder and thereunder as against Lessee and any other person in any applicable jurisdiction.
(i) Location. Lessee's location (as such term is used in Section 9-307 of the UCC) is Delaware.
(j) No Default. No Lease Default or Lease Event of Default has occurred and is continuing.
(k) No Event of Loss. No Event of Loss has occurred with respect to the Airframe or any Engine, and, to the knowledge of Lessee, no circumstance, condition, act or event has occurred that, with the giving of notice or lapse of time or both gives rise to or constitutes an Event of Loss with respect to the Airframe or any Engine.
(l) Certificated Air Carrier. Lessee is a Certificated Air Carrier and holds all licenses, certificates, permit from applicable Government Entities for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Agreement.
(m) Section 1110. Lessor, as lessor under this Agreement is entitled to the benefits and protection of Section 1110 of the Bankruptcy Code in connection with its right to take possession of the Aircraft in the event of a case under Chapter 11 of the Bankruptcy Code in which Lessee is a debtor.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
21
[Operating Lease Agreement (Aircraft No. 1)]
(n) Solvency. Lessee is solvent and able to pay its debts as the same fall due and the transactions contemplated by the Operative Documents to which Lessee is a party are of commercial benefit to it and in its commercial interest.
(o) Tax Returns. Lessee has duly filed all material Tax returns that it is required by applicable Laws to file, has duly paid all material Taxes stated to be due and payable in such Tax returns and has duly paid all Taxes stated to be due in any communication issued by any taxing authority other than Taxes (i) which are being contested in good faith by appropriate proceedings in accordance with applicable Law, (ii) for which adequate reserves are maintained in accordance with GAAP, and (iii) the contest of which does not involve any risk of criminal penalty or any reasonable possibility of any sale, forfeiture, confiscation, seizure or loss of, or the imposition of a Lien (other than a Permitted Lien) on any Item of Equipment or any interest therein.
(p) Airport Charges. Lessee has paid or caused to be paid all fees or charges assessed and due against it (or against any aircraft owned by or leased to or operated by it) by any airport or air navigation authority assessing landing or navigation fees or charges in respect of the Aircraft or any other aircraft owned by or leased or operated by it or is challenging such fees and charges in accordance with the terms hereof.
(q) Import. All required import licenses and all customs formalities relating to the import of the Aircraft into the State of Registration have been obtained or complied with (or will have been obtained or complied with by the Delivery Date) and all Taxes payable in connection with the import of the Aircraft into the State of Registration have been (or will by the Delivery Date be) paid.
(r) Liens. Neither Lessee nor its Affiliates have created any Liens (other than Permitted Liens) in relation to the Aircraft or the Insurances.
(s) Jurisdiction/Governing Law. Lessee's:
(i) irrevocable submission under this Agreement and the Operative Documents to which it is a party to the jurisdiction of the courts specified in them;
(ii) agreement that this Agreement and the other Operative Documents to which Lessee is a party be governed by the law of the place specified in them; and
(iii) agreement not to claim any immunity to which it or its assets may be entitled,
are legal, valid and binding under the laws of its jurisdiction of incorporation.
(t) Specifications. Upon the occurrence of the Delivery Date, the Aircraft complies with the specifications set out in Schedule 1 (unless otherwise noted in the Lease Supplement or in any tripartite agreement among the Aircraft Manufacturer, Lessor and Lessee executed on or before the Delivery Date).
(u) No Immunity. Lessee is subject to civil commercial law with respect to its obligations under this Agreement, neither Lessee nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessee constitute private and commercial acts.
(v) Manufacturer Opinion. No later than five Business Days after the Delivery Date, Lessee shall cause to be delivered an opinion of internal counsel to Airframe Manufacturer, in form and substance reasonably acceptable to Lessor and addressed to Lessor, Owner Participant and Security Trustee, it being agreed that Lessee shall use commercially reasonable efforts to obtain such opinion.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
22
[Operating Lease Agreement (Aircraft No. 1)]
(w) Value Added Taxes. (i) On the date of this Agreement and the Delivery Date, Lessee does not have a place of business or a fixed establishment in Ireland and (ii) on or prior to the Delivery Date, Lessee will provide Lessor with a true, complete, and accurate Internal Revenue Service Form 6166, certifying that Lessee is a U.S. tax resident.
7.2 Lessor's Representations, Warranties and Covenants. Lessor represents, warrants and covenants to Lessee as at the date of this Agreement and on the Delivery Date, on the basis of the facts and circumstances as at the relevant date, that:
(a) Organization; Qualification. Lessor is the owner trustee of a common law trust duly formed and validly existing under the laws of the State of Delaware and has the trust power and authority to conduct the business in which it is currently engaged and to own or hold under lease its properties and to enter into and perform its obligations under each of the Operative Documents and the Trust Agreement to which it is a party. Lessor is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it does business and in which the failure to be so qualified would give rise to a Material Adverse Change of Lessor.
(b) Authorization. Lessor has taken (or will take as and when required by the terms hereof), or caused to be taken (or cause to be taken when required by the terms hereof), all necessary trust action to authorize the execution and delivery of each of the Operative Documents to which it is a party and the Trust Agreement, and the performance of its obligations thereunder.
(c) No Violation. The execution and delivery by Lessor of the Operative Documents to which it is a party and the Trust Agreement, the performance by Lessor of its obligations thereunder and the consummation by Lessor on the Delivery Date of the transactions contemplated thereby, do not and will not (a) violate any provision of the Trust Agreement or any other constitutional or organizational document of Lessor, (b) violate any applicable Law or judgment of any Government Entity having jurisdiction over Lessor or any of its activities or properties or (c) violate or constitute any default under, or result in the creation of any Lien (other than Permitted Liens) upon any property of Lessor under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, loan or other material agreement, instrument or document to which Lessor is a party or by which Lessor or any of its properties is bound.
(d) Approvals. The execution and delivery by Lessor of the Operative Documents to which it is a party and the Trust Agreement the performance by Lessor of its obligations thereunder and the consummation by Lessor on the Delivery Date of the transactions contemplated thereby do not and will not require the consent or approval of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (a) any trustee or other holder of any Debt of Lessor and (b) any Government Entity, except for those that have heretofore been obtained (true and complete copies of which have been delivered to Lessee) or as listed in Section 7.1(h).
(e) Valid and Binding Agreements. The Operative Documents to which Lessor is a party and the Trust Agreement have been (or will be upon execution thereof be) duly authorized, executed and delivered by Lessor and, assuming the due authorization, execution and delivery thereof by the other party or parties thereto, constitute the legal, valid and binding obligations of Lessor and are enforceable against Lessor in accordance with the respective terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
23
[Operating Lease Agreement (Aircraft No. 1)]
(f) Citizenship. Lessor is a "citizen of the United States" as that term is defined in the Act and shall either remain a "citizen of the United States" as that term is defined in the Act or shall otherwise be qualified to register the Aircraft with the State of Registration assuming the State of Registration is the United States.
(g) Right to Lease the Aircraft. On the Delivery Date, Lessor will have acquired such title to the Aircraft as conveyed to it by the Airframe Manufacturer pursuant to the Bill of Sale and shall have the right to lease the Aircraft to Lessee.
(h) Litigation. There is no action, suit, claim or proceeding now pending or, to the knowledge of Lessor, threatened, against Lessor, before any court, governmental body, arbitration board, tribunal or administrative agency, which is reasonably likely to be determined adversely to Lessor and if determined adversely to Lessor would result in a Material Adverse Change to Lessor.
(i) No Immunity. Lessor is subject to civil commercial law with respect to its obligations under this Agreement, neither Lessor nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Lessor constitute private and commercial acts.
7.3 Wilmington's Representations, Warranties and Covenants. Wilmington represents, warrants and covenants to Lessee as at the date of this Agreement and on the Delivery Date, on the basis of the facts and circumstances as at the relevant date, that:
(a) Organization; Qualification. Wilmington is a Delaware trust company duly formed, validly existing and in good standing under the laws of the State of Delaware and has the trust power and authority to conduct the business in which it is currently engaged and to own or hold under lease its properties and to enter into and perform its obligations under each of the Operative Documents to which it is a party and the Trust Agreement. Wilmington is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it does business and in which the failure to be so qualified would give rise to a Material Adverse Change to Wilmington.
(b) Authorization. Wilmington has taken (or will take as and when required by the terms hereof), or caused to be taken (or cause to be taken as and when required by the terms hereof), all necessary trust action to authorize the execution and delivery of each of the Operative Documents to which it is a party and the Trust Agreement and the performance of its obligations thereunder.
(c) No Violation. The execution and delivery by Wilmington of each of the Operative Documents to which it is a party and the Trust Agreement, the performance by Wilmington of its obligations thereunder and the consummation by Wilmington on the Delivery Date of the transactions contemplated thereby, do not and will not (a) violate any provision of its constitutional or organizational document, (b) violate any other applicable Law or judgment of any Government Entity having jurisdiction over Wilmington or any of its activities or properties or (c) violate or constitute any default under, or result in the creation of any Lien (other than Permitted Liens) upon any property of Wilmington under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, loan or other material agreement, instrument or document to which Wilmington is a party or by which Wilmington or any of its properties is bound.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
24
[Operating Lease Agreement (Aircraft No. 1)]
(d) Approvals. The execution and delivery by Wilmington of the Operative Documents and the Trust Agreement to which it is a party, the performance by Wilmington of its obligations thereunder and the consummation by Wilmington on the Delivery Date of the transactions contemplated thereby do not and will not require the consent or approval of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (a) any trustee or other holder of any Debt of Wilmington and (b) any Government Entity, except for those that have heretofore been obtained (true and complete copies of which have been delivered to Lessee) or as listed in Section 7.1(h).
(e) Valid and Binding Agreements. The Operative Documents to which Wilmington is a party and the Trust Agreement have been (or will upon execution thereof be) duly authorized, executed and delivered by Wilmington and, assuming the due authorization, execution and delivery thereof by the other party or parties thereto, constitute the legal, valid and binding obligations of Wilmington and are enforceable against Wilmington in accordance with the respective terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity.
(f) Citizenship. Wilmington is a "citizen of the United States" as that term is defined in the Act and shall either remain a "citizen of the United States" as that term is defined in the Act or shall otherwise be qualified to register the Aircraft with the State of Registration assuming the State of Registration is the United States.
(g) Litigation. There is no action, suit, claim or proceeding now pending or, to the knowledge of Wilmington, threatened, against Wilmington, before any court, governmental body, arbitration board, tribunal or administrative agency, which is reasonably likely to be determined adversely to Wilmington and if determined adversely to Wilmington would result in a Material Adverse Change to Wilmington.
(h) No Immunity. Wilmington is subject to civil commercial law with respect to its obligations under this Agreement, neither Wilmington nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Wilmington constitute private and commercial acts.
7.4 Owner Participant's Representations, Warranties and Covenants. Owner Participant represents, warrants and covenants to Lessee as at the date of this Agreement and on the Delivery Date, on the basis of the facts and circumstances as at the relevant date, that:
(a) Organization; Qualification. Owner Participant is a private limited company duly incorporated and validly existing under the laws of Ireland and has the power and authority to conduct the business in which it is currently engaged and to own or hold under lease its properties and to enter into and perform its obligations under each of the Operative Documents to which it is a party and the Trust Agreement. Owner Participant is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it does business and in which the failure to be so qualified would give rise to a Material Adverse Change of Owner Participant.
(b) Authorization. Owner Participant has taken (or will take as and when required by the terms hereof), or caused to be taken (or cause to be taken when required by the terms hereof), all necessary corporate action to authorize the execution and delivery of each of the Operative Documents to which it is a party and the Trust Agreement, and the performance of its obligations thereunder.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
25
[Operating Lease Agreement (Aircraft No. 1)]
(c) No Violation. The execution and delivery by Owner Participant of the Operative Documents to which it is a party and the Trust Agreement, the performance by Owner Participant of its obligations thereunder and the consummation by Owner Participant on the Delivery Date of the transactions contemplated thereby, do not and will not (a) violate any provision of its organizational documents, (b) violate any applicable Law or judgment of any Government Entity having jurisdiction over Owner Participant or any of its activities or properties or (c) violate or constitute any default under, or result in the creation of any Lien (other than Permitted Liens) upon any property of Owner Participant under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, loan or other material agreement, instrument or document to which Owner Participant is a party or by which Owner Participant or any of its properties is bound.
(d) Approvals. The execution and delivery by Owner Participant of the Operative Documents to which it is a party and the Trust Agreement, the performance by Owner Participant of its obligations thereunder and the consummation by Owner Participant on the Delivery Date of the transactions contemplated thereby do not and will not require the consent or approval of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, (a) any trustee or other holder of any Debt of Owner Participant and (b) any Government Entity, except for those that have heretofore been obtained (true and complete copies of which have been delivered to Lessee) or as listed in Section 7.1(h).
(e) Valid and Binding Agreements. The Operative Documents to which Owner Participant is a party and the Trust Agreement have been duly authorized, executed and delivered by Owner Participant and, assuming the due authorization, execution and delivery thereof by the other party or parties thereto, constitute the legal, valid and binding obligations of Owner Participant and are enforceable against Owner Participant in accordance with the respective terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity, whether considered in a proceeding at law or in equity.
(f) Litigation. There is no action, suit, claim or proceeding now pending or, to the knowledge of Owner Participant, threatened, against Owner Participant, before any court, governmental body, arbitration board, tribunal or administrative agency, which is reasonably likely to be determined adversely to Owner Participant and if determined adversely to Owner Participant would result in a Material Adverse Change of Owner Participant.
(g) No Immunity. Owner Participant is subject to civil commercial law with respect to its obligations under this Agreement, neither Owner Participant nor any of its assets is entitled to any right of immunity and the entry into and performance of this Agreement by Owner Participant constitute private and commercial acts.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
26
[Operating Lease Agreement (Aircraft No. 1)]
(h) Treaty Qualification. On the date of this Agreement, Owner Participant qualifies for the benefits of the Convention Between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which entered into force on December 17, 1997, together with any protocols thereto, exchanges of notes with respect thereto, and amendments thereof (in each case effective on or prior to the date of this Agreement) (the " U.S.-Ireland Income Tax Treaty ") and, absent a change in the U.S.-Ireland Income Tax Treaty or other applicable Law (in each such case effective after the date of this Agreement), reasonably expects that it will continue to so qualify at all times through the Termination Date. For the avoidance of doubt, Owner Participant shall be treated for purposes of this Section 7.4(h) as qualifying for the benefits of the U.S.-Ireland Income Tax Treaty only if it meets each and every condition and limitation under the U.S.-Ireland Income Tax Treaty necessary in order for Owner Participant to receive Rent, Supplemental Rent, Agreed Value, and other amounts paid by Lessee to Lessor pursuant to this Agreement free of United States federal withholding Taxes (including, without limitation, the "Resident" and one of the "Limitation of Benefits" provisions of the U.S.-Ireland Income Tax Treaty). On the date of this Agreement and the Delivery Date, Owner Participant does not have, and has no reason to believe that it will at any time up to and including the Termination Date have, a "permanent establishment" within the United States, within the meaning of the U.S.-Ireland Income Tax Treaty (a " Permanent Establishment ").
Section 8. Covenants.
8.1 General Covenants. Lessee covenants to Lessor and Owner Participant that it will:
(a) preserve and maintain (i) subject to clause (e) below, its corporate existence and (ii) all of its rights, privileges and franchises in every jurisdiction in which the character of the property owned or the nature of the business transacted by it makes licensing or qualification necessary;
(b) pay or cause to be paid (i) all Taxes required by applicable Laws to be paid by it (whether such Taxes are imposed upon it or upon its income and profits or upon any property belonging to it or otherwise) prior to the date on which any penalty accrues, except Taxes which it is contesting in good faith by appropriate proceedings provided that such contest does not involve any risk of criminal penalty or any reasonable possibility of sale, forfeiture, confiscation, seizure or loss of, or the imposition of any Lien on, any Item of Equipment or any interest therein, and (ii) all other lawful claims which, if not paid, are reasonably likely to result in the imposition of a Lien upon the Aircraft or any part thereof;
(c) remain duly qualified to operate the Aircraft under applicable Law;
(d) maintain in full force and effect all governmental consents, licenses, authorizations, approvals, declarations, filings and registrations obtained or effected in connection with this Agreement and every document or instrument contemplated hereby and to take all such additional action as may be necessary in connection herewith or therewith. Lessee further undertakes to timely obtain or effect any new or additional governmental consents, licenses, authorizations, approvals, declarations, filings or registrations as may become necessary for Lessee's performance of its obligations hereunder and under each of the other Operative Documents to which Lessee is a party;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
27
[Operating Lease Agreement (Aircraft No. 1)]
(e) not enter into any transaction (a " Transaction ") without the prior written consent of Lessor (whether by way of reconstruction, reorganization, consolidation, amalgamation, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its liabilities, property and assets would become the liabilities, property and assets of the entity resulting therefrom (the " Successor ") unless:
(i) no Lease Event of Default has occurred and is continuing or would result from the Transaction;
(ii) the Successor is a corporation or a limited liability company existing under the laws of the U.S. or one of its states;
(iii) the Successor is a Certificated Air Carrier;
(iv) the tangible net worth of the Successor is not less than that of Lessee immediately prior to the Transaction; and
(v) the Successor becomes liable for the obligations of Lessee under the Operative Documents to which Lessee is a party as a result of the Transaction.
Any breach by Lessee of this Section 8.1(e) shall be deemed a " Change of Control Event ."
(f) notify Lessor and Owner Participant of any change to Lessee's registered office for service of process or any change in Lessee's jurisdiction of incorporation not more than 30 days following such change;
(g) not (i) except as otherwise permitted in this Agreement, voluntarily suspend its certificated operation of the Aircraft or its fleet of Airbus A330's or (ii) permit to be revoked, canceled or otherwise terminated, whether by act or omission, all or substantially all of the franchises, concessions, permits, rights or privileges required for the conduct of business and operations of Lessee or the free and continued use and exercise thereof;
(h) pay promptly when due all navigation and en-route charges and all other charges payable by Lessee for the use of or services provided at any airport, whether in respect of the Aircraft or any other aircraft in Lessee's fleet;
(i) not represent or hold out Lessor, Owner Participant, any Financier or any Affiliate of the foregoing as carrying goods or passengers on the Aircraft or being in any way connected to operation of the Aircraft;
(j) If any Items of Equipment delivered to Lessor by Lessee in connection with this Agreement are required by this Agreement to have a validity and effectiveness for the Lease Term, but have or are of a duration or effectiveness that is for less than the Lease Term when originally delivered, cause replacements, extensions or supplements thereof to be timely delivered to Lessor during the Lease Term to ensure that Lessor maintains at all times during the Lease Term the benefits initially afforded by such items and the continued effectiveness and validity of the same for the Lease Term;
(k) not, directly or indirectly, create, incur, assume or suffer to exist any Lien on or with respect to this Lease, any Item of Equipment, title thereto or any interest therein, except for Permitted Liens. Lessee shall promptly, at its own expense, take such action as may be necessary to duly discharge any such Lien not excepted above if the same shall arise at any time with respect to any Item of Equipment; and
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
28
[Operating Lease Agreement (Aircraft No. 1)]
(l) ensure that if the Aircraft is in effect used and enjoyed in Ireland and, if at such time the Aircraft is not used by a transport undertaking operating for reward chiefly on international routes, then Lessee shall promptly notify Lessor in writing and shall reasonably cooperate (at Owner Participant's cost) to prepare and file such Irish value added Tax forms as may be reasonably required to ensure that Irish value added Tax does not apply to Rent, Supplemental Rent, Agreed Value, and other amounts paid by Lessee under this Agreement.
8.2 Operation and Use. Lessee undertakes to comply with the operation and use provisions set out in Schedule 7.
8.3 Maintenance, Alterations, Repairs, Pooling and Inspection. Lessee undertakes to comply with the maintenance, alteration, repairs, pooling and inspection provisions set out in Schedule 8.
8.4 Monthly Report. Lessee undertakes to furnish to Lessor within ten days after the end of every month during the Lease Term and until Redelivery a report on the Aircraft and each Engine in the form of Schedule 11.
8.5 Provision of Information. Lessee undertakes to:
(a) as soon as practicable after the end of the first, second and third quarterly fiscal periods in each fiscal year of Holdings, and in any event within 60 days thereafter (or, if Holdings has obtained an extension from the SEC to file its Form 10-Q, within 90 days), provide Lessor a copy of the Form 10-Q (excluding exhibits) filed by Holdings with the SEC for such quarterly period; or if no such Form 10-Q was so filed, its consolidated balance sheet and related statements of operations and cash flows as of the end of and for such fiscal quarter (in the case of the statement of operations) and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, prepared in accordance with GAAP, subject to normal year-end audit adjustments;
(b) as soon as practicable after the end of each fiscal year, and in any event within 120 days thereafter, provide Lessor a copy of the Form 10-K (excluding exhibits) filed by Holdings with the SEC for such fiscal year, or, if no such Form 10-K was so filed, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Holdings' independent public accountants of recognized national standing to the effect that such consolidated financial statements present fairly in all material respects the consolidated financial condition and results of operations of Holdings and its Subsidiaries (including Lessee) on a consolidated basis in accordance with GAAP;
(c) provide, within ten Business Days of Lessor's reasonable request, which request may be made no more frequently than once in each calendar quarter while no Lease Event of Default is continuing (and while a Lease Event of Default is continuing, at any time without such limitation), all information regarding any Item of Equipment, any engine installed on the Airframe, and the use, location and condition of the Aircraft, including without limitation, the hours remaining until the next scheduled check, inspection, overhaul or shop visit;
(d) promptly notify Lessor of any Lease Default or Lease Event of Default of which it becomes aware or any other event which would be likely in Lessee's reasonable opinion to adversely affect Lessee's ability to perform any of its obligations under the Operative Documents; and
(e) as soon as practicable, give to Lessor such other information relating to Lessee's or Holdings' financial condition, operations, business and property as Lessor may from time to time reasonably request.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
29
[Operating Lease Agreement (Aircraft No. 1)]
8.6 Insurance.
(a) Insurance. Lessee will maintain the Insurances in full force during the Lease Term, and thereafter as expressly required in this Agreement, which shall be in line with best industry practice for comparable operators and shall be through such brokers and with such insurers of recognized standing in the London and/or New York markets and having such deductibles and subject to such exclusions as may be approved by Lessor from time to time. The Insurances shall in any event meet the requirements set out in Schedule 9 which may be amended from time to time by Lessor, following reasonable notice to Lessee, so that the scope and level of cover is maintained in line with generally accepted industry-wide practice for airlines similarly situated with, and operating similar aircraft as, Lessee such that the interests of Lessor and each Indemnified Party are prudently protected.
(b) Change. If at any time Lessor wishes to revoke its approval of any insurer, reinsurer, insurance or reinsurance, Lessor and/or its brokers will consult with Lessee and Lessee's brokers (as for the time being approved by Lessor) regarding whether that approval should be revoked to protect the interests of the parties insured. If, following such consultation, Lessor considers (acting reasonably) that any change should be made, Lessee will then arrange or procure the arrangement of alternative cover reasonably satisfactory to Lessor.
(c) Insurance Undertakings and Information. Lessee will:
(i) comply with the terms and conditions of each policy of the Insurances and not do, knowingly consent or agree to any act or omission which:
(A) invalidates or may invalidate the Insurances; or
(B) renders or may render void or voidable the whole or any part of any of the Insurances; or
(C) brings any particular liability within the scope of an exclusion or exception to the Insurances, unless such risk is covered by other insurance, if economically feasible;
(ii) not take out without the prior written approval of Lessor any insurance or reinsurance in respect of the Aircraft other than that which is required under this Agreement unless relating solely to hull total loss, business interruption, profit commission and deductible risk;
(iii) commence renewal procedures at least 30 days prior to expiry of any of the Insurances and provide to Lessor:
(A) if requested by Lessor, a written status report of renewal negotiation 14 days prior to each expiry date;
(B) confirmation of completion of renewal prior to each policy expiry date;
(C) certificates of insurance (and where appropriate certificates of reinsurance), and broker's (and any reinsurance broker's) letter of undertaking in a form acceptable to Lessor in English, detailing the coverage and confirming the insurers' (and any reinsurers') agreement to the specified insurance requirements of this Agreement within seven days after each renewal date;
(iv) prior to the Delivery Date and on each renewal date, provide to Lessor copies of documents or other information evidencing the Insurances;
(v) be responsible for any deductible under the Insurances
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
30
[Operating Lease Agreement (Aircraft No. 1)]
(vi) provide any other insurance and reinsurance related information, or assistance, in respect of the Insurances as Lessor may reasonably require;
(vii) maintain insurance in respect of the Aircraft for the purposes of the Operative Documents which incorporates the terms and conditions of Airline Finance/Lease Contract Endorsement AVN67B (or any updated version thereof if such updated endorsement shall be the general aviation industry standard) or other language usual and customary in the international airline industry into such insurance. In that event, to the extent that any provision of AVN67B (or any updated version thereof if such updated endorsement shall be the general aviation industry standard) conflicts or is otherwise inconsistent with the requirements of the Operative Documents relating to insurance, then (so long as it shall be general practice to insure aircraft financed or leased on the basis of such endorsement) such conflicting or inconsistent provision of AVN67B (or any updated version thereof if such updated endorsement shall be the general aviation industry standard) shall prevail and such endorsement shall, to the extent of any inconsistency, be deemed to satisfy the requirements of the Operative Documents; and
(viii) forthwith notify Lessor of any event (including an Event of Loss) which will or may give rise to a claim under any required policy in excess of the Damage Notification Threshold.
(d) Failure to Insure. If Lessee fails to maintain the Insurances in compliance with this Agreement, each of the Indemnified Parties will be entitled but not bound (without prejudice to any other rights of Lessor under this Agreement):
(i) to pay the premiums due or to effect and maintain insurances satisfactory to it or otherwise remedy Lessee's failure in such manner (including to effect and maintain an "owner's interest" policy) as it considers appropriate. Any sums so expended by it will become immediately due and payable by Lessee to Lessor together with interest thereon at the Default Rate, from the date of expenditure by it up to the date of reimbursement by Lessee; and
(ii) at any time while such failure is continuing to require the Aircraft to remain at any airport or to proceed to and remain at any airport designated by it until the failure is remedied to its satisfaction.
(e) Continuing Indemnity. Lessee shall effect and maintain insurance after the Termination Date with respect to its liability under this Section 8.6 for two years, and such insurance shall name each Indemnified Party as an additional insured.
Section 9. Loss or Damage to the Aircraft.
9.1 Event of Loss. Lessee shall promptly notify Lessor of:
(a) any Event of Loss; or
(b) any other loss or damage to the Aircraft in excess of the Damage Notification Threshold, and each of Lessee and Lessor shall supply the other all necessary information, documentation and assistance which may reasonably be required by Lessor in connection with making any claim under the Insurances.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
31
[Operating Lease Agreement (Aircraft No. 1)]
9.2 Payment on Event of Loss.
(a) If an Event of Loss occurs in respect of the Airframe (with or without the Engines) during the Lease Term, Lessee shall pay, or procure that the insurer pays, to Lessor (or to any Financier or Security Trustee, as applicable, named as loss payee under the Insurances) as soon as reasonably practicable but in any event within 90 days after the Event of Loss Date or, if earlier, the third Business Day following the date such insurance proceeds are received, the Agreed Value together with all Rent, Supplemental Rent and other amounts then due and payable under Operative Documents to which Lessee is a party. Any insurance proceeds payable following an Event of Loss under the Insurances in excess of the Agreed Value may be paid to Lessee or its order.
(b) Upon such payment being made, (i) this Agreement and the obligations of Lessee hereunder, including, without limitation, the obligation to pay Rent and Supplemental Rent, are terminated subject to Section 13.7 and (ii) Lessor shall return the Security Deposit or Security Deposit LC, as applicable, to Lessee in accordance with Section 5.5(b).
(c) The Net Event of Loss Proceeds received by Lessor (or such other person as may be designated as loss payee) from Lessee or the insurer pursuant to this Section 9.2 shall be applied as follows:
(i) first, in discharge of any unpaid Rent, Supplemental Rent and any other amounts (other than the Agreed Value) due and payable by Lessee under or in connection with the Operative Documents but unpaid;
(ii) second, in discharge of the Agreed Value; and
(iii) third, payment of the balance, if any, to Lessee.
9.3 Co-operation Regarding Claims. Lessee shall co-operate with Lessor, Security Trustee and each Financier to procure the payment by the insurer of the Agreed Value upon any Event of Loss of the Aircraft.
9.4 Payment of Rent on Event of Loss. Lessee shall continue to pay Rent on the days and in the amounts required under this Agreement notwithstanding any Event of Loss provided that no further installments of Rent shall become due after the date on which all sums due under Section 9.2(a) shall have been paid in full, and on such date the Lease Term shall terminate and Lessor shall, at Lessee's cost and subject to the rights (if any) of the insurer, cause title to the Aircraft (and to any surviving Engine) to be conveyed to Lessee free and clear of all rights of Lessor and all Indemnified Parties and Lessor Liens but otherwise on an as-is where-is basis, without recourse to or warranty by Lessor or any Financier (free of Lessor's Liens and defects in title resulting from Lessor's or Owner Participant's acts).
9.5 Repairable Damage. In the event of repairable damage to the Aircraft or any of the Engines and subject to no Lease Default under Section 10.1(a) or Lease Event of Default having occurred and continuing, all insurance proceeds which may be payable by the insurers of the Aircraft shall be paid to (a) Lessee in respect of all loss or damage Lessee has made good (or caused to be made good), or (b) the repairer for the cost of the completed repair works, or (c) to the vendor of any new or replacement Engine or Part for the cost of such new or replacement Engine or Part provided that, in relation to (a) and (b) above, Lessee furnishes to Lessor confirmation reasonably satisfactory to Lessor that the repairs have been carried out in accordance with the terms of this Agreement. Any such insurance proceeds payable following the occurrence of a Lease Event of Default (or not otherwise applied in the manner described above) shall be applied in such manner as Lessor may direct.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
32
[Operating Lease Agreement (Aircraft No. 1)]
9.6 Payment of Repairs. In the event of repairable damage to the Aircraft or any of the Engines, or an Engine Event of Loss, and if the insurance moneys paid in respect thereof are insufficient to pay the cost or estimated cost of making good or repairing such damage or the cost of purchasing a Replacement Engine, Lessee will pay the deficiency within two Business Days of demand from Lessor provided such amounts are due and payable.
9.7 Engine Event of Loss. Lessee shall promptly notify Lessor of the occurrence of an Engine Event of Loss and shall as soon as reasonably practicable but no later than 120 days after the occurrence of such Engine Event of Loss, convey or cause to be conveyed to Lessor (or as Lessor may otherwise direct), as replacement for such Engine, title, free and clear of all Liens other than Permitted Liens, to a Replacement Engine. At the time of any such conveyance, Lessee shall (a) deliver to Lessor a bill of sale in favor of Lessor with respect to such Replacement Engine and (b) take such other actions and furnish such other certificates and documents as Lessor may reasonably require in order to ensure that the Replacement Engine is duly and properly conveyed to Lessor and leased to Lessee to the same extent as the Engine replaced thereby and leased hereunder. Such engine shall, after such transfer, be deemed part of the property leased hereunder and shall be deemed an Engine. Upon full compliance by Lessee with the terms of this Section 9.7, the leasing of the replaced Engine with respect to which such Engine Event of Loss occurred shall cease and title to such Engine shall thereupon (subject to any salvage rights of the insurer) vest in Lessee free and clear of all rights of Lessor and all Indemnified Parties and Lessor Liens but otherwise without recourse to or warranty by Lessor or any Financier (free of Lessor's Liens and defects in title from Lessor's or Owner Participant's acts). If Lessor or Financier receives any insurance proceeds relating to such Engine Event of Loss, Lessor will (or will procure that Financier will) promptly, subject to compliance by Lessee with its obligations under this Section 9.7 and so long as no Lease Default or Lease Event of Default has occurred and is outstanding, remit such proceeds to Lessee. No Engine Event of Loss with respect to any Engine that is replaced in accordance with the provisions of this Section 9.7 shall result in any increase or decrease of Rent or the Agreed Value. Except as provided in this Section 9.7, Lessee shall have no right to replace an Engine with a Replacement Engine.
Section 10. Default.
10.1 Events of Default. Each of the events or circumstances set out in this Section is a Lease Event of Default:
(a) Lessee fails to pay when due at the place at and in the currency in which it is expressed to be payable:
(i) any Rent or Agreed Value payable by it hereunder and that sum is not paid within five Business Days after the due date or the date of receipt of any demand (if payable on demand); or
(ii) any other amount payable by it under the Operative Documents to which Lessee is a party and such failure shall continue for five Business Days after written demand by Lessor; or
(b) Lessee fails to comply with any provision of Section 8.6 or Schedule 9 or any of the Insurances is not maintained or is cancelled or terminated or becomes invalid or unenforceable as a result of a breach of its respective terms or notice of cancellation is given in respect of any such insurance and the same is not renewed or replaced at least five Business Days prior to such cancellation's taking effect in respect of the Insurances or the Aircraft is operated at any time when or in any place where the Insurances are not in full force and effect; or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
33
[Operating Lease Agreement (Aircraft No. 1)]
(c) any representation or warranty of Lessee under an Operative Document to which Lessee is a party or any certificate provided by Lessee pursuant to an Operative Document to which Lessee is a party (other than financial statements and other documents, including exhibits, filed with the SEC capable of being amended or updated) was incorrect or misleading in any material respect when made or deemed to be repeated, unless the representation and warranty is capable of remedy and is remedied within 30 days of Lessor giving Lessee written notice of such inaccuracy; or
(d) Lessee fails to perform its obligations under any Operative Document (other than a failure to which another paragraph of this Section is applicable) unless, save to the extent otherwise provided in this Agreement, the failure is capable of remedy and is remedied within 30 days after the Lessor giving Lessee written notice of the failure and requiring such remedy; provided, however, if such failure cannot be remedied within such 30 day period and Lessee is taking all such action as Lessor deems appropriate and necessary to remedy such failure, such period shall be extended for an additional 60 days (but only so long as Lessor's rights hereunder would not be prejudiced and so long as it reasonably appears that such failure can be remedied within such additional 60 day period); or
(e) Lessee becomes or admits to being Insolvent or an Insolvency Event occurs concerning Lessee; or
(f) Lessee ceases to carry on its business as an operating airline; or
(g) final judgment for the payment of money in excess of $5,000,000 (or the equivalent in any other currency) shall be rendered against Lessee and same shall remain unpaid, unstayed, unbounded or undischarged for a period of 30 days.
(h) Lessee fails to return the Aircraft under this Agreement at the Redelivery Location in compliance with the Return Conditions on the last day of the Lease Term or as otherwise required under this Agreement; or
(i) Lessee or any person lawfully claiming by or through Lessee challenges the existence, validity, enforceability or priority of the rights of Lessor or Owner Participant in respect of the Aircraft under this Agreement or Lessor's title to the Aircraft; or
(j) Lessee shall cease to be a Certificated Air Carrier; or
(k) (i) Lessee rescinds or purports to rescind or repudiate or purports to repudiate this Agreement or any Operative Document to which Lessee is a party or any assignment for security of any Permitted Sublease or (ii) this Agreement or any Operative Document to which Lessee is a party ceases to be in full force for any reason due to any action or inaction of Lessee, and, in the case of this subclause (ii), if such unenforceability is susceptible to cure, Lessee has not cured the same within two Business Days; or
(l) Lessee suspends or threatens to suspend or cease to carry on all or a substantial part of its business; or
(m) [Reserved]; or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
34
[Operating Lease Agreement (Aircraft No. 1)]
(n) (i) to the extent a Letter of Credit is issued, Lessee fails to deliver, maintain, renew, extend, increase or re-issue any such Letter of Credit (or other security document) when and in the manner required under this Agreement and such failure remains unremedied for a period of two Business Days after the Lessor giving Lessee written notice of such failure unless Lessee has paid to the Primary Account, an amount of cash equal to the required face value of that Letter of Credit, or (ii) if Lessee fails to restore the Security Deposit LC or Security Deposit or Maintenance Reserves to the extent applied by Lessor in connection with a Lease Event of Default in accordance with Sections 5.4(h) or 5.6(e); or
(o) there is a Change of Control Event with respect to Lessee.
10.2 Lessor Rights upon Lease Event of Default.
(a) If a Lease Event of Default occurs and at any time thereafter so long as such Lease Event of Default is continuing, Lessor may (without prejudice to any other rights of Lessor and Owner Participant under this Agreement or at law) declare this Agreement to be in default and by written notice to Lessee do any one or more of the following:
(i) apply and/or set off against any of Lessee's obligations hereunder and under any of the other Operative Documents to which Lessee is a party and Lessor's and Owner Participant's costs, damages, expenses and disbursements incurred in connection with such Lease Event of Default, at Lessor's discretion, all amounts paid to Lessor in respect of Security Deposit or Maintenance Reserves pursuant to this Agreement, as well as any other amounts paid by Lessee under any Operative Document; and/or
(ii) do anything that may be required to cure the Lease Event of Default (notwithstanding Lessor having no obligation or responsibility to do so and without prejudice to Lessor's right to treat any such non-compliance by Lessee as a Lease Event of Default under this Agreement) and recover from Lessee all costs and expenses incurred in doing so; and/or
(iii) accept such repudiation and by notice to Lessee and with immediate effect unilaterally terminate the leasing of the Aircraft or if the Lease Event of Default occurs prior to the Delivery Date, the obligation to lease the Aircraft under this Agreement whereupon the rights of Lessee under this Agreement shall cease (but without prejudice to the continuing obligations of Lessee that expressly survive the termination of this Agreement); and/or
(iv) proceed by appropriate court action to enforce performance by Lessee of this Agreement and/or to recover damages for the breach of this Agreement; and/or
(v) deregister or re-register the Aircraft. Lessee will at the request of Lessor immediately take all steps necessary to effect (if applicable) deregistration of the Aircraft and its export from the country where the Aircraft is for the time being situated, and any other steps necessary to enable the Aircraft to be redelivered to Lessor in accordance with this Agreement, and Lessee hereby irrevocably and by way of security for its obligations under this Agreement appoints (which appointment is coupled with an interest) Lessor as its attorney to execute and deliver any documentation, do any act or thing required in connection with the foregoing and grant all the powers and authorizations necessary for taking any of the foregoing actions; and/or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
35
[Operating Lease Agreement (Aircraft No. 1)]
(vi) by notice to Lessee cancel this Agreement on and as of the date specified in such notice and (without further notice to Lessee) retake possession of the Aircraft, and Lessee agrees that Lessor may by its agents or representatives for this purpose enter upon Lessee's premises where the Aircraft may be located or cause the same to be redelivered to Lessor, and Lessor shall be entitled to act as attorney for Lessee in causing such redelivery or in directing pilots to fly the Aircraft to said airport for redelivery thereof to Lessor and shall have all the powers and authorizations legally necessary for taking such action (at Lessor's election); and/or
(vii) with or without taking possession thereof, sell by private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, (all free and clear of any rights of Lessee) in each case to the extent permitted by applicable Law; and/or
(viii) exercise any other right or remedy which may be available to it under applicable Law or under the Cape Town Convention; and/or
(ix) require Lessee to pay to Lessor all amounts due and payable by Lessee to Lessor and/or any Indemnified Party under the Operative Documents to which it is a party as of the date of termination or cancellation of this Agreement; and/or
(x) in the event Lessor shall have obtained possession of the Aircraft as contemplated in Section 10.2(a)(vi) above or otherwise, but shall not have re-leased or sold the Aircraft, Lessor shall have the right (but without limiting any of its other rights hereunder or under applicable Law), by written notice to Lessee specifying a payment date, to demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice: (A) all accrued but unpaid Basic Rent, Maintenance Reserves and any Supplemental Rent payable by Lessee for the Aircraft due to and including the payment date specified in such notice, plus (B) the aggregate unpaid Basic Rent for the Aircraft which would otherwise have accrued over the remainder of the Lease Term but for the Lease Event of Default, discounted monthly to present value as of the payment date specified in such notice at the Discount Rate. The amounts referred to in this Section 10.2(a)(x) shall continue to bear interest at the Default Rate from the payment date specified in said notice until payment is made. Following payment of all amounts payable by Lessee as provided in this Section 10.2(a)(x) and payment of all other amounts payable pursuant to any other provisions of this Agreement, including amounts payable in connection with Lessor's exercise of its remedies hereunder pursuant to this Section 10, if Lessor subsequently re-leases the Aircraft for any portion of the Lease Term that would have remained in effect hereunder if a Lease Event of Default had not occurred, Lessor shall refund to Lessee an amount equal to the basic rental payments paid to Lessor under the re-leasing, as the same are received by Lessor, for the period from the commencement of the term of the re-leasing to the date upon which the Lease Term for the Aircraft would have expired but for Lessee's default, but only to the extent of the Basic Rent referred to in clause (B) of this Section 10.2(a)(x) and any other Basic Rent or Supplemental Rent referred to in clause (A) of this Section 10.2(a)(x) are received by Lessor; provided always that Lessee shall not be entitled to any such refund under this Section 10.2(a)(x) if (x) such refund would result in Lessor receiving and retaining less than the full amount of all payments that Lessor would have been entitled to receive and retain under this Agreement (after giving effect to any discounting of future payments) if Lessee had fully performed its obligations hereunder throughout the entire Lease Term of this Agreement or (y) a Lease Event of Default has occurred under Section 10.1(e); and/or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
36
[Operating Lease Agreement (Aircraft No. 1)]
(xi) in connection with each of the foregoing (except Section 10.2(a)(x)), require Lessee to pay to Lessor on demand and to indemnify Lessor and Owner Participant for, from and against the following: all damages, costs, fees, disbursements and expenses incurred or recoverable pursuant to applicable Law by Lessor and Owner Participant or in connection with such Lease Event of Default, including, but not limited to:
(A) all direct (but not incidental) losses, including lost profits (calculated on an After-Tax Basis) suffered by Lessor and Owner Participant because of Lessor's inability to place the Aircraft on lease with another lessee or inability to place the Aircraft on lease with another lessee on terms as favourable to Lessor as this Agreement and the other Operative Documents to which Lessee is a party or because whatever use, if any, to which Lessor is able to put the Aircraft upon its return to Lessor, or the amount received by Lessor upon a sale or other disposal of the Aircraft, is not as profitable to Lessor as leasing the Aircraft in accordance with the terms of this Agreement and the other Operative Documents to which Lessee is a party would have been, including, in each case, lost Basic Rent and Supplemental Rent payments during any remarketing period or during any period in which the Aircraft is placed in storage (and taking into account any expenses incurred by Lessor in remarketing the Aircraft and/or in modifying or reconfiguring the Aircraft to meet the requirements of an alternative lessee); and
(B) interest at the Default Rate on (A) any amounts due and payable by Lessee under this Agreement, but not paid, and (B) any judgment against Lessee issued by a court of competent authority until the same are paid in full; and
(C) any direct out-of-pocket loss, cost, expense or liability sustained or incurred by Lessor owing to Lessee's failure to redeliver the Aircraft on the date, at the place and in the condition required by this Agreement, including any costs, fees, disbursements and expenses incurred in (A) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, any Engine or Part to the condition required by this Agreement and (B) preparing the Aircraft, any Engine or Part for sale or lease, advertising the sale or lease of any such Items and selling or re-leasing the same; and
(D) reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Lease Default or Lease Event of Default or the exercise of Lessor's remedies with respect thereto; and/or
(xii) in connection with Section 10.2(a)(x) above or Section 10.3 below, require Lessee to pay to Lessor on demand and to indemnify Lessor from and against the following:
(A) all losses related to Lessor putting the Aircraft in its required return condition in accordance with the terms of this Agreement and any expenses incurred by Lessor in remarketing the Aircraft and/or in modifying or reconfiguring the Aircraft to meet the requirements of an alternative lessee; and
(B) interest at the Default Rate on (A) any amounts due and payable by Lessee under this Agreement, but not paid, and (B) any judgment against Lessee issued by a court of competent authority until the same are paid in full; and
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
37
[Operating Lease Agreement (Aircraft No. 1)]
(C) any loss, cost, expense or liability sustained or incurred by Lessor owing to Lessee's failure to redeliver the Aircraft on the date, at the place and in the condition required by this Agreement, including any costs, fees, disbursements and expenses incurred in (A) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, any Engine or any Part to the condition required by this Agreement and (B) preparing the Aircraft, any Engine or any Part for sale or lease, advertising the sale or lease of any such Items and selling or re-leasing the same; and
(D) reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Lease Default or Lease Event of Default or the exercise of Lessor's remedies with respect thereto; and/or
(xiii) require Lessee to pay and indemnify each Indemnified Party on demand and on an After-Tax Basis against any expense which such Indemnified Party may sustain or incur as a result or consequence of such Lease Event of Default, including (but not limited to) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft, any Engine or any Part or in unwinding any swap, forward interest rate agreement or other financial instrument, in each case relating in whole or in part to any financings by Lessor in connection with this Agreement (provided that, subject to and following all Indemnified Parties finally recovering all amounts payable to them under this Agreement such Indemnified Party shall pay any gains in the unwinding of any such swap, forward interest rate agreement or other financial instrument to Lessee), any Operative Document to which Lessee is a party, the Aircraft, any Engine or any Part or any rights thereunder or in connection therewith (including any interest, fees, penalties, breakage costs or other sums whatsoever paid or payable on account of funds borrowed, including funds borrowed in order to carry any unpaid Basic Rent, Supplemental Rent, any unpaid amount in respect of Maintenance Reserves, or Lessee's other Obligations hereunder); and/or
(xiv) require Lessee to redeliver possession of the Aircraft to Lessor at the Redelivery Location (or such other location as Lessor may require); and/or
(xv) exercise any other rights, and avail itself of any of any other remedies, provided by applicable Law.
Without prejudice to Lessor's and Owner Participant's other remedies under this Agreement or any other Operative Document to which Lessee is a party, Lessee agrees that the occurrence of a Lease Event of Default shall entitle Lessor to automatically and unilaterally cancel or terminate this Agreement without requirement of judicial intervention for all legal purposes. All costs and expenses incurred or advanced by Lessor or Owner Participant for or on account of any obligations of Lessee hereunder or under any Operative Document to which Lessee is a party following the occurrence and continuation of a Lease Event of Default shall bear interest at the Default Rate from the date on which such expenditure is incurred by Lessor or Owner Participant until the date of reimbursement thereof by Lessee (both before and after any relevant judgment, if any).
10.3 Present Value of Payments. In calculating Lessor's and Owner Participant's damages hereunder, upon the occurrence of a Lease Event of Default all Rent (other than Maintenance Reserves) and other amounts (other than Maintenance Reserves) which would have been due hereunder during the Lease Term if a Lease Event of Default had not occurred, together with amounts, if any, scheduled to be paid by a new lessee after any re-lease of the Aircraft, will be calculated on a present value basis using a discount rate equal to the Discount Rate, discounted to the earlier of the date on which Lessor obtains possession of the Aircraft or Lessee makes an effective tender thereof.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
38
[Operating Lease Agreement (Aircraft No. 1)]
10.4 Damages After Re-Lease or Sale. In the event Lessor shall have re-leased the Aircraft or shall have sold the Aircraft, Lessor, in lieu of exercising its rights under Section 10.2(x) above, (but without limiting any of its other rights hereunder or under applicable Law), may, if it shall so elect, demand that Lessee pay Lessor and Lessee shall pay Lessor, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent for the Aircraft due for the period commencing as of the commencement of the term of the re-leasing or the date of sale, as the case may be) any accrued but unpaid Basic Rent, Maintenance Reserves and Supplemental Rent for the Aircraft due up to and including the date of the commencement of the term of the re-leasing or the date of sale plus:
(i) in the case of a re-leasing, the excess of (A) the aggregate unpaid Basic Rent for the Aircraft which would otherwise have become due hereunder over the Lease Term but for the Lease Event of Default, discounted monthly to present value as of the date of the commencement of the term of the re-leasing at the Discount Rate, over (B) the aggregate basic rental payments to become due under the re-leasing from the date of the commencement of the term of the re-leasing to the date upon which the Lease Term for the Aircraft would have expired but for Lessee's default, discounted monthly to present value as of the date of the commencement of the term of the re-leasing at the Discount Rate, or
(ii) in the case of a sale, the excess of (A) the Agreed Value for the Aircraft, computed as of the Basic Rent payment date immediately preceding the date of sale, over (B) the net cash proceeds of such sale.
For the avoidance of doubt, the amounts specified in this Section 10.4 shall continue to bear interest at the Default Rate from the date of the commencement of the term of the re-leasing or the date of sale, as the case may be, until payment is made.
10.5 Remedies Cumulative. Except as otherwise expressly provided above, no remedy referred to in this Section 10 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor; and the exercise by Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies. No express or implied waiver by Lessor of any Lease Default or Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Default or Lease Event of Default.
10.6 Lessor's Exercise of Remedies. In effecting any repossession of the Aircraft (including the Technical Records, any Engine, or Part) (" Repossessed Items "), Lessor and its representatives and agents, to the extent permitted by Law, shall:
(a) have the right to enter upon any premises where it reasonably believes the Repossessed Items to be located; and
(b) have the right to maintain possession of and dispose of the Repossessed Items on any premises owned by Lessee or under Lessee's control.
10.7 Application of Payments Following Lease Default or Lease Event of Default. Any and all payments received by Lessor under this Agreement and under any other Operative Document following the occurrence and continuation of a Lease Default or Lease Event of Default, whether in respect of Rent or otherwise, may be applied by Lessor to the obligations of Lessee hereunder and under the other Operative Documents to which Lessee is a party in any manner or order as Lessor may determine in its sole discretion, notwithstanding any instructions, directions or notice given by Lessee or any other person with respect to the application of such payments.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
39
[Operating Lease Agreement (Aircraft No. 1)]
10.8 Use of Termination Date. If this Agreement is cancelled or the leasing of the Aircraft is otherwise terminated and the Aircraft is repossessed in connection with Lessor's exercise of remedies following the occurrence and continuation of a Lease Event of Default prior to the Scheduled Termination Date, then notwithstanding the use of the term "Termination Date" in this Agreement, the period of the Lease Term and the "Scheduled Termination Date" will be utilized in calculating the damages to which Lessor may be entitled to receive from Lessee pursuant to Section 10.2.
Section 11. Redelivery and End of Lease Term.
11.1 Redelivery of the Aircraft. Upon the expiry of the Lease Term (except as a result of an Event of Loss) Lessee shall deliver the Aircraft to Lessor:
(a) at the Redelivery Location;
(b) in the Return Condition; and
(c) free of all Liens (except for Lessor Liens).
11.2 Non-Compliance.
(a) If at the time of Final Inspection Lessee has not fully complied with any of its obligations under this Agreement (including Schedule 6), or Lessee fails to make the Aircraft available to Lessor on a timely basis for inspection and redelivery pursuant to Section 11.1 and Schedule 6 (whether such failure is due to any act or omission of Lessee or any other circumstance whatsoever), the Lease Term shall be extended until the time when the Aircraft has been redelivered to Lessor in full compliance with this Agreement, for the sole purpose of enabling such non-compliance or failure to be promptly rectified and during such extension period:
(i) Lessee shall not use the Aircraft in flight operations except those related directly to the re-delivery of the Aircraft to Lessor;
(ii) all Lessee's other obligations and covenants under this Agreement will remain in full force until Lessee so redelivers the Aircraft; and
(iii) Lessee shall pay Basic Rent to Lessor at a rate per month equal to the amount of Basic Rent payable in respect of the last scheduled Rent Period plus twenty-five percent (25%), calculated on a per diem basis.
Any such extension shall not prejudice Lessor's right to treat such non-compliance or failure as a Lease Event of Default at any time, and to enforce such rights and remedies as may be available to Lessor and Owner Participant in respect thereof under the terms of this Agreement or applicable Law. Without limiting the generality of the foregoing, Lessee's Basic Rent obligation under Section 11.2(a)(iii) above shall be without prejudice to Lessor's rights to terminate the leasing of the Aircraft pursuant to Section 10.2(a)(iii) and to indemnification pursuant to this Agreement.
(b) Lessor may elect (either on first tender of the Aircraft by Lessee or at any time during any extension period for tender of the Aircraft) to accept redelivery of the Aircraft notwithstanding non-compliance with the Redelivery Conditions, in which case Lessee will indemnify Lessor and Owner Participant, and provide cash to Lessor promptly following such time in an amount reasonably estimated by Lessor as the cost to Lessor of putting the Aircraft into the condition required by this Agreement. Any such payment in excess of the actual cost to Lessor of putting the Aircraft into the condition required by this Agreement will be promptly returned to Lessee by Lessor.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
40
[Operating Lease Agreement (Aircraft No. 1)]
11.3 Redelivery. Upon Redelivery Lessee will provide to Lessor all documents, operational and personnel assistance, reasonably requested as necessary to export the Aircraft from the State of Registration (including a valid and subsisting export license and export certificate of airworthiness for the Aircraft) and required in relation to the deregistration of the Aircraft with the Aviation Authority.
11.4 Acknowledgement. Provided Lessee has complied with its obligations under this Section 11.1 and Schedule 6, following redelivery of the Aircraft by Lessee to Lessor at the Redelivery Location, Lessor will deliver to Lessee an acknowledgement confirming that Lessee has redelivered the Aircraft to Lessor in accordance with this Agreement.
11.5 Minor Discrepancies. Lessor may, in its discretion, without limiting Lessor's rights and Lessee's obligations specified herein and in the Operative Documents, accept redelivery of the Aircraft where there are minor discrepancies of the Aircraft where such minor discrepancies are (a) listed as aircraft discrepancies in Lessor's acknowledgment delivered pursuant to Section 11.4 and (b) do not individually or in the aggregate affect the airworthiness, marketability, delivery to or use of the Aircraft by the next operator thereof, each in the opinion of the Lessor, and Lessee shall indemnify Lessor in accordance with Section 11.2(b) for the cost to Lessor of putting the Aircraft into the condition required by this Agreement.
11.6 Redelivery of Engines.
(a) Subject to this Section 11.6, Lessee shall redeliver each Engine to Lessor upon Redelivery.
(b) Lessee may, provided no Lease Default under Section 10.1(a) or Lease Event of Default has occurred and is continuing, and on at least six month's written notice prior to the Redelivery Date, substitute an engine of the same model from an Other Aircraft (" Substitute Engine ") in place of an Engine at Redelivery; provided that the Substitute Engine:
(i) is subject to the TCA;
(ii) complies with the Return Conditions, including with respect to the maintenance compensation payment under Section 13 of Schedule 6;
(iii) is free and clear of all Liens other than Lessor Liens; and
(iv) has a value and utility (without regard to hours and cycles) at least equal to the Engine which it replaces, assuming the maintenance requirements set forth in this Agreement have been complied with respect to such Engine.
(c) If a Substitute Engine does not satisfy Section 11.6(b)(i), Lessor and Lessee shall agree in good faith on a maintenance condition compensation adjustment in respect of the Substitute Engine, which shall be satisfied by Lessor and the lessor of the relevant Other Aircraft agreeing to substitute the Maintenance Reserves held for Engine Performance Restoration in respect of the relevant Engine and Substitute Engine at the time of Redelivery.
Section 12. Subleasing and Wet Leasing.
12.1 Subleasing. Provided no Lease Default or Lease Event of Default has occurred and is continuing, Lessee may sublease the Aircraft to a Permitted Sublessee pursuant to a sublease (a " Permitted Sublease ") provided the following conditions have been satisfied, each of which shall be required to be satisfied in relation to any Permitted Sublease prior to any subleasing pursuant to this Section:
(i) the Permitted Sublessee shall not be Insolvent and the jurisdiction of operation of the Permitted Sublessee shall be ICAO Category 1 at the time of entry into the sublease;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
41
[Operating Lease Agreement (Aircraft No. 1)]
(ii) at least 15 Business Days prior to entering into any Permitted Sublease, Lessee shall give Lessor written notice, specifying the identity of the Permitted Sublessee, the term of the Permitted Sublease, the delivery date under the Permitted Sublease and the habitual base of the Permitted Sublessee;
(iii) the term of the Permitted Sublease shall not be capable of extending beyond the Termination Date;
(iv) a Permitted Sublease shall:
(A) not contain provisions inconsistent with the provisions of this Agreement (but may impose additional or more stringent obligations on any Permitted Sublessee than are imposed on Lessee under this Agreement); and
(B) provide that no further subleases of the Aircraft by such Permitted Sublessee are permitted;
(v) where Lessor requires, Lessee's rights under the Permitted Sublease shall be assigned to Lessor as security for Lessee's obligations to Lessor hereunder. Lessee shall procure that the Sublessee provide an acknowledgment of such assignment to Lessor, and Lessee shall cause the Permitted Sublease to be registered on the International Registry with such registration being assigned to Lessor and the right to discharge the Permitted Sublease registration being transferred to Lessor. While no Lease Default or Lease Event of Default is continuing, Lessor agrees to promptly discharge any registered Permitted Sublease at the request of the Lessee, provided that Lessee would be within its rights to do so under such Permitted Sublease. In any case the Permitted Sublease shall provide that (aa) it is subject and subordinate to this Agreement in all respects and the rights of the Permitted Sublessee thereunder are subject and subordinate in all respects to the rights of Lessor to the Aircraft (subject to the Lessee's right of quiet enjoyment under Section 3); (bb) prior to delivery of the Aircraft to the Permitted Sublessee (as a condition precedent thereof), the Permitted Sublessee shall provide an acknowledgement to Lessor, Owner Participant, Security Trustee, if any, and each Financier, if any, in a form reasonably satisfactory to Lessor, confirming its agreement to the assignment (if so required), and that its rights to possession of the Aircraft under the Permitted Sublease will terminate immediately upon the termination of the leasing of the Aircraft under this Agreement, and that it will redeliver the Aircraft to Lessor, upon notification from Lessor that a Lease Event of Default has occurred and that Lessor has, as a result thereof, terminated Lessee's right to possession of the Aircraft under this Agreement; and (cc) Lessee may terminate such Permitted Sublease following the occurrence of a Lease Event of Default where Lessor has terminated the leasing of the Aircraft under this Agreement as a result thereof;
(vi) Lessee shall remain primarily liable under this Agreement for the performance and observance of all its obligations to the same extent as if no Permitted Sublease had been entered into;
(vii) all insurance requirements under this Agreement shall be complied with either by Lessee or by the Permitted Sublessee as if references in the insurance provisions of this Agreement to the "Lessee" were references to "the Permitted Sublessee" (and Lessee shall provide or cause the Permitted Sublessee to provide the insurance certificate and brokers' letter of undertaking to Lessor at least three Business Days prior to the commencement of the Permitted Sublease);
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
42
[Operating Lease Agreement (Aircraft No. 1)]
(viii) there shall be no change in the registration of the Aircraft from the United States unless all of the following requirements have been satisfied before the commencement of the Permitted Sublease:
(A) the proposed new State of Registration is a country in which the Sublessee is incorporated;
(B) at Lessee's cost, Lessee has entered into all documentation reasonably required by Lessor and Security Trustee to protect the interest of Lessor, Owner Participant, Security Trustee, if any, and Financiers, if any, in the Aircraft in the new State of Registration, including, without limitation, execution and delivery of a deregistration power of attorney in favor of Lessor, Owner Participant and/or Security Trustee (if the Permitted Sublessee is responsible (as the operator of the Aircraft) under any applicable Law in the new State of Registration for registering and deregistering the Aircraft); and
(C) a Landing Charges Letter shall have been fully executed by Lessee and Permitted Sublessee, as applicable;
(ix) [Reserved].
(x) Lessee shall provide to Lessor legal opinions, tax opinions (provided no tax opinion is required if the State of Registration remains the U.S.) and an opinion of Special FAA Counsel (in the case the State of Registration remains the U.S.), each in form and substance reasonably satisfactory to Lessor (at Lessee's or the Permitted Sublessee's expense) and addressed to Lessor, Owner Participant and Security Trustee, if any. Such legal opinions shall cover, among other things, the following matters:
(I) the terms of the Permitted Sublease, the Subordination Acknowledgment and the other documents executed and delivered in connection with the Permitted Sublease are legal, valid, binding and (subject to customary qualifications) enforceable in the State of Registration;
(II) the Permitted Sublease is subject and subordinate to this Agreement in all respects and the rights of the Permitted Sublessee thereunder are subject and subordinate in all respects to the rights of Lessor and Owner Participant under this Agreement;
(III) (in the case of a change in the State of Registration or habitual base) none of the Indemnified Parties are required to register or qualify to do business in the new State of Registration;
(IV) neither the Indemnified Parties nor the payments under this Agreement are subject to any additional Taxes, for which they are not indemnified by Lessee;
(V) all filings and registrations as necessary or advisable have been made to: (i) establish the priority, legality, validity or enforceability of the obligations of Lessee under this Agreement and the Permitted Sublessee under the Permitted Sublease and (ii) fully protect, establish and perfect Lessor's title to and Lessor's and Security Trustee's, if any, interest in the Aircraft and their respective rights and interests hereunder and thereunder as against Lessee, the Permitted Sublessee and any third parties; and
(VI) no value added, good and services, turnover, or sales or use Taxes will be chargeable in respect of any supply for such Tax purposes under any Operative Document for which Lessor or Owner Participant, as the case may be, is not indemnified hereunder;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
43
[Operating Lease Agreement (Aircraft No. 1)]
(xi) the foregoing opinion (a) shall be forwarded promptly to Lessor and Owner Participant at least five Business Days prior to the effective date of the Permitted Sublease, and (b) may, if different opinions are required hereunder, be made by a single counsel qualified to render opinions in each such country;
(xii) Lessee shall co-operate with Lessor (at no cost to Lessor) in connection with the execution and filing of any documents reasonably required by Lessor to be executed and filed from time to time with the International Registry and/or any registry or authority in the State of Registration (and any other appropriate place) in order to protect the interests, title and priority of Lessor, Security Trustee, if any, and Financiers, if any, in and to the Aircraft, this Agreement or the Permitted Sublease and/or to ensure the validity, enforcement or priority thereof;
(xiii) [Intentionally Omitted.]
(xiv) Lessee will pay to Lessor, Security Trustee and Financiers on demand all reasonable out of pocket expenses (including reasonable legal and other costs) payable or incurred by Lessor and Financiers in connection with the review and approval of the documentation required pursuant to this section; and
(xv) promptly after its execution, Lessee shall provide Lessor with original chattel paper counterpart of the Permitted Sublease.
12.2 Wet-Leasing. Lessee shall be permitted to wet-lease or charter the Aircraft provided the wet-lease or charter constitutes an arrangement whereby Lessee agrees to furnish the Aircraft to a third party pursuant to which:
(i) the Aircraft shall be operated solely by employees or contractors of Lessee possessing all current certificates and licenses that are required by applicable Law;
(ii) Lessee shall promptly inform Lessor when it has entered into the wet-lease should the duration of the wet-lease exceed three months;
(iii) the Aircraft shall be subject to insurance coverage in accordance with the provisions of this Agreement, provided that such insurance with respect to legal liabilities for passenger and cargo may be on a contingent basis for the duration of any such arrangement as long as such wet lessee under such arrangement maintains primary coverage for such insurance in favor of Lessor, Owner Participant, Lessee and any Indemnified Party in accordance and strict compliance with the terms, conditions, and requirements of this Agreement. Lessee shall provide Lessor with an officer's certificate indicating whether Lessee or the wet lessee will be responsible for maintaining the primary passenger, baggage and cargo liability insurance relating to the wet-lease;
(iv) the Aircraft shall be maintained by an Approved Maintenance Provider in accordance with the Approved Maintenance Program and otherwise maintained in accordance with the requirements of this Agreement;
(v) the Aircraft shall not be subject to any change in its State of Registration;
(vi) the wet-lease or charter shall provide that it is subject and subordinate to this Agreement in all respects and the rights of the wet-lessee or charterer thereunder are subject and subordinate in all respects to the rights of Lessor and Owner Participant under this Agreement; and
(vii) the wet-lease or charter will not extend beyond the date being one month prior to the end of the Lease Term,
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
44
[Operating Lease Agreement (Aircraft No. 1)]
provided always that the arrangement is not capable of giving rise to a possessory right in the Aircraft, or any other right which would have priority to the rights of Lessor, Security Trustee, if any, or any Financier under the Operative Documents related to the leasing of the Aircraft hereunder and to the Aircraft.
12.3 Lessee's Obligations. No sublease or other relinquishment of possession of the Aircraft, or any part of the Airframe or an Engine in any way discharges or diminishes any of Lessee's obligations to Lessor and Owner Participant under the Operative Documents to which Lessee is a party.
Section 13. General Indemnity.
13.1 Scope. Lessee agrees to indemnify, defend, reimburse and hold harmless, to the fullest extent permitted by law, each Indemnified Party from and against any and all Claims which in any way may result from, pertain to or arise in any manner out of, or are in any manner related to:
(a) the Aircraft, this Agreement or any other Operative Document to which Lessee is a party, or the breach of any representation, warranty, covenant or obligation made or to be performed by Lessee hereunder or thereunder; or
(b) the condition, design, ownership, manufacture, purchase, delivery, non-delivery, lease, acceptance, rejection, possession, return, disposition, use, or operation of the Aircraft either in the air or on the ground; or
(c) any defect in the Aircraft or any Item of Equipment (whether or not discovered or discoverable by Lessee or Lessor) arising from the material or any articles used therein or from the design, testing, or use thereof or from any maintenance, service, repair, overhaul, or testing of the Aircraft or any Item of Equipment, whether or not the Aircraft or any Item of Equipment is in the possession of Lessee, and regardless of where the Aircraft or any Item of Equipment may then be located; or
(d) the accuracy, validity or traceability of any of the Technical Records; or
(e) any en route navigation charges, navigation service charges, airport charges and landing fees and all other charges payable in connection with the use of or for services provided at any airport or by any navigation service or Government Entity, whether in respect of the Aircraft or any other aircraft owned, leased or operated by Lessee; or
(f) any lawful action taken by any Indemnified Party in relation to the release or attempt to release the Aircraft from any arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the Aircraft; or
(g) any act or omission of Lessee which invalidates or which renders voidable any Insurances or which is outside the scope of, or excluded from, the coverage thereof; or
(h) any transaction, approval, or document contemplated by this Agreement or any other Operative Document to which Lessee is a party or given or entered into in connection herewith or therewith.
Upon payment in full to any Indemnified Party of any indemnities contained in this Section 13 by Lessee, Lessee shall be subrogated to all rights and remedies which such indemnified party has or may have against the Airframe Manufacturer, Engine Manufacturer or any other person. If any Indemnified Party or Lessee has knowledge of any Claim for which Lessee is obligated to indemnify under this Section 13 it shall give prompt written notice thereof to Lessee or such Indemnified Party, as the case may be, but failure to give such notice shall not relieve Lessee of its obligations hereunder.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
45
[Operating Lease Agreement (Aircraft No. 1)]
13.2 Lessee's Release. Lessee hereby waives and releases each Indemnified Party from any Claims (whether existing now or hereafter arising) for or on account of or arising or in any way connected with injury to or death of personnel of Lessee or loss or damage to property of Lessee or the loss of use of any property which may result from or arise in any manner out of or in relation to the ownership, leasing, condition, use or operation of the Aircraft or any Item of Equipment, either in the air or on the ground, or which may be caused by any defect in the Aircraft or any Item of Equipment from the material or any article used therein or from the design or testing thereof, or use thereof, or from any maintenance, service, repair, overhaul or testing of the Aircraft or any Item of Equipment regardless of when such defect may be discovered, whether or not the Aircraft or any Item of Equipment is at the time in the possession of Lessee, and regardless of the location of the Aircraft or any Item of Equipment at any such time.
13.3 Repayment. If an Indemnified Party shall obtain a repayment of any amount paid by Lessee, such Indemnified Party shall, so long as there exists no Lease Default or Lease Event of Default, promptly pay to Lessee the amount of such repayment, together with the amount of any interest received by such Indemnified Party on account of such repayment.
13.4 Payment. Subject to the provisions of Section 13.3, Lessee shall pay directly to each Indemnified Party all amounts due under this Section 13 within five days of the receipt of written notice by Lessee from such Indemnified Party that such payment is due, together with evidence of the calculation thereof.
13.5 Exclusion. Notwithstanding the foregoing provisions of this Section 13, Lessee shall not be obligated to make any payment to an Indemnified Party by way of indemnity in respect of any Claim against such Indemnified Party, but only to the extent that such Claim results from or arises out of:
(a) the gross negligence or willful misconduct of such Indemnified Party;
(b) any Lessor's Lien, except to the extent any such Claim results from or arises out of (and in which case such Claim shall not be excluded from Lessee's indemnity obligations under this Section 13):
(i) the premature termination of any funding or other financing arrangements with a Financier with respect to Lessor's financing of the acquisition or continued ownership of the Aircraft following the occurrence and continuation of a Lease Event of Default; or
(ii) any indemnity payment payable by an Indemnified Party to another person under any financing arrangements with a Financier with respect to Lessor's financing of the acquisition or continued ownership of the Aircraft and for which Lessee has an Obligation of indemnity pursuant to Section 13.1;
(c) any Taxes (other than amounts necessary to make payments on an After-Tax Basis); or
(d) acts or events which occur before Delivery or after the Termination Date(except with respect to any Claims arising from or related to Lessee's acts or omissions in connection with its activities under and pursuant to, among other things, any assignment of Airframe Manufacturer's, Engine Manufacturer's or any other Manufacturer's support or warranty rights), unless any such act or event results from an act or omission of Lessee which occurred during the Lease Term.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
46
[Operating Lease Agreement (Aircraft No. 1)]
13.6 After-Tax Nature of Indemnity. Each indemnity payable pursuant to this Section 13 shall be paid on an After-Tax Basis.
13.7 Survival. The indemnities contained in this Section 13 shall continue in full force and effect notwithstanding the occurrence of the Termination Date, and are expressly made for the benefit of and shall be enforceable by each Indemnified Party.
Section 14. Taxes; Tax Indemnity.
14.1 Indemnity.
(a) Indemnity. Lessee shall pay, and shall, to the fullest extent permitted by Law, indemnify and hold harmless each Indemnified Party for and against, all Taxes arising or resulting from or otherwise relating to any Item of Equipment, any Operative Document, or any of the transactions and activities provided for or contemplated in, or permitted by, the Operative Documents, including without limitation, the purchase, ownership, delivery, redelivery, financing, leasing, subleasing, wet-leasing, insuring, registration, possession, use, operation, landing, take-off, storage, location, presence, maintenance, alteration, modification, improvement, servicing, repair, overhaul, pooling, interchange, exchange, substitution, replacement, abandonment, loss, return, sale or other disposition of, or any damage, addition or transfer of title to, any Item of Equipment or any interest therein, the execution, delivery, filing, registration, recording, presence, performance of, payment under or enforcement of, or the cure of any default or the exercise of any remedy under, any Operative Document or any other documents executed from time to time pursuant to any Operative Document (regardless of how or when such Taxes are imposed or assessed, whether imposed on or assessed against any Indemnified Party, Lessee, any other person, any Item of Equipment, any Operative Document, any interest therein or any use thereof, the transactions contemplated thereby, or otherwise) and all costs and expenses (including, but not limited to, reasonable attorney's fees and disbursements) paid or incurred by any Indemnified Party with respect to any Tax for which Lessee is required to indemnify such Indemnified Party pursuant to this Section 14 or in connection with the enforcement of this Section 14.
(b) Excluded Taxes. Lessee shall have no obligation under Section 14.1(a) to indemnify an Indemnified Party for:
(i) any Tax imposed on or measured by the total net income of such Indemnified Party except to the extent that such Tax would not have been payable in the absence of (A) the registration, use, presence, or other connection of any Item of Equipment in or with, or any act or omission of Lessee or any Affiliate, agent, representative, or contractor of Lessee or any person using or having possession, custody, or control of any Item of Equipment in, the jurisdiction imposing such Tax, (B) the inaccuracy or breach of any of the representations, warranties, covenants or agreements of Lessee in the Operative Documents, or (C) a Lease Event of Default;
(ii) any Tax imposed on or with respect to any sale or other transfer by such Indemnified Party of such Indemnified Party's interest in the Aircraft pursuant to Section 17.2(b), provided that the exclusion in this clause (ii) shall not apply to any sale or transfer that occurs (A) in connection with or as a result of a Lease Default, a Lease Event of Default, an Event of Loss, or any maintenance, repair, overhaul, pooling, interchange, exchange, removal, replacement, substitution, modification, improvement, or alteration of any Item of Equipment, (B) at Lessee's request, or (C) pursuant to a requirement in any Operative Document or any applicable Law;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
47
[Operating Lease Agreement (Aircraft No. 1)]
(iii) any Tax to the extent that such Indemnified Party's liability for such Tax is caused directly by, and would not have been incurred but for, the gross negligence or willful misconduct of such Indemnified Party;
(iv) in the case of a transferee of Lessor's interest in the Aircraft pursuant to Section 17.2(b), Taxes imposed on the transferee or on payments to the transferee to the extent that, under applicable Law in effect on the date of the transfer to such transferee, the amount of such Taxes exceeds the amount of Taxes that would have been imposed on the transferor to such transferee or on payments to such transferor and indemnified against hereunder if such transfer had not occurred, provided that the exclusion in this clause (iv) shall not apply to a transferee Lessor that acquires its interest in the Aircraft pursuant to a transfer in connection with a Lease Event of Default; and
(v) any Irish value added Tax imposed on Owner Participant that is solely attributable to Owner Participant being resident for value added Tax purposes in Ireland, provided that the exclusion in this clause (v) shall not apply to any Irish value added Tax that is imposed in part or in whole due to (A) the registration, use, presence, or other connection of any Item of Equipment in or with, or an act or omission of Lessee or any Affiliate, agent, representative, or contractor of Lessee or any person using or having possession, custody, or control of any Item of Equipment in, the jurisdiction imposing such Irish value added Tax, (B) the inaccuracy or breach of any of the representations, warranties, covenants, or agreements of Lessee in the Operative Documents, or (C) a Lease Event of Default;
provided , however , that notwithstanding anything to the contrary in this Section 14.1(b) or elsewhere in the Operative Documents, Lessee shall have an obligation to indemnify and hold harmless each Indemnified Party for any Taxes imposed by Hawaii, any locality, or any other taxing authority thereof (including general excise and use Taxes but excluding net income Taxes that are excluded pursuant to Section 14.1(b)(i)) in respect of the transactions contemplated by the Operative Documents, and the exclusions contained in this Section 14.1(b) shall have no application to any such Taxes.
(c) No Reduction for Withholding. Lessee agrees that all amounts payable by Lessee (or by any other person on account of any obligation of Lessee) pursuant to the Operative Documents shall be paid without any deduction or withholding on account of any Taxes, monetary transfer fees, or other charges or withholdings of any nature, except to the extent that the deduction or withholding of any Tax is required by applicable Law, in which event Lessee shall (i) except to the extent that such Tax is an Excluded Tax described in Section 14.1(b)(iv), pay to the person entitled to receive such payment (the " Payee ") such additional amount as is necessary so that the Payee receives, after such deduction or withholding (including any deduction or withholding with respect to such additional amount), an amount equal to the amount that the Payee would have received if such deduction or withholding had not been made and (ii) deliver to Lessor within 60 days after the date of such payment an official receipt of the relevant taxing authority showing that Lessee paid to such taxing authority the full amount of the Tax required to be deducted or withheld.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
48
[Operating Lease Agreement (Aircraft No. 1)]
14.2 Tax Filings; Information.
(a) Unless otherwise directed or agreed in writing by Lessor, Lessee shall properly prepare and timely file all reports, returns, declarations and other documents (each a " Tax Document ") that are required by applicable Law to be filed with any Government Entity or other taxing authority with respect to each Indemnified Tax, except where such Tax Documents are required under applicable Law to be filed by Lessor or Owner Participant, in which event Lessee shall provide the properly prepared Tax Document to Lessor or Owner Participant, as the case may be, or, at Lessor's or Owner Participant's option, as the case may be, provide Lessor and/or Owner Participant with a blank Tax Document to be prepared by Lessor and/or Owner Participant, and then approved by Lessee (such approval not to be unreasonably withheld), in each such case for timely filing by Lessor or Owner Participant (provided such person is legally able to file such Tax Document without any commercial, economic, or tax disadvantage for such person or its Affiliates, which has not been indemnified by Lessee to such person's reasonable satisfaction (if the disadvantage can be indemnified against).
(b) Lessee shall, at Lessee's expense, deliver to each Indemnified Party as soon as reasonably practicable (and in any event within 30 days) after receipt of such Indemnified Party's written request therefor, such information and copies of such records and other documents (including, without limitation, the flight log for the Aircraft) maintained or required to be maintained by Lessee or by any other user of any Item of Equipment in the regular course of its business as such Indemnified Party may request from time to time to enable such Indemnified Party to comply with applicable Tax reporting, audit, audit dispute resolution, and litigation requirements, and if requested by any Indemnified Party, make such information, records and other documents available for inspection by such Indemnified Party or its authorized representatives.
(c) Without limiting the obligations of Lessee under Section 14.2(b), Lessee and Lessor shall co-operate with one another in providing information that is reasonably required to fulfill each party's Tax filing requirements and any audit information request arising from such filing, provided that notwithstanding anything that may be to the contrary herein or in any other Operative Document, no Indemnified Party shall have any obligation to furnish or disclose to Lessee or any other person any Tax return or other information relating to its Tax affairs that such Indemnified Party deems, in its sole discretion, to be confidential or proprietary.
(d) Without limiting the obligations of Lessee under this Agreement, upon the request (and at the cost and expense) of Lessee, Lessor and Owner Participant shall cooperate with Lessee to use commercially reasonable efforts to mitigate the impact of any changes in applicable Law on the amount, if any, of any Indemnified Tax or any Irish value added Tax for which Lessee is or may be responsible hereunder (including, without limitation, Lessor and/or Owner Participant making commercially reasonable, good faith efforts to transfer its/their interest in this Agreement to an existing branch or Affiliate and to consider a Lessee request to change its/their respective domiciles); provided that doing so will not in the good faith opinion of Lessor and/or Owner Participant result in any commercial, economic, or tax disadvantage for such person or its Affiliates, which has not been indemnified by Lessee to such person's reasonable satisfaction (if the disadvantage can be indemnified against).
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
49
[Operating Lease Agreement (Aircraft No. 1)]
14.3 Payment of Taxes and Indemnities.
(a) To the extent required or permitted by applicable Law, Lessee shall pay each Indemnified Tax when due directly to the proper taxing authority, unless otherwise directed or agreed in writing by Lessor, except Indemnified Taxes (i) which Lessee is contesting in good faith by appropriate proceedings that do not involve any risk of criminal penalty or any reasonable possibility of sale, forfeiture, confiscation, seizure or loss of, or the imposition of any Lien on, any Item of Equipment or any interest therein and (ii) for which Lessee maintains adequate reserves in accordance with GAAP.
(b) Any indemnity payable by Lessee to an Indemnified Party shall be paid within ten days after the date on which Lessee receives such Indemnified Party's written demand therefor (which demand shall provide a description in reasonable detail of the applicable Indemnified Taxes and the calculation of the amount of the indemnity payment demanded).
(c) All amounts payable by Lessee pursuant to this Section 14 shall be paid on an After-Tax Basis.
14.4 Contest.
(a) If an Indemnified Party receives a written claim from any taxing authority for any Indemnified Tax, such Indemnified Party shall notify Lessee within 30 days after receipt of such claim, but the failure to so notify Lessee shall not affect Lessee's obligations under this Section 14, unless such failure causes all rights of Lessee to contest such claim to be precluded.
(b) If requested by Lessee in writing within 30 days after such notification, such Indemnified Party shall, upon receipt of indemnity satisfactory to it and at the expense of Lessee (including, without limitation, all reasonable costs, expenses, losses, legal and accounting fees and disbursements, penalties, and interest), in good faith contest (or, at the option of such Indemnified Party, permit Lessee to contest), but not to the United States Supreme Court, the validity, applicability, or amount of such Tax in accordance with and to the extent permitted by applicable Law, and shall not settle any contest without the consent of Lessee (which consent shall not be unreasonably withheld), provided that such Indemnified Party shall have no obligation to begin or continue (or to permit Lessee to begin or continue) any contest under this Section 14.4 unless the following conditions are satisfied at the time the contest is to be commenced and at all times during the contest:
(i) Lessee shall have provided such Indemnified Party, together with Lessee's written contest request, with an opinion of independent Tax counsel satisfactory to such Indemnified Party (both as to counsel and substance) to the effect that there is a meritorious basis for such contest;
(ii) contesting such Tax claim will not result in any risk of imposition of any criminal penalty or, in Lessor's reasonable opinion, any risk of any sale, forfeiture, confiscation, seizure or loss of, or the creation of any Lien on, any Item of Equipment or any interest therein;
(iii) no Lease Event of Default shall have occurred and be continuing;
(iv) if such Indemnified Party decides to contest such Tax claim by paying the Taxes that are the subject of such claim and taking action to obtain a refund thereof, Lessee shall have advanced to such Indemnified Party on an interest-free basis the amount of Taxes that are the subject of such claim and shall have agreed in writing to indemnify such Indemnified Party and its Affiliates on an After-Tax Basis for any adverse Tax consequences to such Indemnified Party or any of its Affiliates resulting from such interest-free advance;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
50
[Operating Lease Agreement (Aircraft No. 1)]
(v) the amount of the Taxes to be contested exceeds $25,000 (or the equivalent in any other currency);
(vi) Lessee shall have provided such Indemnified Party with a written acknowledgment of Lessee's liability to indemnify such Indemnified Party for the Taxes to be contested if and to the extent that the contest is not successful;
(vii) Lessee shall be paying, on demand and on an After-Tax Basis, all reasonable costs and expenses incurred by such Indemnified Party in connection with the conduct of such contest (including, without limitation, all reasonable costs, expenses, losses, legal and accounting fees and disbursements, penalties, and interest); and
(viii) if the sum of the Taxes that are the subject of such Tax claim exceeds One Million Dollars ($1,000,000) (or the equivalent in any other currency), Lessee shall have provided a letter of credit or other additional collateral satisfactory in form and amount to such Indemnified Party to secure Lessee's obligations hereunder;
and, provided , further , that such Indemnified Party shall have no obligation to begin or continue (or to permit Lessee to begin or continue) the contest of any or all of the Taxes that are the subject of such Tax claim if such Indemnified Party (x) waives its right under this Section 14 to be indemnified for the Taxes which such Indemnified Party declines to contest and (y) repays to Lessee the amount (if any) which Lessee previously advanced to such Indemnified Party pursuant to Section 14.4(b)(iv) with respect to the Taxes that such Indemnified Party declines to contest, except for the previously incurred costs and expenses of the contest.
(c) The party contesting any Tax claim pursuant to this Section 14.4 shall control the conduct of the contest and shall, upon request, consult with the other party regarding the conduct of the contest and inform the other party of the progress of the contest.
14.5 Refunds; Tax Savings.
(a) If Lessee pays an indemnity on an After-Tax Basis pursuant to Sections 14.1(a) and 14.3(c), or pays an additional amount on an After-Tax Basis pursuant to Sections 14.1(c)(i) and 14.3(c), with respect to an Indemnified Tax to an Indemnified Party and such Indemnified Party receives a refund of such Indemnified Tax or determines that it has received a net cash benefit due to any Tax Saving (as defined in Section 14.5(d)) with respect to such Indemnified Tax (other than any Tax Saving previously taken into account in the calculation of any indemnity pursuant to Sections 14.1(a) and 14.3(c) or any additional amount pursuant to Sections 14.1(c) and 14.3(c)), then subject to Section 14.6, such Indemnified Party shall, to the extent it can do so without prejudice to the retention of such refund or Tax Saving, pay to Lessee an amount equal to the lesser of (i) the sum of such refund (after deducting all costs and expenses that were incurred by such Indemnified Party and not reimbursed by Lessee for the purpose of obtaining such refund) or such net cash benefit plus any additional net cash benefit received by such Indemnified Party due to any Tax Saving resulting from such payment or (ii) the amount of the indemnity or additional amount previously paid by Lessee to such Indemnified Party with respect to such Indemnified Tax, less the sum of all prior payments made by such Indemnified Party to Lessee pursuant to this sentence with respect to such Indemnified Tax. If such Indemnified Party receives, in addition to such refund, an amount representing interest on such refund, such Indemnified Party shall pay to Lessee that proportion of such interest received from or credited by the relevant taxing authority which is fairly attributable to the refund of the Indemnified Tax paid or indemnified by Lessee.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
51
[Operating Lease Agreement (Aircraft No. 1)]
(b) Lessee shall indemnify each Indemnified Party on an After-Tax Basis for any additional Tax that is imposed on such Indemnified Party as a result of the disallowance, loss, unavailability, recapture, or reduction of all or any part of any Tax Saving or refund for which such Indemnified Party made a payment to Lessee pursuant to Section 14.5(a), and Section 14.1(b) and Section 14.4 shall not apply to any such Tax.
(c) Each Indemnified Party shall use good faith in preparing its income Tax returns for any taxable year to claim any deduction or credit described in Section 14.5(d) which such Indemnified Party has actual knowledge of and is entitled to claim. Subject to the preceding sentence, each Indemnified Party shall have sole discretion in the management of its Tax affairs. No Indemnified Party shall have any obligation (i) to conduct its business or arrange or alter in any respect its Tax or financial affairs so that it is entitled to receive a refund or Tax Saving or (ii) to provide to Lessee or any other person copies of or access to any Tax returns or other information with respect to its Tax affairs.
(d) For the purpose of this Section 14.5, the term " Tax Saving " means, with respect to any Indemnified Party, any net reduction in such Indemnified Party's liability for Excluded Taxes on or measured by net income which such Indemnified Party determines it has received by reason of any existing and currently realizable deduction from taxable income or credit against any such Excluded Tax resulting from:
(i) payment of an Indemnified Tax for which Lessee previously paid an indemnity to such Indemnified Party on an After-Tax Basis pursuant to Sections 14.1(a) and 14.3(c), or paid an additional amount to such Indemnified Party on an After-Tax Basis pursuant to Sections 14.1(c)(i) and 14.3(c), or
(ii) a payment by such Indemnified Party to Lessee pursuant to this Section 14.5.
14.6 Effect of Lease Event of Default on Indemnified Party Payment Obligations. No Indemnified Party shall have any obligation to make any payment to Lessee pursuant to this Section 14 while a Lease Event of Default is continuing. The amount otherwise payable to Lessee may be applied to satisfy Lessee's obligations under the Operative Documents and, to the extent not so applied, shall be paid to Lessee following the date on which no Lease Event of Default is continuing.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
52
[Operating Lease Agreement (Aircraft No. 1)]
14.7 Withholding Tax Exemption Documentation. On or before the Delivery Date, (i) Lessor shall provide to Lessee a true, complete, and accurate Internal Revenue Service Form-W 9, and (ii) Owner Participant shall provide to Lessor and Lessee a true, complete, and accurate Internal Revenue Service Form W-8BEN, W-8ECI, or W-8EXP, evidencing that Owner Participant is entitled under applicable Law to receive Rent, Supplemental Rent, Agreed Value, and other amounts payable to Lessor for the benefit of Owner Participant by Lessee pursuant to this Agreement without withholding any United States federal withholding Taxes the Lessee would be required by applicable Law to withhold in the absence of such form. If any Internal Revenue Service form delivered by Lessor or Owner Participant pursuant to the previous sentence of this Section 14.7 expires or becomes obsolete, Lessor or Owner Participant (as the case may be) shall deliver to Lessee (and, in the case of Owner Participant, with a copy to Lessor) a replacement Internal Revenue Service form (or applicable similar or successor form) evidencing such right to receive such payments under this Agreement without withholding (or withholding at a reduced rate, as the case may be) any such United States federal withholding Taxes. Additionally, Lessor or Owner Participant shall ensure that Lessor's or Owner Participant's assignees or transferees or any other entity or person that acquires a direct or beneficial interest in this Agreement by assignment, sale, novation, or transfer pursuant to Section 17.2 (other than any assignee for security purposes) shall (on or before any such assignment, sale, novation, or transfer) provide to Lessee a true, complete, and accurate Internal Revenue Service Form W-9, W-8BEN, W-8ECI, or W-8EXP (or similar or successor form), duly executed by the person(s) treated as the recipient(s), for United States federal tax purposes of the payments made by Lessee under this Agreement and evidencing that such person is entitled under applicable Law to receive Rent, Supplemental Rent, Agreed Value, and other amounts payable by Lessee to such person pursuant to this Agreement without withholding (or withholding at a reduced rate, as the case may be) any United States federal withholding Taxes that Lessee would be required to withhold in the absence of such form.
14.8 Non-Party Indemnified Parties. Lessor shall make reasonable efforts to cause each other Indemnified Party to comply with its obligations under this Section 14.
14.9 Survival. The respective obligations of Lessee under this Section 14 shall remain in full force and effect, notwithstanding the occurrence of the Termination Date.
Section 15. [Reserved] .
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
53
[Operating Lease Agreement (Aircraft No. 1)]
Section 16. Notices . All notices, requests, demands, consents, elections or other communications required or permitted to be made under the Operative Documents:
(a) shall be in writing addressed as follows:
(i) If to Lessor:
Address: |
Wilmington Trust Company
1100 N. Market Street Wilmington, DE 19890-1605 |
|||
Attention: | Corporate Trust Administrator | |||
Facsimile: | 301-636-4140/4141 | |||
|
|
With a copy to the Servicer: |
||
|
|
Address: |
|
HNA Group (Hong Kong) Co., Limited Suite 6511-13, 65/F, The Center 99 Queen's Road Central Central, Hong Kong |
Attention: | Head of Transaction Management | |||
Facsimile: | +852-2568-0015 | |||
|
|
With a copy to the Owner Participant: |
||
|
|
Address: |
|
C/-O Odyssey Aviation Limited 23 Herbert Place Dublin 2, Ireland |
Attention: | Chief Executive Officer | |||
Facsimile: | +353 1 676 2963 |
(ii) If to Lessee:
Address: |
3375 Koapaka Street, Suite G-350
Honolulu, HI 96819 |
|||
Attention: |
Executive Vice President and Chief Financial
Officer; and Executive Vice President and General Counsel |
|||
Facsimile: | +808-385-3699 |
(iii) If to Owner Participant:
|
|
Address: |
|
C/-O Odyssey Aviation Limited 23 Herbert Place Dublin 2, Ireland |
Attention: | Chief Executive Officer | |||
Facsimile: | +353 1 676 2963 |
or to any other address specified by any party or the Servicer to the sender by notice;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
54
[Operating Lease Agreement (Aircraft No. 1)]
(b) are deemed to be given by the sender and received by the addressee:
(i) if by delivery in person, when delivered to the addressee;
(ii) if by post, upon receipt by the addressee; or
(iii) if by facsimile transmission, when received by the addressee,
but if the delivery or receipt is on a day which is not a Business Day or is after 4:00 pm (addressee's time), it is deemed to be duly given on the succeeding Business Day; and
(c) can be relied upon by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee believes it to be genuine, correct and authorized by the sender.
Any notice given by Lessor under this Agreement shall be endorsed in writing by Security Trustee.
Section 17. Lessor's Financing and Assignment .
17.1 Lessor's Financing. Lessor may at any time and without Lessee's consent enter into any financial arrangements with respect to the Aircraft pursuant to which Lessor may assign its rights under this Agreement (and any Permitted Sublease) and the other Operative Documents by way of security to Security Trustee or Financier and Lessee undertakes to provide all reasonable assistance and co-operation to Lessor, Security Trustee and Financiers and their respective representatives and advisers (at Lessor's cost) in connection therewith including but not limited to:
(a) the effecting of all necessary filings, registrations and provision of consents (including effecting registration of International Interests with the International Registry if applicable) in the State of Registration as may be reasonably requested by Lessor in order to protect the interests of the Financiers and/or Lessor in connection with any financing contemplated by this Section 17.1;
(b) executing an acknowledgement and consent of any assignment of Lessor's rights under this Agreement in favor of Security Trustee or Financier, on terms customary in aircraft financing transactions;
(c) making such amendments to this Agreement and any of the other Operative Documents to which Lessee is a party and executing such additional documents, as may be reasonably requested by Lessor in connection with an aircraft financing transaction, provided that any such amendment or additional documentation does not adversely affect the rights, or increase the obligations, of Lessee under this Agreement and the other Operative Documents; and
(d) making such amendments to the Insurances maintained in respect of the Aircraft to ensure continued compliance with the requirements of Section 8.6 and Schedule 9 with regard to the interests of Lessor, Security Trustee and Financier and providing revised insurance certificates and broker's letter of undertakings evidencing such compliance.
Lessor shall pay Lessee within ten Business Days of receiving a request for the reimbursement of reasonable out-of-pocket costs and expenses of Lessee (including but not limited to reasonable fees and expenses of legal counsel) incurred in connection with compliance with this Section 17.1, other than with respect to costs associated with the initial Security Trustee and Financier on the Delivery Date.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
55
[Operating Lease Agreement (Aircraft No. 1)]
Notwithstanding the foregoing, no financing transaction contemplated by this Section 17.1 shall, individually or in the aggregate, increase Lessee's liabilities or obligations hereunder or under the Operative Documents to which Lessee is a party or materially adversely affect Lessee's rights under this Agreement or any other Operative Document to which it is a party, based on current laws in effect at the time of such financing transaction, than it would have had if such financing transaction had not taken place provided, however, this paragraph shall not limit in any way Lessee's obligation to comply with paragraphs (a), (b), (c) or (d) of this Section 17.1, it being agreed that actions deriving from such compliance shall not be deemed an increase in Lessee's liabilities or obligations hereunder or under the Operative Documents to which Lessee is a party subject to Lessor's obligation to reimburse Lessee for expenses incurred in connection therewith to the extent required under the preceding paragraph.
17.2 Assignment.
(a) Lessee may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of Lessor.
(b) Neither Lessor nor Owner Participant may at any time without Lessee's consent sell, assign or transfer its rights and obligations under this Agreement, the Operative Documents or the Aircraft to a third party (" Transfer ") unless each of the following conditions are satisfied:
(i) Lessor or Owner Participant, as applicable, agrees to pay the reasonable out-of-pocket costs and expenses of Lessee (including legal costs) in relation to the Transfer;
(ii) Lessor or Owner Participant, as applicable, pays all stamp duties and similar Taxes payable by Lessee in relation to the Transfer;
(iii) Lessor or Owner Participant, as applicable, provides the requisite documentation required to be executed by Lessee to effect the Transfer;
(iv) the assignee or transferee shall not, without Lessee's prior written consent, be an airline, other commercial aircraft operator, freight forwarder or similar person (or an Affiliate of any such person);
(v) the assignee or transferee is an experienced aircraft operating lessor or a company who appoints as servicer or lease manager an experienced aircraft operating lessor or any other person in respect of which Lessee has consented;
(vi) except in the case of a securitization where Lessor or Owner Participant, remains liable for its obligations under this Agreement and the other Operative Documents, one of the following is applicable:
(A) the assignee or transferee has a tangible net worth on a consolidated basis of no less than U.S.$50,000,000;
(B) the obligations of the assignee or transferee of Lessor or Owner Participant under the Operative Documents are guaranteed by a person with a tangible net worth on a consolidated basis of no less than U.S.$50,000,000; or
(C) the assignee or transferee is otherwise acceptable to Lessee (acting reasonably);
(vii) the assignee or transferee, or its guarantor if Section 17.3(b)(vi)(B) applies, maintains a tangible net worth on a consolidated basis of no less than U.S.$10,000,000 until the Scheduled Termination Date, or Extension Termination Date (as applicable);
(viii) no such Transfer shall render the Aircraft ineligible for registration in the U.S.;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
56
[Operating Lease Agreement (Aircraft No. 1)]
(ix) no such Transfer shall, individually or in the aggregate, increase Lessee's liabilities or obligations hereunder or under the Operative Documents to which Lessee is a party or materially adversely affect Lessee's rights under this Agreement or any other Operative Document to which it is a party, based on current laws in effect at the time of such Transfer, than it would have had if such Transfer had not taken place provided, however, provided, however, this clause (ix) shall not limit in any way Lessee's obligation to comply with paragraphs (c), (d), (e) and (f) of this Section 17.2, it being agreed that actions deriving from such compliance shall not be deemed an increase in Lessee's liabilities or obligations hereunder or under the Operative Documents to which Lessee is a party subject to Lessor's obligation to reimburse Lessee for expenses incurred in connection therewith to the extent required under Section 17.2(b)(i) or (ii);
(x) the assignee or transferee provides to Lessee the United States federal tax forms required by the last sentence of Section 14.7 of this Agreement at the time prescribed by that sentence; and
(xi) no such Transfer shall cause Lessee to be required to pay any amount of value added Tax with respect to any Rent, Supplemental Rent, Agreed Value, and any other amounts payable by Lessee under this Agreement in excess of the value added Tax, if any, payable by Lessee on the date of the Transfer.
Subject to the terms of this Agreement, Lessee undertakes to provide all reasonable assistance and co-operation to Lessor or Owner Participant, as applicable, its respective representatives and advisers (at Lessor's or Owner Participant's cost) in connection with the Transfer, including:
(c) the effecting of all necessary filings, registrations and provision of consents (including effecting registration of International Interests with the International Registry if applicable) in the State of Registration as may be reasonably requested by Lessor in order to protect the interests of Lessor and/or such assignee or transferee in connection with any Transfer contemplated by this Section 17.2;
(d) executing any lease novation, amendments, assignment documentation or any other such documentation, on terms customary in aircraft financing transactions as may be reasonably requested by Lessor or Owner Participant, provided any such novation, amendments or other documents does not adversely affect the rights of Lessee under this Agreement and other Operative Documents;
(e) providing Lessor or Owner Participant scheduling and routing information for the Aircraft or any Engines being transferred; and
(f) making such amendments to the Insurances maintained in respect of the Aircraft to ensure continued compliance with the requirements of Section 8.6 and Schedule 9 with regard to the interests of Lessor or Owner Participant and the transferee and providing revised insurance certificates and broker's letter of undertakings evidencing such compliance.
Section 18. Miscellaneous .
18.1 Severability. Any provision of this Agreement prohibited by or unlawful or unenforceable under any applicable Law actually applied by any court of competent jurisdiction shall, to the extent required by such applicable Law, be severed from this Agreement and rendered ineffective so far as is possible without modifying the remaining provisions of this Agreement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
57
[Operating Lease Agreement (Aircraft No. 1)]
18.2 Amendments. No term or provision of this Agreement may be amended, modified, waived, discharged or terminated orally, but only by a written instrument signed by Lessor, Owner Participant and Lessee.
18.3 Lessor's Right to Perform; Lessor's Right to Delegate and Servicer .
(a) If Lessee fails to perform or comply with any obligations hereunder or under any Operative Documents to which it is a party, Lessor shall have the right, but not the obligation, to discharge such obligation, and the amount of such payment made and the expenses of Lessor incurred in connection with such discharge shall be payable by Lessee upon demand, together with interest at the Default Rate from the date such expenses were incurred.
(b) Servicer has agreed with Lessor, among other things, to act as Lessor's servicing agent for all matters related to the Aircraft, this Agreement and the other Operative Documents, but Lessor shall continue to remain liable to Lessee for the full performance of the obligations of Lessor hereunder notwithstanding any such delegation. Until Lessee receives notice from Lessor to the contrary, Lessee shall communicate with, and respond to all demands, requests or other communications made in accordance with this Agreement and the other Operative Documents by, Servicer with respect to all matters related to the Aircraft, this Agreement and the other Operative Documents. Actions, demands, requests or other communications taken or given by Servicer may be conclusively relied upon by Lessee, and shall bind Lessor and Owner Participant to the same extent as if taken or given by Lessor or Owner Participant, as applicable, but Lessor reserves the right to elect to take action in its own name in respect of this Agreement, including giving any consents or waivers, making any demands, or otherwise dealing with Lessee in respect of this Agreement. All notices to Lessee by Servicer shall be given in accordance with the notice provisions of Section 16.
18.4 Counterparts. This Agreement may be executed simultaneously in two or more counterparts and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in this Agreement may be created through the transfer or possession of any counterpart other than the counterpart which has been marked "Original" on the signature page thereof.
18.5 Delivery of Documents by Electronic Means. Delivery of an executed counterpart of this Agreement or of any other documents in connection with this Agreement by fax or other electronic image file will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Agreement or other document by fax or other electronic image file will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Agreement or such other document will not affect the validity or effectiveness of this Agreement or such other document.
18.6 Survival. The representations, warranties, covenants, agreements and indemnities (including, without limitation, the indemnities contained in Sections 8.6(e), 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 13 and 14) of Lessee, Owner Participant and Lessor set forth in this Agreement, and Lessee's, Owner Participant's and Lessor's obligations hereunder, shall survive the Termination Date to the extent required for full performance and satisfaction thereof.
18.7 Entire Lease. This Agreement (including all Appendices) and the other Operative Documents to which Lessee is a party executed pursuant hereto constitute the entire agreement among Lessor, Owner Participant and Lessee regarding the Aircraft and any prior or contemporaneous written or oral understandings with regard to the subject matter hereof are superseded hereby in their entirety.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
58
[Operating Lease Agreement (Aircraft No. 1)]
18.8 Successors and Assigns. Subject to the provisions of Section 17, the terms and provisions of this Agreement and each other Operative Document to which Lessor, Owner Participant or Lessee is a party, as applicable, shall be binding upon and inure to the benefit of Lessor, Owner Participant and Lessee and their respective successors and permitted assigns.
18.9 Brokers. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorney's fees and disbursements) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon the lease of the Aircraft, if such claim, damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. Lessee confirms to Lessor and Owner Participant that it has retained Seabury Group in connection with the negotiation of this Agreement and the other Operative Documents to which it is a party, and it shall be fully responsible for and liable for payment of any commission, percentage, contingent fee, brokerage or other similar payments of any kind due Seabury Group, in connection with the establishment or operation of this Agreement or any other Operative Document to which it is a party and will indemnify Lessor and Owner Participant and in accordance with this Section 18.9 for any claim made by Seabury Group to Lessor or Owner Participant for such payment.
18.10 Transaction Costs. Whether or not the transactions contemplated hereby are consummated, each of Lessor, Lessee and Owner Participant agrees to pay its own costs and expenses incurred in connection with the preparation, execution and delivery of this Agreement, each other Operative Document and any other documents delivered in connection herewith or therewith, including without limitation the fees, expenses and disbursements of counsel, except as otherwise expressly set forth herein. In addition, Owner Participant shall be solely responsible for all costs of Wilmington in its capacity as Lessor and Lessee shall be solely responsible for (i) all costs, including reasonable attorneys' fees and disbursements, incurred in registering the Aircraft and an executed counterpart of this Agreement and the Lease Supplement in the State of Registration and any other necessary jurisdiction, and (ii) all costs, including reasonable attorneys' fees and disbursements, incurred in connection with the de-registration of the Aircraft from the applicable Aviation Authority upon the cancellation or termination of this Agreement. Each of Lessor and Lessee agrees to pay the reasonable costs and expenses (including attorneys' fees and disbursements) of the other party incurred in connection with the entering into or giving or withholding of any future waiver, supplement or amendment or other action with respect to this Agreement, each other Operative Document or any other document delivered in connection herewith or therewith that it may request, except in the case of a Lease Event of Default in which case all of such costs shall be at the expense of Lessee.
18.11 Time is of the Essence. Time and strict and punctual performance are of the essence with respect to each provision of this Agreement.
18.12 Language. This Agreement is in the English language and all notices, opinions, financial statements and other documents given under this Agreement shall be provided in the English language.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
59
[Operating Lease Agreement (Aircraft No. 1)]
18.13 Further Assurances. Lessee shall from time to time do and perform such other and further acts and execute and deliver any and all such further instruments as may be required by law or reasonably requested in writing by Lessor to establish, maintain and protect the rights and remedies of Lessor and Owner Participant and to carry out and effect the intent and purposes of this Agreement and the other Operative Documents to which Lessee is a party.
18.14 Rights at Law. Nothing contained in any Operative Document to which Lessee is a party shall be construed to limit in any way any right, power, remedy or privilege of Lessor and Owner Participant hereunder or under any other Operative Document to which Lessee is a party or now or hereafter existing at law or in equity. Each and every right, power, remedy and privilege of Lessor and Owner Participant under the Operative Documents to which Lessee is a party (i) shall be in addition to and not in limitation of, or in substitution for, any other right, power, remedy or privilege under any Operative Document to which Lessee is a party or at law or in equity, (ii) may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by Lessor and (iii) shall be cumulative and not mutually exclusive and the exercise of one shall not be deemed a waiver of the right to exercise any other.
18.15 Confidentiality.
(a) During the Lease Term the contents of this Agreement, the other Operative Documents and all documents, agreements, certificates and information executed or delivered in connection herewith or therewith (all of the foregoing being the " Information ") shall remain confidential and the parties hereto and their respective Affiliates will not disclose the Information to any other person without prior written consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, that each of Lessor, Owner Participant and Lessee may, without the consent of each other party, disclose the Information in any of the following situations:
(i) To directors, officers, employees, permitted assigns and agents, including the Servicer (such assigns and agents, including the Servicer, to agree in writing to be bound by the provisions of this 18.15) of Lessor, Owner Participant, Lessee, Servicer, Guarantor or any Affiliate (direct or indirect) of any of such parties; or
(ii) To auditors, accountants or legal advisors of Lessor, Lessee, Owner Participant, Guarantor, Servicer or any Affiliate (direct or indirect) of any of such parties; or
(iii) To actual or potential lenders/Financiers, Security Trustee, purchasers or other permitted assigns of Lessor, Lessee, Owner Participant, Guarantor or any Affiliate of any of such parties, including but not limited to providing financial information about Lessee to potential lenders/Financiers to, and purchasers from, Lessor and/or Owner Participant, provided that such potential lenders/Financiers will agree in writing for the benefit of Lessee to keep such Information confidential in a manner similar to the provisions hereunder and that their access to Information is solely for purposes of evaluating an investment in or other financing of the Aircraft, or such purchaser provides to Lessee a confidentiality agreement in a form reasonably acceptable to Lessee; or
(iv) To such other parties as Lessor, Lessee, Owner Participant, Servicer or Guarantor may reasonably believe to be required by law, by government regulation or order (including, without limitation any regulation or order of a bank regulatory agency), by subpoena or by any other legal process.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
60
[Operating Lease Agreement (Aircraft No. 1)]
(b) Notwithstanding any of the foregoing, Information will not be considered confidential, and Lessor, Lessee, Owner Participant, Guarantor and their respective Affiliates may disclose any item of the Information without restriction in any of the following circumstances, if such item:
(i) is publicly available (either to the general public or to any relevant trade or industry) prior to any party's receipt of it from another party hereto;
(ii) is thereafter made publicly available (either to the general public or to any relevant trade or industry) by another party hereto or by a third party which is entitled to make such item publicly available; or
(iii) was known to any party hereto on a non-confidential basis prior to its disclosure to such party by another party hereto.
18.16 [Reserved].
18.17 Section 1110. Lessee acknowledges that Lessor would not have entered into this Agreement unless it had available to it the benefits of a lessor under Section 1110 of Title 11 of the United States Code (" Section 1110 "). Lessee covenants and agrees with Lessor that to better ensure the availability of such benefits, Lessee shall support any motion, petition or application filed by Lessor with any bankruptcy court having jurisdiction over Lessee, whereby Lessor seeks recovery of possession of the Aircraft under Section 1110 and shall not in any way oppose such action by Lessor unless Lessee shall have complied with the requirements of Section 1110 to be fulfilled in order to entitle Lessee to continue use and possession of the Aircraft under this Agreement. In the event Section 1110 is amended, or it is repealed and another statute is enacted in place thereof, Lessor and Lessee agree to amend this Agreement and take such other action (to the extent not inconsistent with this Agreement) as Lessor reasonably deems necessary so as to afford to Lessor the rights and benefits as such amended or substituted statute confers upon owners and lessors of aircraft similarly situated to Lessor.
Section 19. Governing Law and Jurisdiction.
19.1 Governing law. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES (OTHER THAN THE PROVISIONS OF SECTION 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
19.2 Consent to Jurisdiction. Each of Lessee, Owner Participant and Lessor hereby irrevocably consents that any legal action or proceeding against Lessee, Owner Participant or Lessor or any of Lessee's, Owner Participant's or Lessor's assets with respect to this Agreement or any other Operative Document to which Lessee, Owner Participant or Lessor, as applicable, is a party may be brought in any jurisdiction where Lessee, Owner Participant or Lessor or any of their respective assets may be found, or in any court of the State of New York or any Federal court of the United States of America located in New York, New York, located in the Borough of Manhattan, United States, as Lessee, Owner Participant or Lessor may elect, and by execution and delivery of this Agreement each of Lessee, Owner Participant and Lessor hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
61
[Operating Lease Agreement (Aircraft No. 1)]
19.3 Process Agent and Service of Process. Lessee, Owner Participant and Lessor shall, not later than the execution of this Agreement, irrevocably designate, appoint and empower a duly authorized agent for service of process in the State of New York reasonably acceptable to Lessee, Owner Participant and Lessor, respectively, in any suit or proceeding with respect to this Agreement. A copy of any such process served on such agent shall be promptly forwarded by airmail by the person commencing such proceeding to Lessee, Owner Participant or Lessor, as applicable, at its address set forth herein, but the failure of Lessee, Owner Participant or Lessor, as applicable, to receive such copies shall not affect in any way the service of such process as aforesaid. Lessee, Owner Participant and Lessor further irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified airmail, postage prepaid, to Lessee, Owner Participant or Lessor, as applicable, at its address set forth herein. The foregoing, however, shall not limit the rights of Lessee, Owner Participant or Lessor to serve process in any other manner permitted by Law or to bring any legal action or proceeding or to obtain execution of judgment in any jurisdiction.
19.4 Jurisdiction and Forum. Lessee agrees that final judgment against Lessee in any action or proceeding in connection with this Agreement shall be conclusive and may be enforced in any other jurisdiction within or outside the U.S. by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of Lessee's indebtedness. Lessee, Owner Participant and Lessor each hereby irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the State of New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in the State of New York has been brought in an inconvenient forum. To the extent that Lessee, Owner Participant or Lessor may in any jurisdiction in which proceedings may at any time be taken for the determination of any question arising under or for the enforcement of this Agreement (including any interlocutory proceedings or the execution of any judgment or award arising therefrom) be entitled to claim or otherwise be accorded for itself or its property, assets or revenues immunity from suit or attachment (whether in aid of execution, before judgment or otherwise) or other legal process, and to the extent that in any such jurisdiction, there may be attributed to Lessee, Owner Participant or Lessor, or their respective property, assets or revenues such immunity (whether or not claimed), Lessee, Owner Participant and Lessor each hereby irrevocably agrees not to claim and waives such immunity to the fullest extent permitted by the Law of such jurisdiction.
19.5 Waiver of Jury Trial. LESSEE, OWNER PARTICIPANT AND LESSOR EACH HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY OF THE OPERATIVE DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
62
[Operating Lease Agreement (Aircraft No. 1)]
19.6 Waiver of Immunity. Each party to this Agreement agrees that in any legal action or proceedings against it or its assets in connection with this Agreement and/or any other Operative Document to which it is a party no immunity from such legal action or proceedings (which shall include, without limitation, suit, attachment prior to judgment, other attachment, the obtaining of judgment, execution or other enforcement) shall be claimed by or on behalf of it or with respect to its assets, irrevocably waives any such right of immunity which it or its assets now have or may hereafter acquire or which may be attributed to it or its assets and consents generally in respect of any such legal action or proceedings to the giving of any relief or the issue of any process in connection with such action or proceedings including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order of judgment which may be made or given in such action or proceedings.
Section 20. CRAF Program.
20.1 Commitment to CRAF. So long as no Lease Default or Lease Event of Default shall have occurred and be continuing, Lessee may use the Aircraft in connection with contract solicitations by the Air Mobility Command of the United States Government (" AMC ") and may transfer possession of the Aircraft to the United States Government or any instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet Program authorized under 10 U.S.C. § 9511 et seq., or any substantially similar or substitute program (hereafter, the " CRAF Program "), for a period not extending beyond the last day of the Lease Term, provided that: (i) the rights of the AMC or the recipient under the CRAF Program shall be subject and subordinate to all the terms of this Agreement, including the right of Lessor to terminate this Agreement and immediately repossess the Aircraft following a Lease Event of Default, (ii) Lessee shall remain primarily liable for the performance of all the terms of this Agreement to the same extent as if such use or transfer had not occurred, and (iii) Lessee shall promptly notify Lessor and Owner Participant upon subjecting the Airframe or any Engine to the CRAF Program in any contract year and provide Lessor and Owner Participant with the name and address of the Contracting Office Representative for the AMC to whom notice shall be given in connection with the enforcement of remedies under this Agreement pursuant to Section 10. Lessee agrees to promptly notify Lessor and Owner Participant in writing of the transfer of possession of the Airframe and any Engine to the CRAF Program and of any activation of the Airframe and any Engine under the CRAF Program.
20.2 Indemnification by United States Government. Notwithstanding any other provision of this Agreement requiring Lessee to maintain insurance in respect of the Aircraft, Lessor agrees to accept, in lieu of commercial insurance against any risk with respect to the Aircraft, insurance provided by the FAA under Chapter 443 of Title 49 of the United States Code or indemnification from the United States Government in favor of Lessor against such risk in an amount which, when added to the amount of commercial or FAA insurance against such risk maintained by Lessee (including permitted self-insurance) with respect to the Aircraft, shall be at least equal to the amount of insurance against such risk otherwise required by Section 8.6 and Schedule 9 of this Agreement, provided that Lessee shall promptly notify Lessor as to the existence of such FAA insurance or United States Government indemnification and promptly furnish to Lessor a copy of such FAA insurance or United States Government indemnification agreement and a certificate of a firm of independent aircraft insurance brokers of recognized standing and responsibility, appointed by Lessee, certifying that such indemnification and other insurance maintained by Lessee with respect to the Aircraft is in full compliance with all the requirements of this Section 20.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
63
[Operating Lease Agreement (Aircraft No. 1)]
20.3 No Geographical Limits. So long as the Aircraft is operated pursuant to the CRAF Program pursuant to which the United States Government has assumed liability for any damage, loss, destruction or failure to return possession of the Aircraft and for injury to persons and damage to property of others and all other liabilities and risks required to be insured against pursuant to Section 8.6 and Schedule 9, there will be no limitation on the geographic area in which the Aircraft may be operated pursuant to the CRAF Program.
20.4 Notice of Lease Default. If a Lease Event of Default occurs under this Agreement and Lessor elects to pursue its remedies under Section 10 to terminate this Agreement and repossess the Aircraft, Lessor will so notify the United States Government by sending a written communication to that effect to the following address:
Headquarters
Air Mobility Command
AMC Contracting OfficeDOYAI
402 Scott Drive, Unit 3A1
Scott Air Force Base, Illinois 62225-5302
20.5 Receipt of Payments. So long as no Lease Default or Lease Event of Default has occurred and is continuing, all payments received by Lessee from the United States Government or any instrumentality or agency thereof for the use and operation of the Aircraft under the CRAF Program will be paid over to or retained by Lessee. If a Lease Default or a Lease Event of Default has occurred and is continuing, all payments received by Lessee from the United States Government or any instrumentality or agency thereof for the use and operation of the Aircraft under the CRAF Program shall be paid to Lessor and may be used by Lessor to satisfy any obligations owing by Lessee under this Agreement. In furtherance thereof, Lessee hereby assigns to Lessor, as security for the performance of Lessee's obligations hereunder, all of Lessee's present and future rights to payments from the United States Government or any instrumentality or agency thereof for the use and operation of the Aircraft under the CRAF Program. On request by Lessor, Lessee shall at its sole expense take all actions necessary to perfect Lessor's rights and interests in respect thereof, including, without limitation, compliance with the Assignment of Claims Act, 31 U.S.C., Section 3727, and Lessee shall provide Lessor with a legal opinion, in form and substance reasonably satisfactory to Lessor, as to the due perfection of such assignment.
Section 21. Definitions and Interpretation.
21.1 Definitions. The following words have these meanings in this Agreement unless the contrary intention appears.
" Act " means part A of subtitle VII of title 49, United States Code.
" AD " or " Airworthiness Directive " means an airworthiness directive issued by the Aviation Authority.
" Affiliate " means any other person directly or indirectly controlling, directly or indirectly controlled by or under direct or indirect common control with the person specified.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
64
[Operating Lease Agreement (Aircraft No. 1)]
" After-Tax Basis " means, with respect to any indemnity or other amount (an " Amount ") which is required by any Operative Document to be paid on an "After-Tax Basis" by Lessee (or by any other person under the Operative Documents) to any Indemnified Party (or to any other person for the account or benefit of any Indemnified Party), payment of such Amount supplemented by a further payment or payments that will, in the good faith determination of the Indemnified Party, leave the Indemnified Party and its Affiliates with a net economic realization equal to the Amount, after considering the net amount of all Taxes imposed on any Indemnified Party with respect to the receipt or accrual of the Amount and such supplemental payments.
" Agreed Value " has the meaning given to it in Schedule 2.
" Airbus " means Airbus S.A.S, a Société par Actions Simplifiée, duly created and validly existing under French law, having its principal office at 1 rond-point Maurice Bellonte, 31707 Blagnac Cedex, France.
" Airbus Aircraft Specification " means Lessee's current detailed specification and configuration for Airbus A330-200, Reference G.000.02000, Issue 4.5, dated July 13, 2006, as modified by the Airframe Manufacturer to incorporate developmental changes or by mutual written agreement of Lessor and Lessee from time to time.
" Airbus Purchase Agreement " means the Airbus A330/A350 XWB Purchase Agreement, dated as of January 31, 2008, as amended from time to time, entered into between the Aircraft Manufacturer and Lessee, including for the avoidance of doubt all the attachments, exhibits and schedules thereto.
" Aircraft " means the aircraft described in Schedule 1 and in the Lease Supplement comprising the Airframe, the Engines (whether or not any of the Engines may from time to time be installed on the Airframe) and, where the context permits, references to the "Aircraft" shall include a separate reference to the Airframe, all Engines, Parts, components and systems thereof, the equipment installed thereon, including but not limited to the BFE, and the Maintenance Manuals and Technical Records. For the avoidance of doubt, the Aircraft excludes the LDMCR, title to which shall be retained by Lessee, provided that the LDMCR shall be installed on the Aircraft at the Delivery Date subject in all respects to the provisions of Section 11 of Schedule 6 and Section 4 of Schedule 8.
" Aircraft Flight Manual " means the aircraft flight manual with respect to the Aircraft.
" Airframe " means:
(a) the airframe described in the Lease Supplement;
(b) any and all Parts so long as they are incorporated or installed in or attached to that airframe or so long as title to it remains vested in Lessor after removal from such airframe, and including any replacement Parts as provided under Section 3 of Schedule 8; and
(c) the BFE, if any.
" Airframe Life Limited Component " has the meaning given in Section 3(b) of Schedule 6.
" Airframe Manufacturer " means Airbus.
" Airframe Manufacturer's Consent " means the consent and agreement of Airframe Manufacturer to the Purchase Agreement Assignment.
" Airframe Manufacturer's Consent [Security Trustee] " means the consent and agreement of the Airframe Manufacturer to the collateral assignment of the airframe warranties by Lessor to Security Trustee.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
65
[Operating Lease Agreement (Aircraft No. 1)]
" Airframe Structural 6 Year Check " means the heavy structural inspection tasks in the OEM's MPD having initial accomplishment thresholds of six years and any defect rectification and materials arising directly from the accomplishment of such tasks.
" Airframe Structural 12 Year Check " means the heavy structural inspection tasks in the OEM's MPD having initial accomplishment thresholds of twelve years and any defect rectification and materials arising directly from the accomplishment of such tasks.
" Airframe Warranties Agreement " means the Airframe Warranties Agreement, in form and substance reasonably satisfactory to Lessee and Lessor, dated on or about the Delivery Date amongst Lessor and Lessee and consented to by the Airframe Manufacturer pursuant to which Lessor will assign to Lessee the right to enforce the warranties in respect of the Airframe.
" Alert Service Bulletins " means alert service bulletins issued by the Manufacturer.
" Annual Maintenance Reserves Adjustment " has the meaning given in Schedule 2.
" Applicable Fixed Rate " has the meaning given in Schedule 2.
" Approved Maintenance Program " means Lessee's maintenance program based on the MPD and approved by the Aviation Authority, as updated from time to time.
" Approved Maintenance Provider " means any maintenance performer appointed or to be appointed by Lessee or any Approved Sublessee to undertake maintenance on the Aircraft who Lessee or any Approved Sublessee, in each case, acting reasonably, is satisfied:
(a) is maintaining and will continue to maintain the Aircraft in accordance with the MPD; and
(b) is approved by the Aviation Authority, as appropriate to maintain aircraft of the same type as the Aircraft,
at all times during the period that such maintenance performer is so appointed by Lessee or any Approved Sublessee.
" APU " means the auxiliary power unit for the Aircraft having the manufacturer's serial number set forth in the Lease Supplement (or such other auxiliary power unit as may be substituted for it after the Delivery Date in accordance with the requirements of Section 3 of Schedule 8).
" APU Hours " means each hour or part thereof elapsing from the moment APU is started to the moment APU is shutdown rounded to the nearest minute.
" APU Performance Restoration " means off-wing APU shop visits that include disassembly, inspection, component repair and balancing, testing and reassembly of the relevant APU, accomplished in accordance with the Manufacturer's component maintenance manual. The workscope will be such that the APU is expected to achieve Manufacturer's mean time between removals from the APU's release from such shop visit and to its next shop visit, and also includes all open ADs issued by the Aviation Authority that are required to be incorporated before the next the overhaul period.
" Aviation Authority " means FAA or such other authority, official, government department or agency which (under the laws of the State of Registration) is from time to time vested with the control and supervision of (or has jurisdiction over) the registration, airworthiness or operation of the Aircraft.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
66
[Operating Lease Agreement (Aircraft No. 1)]
" Bankruptcy Code " means the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.
" Basic Rent " means:
(a) the monthly rent payable on each Rent Payment Date calculated on the Rent Calculation Date in accordance with Section 5.1(c) and as specified in the Lease Supplement; and
(b) if Lessee exercises the Extension Option, the Basic Rent for the period commencing on the Scheduled Termination Date and ending on the Termination Date shall be mutually agreed by Lessor and Lessee prior to the exercise by the Lessee of the Extension Option.
" BFE " means the buyer-furnished equipment incorporated or installed in or attached to the Aircraft and which was sold to Lessor pursuant to the Purchase Agreement Assignment. For the avoidance of doubt, the BFE shall not include the LDMCR.
" Bill of Sale " means the bill of sale transferring title to the Aircraft from the Airframe Manufacturer to Lessor.
" Business Day " means:
(a) for any payment obligation denominated in U.S.$, any day other than a Saturday, Sunday or other day on which banks in New York, Hawaii or London are authorized or required to close; and
(b) for any other purpose any day other than a Saturday, Sunday or other day on which banks in New York or Hawaii are authorized or required to close.
" C Check " means a block "C" Check in accordance with the Approved Maintenance Program and the Manufacturer's Maintenance Planning Document each in effect on the relevant date.
" Cape Town Convention " means the Convention together with the Protocol.
" Certificate of Airworthiness " means the certificate of airworthiness or Export Certificate of Airworthiness, as the case may be, issued by the Aviation Authority.
" Certificated Air Carrier " means any United States air carrier holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of Title 49 of the United States Code for aircraft capable of carrying 10 or more individuals or 6000 pounds or more of cargo, and as to which there is in force an air carrier operating certificate issued pursuant to part 121 of the FAA Regulations, or which may operate as an air carrier by similar certification under any successor or substitute provisions therefor.
" Change of Control Event " has the meaning given to it in Section 8.1(e).
" Claims " means any and all claims, damages, losses, liabilities, demands, suits, judgments, causes of action, legal proceedings, whether civil or criminal, penalties, fines and other sanctions, and any reasonable attorney's fees and other reasonable costs and expenses in connection therewith or in establishing the right to indemnification hereunder, including any of the foregoing arising or imposed with or without the fault or negligence of any Indemnitee (whether passive or active) or under the doctrine of strict or absolute liability.
" Consolidated Text " means the Consolidated Text of the Convention and Protocol referred to in, and as set out in the Attachment to, Resolution No. 1 adopted by the Diplomatic Conference held at Cape Town at which the Convention and the Protocol were opened for signature.
" Convention " means The Convention on International Interest in Mobile Equipment, concluded in Cape Town, South Africa on November 16, 2001 (utilizing the English-language version thereof).
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
67
[Operating Lease Agreement (Aircraft No. 1)]
" Cycle " means, for:
(a) an Airframe, one take off and one complete landing of the Aircraft to a full and complete stop;
(b) an Engine or a Part, one take off and one complete landing to a full and complete stop of any aircraft on which such Engine or Part, as the case may be, is installed; and
(c) an APU each instance in which the APU is started and then shut down.
" Damage Notification Threshold " has the meaning given to it in Schedule 2.
" Debt " means any liability for borrowed money, or any liability for the payment of money in connection with any letter of credit transaction or any other liabilities evidenced or to be evidenced by bonds, debentures, notes or other similar instruments.
" Deductable Amount " has the meaning given to it in Schedule 2.
" Default Rate " has the meaning given to it in Schedule 2.
" Delivery " means the delivery of the Aircraft by Lessor to Lessee in accordance with the terms and conditions of this Agreement and Lessee's acceptance of the same as evidenced by the execution and delivery of the Lease Supplement by Lessee.
" Delivery Date " means the date of Delivery.
" Delivery Location " means Toulouse, France.
" DER " means Designated Engineering Representative.
" DGAC " means Direction Generale de Aviation Civile in France and any successor thereof.
" Discount Rate " has the meaning given to it in Schedule 2.
" EASA " means European Aviation Safety Agency, an agency of the European Union having responsibility for aviation safety, regulation and oversight of member states of the European Union, or any successor to it.
" Engine " means each of:
(a) the engines described in Schedule 1 and in the Lease Supplement; and
(b) any Replacement Engine; and
(c) any and all Parts incorporated or installed in or attached to an Engine or any and all Parts removed from an Engine so long as title to it remains vested in Lessor after removal, and including any replacement Parts as provided under Section 3 of Schedule 8.
" Engine Event of Loss " means the occurrence of:
(a) any of the events referred to in the definition of "Event of Loss" but with reference therein to "Airframe" being construed as references to any Engine; or
(b) any divestiture or impairment of any right, title or interest of Lessor in or to an Engine as a result of the installation of such Engine on any other airframe in violation of Section 3.4 of Schedule 8.
" Engine Life Limited Part " means the life-limited Parts for each Engine.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
68
[Operating Lease Agreement (Aircraft No. 1)]
" Engine Life Limited Parts Replacement " means, if as required pursuant to the Engine manual published by the Engine Manufacturer an Engine Life Limited Part is required to be replaced at the time such Engine under goes a shop visit.
" Engine Manufacturer " means Rolls-Royce plc.
" Engine Manufacturer's Consent " means the consent and agreement of Engine Manufacturer to the Engine Warranties Assignment, which consent may be incorporated into the Engine Warranties Assignment.
" Engine Manufacturer's Consent [Security Trustee] " means the consent and agreement of the Engine Manufacturer to the collateral assignment of the engine warranties by Lessor to Security Trustee.
" Engine Performance Restoration " means, with respect to any Engine, off-wing engine shop visits that at a minimum include a level 3 restoration workshop of the High Pressure System module (Modules 41) and the Intermediate Pressure Turbine module (Module 51) in accordance with the Engine Manufacturer's then current Maintenance Management Plan for Lessee's Rolls Royce Trent 772B-60 EP engines, with a scheduled Life Limited Part and Airworthiness Directive release of no less than 4,000 Cycles and on-condition release of no less than the Engine Manufacturer's published mean time between removals (in each case assuming an Hour to Cycle ratio of 5:1) from the Engine's release from such shop visit and to its next shop visit.
" Engine Warranties Agreement " means the Engine Warranties Agreement, in form and substance reasonably satisfactory to Lessee and Lessor, dated on or about the Delivery Date between Lessor and Lessee and consented to by Engine Manufacturer pursuant to which Lessor will assign to Lessee the right to enforce the warranties in respect of the Engines.
" Engine Warranties Assignment " means the Engine Warranties Assignment between Lessor and Lessee to be entered into on or about the Delivery Date as consented to by the Engine Manufacturer, which shall be in form and substance reasonably acceptable to Lessor and Lessee and shall provide, among other things, for the assignment to Lessor of the warranties relating to the Engines.
" Event of Loss " means any of the following events:
(a) the agreed, actual, arranged, compromised or constructive total loss of the Airframe (including any damage to the Airframe which results in an insurance settlement on the basis of a total loss, or requisition for use or hire of the Airframe which results in an insurance settlement on the basis of a total loss); or
(b) the Airframe being destroyed, damaged beyond economic repair or permanently rendered unfit for normal use for any reason whatsoever; or
(c) the requisition for title, confiscation, forfeiture or any compulsory acquisition of title of the Airframe by any Government Entity (whether civil, military or de facto) or by any person acting or purporting to act by authority of the same other than the federal government of the U.S. or any instrumentality or agency thereof the obligations of which are guaranteed by the full faith and credit of the federal government of the U.S.; or
(d) the hijacking, theft, or disappearance of the Airframe for a period of (i) 90 consecutive days or more or (ii) if earlier, for a period ending on the last day of the Lease Term; or
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
69
[Operating Lease Agreement (Aircraft No. 1)]
(e) the condemnation, confiscation, capture, seizure or requisition for use or hire of the Airframe or the deprivation of the possession or use of the Airframe as a result of any law or other action by the Aviation Authority or any Government Entity (other than where the same amounts to the circumstances provided in clause (d)) which deprives any person entitled to have possession and/or use of the Airframe of its possession and/or use (i) for more than a period of 120 consecutive days or (ii) with respect to any deprivation of the possession or use of the Airframe as a result of any law or other action by any Aviation Authority or Government Entity, for such longer period, up to a maximum of 120 additional consecutive days (not to extend beyond the last day of the Lease Term), so long as Lessee is diligently attempting to bring the Airframe into conformity with such law or other action (it being understood that the activation of the Aircraft under the CRAF Program is not to be regarded as a "condemnation, confiscation, capture, seizure or requisition for use or hire") or (iii) if earlier, for a period ending on the last day of the Lease Term; or
(f) any other case which by subsequent agreement Lessor and Lessee may deem, with the agreement of the insurers, to be an Event of Loss.
An Event of Loss with respect to the Aircraft shall be deemed to have occurred if an Event of Loss occurs with respect to the Airframe.
" Event of Loss Date " means:
(a) with respect to any Event of Loss set forth in paragraph (a) of the definition thereof, the earliest of:
(i) the date on which the loss is agreed, arranged or compromised by the insurers; and
(ii) thirty (30) days after the date on which notice is sent to Lessee's brokers or insurers claiming such loss;
(b) with respect to any Event of Loss set forth in paragraph (b) or (c) of the definition thereof, the date such event, condition or circumstance occurs or, if such date is not known, the date on which the relevant property was last heard of;
(c) with respect to any Event of Loss set forth in paragraph (d) or (e) of the definition thereof, the earlier of:
(i) the date on which insurers make payment on the basis of an Event of Loss; and
(ii) the expiration of the period, or the continuation of the condition or circumstance beyond the date, described therein; or
(d) with respect to any Event of Loss set forth in paragraph (f) of the definition thereof, the date of the subsequent agreement reached by Lessor and Lessee, with the agreement of the insurers.
" Event of Loss Proceeds " means the proceeds of any insurance required to be maintained by Lessee hereunder, or any compensation or similar payment arising, in respect of an Event of Loss.
" Excluded Tax " means any Tax to the extent excluded by Section 14.1(b) of this Agreement from Lessee's tax indemnity obligations under Section 14.1(a) of this Agreement.
" Export Certificate of Airworthiness " means an export certificate of airworthiness issued by the Aviation Authority in respect of the Aircraft.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
70
[Operating Lease Agreement (Aircraft No. 1)]
" Extension Option " means Lessee's right to extend the Lease Term in accordance with Section 2.7(b).
" Extension Termination Date " means the earlier of (a) the fourteenth (14th) anniversary date of the Delivery Date or (b) the date of completion of the next scheduled C Check for the Aircraft following the Scheduled Termination Date in accordance with Section 2.1(d) of Schedule 6, provided if either such date is not a Business Day, the immediately preceding Business Day.
" FAA " means the Federal Aviation Administration of the United States or any Government Entity succeeding to the functions of such Federal Aviation Administration.
" FAA Bill of Sale " means a bill of sale for the Airframe on AC Form 8050-2 (or such other form as may be approved by the FAA) delivered to Lessor on the Delivery Date by Airframe Manufacturer.
" FAA Filed Documents " means this Agreement, Lease Supplement, the Security Agreement, the Trust Agreement and relevant affidavit of citizenship, the FAA Bill of Sale, and an application for registration of the Aircraft with the FAA in the name of Lessor.
" FAA Regulations " means the Federal Aviation Regulations issued or promulgated pursuant to the Act from time to time and set forth in Title 14 of the United States Code of Federal Regulations, Chapter 1 (Parts 1-99).
" Final Inspection " has the meaning given to it in Section 1 of Schedule 6.
" Financier " means any person from time to time notified by Lessor to Lessee as making any loan, lease or other financial arrangement available to Lessor or any of its Affiliates in connection with the financing or refinancing of the Aircraft and/or in relation to which such person (or Security Trustee on its behalf) acquires title to (within a head lease/sublease structure), or any Lien in the Aircraft or any Operative Document.
" Financing Statements " means UCC-1 financing statements covering this Agreement and the Aircraft, as a precautionary matter, by Lessee, as lessee, showing Lessor and Security Trustee as assignee of Lessor for filing in Delaware and each other jurisdiction that, in the opinion of Lessor and Security Trustee, is reasonably desirable.
" Flight Hour " means, with respect to the Airframe or any Engine or Part, each hour or part of it rounded up to two decimal places elapsing from the moment at which the wheels of the Aircraft (or an aircraft on which the relevant Engine or Part is installed on) leave the ground on take-off until the wheels of the Aircraft (or aircraft on which the relevant Engine or Part is installed) touch the ground on landing following such flight.
" GAAP " means (i) generally accepted accounting principles as set forth in the statements of financial accounting standards issued by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or (ii) International Financial Reporting Standards and International Accounting Standards (and interpretations thereof) published by the International Accounting Standards Board, as in effect at the relevant time, and applied on a basis consistent with prior periods except as may be disclosed in the pertinent person's financial statements.
" Government Entity " means and includes (whether having a distinct legal personality or not) (a) any national government, state, locality, any political subdivision thereof, or local jurisdiction therein, (b) any board, commission, department, division, organ, instrumentality, court or agency of any entity referred to in (a) above, however constituted, and (c) any association, organization or institution (international or otherwise) of which any entity mentioned in (a) or (b) above is a member or to whose jurisdiction any thereof is subject or in whose activities any thereof is a participant.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
71
[Operating Lease Agreement (Aircraft No. 1)]
" Group A Engine LLPs " means each of the following: (1) LPC Rotor disk, (2) LPC Rotor Shaft, (3) IPC Drum, (4) IPC Stub Shaft, (5) HPC 1-6 Drum, (6) HPT Disk, (7) IPT Shaft, (8) IPT Disk, (9) LPT Stg 1 Disk, (10) LPT Stg 2 Disk, (11) LPT Stg 3 Disk, (12) LPT Stg 4 Disk, and (13) LPT Rotor Shaft.
" Group B Engine LLPs " means Engine fan blades and annulus fillers.
" Guarantor " means HKAC.
" Guaranty " means the guaranty of Guarantor in favor of Lessee, in form and substance reasonably acceptable to Lessee, guarantying, among other things, the obligations of Lessor and Owner Participant hereunder, under the Purchase Agreement, under the Purchase Agreement Assignment and under the Engine Warranties Assignment.
" Habitual Base " means the U.S. or any other country (a) in which the Aircraft is based from time to time in accordance with the provisions of this Agreement and (b) which is agreed to in writing by Lessee and Lessor.
" Hard Time Component " has the meaning given to it in Section 3(a) of Schedule 6.
" HKAC " means HNA Group (Hong Kong) Co., Limited.
" Holdings " means Hawaiian Holdings, Inc., a Delaware corporation and the parent of Lessee.
" ICAO " means the International Civil Aviation Organization.
" Indemnified Party " means each of Lessor, Wilmington, Owner Participant, Guarantor, Servicer, Security Trustee and each other Financier, and their respective Affiliates, successors and permitted transferees and assigns, directors, officers, employees and agents, provided that any agent will only constitute an Indemnified Party to the extent that it has been acting on behalf of another Indemnified Party in the performance of its rights in connection with the Operative Documents.
" Indemnified Tax " means any Tax for which Lessee has an obligation of indemnity pursuant to Section 14 of this Agreement and does not include any Excluded Tax.
" Individual LLP Cost Per Cycle " has the meaning given in the definition of "Annual Maintenance Reserves Adjustment".
" Information " has the meaning given in Section 18.5.
" Insolvency Event " means in relation to Lessee, any of the following occurs: Lessee shall commence any case, proceeding or other action (A) under any existing or future Law relating to bankruptcy, insolvency, examinership, administration, reorganization or other relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, or other similar official for it or for all or any substantial part of its assets, or Lessee shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Lessee any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged, unstayed or unbonded for a period of 60 days; or (iii) there shall be commenced against Lessee any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) Lessee shall admit in writing its inability to, pay its debts as they become due.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
72
[Operating Lease Agreement (Aircraft No. 1)]
" Insolvent " means in relation to Lessee, any of the following occurs:
(a) it is, or is deemed for the purposes of any applicable Law to be, unable to pay its debts as they fall due or insolvent;
(b) it admits in writing its inability to pay its debts as they fall due; or
(c) any of its indebtedness is subject to a moratorium.
" Insurances " means the contracts and policies of insurance in respect of the Aircraft required to be maintained by Lessee under Section 8.6 and Schedule 9.
" International Registry " means the international registration facilities established for the purposes of the Cape Town Convention.
" Item of Equipment " means individually or collectively, as the context requires, the Aircraft, Airframe, and any of the Engines, Landing Gear, the APU and any of the Parts, whether or not installed in or attached to the Aircraft or Airframe.
" Landing Charges Letter " means a letter from Lessee or a Permitted Sublessee, as applicable, addressed to Lessor in the form of Schedule 12 (Form of Landing Charges Letter) and any other relevant air traffic control authority, pursuant to which Lessee authorizes the addressee to issue to Lessor from time to time a statement of account of all sums due by Lessee or a Permitted Sublessee to the authority in respect of the Aircraft.
" Landing Gear " means each landing gear assembly of the Aircraft identified by serial numbers in the Lease Supplement and any landing gear assembly substituted for any such identified landing gear assembly in accordance with the terms and conditions of this Agreement.
" Landing Gear Overhaul " means the overhaul or exchange of the Landing Gear and in the case of overhaul, such overhaul shall be in accordance with the Manufacturer's component maintenance manual and, in the case of exchange shall mean exchange of the original Landing Gear for landing gear with zero time and zero cycles since overhaul in accordance with the Manufacturer's component maintenance manual.
" Law " means (a) any constitution, treaty, pact, compact, convention, statute, law, decree, regulation, order, interpretation, license, permit, rule, injunction, writ or directive of any Government Entity, and (b) any judicial or administrative interpretation or application of, or decision under, any of the foregoing.
" LDMCR " means the lower deck module crew rest installed on the Aircraft at the Delivery Date.
" Lease Default " means any condition, circumstance, act or event that, with the giving of notice, the lapse of time or both, would constitute a Lease Event of Default.
" Lease Event of Default " means any one or more of the conditions, circumstances, acts or events set forth in Section 10.1 of this Agreement.
" Lease Supplement " means the Lease Supplement to be dated the Delivery Date in the form of Schedule 10 hereto.
" Lease Term " means the period from the Delivery Date to and including the Termination Date, or such other date on which this Agreement is terminated (whether by expiry of time, termination by Lessor or otherwise).
" Lessee Conditions Precedent " means each condition precedent set out in Section 2.2.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
73
[Operating Lease Agreement (Aircraft No. 1)]
" Lessee Consent " means Lessee Consent to be dated the Delivery Date among Lessor, Lessee and Security Trustee, in form and substance (including the confirmation of Lessee's right to quiet enjoyment of the Aircraft) reasonably acceptable to Lessor, Lessee and Security Trustee pursuant to which Lessee consents to Lessor's granting a Lien on this Agreement to Security Trustee.
" Lessee Operative Agreements " means this Agreement, the Lease Supplement, Lessee Consent and any other Operative Document to which Lessee is a party.
" Lessor Conditions Precedent " means each condition precedent set out in Section 2.1.
" Lessor Lien " means the rights of Lessor, Owner Participant, any Financing Party, Security Trustee or any other person or entity having an ownership, mortgage or security interest in the Aircraft or this Agreement which has been granted or conveyed by Lessor and any other Lien in the Aircraft or this Agreement which results from acts of or claims against Lessor, Owner Participant, any Financier or Security Trustee that are not to be paid or indemnified against by Lessee under this Agreement.
" LIBOR " means, for any period, the three-month (unless otherwise specified herein) rate of interest per annum at which deposits in Dollars are offered to major banks in the London interbank market at approximately 11:00 a.m. (London time) three Business Days before the first day of such period, as reported by the Reuters Screen LIBOR01 Page (or such other page as may replace such page on such system for the purpose of reporting London Interbank Offered Rates of major banks) under the heading for British Bankers Association Interest Settlement Rates in the column designated "USD" (U.S. Dollar).
" Lien " means any mortgage, charge, pledge, lien, hypothecation, lease, title retention, assignment, trust arrangement, right of possession or detention or security interest of any kind, howsoever created or arising.
" Life Limited Part " means any Part which (as defined by the Manufacturer) has a finite working life limited to a given number of hours, cycles or calendar months.
" Longstop Date " means the last day of the 8th month anniversary of the Scheduled Delivery Month, or such other date as agreed in writing by Lessee and Lessor.
" Maintenance Item " means each type of maintenance specified in the Maintenance Reserves Table.
" Maintenance Manual " means manuals provided by the Manufacturer to support the operation and maintenance of the Aircraft and systems.
" Maintenance Reserves " means the amount (if any) from time to time standing to the credit of the Maintenance Reserves Account.
" Maintenance Reserves Account " means the account notified in writing by Lessor to Lessee as being the "Maintenance Reserves Account."
" Maintenance Reserves Payment Date " means the date which is the 15th day of every calendar month during the Lease Term, commencing on the 15th day of the calendar month following the first full calendar month following the calendar month in which Delivery occurs, and on the last day of the Lease Term.
" Maintenance Reserves Payments " means the Monthly Maintenance Reserves Amounts and all other amounts payable by Lessee to Lessor pursuant to Section 5.6, Section 5.8, and Schedule 4.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
74
[Operating Lease Agreement (Aircraft No. 1)]
" Maintenance Reserves Table " means the table set out in Schedule 4.
" Manufacturer " means in the case of any Item of Equipment, the manufacturer of such Item of Equipment.
" Manufacturer's Maintenance Planning Document " or " MPD " means the Airframe Manufacturer's Maintenance Planning Document for Airbus A330 aircraft, as the same may have been revised, amended or supplemented or updated from time to time.
" Material Adverse Change " means, with respect to any person, any event, condition or circumstance that materially and adversely affects such person's consolidated financial condition, or its ability to perform its obligations under any of the Operative Documents to which such person is a party.
" Minimum Liability Coverage " means U.S.$1,000,000,000.
" Monthly Maintenance Reserves Amount " means, for a Maintenance Item, the amount determined in accordance with the Maintenance Reserves Table for such Maintenance Item.
" Monthly Report " means a report provided to Lessor in accordance with Section 5.6(b).
" Net Event of Loss Proceeds " means any Event of Loss Proceeds actually received by Lessor (or such other person entitled to receipt thereof), less any expenses or Taxes incurred by Lessor (or any other relevant person) in connection with the collection or receipt of such funds.
" OEM " means, in relation to any Item of Equipment, the original equipment manufacturer of such Item of Equipment.
" Operative Documents " means
(a) this Agreement;
(b) the Lease Supplement;
(c) the Purchase Agreement;
(d) the Purchase Agreement Assignment;
(e) the Airframe Warranties Agreement;
(f) the Airframe Manufacturer's Consent;
(g) the Airframe Manufacturer's Consent [Security Trustee];
(h) the Engine Warranties Agreement;
(i) the Engine Warranties Assignment;
(j) the Engine Manufacturer's Consent;
(k) the Engine Manufacturer's Consent [Security Trustee];
(l) the Lessee Consent, if any;
(m) the Bill of Sale;
(n) the FAA Bill of Sale;
(o) any other document agreed by Lessor and Lessee to be, an "Operative Document" for the purpose of this Agreement; and
(p) all notices, acknowledgements, consents and certificates required under this Agreement or under any other Operative Document to which Lessee is either a party or a beneficiary.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
75
[Operating Lease Agreement (Aircraft No. 1)]
" Other Aircraft " means, at the time of determination, the two other A330-200 Aircraft acquired, or to be acquired, by an Affiliate of Guarantor, provided that the Aircraft and such other aircraft continue to be owned and leased by a lessor that is an Affiliate of Guarantor at such time and leased to Lessee.
" Parts " means all engine modules, appliances, components, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than complete Engines or engines) which may from time to time be incorporated or installed in or attached to the Aircraft or which, having been removed from the Aircraft, remain the property of Lessor pursuant to Section 3 of Schedule 8.
" PBH " means the Complete Fleet Services Agreement dated as of December 14, 2009 by and between Lessee and Delta Airlines, Inc., pursuant to which Delta Airlines, Inc. has agreed to provide, among other things, maintenance services for the APU.
" Permanent Establishment " shall have the meaning given to it in Section 7.4(h) of this Agreement.
" Permitted Liens " means:
(a) the respective rights of Lessee and Lessor as herein provided;
(b) any Lien created or permitted by the Security Agreement;
(c) any Lien for Taxes or any government or statutory charges or levies not assessed or, if assessed, not yet due and payable, or being contested in good faith by appropriate proceedings;
(d) any Lien of a materialman, repairer, mechanic, carrier, hangar-keeper or other similar lien arising in the ordinary course of business by operation of applicable Law in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings;
(e) any Lien for airport, navigation, and en-route charges arising in the ordinary course of business in respect of obligations which are not overdue or are being contested in good faith by appropriate proceedings;
(f) any Lessor Lien;
(g) the rights of others under any Permitted Sublease or other arrangements to the extent expressly permitted under Section 12,
but only if (in the case of any contest referenced in (c), (d) and (e)) (i) adequate reserves have been provided by Lessee for the payment of such Taxes or obligations in accordance with GAAP, if applicable; and (ii) such proceedings, or the continued existence of the Lien, do not give rise to any likelihood of the sale, forfeiture or other loss of the Aircraft or of criminal liability on Lessor.
" Permitted Sublease " has the meaning given to it in Section 12.1.
" Permitted Sublessee " means:
(a) a person listed in Schedule 5 (which may be amended at the request of a party with the other party's consent, such consent not to be unreasonably withheld); or
(b) any lessee of the Aircraft approved by Lessor in writing as a permitted Sublessee for the purposes of Section 12.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
76
[Operating Lease Agreement (Aircraft No. 1)]
" PMA Parts " means Parts manufactured with a Parts Manufacturing Approval Supplement issued by the FAA.
" Primary Account " has the meaning given to it in Section 6.1.
" Prime Rate " means, for any day, a rate per annum equal to the "Prime Rate" as published in the Wall Street Journal for such day or, if such day is not a Business Day, for the immediately preceding Business Day.
" Protocol " means the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, concluded in Cape Town, South Africa, on November 16, 2001 (utilizing the English-language version thereof).
" Purchase Agreement " means the purchase agreement between Lessor and Lessee, to be entered into concurrently with this Agreement, pursuant to which Lessor shall agree to purchase the Aircraft from the Airframe Manufacturer on the Delivery Date and lease the Aircraft to Lessee hereunder.
" Purchase Agreement Assignment " means the aircraft purchase agreement assignment between Lessor and Lessee to be entered into on or about the Delivery Date as consented to by the Airframe Manufacturer, which shall be in form and substance reasonably acceptable to Lessor and Lessee and shall provide, among other things, for the assignment to Lessor of the warranties relating to the Aircraft and the rights of Lessee to take title to the Aircraft under the Airbus Purchase Agreement.
" Purchase Price " has the meaning given in the Purchase Agreement.
" Qualifying Maintenance " means the Airframe Structural 6 Year Check and 12 Year Check performed or to be performed on the Airframe, any Engine Performance Restoration performed to be performed on an Engine, any Group A Engine LLP replacement, any Landing Gear Overhaul or exchange performed or to be performed on any Landing Gear or any APU Performance Restoration performed or to be performed on the APU.
" Redelivery " means the return and formal acceptance by Lessor of the Aircraft complete with all the Engines, Parts and Technical Records, in the condition defined in the Return Condition.
" Redelivery Date " means the date on which Lessee redelivers the Aircraft in accordance with Section 11.
" Redelivery Location " means Los Angeles International Airport or such other location as may be agreed in writing by Lessee and Lessor.
" Rent " means, as the case may be, either or both of the Basic Rent and the Maintenance Reserves Payments.
" Rent Calculation Date " has the meaning given in Section 5.1(c).
" Rent Payment Date " means the Delivery Date and the first day of each Rent Period or, if any such date is not a Business Day, the immediately preceding Business Day.
" Rent Period " means the period commencing on and including the Delivery Date and ending on the day before the corresponding day in the next succeeding calendar month and each of the consecutive monthly periods thereafter throughout the Lease Term, provided that the final Rent Period of the Lease Term may consist of less than a full month if this Agreement expires, terminates or is cancelled effective as of or on a date other than the day before a monthly anniversary of the Delivery Date.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
77
[Operating Lease Agreement (Aircraft No. 1)]
" Replacement Engine " means an engine of the same manufacturer of the same or an improved model and suitable for use on the Airframe and which is in at least as good operating condition and of at least equivalent thrust rating, value, utility, modification and Life Limited Part status as and with no more than 110% of the total Flight Hours or Cycles since new and since completion of the most recent Engine Performance Restoration as compared to the Engine to be replaced or, if replacement occurs as a result of an Engine Event of Loss assuming that such Engine was in the condition and repair, except for normal wear and tear, required by the terms hereof immediately prior to the occurrence of such Engine Event of Loss, provided that Lessee acknowledges that Lessor shall have no obligation to make any betterment or other compensation payment if any such engine exceeds the above requirements, whether as to value or otherwise.
" Return Condition " means the condition specified in Section 11 and Schedule 6.
" Return Date " means the date on which the Aircraft is redelivered to Lessor in accordance with Section 11.
" Scheduled Delivery Date " has the meaning given in Section 2.5(e).
" Scheduled Delivery Date Notice " has the meaning given in Schedule 2.
" Scheduled Delivery Month " has the meaning given in Section 2.5(e).
" Scheduled Termination Date " means the twelfth (12th) anniversary date of the Delivery Date (or if such date is not a Business Day, the immediately preceding Business Day).
" SEC " means the Securities and Exchange Commission of the United States of America, or any Government Entity succeeding to the functions of the Securities and Exchange Commission.
" Section 1110 " has the meaning given in Section 18.7.
" Security Agreement " means the aircraft mortgage agreement, indenture or similar arrangement to be entered into, from time to time, between Lessor, Security Trustee and certain other entities more particularly described therein, pursuant to which Lessor will mortgage its right, title and interest in and to the Aircraft and certain other property (as more particularly described in the Mortgage).
" Security Deposit " means the amount in U.S.$ equal to two month's Basic Rent (as determined prior to the Delivery Date pursuant to Section 5.1).
" Security Deposit Account " means the account specified in Section 5.4(a) or such other account notified in writing by Lessor to Lessee as being the "Security Deposit Account".
" Security Deposit LC " means a letter of credit issued or confirmed by a financial institution reasonably satisfactory to Lessor:
(a) which has a long term credit rating of at least A+ by Standard & Poor's; and
(b) which has offices in New York or London at which the letter of credit may be presented and drawn.
" Security Trustee " means any person from time to time notified by Lessor to Lessee as the security agent or trustee (or similar representative) for any of the Financiers. The initial Security Trustee shall be specified in the Lease Supplement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
78
[Operating Lease Agreement (Aircraft No. 1)]
" Service Bulletins " means any optional, recommended, alert, standard or mandatory service bulletin or service information letter issued by the Airframe Manufacturer, the Engine Manufacturer or any other Manufacturer.
" Servicer " means HKAC and such other person that Lessor may notify Lessee in writing as being the servicer from time to time.
" Special FAA Counsel " means McAfee & Taft, P.C. or such other counsel as agreed to by Lessor and Lessee.
" State of Incorporation " means Delaware.
" State of Registration " means the U.S. or any other country in which the Aircraft is from time to time registered in accordance with Section 12.1.
" Subsidiary " means an entity of which a person has direct or indirect control or owns directly or indirectly more than fifty percent (50%) of the voting capital or similar right of ownership and control for this purpose means the power to direct the management and the policies of the entity whether trough the ownership of voting capital, by contract or otherwise.
" Supplemental Rent " means all amounts, liabilities and obligations (other than Basic Rent and payments in respect of Maintenance Reserves) which Lessee assume or agrees to pay to Lessor under this Agreement and the other Operative Documents to which Lessee is a party, including without limitation, Event of Loss Proceeds, interest at the Default Rate and payment of indemnities under Sections 13 and 14.
" Tax(es) " means any taxes (including, without limitation, sales, use, business, gross or net income, personal property, license, documentation, recording, transfer, import, export, fuel, leasing, occupational, value added, turnover, stamp, goods and services, excess profits, excise, general excise, gross or net receipts, franchise, stamp, environmental and other taxes), levies, imposts, withholdings, fees, assessments, duties and other charges of any nature, and any penalties, fines, additions to tax, interest or other charges related thereto which are imposed by any Government Entity or other taxing authority in any jurisdiction (including Hawaii and any political subdivision thereof) or by any international or multinational taxing or regulatory authority.
" TCA " means the General Terms Agreement, dated as of October 27, 2008 (as amended from time to time), among Lessee, Engine Manufacturer and Rolls-Royce TotalCare Services Limited, which provides for maintenance and repair of certain of Lessee's fleet of engines including the Engines.
" TCA Payment Default " means, with respect to an Engine, a failure by Lessee to make payments under the TCA for that Engine and such failure has not been cured within 60 days.
" Technical Records " means all the documents listed in Schedule 3 and all other technical data, manuals, logbooks and other records (whether kept or to be kept in compliance with any applicable Law or any requirement of the Aviation Authority) relating to the Airframe, an Engine, any Part or the APU.
" Termination Date " means the Scheduled Termination Date or if Lessee exercises the Extension Option in accordance with Section 2.7(b), the Extension Termination Date.
" Trust Agreement " means the Trust Agreement, dated as of the date hereof, between Wilmington, as owner trustee and Owner Participant, as the beneficiary with respect to the Aircraft.
" U.S. Dollars " or " U.S.$ " means the lawful currency for the time being of the U.S.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
79
[Operating Lease Agreement (Aircraft No. 1)]
" United States " or " U.S. " means the United States of America; provided, that for geographic purposes, "United States" means, in aggregate, the 50 states and the District of Columbia of the United States of America.
" Wilmington " means Wilmington Trust Company, a Delaware trust company, in its individual capacity.
21.2 Interpretation. In this Agreement, unless the context otherwise requires:
(a) headings and underlinings are for convenience only and do not affect the interpretation of this Agreement;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any governmental agency;
(e) references to parts, Sections, parties, exhibits and Schedules are references to parts paragraphs, and Sections of, and parties, exhibits and Schedules to, this Agreement;
(f) a reference to any statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;
(g) a reference to an agreement includes any encumbrance, guarantee, undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing;
(h) a reference to a document includes any permitted amendment or supplement to or replacement or novation of, that document;
(i) a reference to Lessor, Financier or any other person includes that person's successors and permitted assigns and transferees; and
(j) whenever any payment under this Agreement is due on a day which is not a Business Day the payment shall be made on the immediately preceding Business Day. Any payment under this Agreement due on demand, if demanded on a day which is not a Business Day, is due on the immediately succeeding Business Day.
[signature page follows]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
80
[Operating Lease Agreement]
IN WITNESS whereof Lessor and Lessee have caused this Agreement to be duly executed by their authorized officer or representative as of the day and year first above written.
|
LESSOR: | |||
|
WILMINGTON TRUST COMPANY
|
|||
|
By: |
/s/ Jacqueline Solone
|
||
|
Name: Jacqueline Solone | |||
|
Title: Financial Services Officer | |||
|
LESSEE: |
|||
|
HAWAIIAN AIRLINES, INC. |
|||
|
By: |
/s/ Peter R. Ingram
|
||
|
Name: Peter R. Ingram | |||
|
Title: Executive Vice President, Chief Financial Officer and Treasurer | |||
|
By: |
/s/ C.R. Nardello
|
||
|
Name: Charles R. Nardello | |||
|
Title: Senior Vice PresidentOperations | |||
|
OWNER PARTICIPANT: |
|||
|
HKAC LEASING LIMITED |
|||
|
By: |
/s/ Donal Boylan
|
||
|
Name: Donal Boylan | |||
|
Title: Director |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
81
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 1Description of Aircraft
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 1, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
[Note: to be intentionally omitted from FAA filing counterpart as containing confidential information]
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 2, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
All manuals, documents and software shall be delivered complete and in English, including the latest revisions incorporated, in good condition and shall include all Service Bulletins, modifications and alterations as incorporated in the Aircraft during the pre-delivery maintenance, including but not limited to the following documents:
Certificates:
Aircraft Maintenance Status Summaries:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
Aircraft Maintenance Records:
Aircraft Historical Records:
Configuration Status:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
Engine Documents:
Times and Cycles since new
Times and Cycles since overhaul on each engine module
Hours and Cycles in airlines operation
APU Documents:
APU Hours since new
APU Hours since overhaul
APU Hours since hot section inspection
Operator's method for APU time accrual
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
Component Records:
Landing Gears:
Manuals:
CD:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 4
[Operating Lease Agreement (Aircraft No. 1)]
Miscellaneous:
Lessee acknowledges that copies of certain Documents or Manuals may be required at date earlier than the Redelivery Date to facilitate certain acceptance processes and or to support the next operator for into service information/airworthiness processes. Lessor agrees that these interim additional requests will be kept to a minimum.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 5
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 4Maintenance Reserves Table
[Note: to be intentionally omitted from FAA filing counterpart as containing confidential information]
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 4, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 5List of Permitted Sublessees
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 5, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 6Return Conditions
[Note: to be intentionally omitted from FAA filing counterpart as containing confidential information]
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 6, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
Section 1. Registration. Lessee shall:
(a) at its own cost promptly do all such acts and things within its control to assist Lessor to register and maintain the registration of the Aircraft at the Aviation Authority reflecting Lessor as the owner of the Aircraft, and not do anything which might adversely affect such registration;
(b) if any applicable Law allows Lessee to register or file this Agreement or any Permitted Sublease or the interests of Lessor, Financiers or Security Trustee, promptly register or file all such interests to the maximum extent permitted by law; and
(c) at the request of Lessor, promptly assist and co-operate with all reasonable requests of Lessor to establish, maintain, preserve and protect the rights of Financiers in relation to the financing provided to Lessor in relation to the Aircraft.
Section 2. Records.
(a) Lessee shall keep accurate, complete and current records of all flights made by the Aircraft and of all maintenance and repairs carried out on the Aircraft, each Engine and each Part (including in relation to each Engine and Part subsequently installed, before the installation). Lessee shall notify Lessor on a monthly basis, every month throughout the Lease Term (commencing with the second month of the Lease Term) the number of Airframe, Engine, Landing Gear and APU Flight Hours and Cycles accumulated by the Aircraft. Such notification shall be delivered by Lessee to Lessor in accordance with Section 8.4 in the form of Schedule 11.
(b) Such records will form part of the Technical Records and shall:
(i) be kept in accordance with the approved procedures and practices of Lessee, the Aviation Authority, if applicable, and any applicable Manufacturers or suppliers and with the best practices of major international air transport operators;
(ii) be kept and maintained in English and in such manner and form as the Aviation Authority, FAA and any applicable Law may from time to time require and shall disclose the location of all Engines and Parts not installed on the Aircraft;
(iii) be the property of Lessor;
(iv) be kept by Lessee in its possession at a location approved by the Aviation Authority in fire proof storage containers in an area free from any risk of flooding and not, without Lessor's prior written consent, be in the possession or control of any person other than Lessee or an Approved Maintenance Provider.
(c) Lessee shall permit Lessor (or any of its agents or nominees) to examine and make copies of such records upon giving reasonable notice so long as such examination does not impede the normal commercial operation of the Aircraft. Provided no Lease Event of Default has occurred and is continuing, such inspections shall be at Lessor's cost and expense.
Section 3. Operation and compliance with laws.
(a) Lessee shall comply with all applicable Laws.
(b) Lessee shall not use the Aircraft in any manner contrary to any recommendation of the Manufacturers or any recommendation or regulation of the Aviation Authority or for any purpose for which the Aircraft is not designated or reasonably suitable.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 7, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
(c) Lessee shall not knowingly use the Aircraft for the carriage of:
(i) whole animals, living or dead, except in the cargo compartments according to International Air Transport Association regulations and except domestic pet animals carried in suitable containers to prevent the escape of any liquid and as to ensure the welfare of the animal;
(ii) explosives, acids, toxic chemicals (including mercury) or other corrosive materials in contravention of any applicable Law, except as permitted for cargo under the International Air Transport Association Dangerous Goods Regulations and provided that all the requirements for packaging or otherwise contained therein are fulfilled;
(iii) nuclear fuels or wastes, except as permitted for cargo under the International Air Transport Association Dangerous Goods Regulations and provided that all the requirements for packaging or otherwise contained therein are fulfilled; or
(iv) illegal drugs or any other goods, materials or items of cargo which are prohibited by Law.
(d) Lessee shall not do or permit to be done anything which may expose the Aircraft or any part of it to the non-customary risk of damage, destruction, arrest, confiscation, seizure, forfeiture, impounding, detention or appropriation and shall not abandon the Aircraft.
(e) Lessee shall not use the Aircraft for purposes of training, qualifying or reconfirming the status of cockpit personnel except for the benefit of Lessee's cockpit personnel, and then only if the use of the Aircraft for such purpose is not disproportionate to the use for such purpose of other aircraft of the same type operated by Lessee.
(f) Lessee shall obtain and maintain in full force and effect all authorizations from time to time required for the use and operation of the Aircraft and ensure that the Habitual Base remains the habitual base of the Aircraft.
(g) Lessee shall:
(i) not cause or permit the Aircraft to proceed to, or remain at, any location to the extent then prohibited by a prohibition order or restriction of applicable Law (or any similar order, regulation or directive), or sanction or restriction issued by any Government Entity of the State of Registration or Lessee's or Lessor's state of organization or any Government Entity of the country in which such location is situated; and
(ii) not, to Lessee's best knowledge after reasonable and customary diligence, use or permit the use of any Item of Equipment with, for or on behalf of any person:
(A) whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 24, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (as the same is in effect during the Lease Term);
(B) in violation of the United States Bank Secrecy Act, as amended, or any applicable regulations thereunder;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 7, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
(C) contrary to any of the sanctions programs administered by the Office of Foreign Assets Control of the United States Department of Treasury (" OFAC "), any regulations promulgated thereunder by OFAC or under any affiliated or successor governmental or quasi-governmental office, bureau or agency, or any enabling legislation or executive order relating thereto ( ref : www.ustreas.gov/offices/enforcement/ofac/);
(D) on the list of "Specially Designated Nationals" and "Blocked Persons" or subject to the limitations or prohibitions under any OFAC regulation or executive order, as the same are amended from time to time;
(E) who is the subject of a United Nations sanction or whose assets have been frozen by enabling legislation of the same in the State of Registration or Lessee's state of organization; or
(F) who is the subject of or which use is contrary to any Laws similar to or consistent with the foregoing clauses (A) through (E) as the same are enacted in Lessee's state of organization or the State of Registration;
as any or all of the same are amended or supplemented from time to time, and including any successor laws as the same are enacted from time to time.
(h) Lessee shall not operate, maintain, insure or deal with the Aircraft, any Engine or Part in a manner which discriminates against the Aircraft, when compared with the manner in which Lessee operates, maintains, insures or deals with other aircraft, engines or parts (in each case of a similar model) in Lessee's fleet.
Section 4. Display of names. Until Redelivery occurs, Lessee shall:
(a) affix and keep an engraved fireproof nameplate of appropriate size and shape to be provided by Lessor, in a reasonably prominent position in the cabin of the Aircraft bearing the inscription "Wilmington Trust Company not in its individual capacity but solely as owner trusteeOWNER AND LESSOR, [name of Security Trustee as may be specified in the Lease Supplement]SECURITY TRUSTEE" and will ensure that such plate is not removed, defaced or covered; and
(b) affix and keep an engraved fireproof nameplate of appropriate size and shape in a reasonably prominent position on each Engine pod bearing the inscription "Wilmington Trust Company not in its individual capacity but solely as owner trusteeOWNER AND LESSOR, [name of Security Trustee as may be specified in the Lease Supplement]SECURITY TRUSTEE" and will ensure that such plates are not removed, defaced or covered.
Such nameplates shall not be removed prior to the Redelivery. If at any time Lessor transfers its interest in the Aircraft as permitted hereunder or Lessor finances or refinances the Aircraft, Lessee will, at Lessor's request and cost, promptly affix such new nameplates (to be provided by Lessor) to the Airframe and the Engines as may be required by Lessor. Lessee may add the words "AND IS ON LEASE TO HAWAIIAN AIRLINES" to any such nameplate provided that Lessee replaces that nameplate with a new nameplate not bearing those additional words at or before return.
Section 5. AD Cost Sharing.
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 7, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 8Maintenance, Alterations, Repairs, Pooling and Inspection.
Section 1. General. Until Redelivery occurs, Lessee shall maintain the Airframe and Engines:
(a) with at least the same degree of non-discriminatory care as Lessee exercises in maintaining other owned and leased Airframes and Engines in its fleet of the same make and model as the respective Airframe or Engine;
(b) in good operating condition and in the same condition as when delivered to Lessee under this Agreement, ordinary wear and tear excepted;
(c) in full compliance with the Aviation Authority's requirements;
(d) in such condition as is necessary to enable the airworthiness certification of the Aircraft to be maintained in good standing at all times under the laws of the jurisdiction of the Aviation Authority; and
(e) through an Approved Maintenance Provider.
(f) Lessee may however in good faith contest the validity or application of any Airworthiness Directives in any reasonable manner that does not:
(i) materially affect Lessor's interest in or title to the Aircraft;
(ii) involve any risk of the imposition of criminal liability on Lessor;
(iii) involve any material risk of unindemnified civil liability on Lessor; or
(iv) involve any material risk of the sale, forfeiture or loss of the Aircraft, the Airframe or any Engine.
(g) Lessee is fully responsible to Lessor for any loss of the Aircraft or damage to it (howsoever occasioned).
Section 2. Sharklets . [**]
Section 3. Replacement and Pooling of Parts; Alterations, Modifications and Additions .
3.1 Replacement of Parts .
(a) Required Replacement. Lessee, at its own cost and expense, will promptly replace all Parts which may from time to time become time, cycle or calendar expired, worn out, unserviceable, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
(b) Optional Removal. In the ordinary course of maintenance, service, repair, overhaul or testing, Lessee may at its own cost and expense remove any Parts, whether or not time, cycle or calendar expired, worn out, unserviceable, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use, provided that Lessee shall replace such Parts as promptly as practicable and in any event within 60 days after removal or, if earlier, on the expiration or earlier cancellation or termination of the Lease Term. For the avoidance of doubt, Lessee may not remove any Part or permit any Part to be removed from the Aircraft for the purpose of installing such Part on any other aircraft or engine in order to operate such other aircraft or engine while the Aircraft or an Engine leased hereunder is undergoing maintenance or is otherwise not in use, unless Lessee complies with all of the following conditions: (i) such Part is removed from the Aircraft and installed on another aircraft in Lessee's fleet in order to avoid a grounding of such other aircraft (" AOG aircraft "), (ii) Lessee, after reasonable effort, is not able to otherwise obtain the required part within the available ground time for the AOG aircraft, and (iii) the original Part is re-installed (or a replacement part complying with all the requirements hereof for replacement parts is installed) in the Aircraft as soon as practicable and in any event within ten days after removal or, if earlier, on the expiration or earlier cancellation or termination of the Lease Term.
(c) Requirements for Replacement Parts. Each replacement Part shall:
(i) be free and clear of all Liens and shall be in as good operating condition as, and shall have a value, utility, modification status and service bulletin accomplishment status and useful life at least equal to, the Part replaced, assuming such replaced Part was in the condition and repair and had the value, utility, modification status and useful life required to be maintained by the terms hereof;
(ii) have a current valid FAA 8130-3 or EASA Form 1 serviceable tag of the Manufacturer or maintenance repair facility providing such part to Lessee, identifying the Manufacturer, vendor, part number, make, model and serial number, as well as the accumulated hours or cycles and whether such part is new, serviceable or overhauled;
(iii) not have total hours and cycles accumulated thereon since new that are greater than the total hours and cycles accumulated on the Part to be replaced thereby; and
(iv) not have less hours or cycles remaining thereon until refurbishment or replacement than the Part to be replaced thereby.
(d) Temporary Replacement Parts. Lessee may temporarily replace any Part that has become time, cycle or calendar expired, worn out, unserviceable, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use with a part that does not meet the requirements of Section 3.1(c) or (e) of this Schedule 8 if a complying part cannot be obtained within the available ground time of the Aircraft, provided the original Part is re-installed or the non-complying part is removed and replaced by a complying part as soon as practicable and in any event within 60 days or, if earlier, on the expiration or earlier cancellation or termination of the Lease Term.
(e) Life-Limited Replacement Parts. Except as provided in Section 3.1(d) of this Schedule 8, Lessee shall ensure that no part that is a life-limited part shall be installed on the Airframe or any Engine after the Delivery Date unless such part is new or Lessee has complete certified, back-to-birth records.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
(f) Removal of Parts; Title. All Parts (other than the LDMCR) at any time removed from the Aircraft, Airframe or any Engine shall remain the property of Lessor, no matter where located, until such time as such Parts shall be replaced by parts which have been paid for by Lessee and incorporated or installed in or attached to the Aircraft, Airframe or such Engine in compliance with the requirements for replacement parts specified herein.
Immediately upon any replacement part paid for by Lessee becoming incorporated or installed in or attached to the Aircraft, Airframe or an Engine as above provided, without further act:
(i) title to such replacement part shall thereupon vest in Lessor,
(ii) such replacement part shall become subject to this Agreement and be deemed part of the Aircraft, Airframe or such Engine, as the case may be, for all purposes hereof to the same extent as the Part originally incorporated or installed in or attached to the Aircraft, Airframe or such Engine, and
(iii) title to the removed Part shall thereupon vest in Lessee, free and clear of all rights of Security Trustee and Lessor, and shall no longer be deemed a Part hereunder.
3.2 Pooling of Parts. Any Part may be removed from the Airframe or an Engine as provided in this Schedule 8 and replaced by a replacement part that is subject to a normal pooling arrangement customary in the airline industry entered into in the ordinary course of Lessee's business with reputable commercial air carriers, provided Lessee, at its expense, as promptly thereafter as possible either:
(a) causes title to such replacement part (which shall comply in all respect with Section 3.1(c) and Section 3.1(e) of this Schedule 8) to vest in Lessor in accordance with Section 3.1(f) of this Schedule 8 by Lessee acquiring title thereto for the benefit of, and transferring such title to, Lessor free and clear of all Liens; or
(b) replaces such replacement part by incorporating or installing in or attaching to the Airframe or such Engine a further replacement part owned by Lessee free and clear of all Liens (which shall comply in all respect with Section 3.1(c) and Section 3.1(e) of this Schedule 8) and causing title to such further replacement part to vest in Lessor in accordance with Section 3.1(f) of this Schedule 8.
3.3 Alterations, Modifications and Additions .
(a) Required Modifications. Lessee, at its own expense, shall make such alterations and modifications in and additions to any Item of Equipment, and shall perform and comply with all Airworthiness Directives from time to time issued by the Aviation Authority, all FAR requirements and all mandatory, alert or Airframe Manufacturer recommended service bulletins (and all service bulletins which are required to be performed to maintain the warranties for any Item Equipment) as may be issued from time to time, to meet the requirements of the Airframe Manufacturer, the Engine Manufacturer and the other Manufacturers or vendors in respect of each Item of Equipment and the standards and Airworthiness Directives of the Aviation Authority and any other Governmental Entity having jurisdiction. For the avoidance of doubt, Lessor shall not be obligated to contribute towards the cost of any inspections, modifications, shop visits, repairs or alterations required to be performed in respect of the Aircraft, whether in connection with any maintenance contemplated in this Schedule 8, any Airworthiness Directives or service bulletins, or otherwise other than as provided in Section 2 of this Schedule 8 and Section 5 of Schedule 7.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
(b) Optional Modifications. Lessee, at its own expense, may from time to time make such alterations and modifications in and additions to each Item of Equipment as Lessee may deem desirable in the proper conduct of its business, provided that no such alteration, modification or addition:
(i) materially and adversely alters the specification, structure or performance of the Aircraft;
(ii) adversely affects the interchangeability or replaceability of Parts;
(iii) invalidates any warranties applicable to the Aircraft; or
(iv) in any other way diminishes the value, utility or useful life of any Item of Equipment or impairs the condition or airworthiness thereof below the value, utility, useful life, condition and airworthiness thereof immediately prior to such alteration, modification or addition, assuming such Item of Equipment was then of the value, utility and useful life and in the condition and airworthiness required to be maintained by the terms of this Agreement.
(c) Title to Modifications, Additions, etc. Title to all Parts (other than the LDMCR) incorporated or installed in or attached or added to any Item of Equipment as the result of any alteration, modification or addition shall, without further act, vest in Lessor; provided, however, that so long as no Lease Default or Lease Event of Default shall have occurred and be continuing, at any time during the Lease Term in effect for an Item of Equipment, Lessee may remove any Part from such Item of Equipment, provided that:
(i) such Part is in addition to, and not in replacement of or in substitution for, any Part originally incorporated or installed in or attached to such Item of Equipment at the time of the delivery thereof hereunder or any Part in replacement of, or substitution for, any such Part;
(ii) such Part is not required to be incorporated or installed in or attached or added to such Item of Equipment pursuant to the terms of Section 3.1(a) or Section 3.3(a) of this Schedule 8; and
(iii) such Part can be removed from such Item of Equipment without causing any material damage thereto and without diminishing or impairing the value, utility, useful life, condition or airworthiness which such Item of Equipment would have had at such time had such alteration, modification or addition not occurred.
Upon the removal by Lessee of any such Part as above provided, title thereto shall, without further act, vest in Lessee and such Part shall no longer be deemed a Part hereunder. Any Part not removed by Lessee as above provided prior to the return of the Item of Equipment to Lessor hereunder shall remain the property of Lessor.
3.4 Temporary Attachment and Removal of Engines .
(a) Transfer of Engines Within Lessee's Fleet. So long as no Lease Default or Lease Event of Default shall have occurred and be continuing, Lessee may install an Engine on an airframe owned by Lessee free of Liens or leased to Lessee or owned by Lessee subject to a security agreement or mortgage or purchased by Lessee subject to a conditional sale agreement, provided that:
(i) such airframe is (and for so long as it continues to be) free and clear of all Liens, except, in the case of a leased aircraft or aircraft subject to a security interest, mortgage or conditional sale, the rights of the parties to the lease, security agreement, mortgage or conditional sale agreement covering such airframe;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 4
[Operating Lease Agreement (Aircraft No. 1)]
(ii) prior to such installation on a leased aircraft or aircraft subject to a security interest, mortgage or conditional sale, Lessor shall have received from the lessor, secured party, mortgagee or conditional seller of such airframe a written agreement (which may be the lease, security agreement, mortgage or conditional sale agreement covering such airframe), in form and substance reasonably satisfactory to Lessor, whereby such lessor, secured party, mortgagee or conditional seller expressly agrees that neither it/they nor its/their successors or assigns will acquire or claim any right, title or interest in any Engine by reason of such Engine being installed on such airframe at any time while such Engine is subject to this Agreement or is owned by Lessor; and
(iii) Lessee maintains insurance in respect of the Engine while it is installed on such airframe for the replacement value of such Engine and otherwise on terms acceptable to Lessor in its reasonable discretion.
(b) Installation of Other Engines .
(i) In the regular course of performance of Lessee's obligations under this Agreement and the other Operative Documents to which Lessee is a party, Lessee may temporarily remove an Engine from the Airframe and install an engine on the Airframe that is owned by Lessee or which is subject to a lease, conditional sale agreement, trust indenture or other security agreement, provided that such other engine is (x) free and clear of all Liens except the rights of the parties to the lease or conditional sale or other security agreement covering such engine and Permitted Liens, and (y) Lessee, or if Lessee is not the owner of the engine, the lessor, conditional seller, indenture trustee or secured party of any such engine agrees in writing (which may be contained in the lease, conditional sale, trust indenture or other security agreement covering such engine) that it will not acquire or claim, as against Lessor, any right, title or interest in or any adverse right, title or interest to the Airframe or any Item of Equipment as the result of any such engine being installed on the Airframe.
(ii) Lessor hereby agrees for the benefit of any lessor of any engine leased to Lessee or any secured party or mortgagee of an engine owned by Lessee subject to a security interest or mortgage granted by Lessee or any conditional seller of an engine purchased by Lessee subject to a conditional sale agreement that neither Lessor nor its successors or assignees will acquire or claim, as against such lessor, secured party, mortgagee or conditional vendor, or its assignee, any right, title or interest in any engine owned by such lessor under such lease or subject to a security interest, mortgage or conditional sale interest in favor of such secured party, mortgagee or conditional seller under such security agreement, mortgage or conditional sale agreement as the result of such engine being installed on the Airframe at any time while such engine is subject to such lease, security interest, mortgage or conditional sale agreement.
Section 4. Certain Matters Regarding the LDMCR. Notwithstanding anything herein to the contrary, Lessor has permitted Lessee to install the LDMCR on the Aircraft and to retain title thereto, provided that in the event Lessee, or any other person having a right to repossess the LDMCR, removes the LDMCR from the Aircraft, Lessee will (or will cause such person to) restore the Aircraft to the condition it would have been in had the LDMCR not been installed on the Aircraft at the time of delivery of the Aircraft from the Airframe Manufacturer, but with the LDMCR provisions (stairhouse) installed.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 5
[Operating Lease Agreement (Aircraft No. 1)]
Section 5. Inspection .
5.1 At all reasonable times until Redelivery occurs and subject to the terms of this Section 5, upon Lessee receiving reasonable prior written notice (but not less than five (5) Business Days), Lessee shall use commercially reasonably efforts to provide or procure all necessary permits and other permissions Lessor, its servants, agents, experts and representatives (the "Authorized Personnel") to enter upon any premises where the Aircraft is located and examine by visual walk around inspection the Aircraft and inspect and make copies of the Technical Records.
(a) For the purpose of such inspections, the Authorized Personnel will be entitled to board the Aircraft, but shall not involve the opening of any panels.
(b) Such inspections shall be conducted during normal business hours or at a time mutually agreed upon by Lessee and Lessor and shall not interfere with the operations of Lessee or any Sublessee permitted by this Agreement, or any scheduled operation or maintenance of the Aircraft unless a Lease Event of Default has occurred and is continuing.
(c) The Authorized Personnel may conduct an inspection under this Section at any time while a Lease Event of Default has occurred and is continuing, and otherwise no more than once in any 12 month period.
(d) In undertaking any inspection or examination under this Section 5, the Authorized Personnel shall comply with Lessee's occupational health and safety requirements and any security restrictions. Any inspection or examination under this Section 5 is at the sole risk and cost of Lessor.
(e) The inspection team conducting any inspection hereunder shall consist of no more than five (5) people and the Authorized Personnel shall comply with all requirements of any airport authority (or other entity) having authority over the premises where the Aircraft and/or Engines are located.
5.2 If following such examination, the Authorized Personnel discover a material defect with respect to the Aircraft, Lessor may serve upon Lessee a notice in writing requiring Lessee within a reasonable time to repair or replace the defect in accordance with the Approved Maintenance Program.
Section 6. Notice of Damage. Lessee shall give to Lessor prompt notice in writing of any accident or damage to or defect or want of repair in the Aircraft where the amount involved is equal to or greater than the Damage Notification Threshold.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 8, Page 6
[Operating Lease Agreement (Aircraft No. 1)]
Section 1. TYPES OF INSURANCE.
1.1 The Insurances required to be maintained are as follows:
(a) Hull All Risks of loss or damage whilst flying and on the ground with respect to the Aircraft on an agreed value basis for the Agreed Value and with a deductible not exceeding the Deductible Amount, or such other amount agreed by Lessor from time to time;
(b) Hull War and Allied Perils, being such risks excluded from the Hull All Risks Policy to the fullest extent available from the leading international insurance markets or the United States Government, excluding confiscation and requisition by the State of Registration for the Agreed Value;
(c) All Risks (including War and Allied Risk except when on the ground or in transit other than by air) property insurance on all Engines and Parts when not installed on the Aircraft on an actual cash value basis for their full replacement value and including engine test and running risks;
(d) Aircraft Third Party, Property Damage, Passenger, Baggage, Cargo and Mail and Airline General Third Party (including Products) Legal Liability for a combined single limit (bodily injury/property damage) of an amount not less than the Minimum Liability Coverage for the time being for any one occurrence (but in respect of products and personal injury liability, this limit may be an aggregate limit for any and all losses occurring during the currency of the policy). War and Allied Risks cover is to be maintained from leading international insurance markets or the government of the U.S. in the scope provided by AVN67B (or other language usual and customary in the international airline industry) as in effect on the date of this Agreement and shall be for an amount not less than the greater of (i) the Minimum Liability Coverage and (ii) the amount carried by Lessee in respect of similar aircraft owned or otherwise operated by Lessee.
1.2 Terms of Hull and Spares Insurance. All required hull and spares insurance, so far as it relates to the Aircraft, will:
(a) Settlement of Losses: provide that any loss will be settled jointly with Lessor and Lessee, and will be payable in U.S.$ to Lessor (except in the case of an Event of Loss, in which case the proceeds will be paid to Security Trustee), for the account of all interests any insurance proceeds in excess of the Agreed Value shall be payable to Lessee unless a Lease Default or Lease Event of Default has occurred and is continuing;
(b) 50/50 Provision: if separate Hull "all risks" and "war risks" insurances are arranged, include a 50/50 provision in accordance with market and US Government practice (AVS. 103 is the current London market language);
(c) No Option to Replace: confirm that the insurers are not entitled to replace the Aircraft in the event of an insured Event of Loss.
1.3 Terms of Liability Insurance. All required liability insurances will:
(a) Additional Insureds: include each Indemnified Party, as additional insureds for its respective rights and interests, warranted, each as to itself only, no operational interest;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 9, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
(b) Severability: include a severability of interests Section which provides that the insurance, except for the limit of liability, will operate to give each insured the same protection as if there was a separate policy issued to each insured;
(c) Primary Policy: contain a provision confirming that the policy is primary without right of contribution and the liability of the insurers will not be affected by any other insurance of which Lessor, each Indemnified Party or Lessee have the benefit so as to reduce the amount payable to the additional insureds under such policies.
1.4 Terms of All Insurances. All Insurances will:
(a) Best Industry Practice: be in accordance with best industry practice of persons operating similar aircraft in similar circumstances;
(b) Dollars: provide cover denominated in U.S.$ and any other currencies that Lessor may reasonably require in relation to liability insurance;
(c) Worldwide: operate on a worldwide basis subject to such limitations and exclusions as Lessor may agree;
(d) Breach of Warranty: provide that, in relation to the interests of each of the additional insureds, the Insurances will not be invalidated by any act or omission by Lessee, or any other person other than the respective additional insureds seeking protection and shall insure the interests of each of the additional insureds regardless of any breach or violation by Lessee, or any other person other than the respective additional insured seeking protection of any warranty, declaration or condition, contained in such Insurances;
(e) Subrogation: provide that the insurers will hold harmless and waive any rights of recourse or subrogation against the additional insureds, but only to the same extent that Lessee has indemnified or waived its rights of recourse against the additional insureds elsewhere in the Agreement. Upon indemnification of an additional insured under Insurances, the insurers may, with the consent of such additional insured (such consent not to be unreasonably withheld) exercise subrogation rights;
(f) Premiums: provide that the additional insureds will have no obligation or responsibility for the payment of any premiums due (but reserve the right to pay the same should any of them elect so to do) and that the insurers will not exercise any right of set-off or counter-claim in respect of any premium due against the respective interests of the additional insureds other than outstanding premiums relating to the Aircraft, any Engine or Part the subject of the relevant claim;
(g) Cancellation/Change: provide that the Insurances will continue unaltered for the benefit of the additional insureds for at least 30 days after written notice by registered mail or receipted fax transmission of any cancellation, change, event of non-payment of premium or installment thereof has been sent by insurer(s) to Lessor and Security Trustee, or where an insurance broker is appointed to the insurance broker who shall promptly send on such notice to Lessor and Security Trustee, except in the case of war risks for which 7 days (or such lesser period as is or may be customarily available in respect of war risks or allied perils) will be given, or in the case of war between the 5 great powers or nuclear peril for which termination is automatic;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 9, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
(h) Reinsurance: if reinsurance is required for the Insurances to be acceptable under the Lease, including without limitation, the requirements of Section 8.6 and this Schedule 9 such reinsurance will:
(i) be on the same terms as the original insurances and will include the provisions of this Schedule;
(ii) provide that notwithstanding any bankruptcy, insolvency, liquidation, dissolution or similar proceedings of or affecting the reinsured that the reinsurers' liability will be to make such payments as would have fallen due under the relevant policy of reinsurance if the reinsured had (immediately before such bankruptcy, insolvency, liquidation, dissolution or similar proceedings) discharged its obligations in full under the original insurance policies in respect of which the then relevant policy of reinsurance has been effected; and
(iii) contain a "cut-through" Section in the following form (or otherwise satisfactory to Lessor):
"The Reinsurers and the Reinsured hereby mutually agree that in the event of any claim arising under the reinsurances in respect of a total loss or other claim where as provided by the Aircraft Operating Lease Agreement dated [ ] 20[ ] and made between [Lessor] and [Lessee] such claim is to be paid to the person named as sole loss payee under the primary insurances, the Reinsurers will in lieu of payment to the Reinsured, its successors in interest and assigns pay to the person named as sole loss payee under the primary insurances effected by the Reinsured that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Reinsured (subject to proof of loss), it being understood and agreed that any such payment by the Reinsurers will (to the extent of such payment) fully discharge and release the Reinsurers from any and all further liability in connection therewith"; subject to such provisions not contravening any Law of the State of Incorporation; and
(i) Initiating Claims: contain a provision entitling any additional insured Indemnified Party to initiate a claim under any policy in the event of the refusal or failure of Lessee to do so.
1.5 Deductibles. Lessee shall be responsible for any and all deductibles under the Insurances.
1.6 Application of Insurance Proceeds. The Insurances will be endorsed to provide for payment of proceeds as follows:
(a) Event of Loss: all Hull and Spare Parts insurance payments (up to the Agreed Value) received as the result of an Event of Loss occurring during the Lease Term will be paid to Security Trustee and any insurance proceeds in excess of the Agreed Value shall be payable to Lessee unless a Lease Default or Lease Event of Default has occurred and is continuing;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 9, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
(b) Exceeding Damage Notification Threshold: all Hull and Spare Parts insurance proceeds related to any property, damage or loss to the Aircraft, any Engine or any Part occurring during the Lease Term not constituting an Event of Loss and in excess of the Damage Notification Threshold will be paid to Lessor and applied in payment (or to reimburse Lessee) for repairs or replacement property upon Lessor being satisfied that the repairs or replacement have been effected in accordance with this Agreement. Any balance remaining may be retained by Lessee;
(c) Below Damage Notification Threshold: insurance proceeds in amounts below the Damage Notification Threshold may be paid by the insurer directly to Lessee;
(d) Liability Proceeds: all insurance proceeds in respect of third party liability will be paid by the insurers to the relevant third party; and
(e) Default: notwithstanding the foregoing paragraphs, if at the time of the payment of any such Hull and Spare Parts insurance proceeds a Lease Event of Default has occurred and is continuing, all such proceeds will be paid to or retained by Lessor to be applied toward payment of any amounts which may be or become payable by Lessee in such order as Lessor may elect.
To the extent that insurance proceeds are paid to Lessee, Lessee agrees to comply with the foregoing provisions and apply or pay over such proceeds as so required, holding them in trust in the meantime.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 9, Page 4
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 10Form of Lease Supplement
TO THE EXTENT, IF ANY, THAT THE LEASE AS SUPPLEMENTED BY THE LEASE SUPPLEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THE LEASE, AS SUPPLEMENTED, MAY BE CREATED THROUGH THE TRANSFER OF POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1 OF THE LEASE AND OF THE LEASE SUPPLEMENT.
This LEASE SUPPLEMENT NO. , dated , , is between [WILMINGTON TRUST COMPANY, a Delaware trust company, not in its individual capacity, except as expressly provided herein, but solely as owner trustee] ("Lessor") and HAWAIIAN AIRLINES, INC., a Delaware corporation ("Lessee").
WHEREAS, Lessor and Lessee have entered into the Operating Lease Agreement dated as of October 14, 2011, relating to one Airbus model A330-200 aircraft (the "Lease"). The Lease provides for the execution and delivery of this Lease Supplement for the purpose of leasing the Aircraft under the Lease as and when delivered by Lessor to Lessee in accordance with the terms of the Lease;
WHEREAS, the Lease relates to the Aircraft described below, and a counterpart of the Lease is attached to and made a part of this Lease Supplement. This Lease Supplement, together with the attached Lease, are being filed for recordation on the date of this Lease Supplement with the FAA as one document.
NOW THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Capitalized terms used but not defined in this Lease Supplement have the meanings defined for such terms in the Lease.
2. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts and leases from Lessor, at on this day of at , under the Lease the following described Aircraft, which as of the date of the Lease consists of the following:
(a) one Airbus model A330-200 airframe bearing manufacturer's serial number and FAA registration number N ;
(b) two Rolls Royce model Trent 772B-60 EP engines bearing manufacturer's serial numbers and , each having 550 or more rated takeoff horsepower and/or 1750 lbs of thrust or the equivalent; and
(c) The Landing Gear bearing manufacturer's serial numbers as follows:
Nose:
Left:
Right:
(d) one APU bearing manufacturer's serial no. ; and
(e) the Technical Records.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 10, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
3. The Lease Term for the Aircraft shall commence on the date of this Lease Supplement.
4. [**] (1)
5. Lessee hereby confirms to Lessor that the Airframe and each Engine have installed thereon nameplates in accordance with the terms of Schedule 7 of the Lease, and Lessee has accepted the Aircraft for all purposes of the Lease and of this Lease Supplement and confirms that the Aircraft Engine, Parts and Technical Records are in the condition required under the Lease.
6. The terms and provisions of this Lease Supplement are supplemental to and incorporated into the Lease to the same extent as if fully set forth in the Lease.
7. The initial Security Trustee is [ ].
[ signature page follows ]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 10, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease Supplement to be duly executed and delivered on the day and year first above written.
LESSOR: |
WILMINGTON TRUST COMPANY, a Delaware trust company, not in its individual capacity, except as expressly provided herein, but solely as owner trustee | |||
|
By: |
|
||
|
Name: | |||
|
Title: | |||
LESSEE: |
HAWAIIAN AIRLINES, INC. |
|||
|
By: |
|
||
|
Name: | |||
|
Title: | |||
|
By: |
|
||
|
Name: | |||
|
Title: |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 10, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 11Form of Monthly Report
Date |
||||||
Report Period From: |
HKAC MSN | |||||
Thru: |
||||||
General Information |
Leased Equipment |
Installed Equipment |
||||
Airframe Model |
Airbus A330-243 | Airbus A330-243 | ||||
Airframe Serial Number |
||||||
Engine Type |
Roll-Royce Trent 772B | Roll-Royce Trent 772B | ||||
Engine #1 Serial Number |
||||||
Engine #2 Serial Number |
||||||
APU Serial Number |
||||||
Left Main Landing Gear |
||||||
Right Main Landing Gear |
||||||
Nose Main Landing Gear |
||||||
UtilizationAirframe |
HKAC MSN |
|||||
Period Airframe Flight Hours |
||||||
Period Airframe Cycles |
||||||
Period FH:Cycle Ratio |
||||||
Airframe FHSN |
||||||
Airframe CSN |
||||||
SN FH:Cycle Ratio |
||||||
Airframe Status |
||||||
Airframe Base |
||||||
UtilizationEngines |
Leased Engine #1 |
Leased Engine #2 |
||||
Serial Number |
||||||
FH During Period |
||||||
Cycles During Period |
||||||
FH:Cycle Ratio |
||||||
FH Since New |
||||||
Cycles Since New |
||||||
FH Since Restoration/New |
||||||
Cycles Since Restoration/New |
||||||
Installed on Airframe MSN |
||||||
Engine Position |
||||||
Airframe Registration |
||||||
Airframe Owner |
HKAC | HKAC | ||||
Removal Date |
||||||
Current Location (on Thru Date) |
||||||
Reason for Removal |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 11, Page 1
[Operating Lease Agreement (Aircraft No. 1)]
Installed Engine |
Position #1 | Position #2 | ||||
Serial Number |
||||||
Engine Owner |
||||||
UtilizationAPU |
HKAC MSN |
|||||
Serial Number |
||||||
APU Hours During Period |
||||||
APU Cycles During Period |
||||||
APU Hours Since New |
||||||
APU Cycles Since New |
||||||
APU Hours Since Overhaul |
||||||
APU Cycles Since Overhaul |
||||||
Installed on Airframe MSN |
||||||
Airframe Registration |
||||||
Airframe Owner |
HKAC | |||||
Removal Date |
||||||
Current Location (on Thru Date) |
||||||
Reason for Removal |
||||||
Installed APU |
HKAC MSN |
|||||
Serial Number |
||||||
Engine Owner |
HKAC | |||||
UtilizationLanding Gear |
Left |
Right |
Nose |
|||
Serial Number |
||||||
FH During Period |
||||||
Cycles During Period |
||||||
FH Since New |
||||||
Cycles Since New |
||||||
FH Since Overhaul |
||||||
Cycles Since Overhaul |
||||||
Installed on Airframe MSN |
||||||
Airframe Registration |
||||||
Airframe Owner |
HKAC | HKAC | HKAC | |||
Removal Date |
||||||
Current Location (on Thru Date) |
||||||
Reason for Removal |
||||||
Installed Gear |
||||||
Serial Number |
||||||
Gear Owner |
HKAC | HKAC |
HKAC
|
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 11, Page 2
[Operating Lease Agreement (Aircraft No. 1)]
Reserves
Component |
Unit | Rate | Amount | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Airframe 6Y | Month | ||||||||||
Airframe 12Y | Month | ||||||||||
Engine 41762 LLP | Cycle | ||||||||||
Engine 41761 LLP | Cycle | ||||||||||
APU P-1216 | APU Hour | ||||||||||
Landing Gear | Month | ||||||||||
Total for Period | |||||||||||
Report Period From: | HKAC MSN | ||||||||||
Thru: |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 11, Page 3
[Operating Lease Agreement (Aircraft No. 1)]
Schedule 12Form of Landing Charges Letter
[On Lessee's letter head]
Date ( )
To: ( )(1)
Dear Sir,
Authorisation Letter
Aircraft model xxx: Registration xxx, msn xxxx the "Aircraft"
We have leased the above Aircraft from (the "Lessor"), in accordance with a lease agreement (dated ) between us and the Lessor.
We hereby authorise you to provide the Lessor (or his duly authorised representative) with a general statement of account in relation to air navigation charges incurred by us and due to [name of Aviation Authority](2). Access to the statement(s) of account will be provided in accordance with the procedures established by [name of Aviation Authority](2).
The authorisation contained in this letter may only be revoked or amended by a written instruction signed by us and the Lessor.
Yours faithfully,
for
and on behalf of
[Hawaiian Airlines, Inc]
Name:
Title:
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 12, Page 1
PURCHASE AGREEMENT ASSIGNMENT
(Aircraft No. [ ])
dated [ ]
between
HAWAIIAN AIRLINES, INC.
as Assignor
and
WILMINGTON TRUST COMPANY
,
not in its individual capacity,
but solely as owner trustee
as Assignee
in
respect of one (1) Airbus A330-200 aircraft
bearing manufacturer's serial number [ ]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
|
|
Page | ||||
---|---|---|---|---|---|---|
Clause 1. |
Definitions and Interpretation |
1 | ||||
Clause 2. |
Assignment |
3 |
||||
Clause 3. |
Payment of Purchase Price |
4 |
||||
Clause 4. |
Rights and Obligations of the Assignor and Assignee |
4 |
||||
Clause 5. |
Agency |
4 |
||||
Clause 6. |
Representations, Warranties and Undertakings |
5 |
||||
Clause 7. |
Onward Transfer of Rights |
6 |
||||
Clause 8. |
Notification ("Signification") |
6 |
||||
Clause 9. |
Non Disclosure |
6 |
||||
Clause 10. |
Further Acts |
6 |
||||
Clause 11. |
Waiver |
6 |
||||
Clause 12. |
Illegality |
6 |
||||
Clause 13. |
Non-Delivery |
7 |
||||
Clause 14 |
Notices |
7 |
||||
Clause 15. |
Counterparts |
8 |
||||
Clause 16. |
Effective Date |
8 |
||||
Clause 17. |
Governing Law and Jurisdiction |
8 |
SCHEDULE 1-A |
FORM OF AIRBUS BILL OF SALE | |||
SCHEDULE 1-B |
FORM OF FAA BILL OF SALE |
|||
SCHEDULE 1-C |
FORM OF BFE BILL OF SALE |
|||
SCHEDULE 2 |
FORM OF CERTIFICATE OF ACCEPTANCE |
|||
SCHEDULE 3 |
FORM OF CONSENT AND AGREEMENT |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
THIS PURCHASE AGREEMENT ASSIGNMENT (Aircraft No. [ ]) (this " Agreement ") dated [ ] 201 is made
BETWEEN:
(1) HAWAIIAN AIRLINES, INC , a corporation organised and existing under the laws of the State of Delaware having its principal office at 3375 Koapaka Street, Suite G-350, Honolulu, HI 96819 (the " Assignor "); and
(2) WILMINGTON TRUST COMPANY , not in its individual capacity, but solely as owner trustee, a Delaware trust company organised and existing under the laws of State of Delaware having its principal office at 1100 N. Market Street, Wilmington, DE 19890-1605 (the " Assignee ");
(the Assignor and the Assignee together the " Parties " and each a " Party ").
WHEREAS:
(A) The Assignor and Airbus (as defined below) entered into a purchase agreement dated January 31, 2008, such purchase agreement as amended and supplemented from time to time, being the " Purchase Agreement ";
(B) Pursuant to the Purchase Agreement, Airbus as "Seller" undertakes, amongst other things, to supply and sell, and the Assignor as "Buyer" undertakes, amongst other things, to purchase and accept delivery, of certain Airbus aircraft and related goods and services including the Aircraft (as defined below);
(C) Pursuant to the Lease Agreement (as defined below), the Assignee agrees to lease to the Assignor, and the Assignor agrees to lease from the Assignee, the Aircraft; and
(D) In connection with the purchase and leasing of the Aircraft, the Assignor wishes to assign certain of its rights and benefits under the Purchase Agreement in respect of the Aircraft to the Assignee upon the terms and subject to the conditions of this Agreement.
NOW, IT IS AGREED AS FOLLOWS:
Clause 1. Definitions and Interpretation
1.1 In this Agreement, including the recitals and the schedules, the following terms shall have the following meanings:
" Airbus " means Airbus S.A.S., a Société par Actions Simplifiée duly created and existing under French Law and includes its successors and assigns;
" Airbus Bill of Sale " means the bill of sale relating to the Aircraft substantially in the form set out in Schedule 1-A, duly completed with respect to the Aircraft and executed by the duly authorised representative of Airbus;
" Aircraft " means collectively (i) the Airframe (ii) the Propulsion Systems attached thereto, and where the context admits, (iii) the Manuals and Technical Records;
" Airframe " means the Airbus A330-200 aircraft bearing manufacturer's serial number [ ] (excluding the Propulsion Systems) together with all Parts incorporated in, installed on or attached to such airframe on the Delivery Date;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
1
[Purchase Agreement Assignment]
" Airframe Warranties " means the warranty rights in respect of the Airframe given by Airbus to Assignor pursuant [**] the Purchase Agreement, as are and remain available on Delivery Date, a true, correct and complete copy of which shall be attached to the Consent and Agreement and which comprise all of the assignable warranty rights in respect of the Airframe given to Assignor.
" Assignee Purchase Agreement " means the Purchase Agreement (Aircraft No. [ ]) dated as of October 14, 2011 among Assignee, as "purchaser", and Assignor, as "seller", in respect of the Aircraft whereby Assignee has agreed with Assignor, among other things, to purchase the Aircraft from Airbus.
" BFE Bill of Sale " means the bill of sale relating to the Buyer Furnished Equipment substantially in the form set out in Schedule 1-C, duly completed with respect to the Aircraft and executed by the duly authorized representative of Assignor;
" Buyer Furnished Equipment " means the buyer furnished equipment supplied by or on behalf of the Assignor in respect of the Aircraft on or prior to the Delivery Date pursuant to the Purchase Agreement, but excluding the lower deck modular crew rest;
" Business Day " means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the United States, England, Germany and France;
" Certificate of Acceptance " means the certificate of acceptance relating to the Aircraft substantially in the form set out in Schedule 2, duly completed with respect to the Aircraft and executed by the duly authorised representative of the Assignor as agent for the Assignee;
" Conditions Precedent " means the conditions set out in Section 2.1 of the Lease Agreement and Section 10 of the Assignee Purchase Agreement;
" Confidential Information " means the terms and conditions of this Agreement and the Consent and Agreement;
" Consent and Agreement " means the consent of Airbus and the agreement of the Assignor and the Assignee to the terms of such consent substantially in the form set out in Schedule 3;
" Delivery " means the delivery of and transfer of title to the Aircraft in accordance with the Purchase Agreement and this Agreement;
" Delivery Date " means the date on which Delivery occurs;
" Expected Delivery Date " means the date on which the Aircraft is expected to be available for Delivery;
" FAA Bill of Sale " means a bill of sale for the Aircraft substantially in the form set out in Schedule 1-B (or such other form as may be approved by the Federal Aviation Administration of the United States of America), duly completed with respect to the Aircraft and executed by the duly authorised representative of Airbus.
" Lease Agreement " means the Operating Lease Agreement (Aircraft No. [ ]) dated as of October 14, 2011 among the Assignee, as "lessor", the Assignor, as "lessee", and Owner Participant, as "owner participant" in respect of the Aircraft whereby the Assignee agrees to lease to the Assignor and Assignor agrees to take on lease the Aircraft;
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
2
[Purchase Agreement Assignment]
" Lenders " means the entities notified by Assignee to Airbus as such from time to time including their respective successors and/or assigns provided that such entities and their successors and/or assigns (i) are not owned or controlled by an aircraft manufacturer and (ii) are not in direct or indirect competition with Airbus;
" Lien " means (a) any lien, mortgage, charge, deed of trust, encumbrance, pledge, hypothecation, attachment, licence, assignment by way of security or security interest howsoever arising, (b) any other preferential arrangement resulting in a secured transaction or having the same economic or legal effect as any of the foregoing, (c) any agreement to give any of the foregoing, (d) any arrangement to prefer one creditor over another creditor, or (e) the interest of a vendor or lessor under any conditional sale agreement, lease, hire purchase agreement or other title retention arrangement, except as may have been created by the Assignor in favour of the Assignee;
" Manuals and Technical Records " means those records, logs, manuals, technical data and other materials and documents relating to the Aircraft, together with any amendments thereto, where the context admits, as shall be delivered pursuant to the Purchase Agreement;
" Owner Participant " means HKAC Leasing Limited, a private Irish limited company;
" Part " means an appliance, component, part, instrument, accessory, furnishing or other equipment of any nature excluding Buyer Furnished Equipment, the lower deck modular crew rest and the Propulsion Systems;
" Propulsion Systems " means collectively the Rolls-Royce model Trent 772B-60 EP aircraft engines/propulsion systems as set forth in the Airbus Bill of Sale;
" Purchase Price " [**]
"Security Trustee" means any entity notified by Assignee to Airbus as such including its respective successors and assigns provided that any such entity and such successors and/or assigns (i) are not owned or controlled by an aircraft manufacturer and (ii) are not in direct or indirect competition with Airbus.
1.2 In this Agreement a reference to any Clause or Schedule is a reference to such Clause or Schedule of this Agreement, and the headings of Clauses and Schedules are inserted for convenience of reference only and shall not affect the interpretation.
1.3 Reference to any document or agreement means such document or agreement as originally signed, or as modified, amended, varied, or supplemented from time to time.
Clause 2. Assignment
2.1 Subject to the terms and conditions of this Agreement, the Assignor hereby assigns to the Assignee in respect of the Aircraft:
(a) the right to accept delivery of, purchase and, upon receipt of the Purchase Price by Airbus, take title to the Aircraft and to be named the "Buyer" in the Airbus Bill of Sale and invoice or similar document to be delivered in respect of the Aircraft at Delivery pursuant to the Purchase Agreement;
(b) the Airframe Warranties; and
(c) the right to compel performance by Airbus of its obligations corresponding to the rights assigned under this Clause 2.1.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
3
[Purchase Agreement Assignment]
2.2 The Assignee irrevocably accepts the assignment contained in Clause 2.1 subject to the terms of this Agreement.
Clause 3. Payment of Purchase Price
3.1 Subject to the terms and conditions of this Agreement and the fulfilment to the satisfaction of, or due waiver by, the Assignee of the Conditions Precedent, the Assignee shall, on the Delivery Date pay and/or procure to pay on its behalf the Purchase Price to Airbus.
3.2 The Assignor shall give to the Assignee prior written notice of the Expected Delivery Date in accordance with the terms of the Lease Agreement.
3.3 The payment to be made pursuant to Clause 3.1 shall be made to such account as Airbus may specify to the Assignee.
3.4 Each of the Assignor and the Assignee agrees that the Assignor shall pay any amounts (other than the payment of the Purchase Price by the Assignee pursuant to Clause 3.1) remaining to be paid by the "Buyer" under the Purchase Agreement in respect of the Aircraft when invoiced.
Clause 4. Rights and Obligations of the Assignor and Assignee
4.1 The Assignee shall have no obligation, duty or liability under the Purchase Agreement by reason of or arising out of this Agreement or be obligated to perform any of the obligations or the duties of the Assignor under the Purchase Agreement, provided that to the extent that the Assignee exercises any rights under the Purchase Agreement or makes any claim with respect to the Aircraft or any Part thereof, the terms and conditions of the Purchase Agreement governing the exercise of such rights shall apply to and be binding upon the Assignee and the Assignee shall be subject to all obligations, restrictions, limitations and conditions of the Purchase Agreement governing the exercise of such rights or the making of such claim [**] to the same extent as if the Assignee had been named "Buyer" thereunder and so long as Assignee has been provided with excerpts of the relevant Purchase Agreement provisions setting forth those terms and conditions.
4.2 The assignment referred to in Clause 2.1 shall not constitute a novation of the Purchase Agreement. Notwithstanding this Agreement, the Assignor shall remain fully liable to Airbus to perform all the obligations and duties of the "Buyer" under the Purchase Agreement and the exercise by the Assignee of any of the rights assigned hereunder shall not release the Assignor from any of its duties or obligations to Airbus under the Purchase Agreement, save to the extent that such exercise by the Assignee shall constitute performance of such duties and obligations.
4.3 The Parties agree, and stipulate in favour of Airbus, that, save to the extent rights are hereby assigned to the Assignee, all other terms of the Purchase Agreement shall continue to apply and have full effect between the Assignor and Airbus and nothing herein shall modify in any way the rights of Airbus under the Purchase Agreement or subject Airbus to any liabilities, obligations, costs, losses, expenses or damages to which it would not otherwise be subject.
Clause 5. Agency
5.1 The Assignee appoints the Assignor (and the Assignor hereby accepts such appointment) as its sole agent to exercise on behalf of the Assignee all of the rights assigned to the Assignee under Clause 2.1(a) and to sign and issue the Certificate of Acceptance provided however that this agency shall not authorise or entitle the Assignor to exercise any of the rights relating to passage of title to the Aircraft or the right to receive the Airbus Bill of Sale.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
4
[Purchase Agreement Assignment]
5.2 The Assignee undertakes to ratify and confirm and shall be bound by any act performed or omission made by the Assignor as its agent pursuant to this Clause 5.
5.3 The Assignor shall not be entitled to appoint any third party as its agent to exercise on its behalf any of its rights resulting from this Clause 5.
Clause 6. Representations, Warranties and Undertakings
6.1 The Assignor represents and warrants to the Assignee that:
(a) on the Delivery Date a true and complete copy of the Airframe Warranties assigned to the Assignee hereunder, shall be attached to the Consent and Agreement as Schedule I thereto;
(b) each of the Purchase Agreement and this Agreement is in full force and effect and is enforceable in accordance with its terms;
(c) it is not in default under the Purchase Agreement;
(d) there exists no Lien over the whole or any part of the rights hereby assigned with respect to the Aircraft and the Purchase Agreement to anyone other than the Assignee under this Agreement or to any entity providing pre-delivery payment financing for the Aircraft to Assignor, which Liens shall be released prior to Delivery;
(e) upon Delivery of the Aircraft to the Assignee, the Assignee will acquire such title to the Aircraft as would have been conveyed to the Assignor under the Purchase Agreement but for the execution of this Agreement; and
(f) Airbus has, on or prior to the date hereof, received true and accurate copies of those portions of the executed version of the Assignee Purchase Agreement relating to Conditions Precedent.
6.2 Each of the Assignor and the Assignee undertakes to the other that it shall not enter into any agreement with Airbus which would substantially amend, modify, rescind, or terminate the Purchase Agreement in respect of the Aircraft without the prior consent of the other Party, other than in the case of the Assignor, to order additional parts, equipment or furnishings for the Aircraft that would not materially affect the marketability, value or utility of the Aircraft provided however that this Clause 6.2 shall not (and shall not be construed to) restrict or otherwise limit the ability of Airbus to exercise its rights and to comply with its obligations under the Purchase Agreement to the extent relating to Specification Change Notices (as defined in the Purchase Agreement).
6.3 The Assignor shall (a) exercise its rights (to the extent not assigned under this Agreement) and perform its duties and obligations under the Purchase Agreement and (b) undertake, on or prior to the Delivery Date, to use reasonable endeavours to obtain the execution by Airbus of the Consent and Agreement on the Delivery Date.
6.4 Each of the Assignor and the Assignee represents and warrants to the other that it shall, on or prior to the Delivery Date, have obtained any and all authorisations, licences, consents and approvals as are necessary or advisable for it to obtain in order to permit it to perform any of its obligations hereunder.
6.5 The Assignor represents and warrants that the transactions contemplated under this Agreement form and will form part of its private and commercial acts as opposed to governmental and public acts.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
5
[Purchase Agreement Assignment]
Clause 7. Onward Transfer of Rights. Neither the Assignor nor the Assignee may assign, sell, transfer, delegate or otherwise dispose of any of its respective rights or obligations hereunder without the prior written consent of the other Party and Airbus.
Clause 8. Notification ("Signification"). This Agreement shall at the Assignor's expense be notified to Airbus on or within fourteen (14) days following the Delivery Date in accordance with the provisions of article 1690 of the French Civil Code.
Clause 9. Non Disclosure
9.1 Each of the Assignor and the Assignee undertakes to Airbus that it shall treat the Confidential Information as strictly confidential and shall not disclose it to any person except:
(a) as required by any applicable law or governmental regulations provided that the Assignor and/or the Assignee, as the case may be, shall use their reasonable efforts to obtain assurance that such information will be treated confidentially;
(b) with the prior written consent of Airbus and the non-disclosing Party;
(c) as required in connection with any legal proceedings arising from or in connection with this Agreement and/or the Consent and Agreement provided that the Assignor and/or the Assignee, as the case may be, shall use their reasonable efforts to obtain assurance that such information will be treated confidentially;
(d) to its auditors, accountants and legal advisors provided that such auditors, accountants or legal advisors are under an ethical obligation to, or agree to, treat the Confidential Information as strictly confidential; and
(e) to the Owner Participant, the Lenders and/or the Security Trustee provided that the Assignor and/or the Assignee disclosing the Confidential Information shall cause and ensure that such Owner Participant, Lender and/or Security Trustee (and their respective auditors, accountants and legal advisors) shall treat the Confidential Information as strictly confidential.
9.2 Each of the Assignor and the Assignee agrees that it shall be responsible for any breach of this confidentiality Clause by any of its representatives, employees, legal advisors, accountants and/or auditors.
Clause 10. Further Acts. The Parties agree that at any time and from time to time, and at the cost of the Assignor, they shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as may reasonably be necessary in order to give full effect to this Agreement and the rights and powers herein granted.
Clause 11. Waiver. No term or provision of this Agreement may be changed, waived, discharged or terminated except by written instruments signed by or on behalf of each of the Parties and previously consented to in writing by Airbus.
Clause 12. Illegality. If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect neither the legality, validity or enforceability of the remaining provisions shall in any way be affected or impaired.
Any provision of this Agreement which may prove to be or become illegal, invalid or unenforceable in whole or in part shall so far as reasonably possible be performed according to the spirit and purpose of this Agreement.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
6
[Purchase Agreement Assignment]
Clause 13. Non Delivery. If, at the Delivery Date (i) the Assignor has not (A) paid all amounts due and owing by the Assignor to Airbus with respect to the Aircraft on such date, excluding the Purchase Price, and (B) delivered the BFE Bill of Sale to Airbus, (ii) the Assignee has not paid the Purchase Price in respect of the Aircraft, or (iii) Airbus has not delivered the Airbus Bill of Sale and the FAA Bill of Sale to the Assignee pursuant to the Purchase Agreement and this assignment in respect of the Aircraft, then this Agreement shall be automatically terminated in respect of the Aircraft, whereupon the rights in respect of the Aircraft subject to this assignment shall be deemed to be re-assigned by the Assignee to the Assignor without the requirement of any further act or action (other than any notice required to be given to Airbus) and the Assignee shall have no further obligation to the Assignor or Airbus hereunder in respect of the Aircraft (but without prejudice to any rights which any party may have against any other party in respect of any previous breach by such other party of its obligations).
Clause 14. Notices. Any notice or other communication given or made under this Agreement shall be in writing and, provided it shall be addressed as set out below, shall be deemed to have been duly given:
(a) if sent by personal delivery, upon delivery at the address of the relevant Party (provided that if the date of delivery is not a Business Day, notice shall be deemed to have been received on the first following Business Day);
(b) if sent by post, then five Business Days after posting;
(c) if sent by fax, when dispatched with correct confirmation printout (provided that if the date of receipt is not a Business Day, notice shall be deemed to have been received on the first following Business Day),
|
|
to the Parties as follows: |
|
|
in the case of the Assignor to: |
Hawaiian Airlines, Inc. | ||
3375 Koapaka Street, Suite G-350 | ||
Honolulu, HI 96819 | ||
Attention: Executive Vice President and Chief Financial Officer; | ||
and Executive Vice President and General Counsel | ||
Fax: 808-385-3699 | ||
|
|
in the case of the Assignee to: |
|
|
Wilmington Trust Company |
1100 N. Market Street | ||
Wilmington, DE 19890-1605 | ||
Attention: Corporate Trust Administration | ||
Fax: 301-636-4140/4141 |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
7
[Purchase Agreement Assignment]
|
|
in the case of Airbus to: |
|
|
Airbus S.A.S. |
1, rond-point Maurice Bellonte | ||
31707 Blagnac Cedex | ||
France | ||
Attention: Head of ContractsCustomer Services | ||
Fax: (33) 5 61.93.46.10 |
Clause 15. Counterparts. This Agreement may be executed by the Parties in separate counterparts and any set of counterparts executed and delivered by the Parties shall constitute one and the same agreement and a full original agreement for all purposes.
Clause 16. Effective Date. This Agreement shall enter into effect and be binding upon the Parties from the Delivery Date.
Clause 17. Governing Law and Jurisdiction
17.1 THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, NEW YORK, U.S. APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD FOR CONFLICT OF LAW PRINCIPLES (OTHER THAN THE PROVISIONS OF SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
17.2 Each of Assignor and Assignee hereby irrevocably (a) consents that any legal action or proceeding against Assignor or Assignee or any of Assignor's or Assignee's assets with respect to this Agreement may be brought in any jurisdiction where Assignor or Assignee or any of their respective assets may be found, or in any court of the State of New York or any Federal court of the United States of America located in New York, New York, located in the Borough of Manhattan, United States, as Assignor or Assignee may elect, and (b) submits to and accepts the jurisdiction of the aforesaid courts.
17.3 Assignor and Assignee shall, not later than the execution of this Agreement, irrevocably designate, appoint and empower a duly authorized agent for service of process in the State of New York reasonably acceptable to Assignor and Assignee, respectively, in any suit or proceeding with respect to this Agreement. Assignor and Assignee further irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified airmail, postage prepaid, to Assignor or Assignee, as applicable, at its address set forth herein.
17.4 Each of the Parties irrevocably and unconditionally waives: (a) any immunity from the jurisdiction of any court mentioned in Clause 16.2 and any immunity from suit, judgement, execution, set-off, attachment, arrest, specific performance, injunction or other judicial order or remedy to which it or any of its assets may be entitled at present or in the future in any jurisdiction in respect of any legal action or proceedings with respect to or in connection with this Agreement; and (b) any objections to such jurisdiction on the ground of venue or forum non conveniens or any similar grounds.
* * *
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
8
[Purchase Agreement Assignment]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in three (3) originals(1) on the day and year first above written.
|
HAWAIIAN AIRLINES, INC. | |
|
Name: |
|
|
Title: | |
|
Signature: | |
|
Name: |
|
|
Title: | |
|
Signature: | |
|
WILMINGTON TRUST COMPANY , not in its individual capacity, but solely as owner trustee |
|
|
Name: |
|
|
Title: | |
|
Signature: |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
9
[Purchase Agreement Assignment]
SCHEDULE 1-A
FORM OF AIRBUS BILL OF SALE
[to be provided by Airbus]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 1-A, Page 1
[Purchase Agreement Assignment]
FORM OF FAA BILL OF SALE
[to be provided by Airbus or FAA counsel]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 1-B, Page 1
[Purchase Agreement Assignment]
FORM OF BFE BILL OF SALE
[to be provided by Assignor]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 1-C, Page 1
[Purchase Agreement Assignment]
FORM OF CERTIFICATE OF ACCEPTANCE
[to be provided by Airbus]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 2, Page 1
[Purchase Agreement Assignment]
SCHEDULE 3
FORM OF CONSENT AND AGREEMENT IN RESPECT OF
AIRBUS A330-200 AIRCRAFT BEARING MANUFACTURER'S SERIAL
NUMBER [ ] (THE "AIRCRAFT")
(The
"Consent")
1. Notice. Reference is made to a purchase agreement assignment (Aircraft No. [ ]) made between HAWAIIAN AIRLINES, INC. (the " Assignor ") and WILMINGTON TRUST COMPANY , not in its individual capacity, but solely as owner trustee (the " Assignee "), and dated [ ] 201 relating to the Aircraft (the " Purchase Agreement Assignment "). The Assignor hereby notifies Airbus S.A.S that it has assigned certain of its rights under the Purchase Agreement to the Assignee on the terms set out in the Purchase Agreement Assignment.
2. Consent. Airbus acknowledges and consents to the assignment provisions contained in Clause 2.1 of the Purchase Agreement Assignment subject to the terms of this Consent.
3. Interpretation. Capitalised terms used but not defined in this Consent shall have the meaning ascribed to them in the Purchase Agreement Assignment.
4. Rights and Obligations of the Parties
4.1 Nothing herein or in the Purchase Agreement Assignment shall modify in any way the rights of Airbus under the Purchase Agreement or subject Airbus to any obligations, losses, costs, expenses, damages or liabilities to which it would not otherwise be subject nor require Airbus to transfer title to or possession of the Aircraft prior to receipt of payment in full of the Purchase Price of such Aircraft.
4.2 No novation shall take place by reason of the execution and/or performance of the Purchase Agreement Assignment and this Consent in relation to the obligations contained in the Purchase Agreement and the Assignor shall not be discharged from any of its duties or obligations under the Purchase Agreement save to the extent that such duties or obligations are performed by the Assignee.
4.3 The Assignee agrees expressly for the benefit of Airbus that to the extent that the Assignee exercises any rights under the Purchase Agreement or makes any claim with respect to the Aircraft or any part thereof, the terms and conditions of the Purchase Agreement shall apply to and be binding upon the Assignee and the Assignee shall be subject to all obligations, restrictions, limitations and conditions of the Purchase Agreement with respect to the exercise of such rights or the making of such claim [**] to the same extent as if the Assignee had been named "Buyer" thereunder and so long as Assignee has been provided with excerpts of the relevant Purchase Agreement provisions setting forth those terms and conditions.
4.4 Airbus accepts the stipulations in its favour contained in the Purchase Agreement Assignment [**]
4.5 [**]
5. Agency
5.1 If the Assignor and the Assignee shall at any time be in dispute as to which of them is the beneficiary of any particular assigned right or interest under the Purchase Agreement, Airbus shall be entitled to perform the corresponding obligations exclusively in favour of the Assignor until both the Assignor and the Assignee notify Airbus in writing of their agreement as to which of them is the beneficiary of such right.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 1
[Purchase Agreement Assignment]
5.2 Airbus shall be fully entitled to rely upon anything said or done or omitted by the Assignor as agent pursuant to Clause 5 of the Purchase Agreement Assignment as if such thing had been said or done or omitted by the Assignee itself, and the Assignee shall ratify and confirm any act performed or omission made by the Assignor as its agent.
6. Indemnity. [**]
7. Notices. Any notice or other communication given or made under this Consent shall be in writing and, provided it shall be addressed as set out below, shall be deemed to have been duly given:
(a) if sent by personal delivery, upon delivery at the address of the relevant Party (provided that if the date of delivery is not a Business Day, notice shall be deemed to have been received on the first following Business Day);
(b) if sent by post, then five Business Days after posting;
(c) if sent by fax, when dispatched with correct confirmation printout (provided that if the date of receipt is not a Business Day, notice shall be deemed to have been received on the first following Business Day),
to the Parties as follows: | ||
|
|
in the case of the Assignor to: |
|
|
Hawaiian Airlines, Inc. 3375 Koapaka Street, Suite G-350 Honolulu, HI 96819 Attention: Executive Vice President and Chief Financial Officer; and Executive Vice President and General Counsel Fax: +808-385-3699 |
|
in the case of the Assignee to: | |
|
Wilmington Trust Company
|
|
|
in the case of Airbus to: |
|
|
Airbus S.A.S.
|
|
|
Attention: Head of ContractsCustomer Services
|
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 2
[Purchase Agreement Assignment]
8. Non Disclosure
8.1 Each of the Assignor and the Assignee undertakes to Airbus that it shall treat the Confidential Information as strictly confidential and shall not disclose it to any person except:
(a) as required by any applicable law or governmental regulations provided that the Assignor and/or the Assignee, as the case may be, shall use their reasonable efforts to obtain assurance that such information will be treated confidentially;
(b) with the prior written consent of Airbus and the non-disclosing Party;
(c) as required in connection with any legal proceedings arising from or in connection with this Agreement and/or this Consent provided that the Assignor and/or the Assignee, as the case may be, shall use their reasonable efforts to obtain assurance that such information will be treated confidentially;
(d) to its auditors, accountants and legal advisors provided that such auditors, accountants or legal advisors are under an ethical obligation to, or agree to, treat the Confidential Information as strictly confidential; and
(e) to the Owner Participant, the Lenders and/or the Security Trustee (and their respective auditors, accountants and legal advisors) provided that the Assignor and/or the Assignee disclosing the Confidential Information shall cause and ensure that such Owner Participant, Lender and/or Security Trustee (and their respective auditors, accountants and legal advisors) shall treat the Confidential Information as strictly confidential.
8.2 Each of the Assignor and the Assignee agrees that it shall be responsible for any breach of this confidentiality Clause by any of its representatives, employees, legal advisors, accountants and/or auditors.
9. Illegality
9.1 If at any time any provision of this Consent is or becomes illegal, invalid or unenforceable in any respect neither the legality, validity or enforceability of the remaining provisions shall in any way be affected or impaired.
9.2 Any provision of this Consent which may prove to be or become illegal, invalid or unenforceable in whole or in part shall so far as reasonably possible be performed according to the spirit and purpose of this Consent.
10. Counterparts. This Consent may be executed by the parties in separate counterparts and any set of counterparts executed and delivered by the parties shall constitute one and the same agreement and a full original agreement for all purposes.
11. Governing Law and Jurisdiction. This Consent shall be governed by and construed in accordance with the laws of the state of New York, United States of America. The courts of the state of New York, United States of America, shall have exclusive jurisdiction over any dispute arising out of this Consent and Agreement.
12. Purchase Agreement Consent. This Consent shall constitute the consent of Airbus required in respect of the Purchase Agreement Assignment pursuant to the Purchase Agreement.
13. Effective Date. This Consent shall enter into effect and be binding upon the Parties from the Delivery Date.
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 3
[Purchase Agreement Assignment]
IN WITNESS WHEREOF, the parties hereto have executed this Consent in three (3) originals on the day and year here below written.
[DATE] |
HAWAIIAN AIRLINES, INC. | |
|
Name: |
|
|
Title: | |
|
Signature: | |
|
Name: |
|
|
Title: | |
|
Signature: | |
|
AIRBUS S.A.S. |
|
|
Name: |
|
|
Title: | |
|
Signature: | |
|
WILMINGTON TRUST COMPANY , not in its individual capacity, but solely as owner trustee |
|
|
Name: |
|
|
Title: | |
|
Signature: |
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 3, Page 4
[Purchase Agreement Assignment]
SCHEDULE I TO CONSENT AND AGREEMENT
EXTRACT OF AIRFRAME WARRANTIES
[**]
[**]Confidential treatment has been requested for the bracketed portions. The confidential redacted portion has been omitted and filed separately with the Securities and Exchange Commission.
SCHEDULE 1 to SCHEDULE 3, Page 1
THIS EXECUTIVE SEVERANCE AGREEMENT dated as of the last date signed below ("Agreement"), by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation (the "Company") headquartered 3375 Koapaka St., Ste. G350, Honolulu, HI 96819, and SCOTT E. TOPPING (the "Executive"), a Hawaii resident (collectively, the "Parties").
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee") has determined that Executive plays a critical role in the operations of the Company as an Executive Vice President;
NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Parties agree that the Executive shall receive the severance benefits set forth below in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below.
1. Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating his employment. Executive understands and acknowledges that he is an employee-at-will and that either he or the Company may terminate the employment relationship between them at any time and for any reason.
2. Severance Pay Upon Termination Without Cause or for Good Reason. In the event the employment of the Executive is terminated by the Company for a reason other than for Cause (as defined below) or by the Executive for Good Reason (as defined below), then the Company shall pay to the Executive, as severance pay, a lump sum payment equal to twelve (12) months' base salary, less applicable federal and state income tax withholdings. Executive agrees that this payment is subject to Executive signing and not revoking a release of claims based on the Company's standard form separation agreement and release (the "Release"), the lapse of any statutory period for revoking the Release, and such Release becoming effective in accordance with its terms within twenty-eight (28) days following Employee's Termination Date. The severance payment will be made by the Company on the twenty-ninth (29 th ) day following the Termination Date, or such later date as is required to avoid the imposition of additional taxes under Internal Revenue Code Section 409A, as specified in Section 5.
3. Sole Remedy. The payment to the Executive of the amounts payable under Section 2 shall constitute the sole remedy of the Executive in the event of a termination of the Executive's employment by the Company that results in payment of benefits under Section 2.
4. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
4.1 Cause. "Cause" shall mean a good faith finding by the Company of any of the following: (a) repeated neglect by Executive of his employment duties, Executive's repeated material lack of diligence and attention in performing his employment duties, or Executive's repeated failure to implement or adhere to Company policies; (b) conduct of a criminal nature that may have an adverse impact on the Company's reputation in the community; (c) fraudulent conduct in connection with the business affairs of the Company, regardless of whether said conduct is designed to defraud the Company or others; (d) conduct at any time or place which is detrimental to the Company's reputation and/or goodwill among its customers and/or the community; (e) conduct in violation of the Company's and/or its parent company's corporate compliance rules, practices, procedures and ethical guidelines; (f) material violation of the Company's House Rules, a copy of which has been provided to Executive by the Company.
4.2 Good Reason. "Good Reason" shall mean Executive's termination of employment following the expiration of any cure period (discussed below) following the occurrence, without Executive's express written consent, of one or more of the following:
(a) a material reduction of Executive's duties, authority or responsibilities; or
(b) a material reduction by the Company in Executive's annual total target cash compensation (other than pursuant to a reduction applying generally to employees of the same corporate rank); or
(c) Executive's relocation to principal offices that are either (i) not located on Oahu, Hawaii, or (ii) not within 40 miles of Honolulu, Hawaii.
Executive may not resign for Good Reason without first providing the Company with written notice within sixty (60) days of the event that Executive believes constitutes "Good Reason" specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice.
4.3 Termination Date. "Termination Date" shall mean the Executive's last day on the payroll of the Company.
5. Section 409A.
5.1 General . This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Section 409A of the Internal Revenue Code and the Department of Treasury Regulations and other guidance promulgated thereunder. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided under this Agreement will be subject to the additional tax imposed under Section 409A, and any ambiguities in this Agreement will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Employee.
5.2 Specified Employee Delay . Notwithstanding any provision to the contrary in this Agreement, if (a) Executive is a "specified employee" within the meaning of Section 409A on the date upon which the severance payment under this Agreement would otherwise be made and (b) the severance payment would otherwise subject Executive to any tax, interest or penalty imposed under Section 409A, then the severance payment that would otherwise be paid during the first six months after Executive's separation from service within the meaning of Section 409A shall be accumulated and shall be paid on the earlier of (1) the first day which is at least six (6) months after Executive's separation from service within the meaning of Section 409A or (2) the date of Executive's death (as applicable, the "Specified Employee Payment Date").
5.3 Separation from Service . Notwithstanding anything to the contrary in this Agreement, no severance payment under this Agreement will be considered due or payable until and unless Executive has a "separation from service" within the meaning of Section 409A. Notwithstanding anything herein to the contrary, if Executive dies following his "separation from service" but prior to the six (6) month anniversary of the date of his "separation from service," then any severance payment delayed in accordance with this Section will be payable in a lump sum as soon as administratively practicable after the date of Executive's death, but not later than ninety (90) days after the date of Executive's death.
2
6. Miscellaneous.
6.1 Notices. Any notices delivered under this Agreement shall be deemed duly delivered four (4) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party. All notices to the Company shall also be addressed to the attention of the President of the Company.
6.2 Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
6.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.
6.4 Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.
6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii. Any action, suit or other legal arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Hawaii (or, if appropriate, a federal court located within the State of Hawaii), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him or her.
6.7 Waivers. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
6.8 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.
6.9 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
3
IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the dates set forth below.
HAWAIIAN AIRLINES, INC. | ||||
|
|
By |
|
/s/ Mark B. Dunkerley Mark B. Dunkerley "Company" |
|
|
|
|
Its President |
|
|
Date: |
|
February 7, 2012 |
|
|
|
|
/s/ Scott E. Topping Scott E. Topping "Executive" |
|
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
|
Date: |
|
February 7, 2012 |
4
THIS EXECUTIVE SEVERANCE AGREEMENT dated as of the last date signed below ("Agreement"), by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation (the "Company") headquartered 3375 Koapaka St., Ste. G350, Honolulu, HI 96819, and CHARLES R. NARDELLO (the "Executive"), a Hawaii resident (collectively, the "Parties").
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee") has determined that Executive plays a critical role in the operations of the Company as a Senior Vice President;
NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Parties agree that the Executive shall receive the severance benefits set forth below in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below.
1. Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating his employment. Executive understands and acknowledges that he is an employee-at-will and that either he or the Company may terminate the employment relationship between them at any time and for any reason.
2. Severance Pay Upon Termination Without Cause or for Good Reason. In the event the employment of the Executive is terminated by the Company for a reason other than for Cause (as defined below) or by the Executive for Good Reason (as defined below), then the Company shall pay to the Executive, as severance pay, a lump sum payment equal to twelve (12) months' base salary, less applicable federal and state income tax withholdings. Executive agrees that this payment is subject to Executive signing and not revoking a release of claims based on the Company's standard form separation agreement and release (the "Release"), the lapse of any statutory period for revoking the Release, and such Release becoming effective in accordance with its terms within twenty-eight (28) days following Employee's Termination Date. The severance payment will be made by the Company on the twenty-ninth (29 th ) day following the Termination Date, or such later date as is required to avoid the imposition of additional taxes under Internal Revenue Code Section 409A, as specified in Section 5.
3. Sole Remedy. The payment to the Executive of the amounts payable under Section 2 shall constitute the sole remedy of the Executive in the event of a termination of the Executive's employment by the Company that results in payment of benefits under Section 2.
4. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
4.1 Cause. "Cause" shall mean a good faith finding by the Company of any of the following: (a) repeated neglect by Executive of his employment duties, Executive's repeated material lack of diligence and attention in performing his employment duties, or Executive's repeated failure to implement or adhere to Company policies; (b) conduct of a criminal nature that may have an adverse impact on the Company's reputation in the community; (c) fraudulent conduct in connection with the business affairs of the Company, regardless of whether said conduct is designed to defraud the Company or others; (d) conduct at any time or place which is detrimental to the Company's reputation and/or goodwill among its customers and/or the community; (e) conduct in violation of the Company's and/or its parent company's corporate compliance rules, practices, procedures and ethical guidelines; (f) material violation of the Company's House Rules, a copy of which has been provided to Executive by the Company.
4.2 Good Reason. "Good Reason" shall mean Executive's termination of employment following the expiration of any cure period (discussed below) following the occurrence, without Executive's express written consent, of one or more of the following:
(a) a material reduction of Executive's duties, authority or responsibilities; or
(b) a material reduction by the Company in Executive's annual total target cash compensation (other than pursuant to a reduction applying generally to employees of the same corporate rank); or
(c) Executive's relocation to principal offices that are either (i) not located on Oahu, Hawaii, or (ii) not within 40 miles of Honolulu, Hawaii.
Executive may not resign for Good Reason without first providing the Company with written notice within sixty (60) days of the event that Executive believes constitutes "Good Reason" specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice.
4.3 Termination Date. "Termination Date" shall mean the Executive's last day on the payroll of the Company.
5. Section 409A.
5.1 General . This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Section 409A of the Internal Revenue Code and the Department of Treasury Regulations and other guidance promulgated thereunder. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided under this Agreement will be subject to the additional tax imposed under Section 409A, and any ambiguities in this Agreement will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Employee.
5.2 Specified Employee Delay . Notwithstanding any provision to the contrary in this Agreement, if (a) Executive is a "specified employee" within the meaning of Section 409A on the date upon which the severance payment under this Agreement would otherwise be made and (b) the severance payment would otherwise subject Executive to any tax, interest or penalty imposed under Section 409A, then the severance payment that would otherwise be paid during the first six months after Executive's separation from service within the meaning of Section 409A shall be accumulated and shall be paid on the earlier of (1) the first day which is at least six (6) months after Executive's separation from service within the meaning of Section 409A or (2) the date of Executive's death (as applicable, the "Specified Employee Payment Date").
5.3 Separation from Service . Notwithstanding anything to the contrary in this Agreement, no severance payment under this Agreement will be considered due or payable until and unless Executive has a "separation from service" within the meaning of Section 409A. Notwithstanding anything herein to the contrary, if Executive dies following his "separation from service" but prior to the six (6) month anniversary of the date of his "separation from service," then any severance payment delayed in accordance with this Section will be payable in a lump sum as soon as administratively practicable after the date of Executive's death, but not later than ninety (90) days after the date of Executive's death.
2
6. Miscellaneous.
6.1 Notices. Any notices delivered under this Agreement shall be deemed duly delivered four (4) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party. All notices to the Company shall also be addressed to the attention of the President of the Company.
6.2 Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
6.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.
6.4 Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.
6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii. Any action, suit or other legal arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Hawaii (or, if appropriate, a federal court located within the State of Hawaii), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him or her.
6.7 Waivers. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
6.8 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.
6.9 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
3
IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the dates set forth below.
HAWAIIAN AIRLINES, INC. | ||||
|
|
By |
|
/s/ Mark B. Dunkerley Mark B. Dunkerley "Company" |
|
|
|
|
Its President |
|
|
Date: |
|
February 7, 2012 |
|
|
|
|
/s/ Charles R. Nardello Charles R. Nardello "Executive" |
|
|
|
|
Senior Vice PresidentOperations |
|
|
Date: |
|
February 7, 2012 |
4
THIS EXECUTIVE SEVERANCE AGREEMENT dated as of the last date signed below ("Agreement"), by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation (the "Company") headquartered 3375 Koapaka St., Ste. G350, Honolulu, HI 96819, and GLENN G. TANIGUCHI (the "Executive"), a Hawaii resident (collectively, the "Parties").
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee") has determined that Executive plays a critical role in the operations of the Company as a Senior Vice President;
NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Parties agree that the Executive shall receive the severance benefits set forth below in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below.
1. Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating his employment. Executive understands and acknowledges that he is an employee-at-will and that either he or the Company may terminate the employment relationship between them at any time and for any reason.
2. Severance Pay Upon Termination Without Cause or for Good Reason. In the event the employment of the Executive is terminated by the Company for a reason other than for Cause (as defined below) or by the Executive for Good Reason (as defined below), then the Company shall pay to the Executive, as severance pay, a lump sum payment equal to twelve (12) months' base salary, less applicable federal and state income tax withholdings. Executive agrees that this payment is subject to Executive signing and not revoking a release of claims based on the Company's standard form separation agreement and release (the "Release"), the lapse of any statutory period for revoking the Release, and such Release becoming effective in accordance with its terms within twenty-eight (28) days following Employee's Termination Date. The severance payment will be made by the Company on the twenty-ninth (29 th ) day following the Termination Date, or such later date as is required to avoid the imposition of additional taxes under Internal Revenue Code Section 409A, as specified in Section 5.
3. Sole Remedy. The payment to the Executive of the amounts payable under Section 2 shall constitute the sole remedy of the Executive in the event of a termination of the Executive's employment by the Company that results in payment of benefits under Section 2.
4. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
4.1 Cause. "Cause" shall mean a good faith finding by the Company of any of the following: (a) repeated neglect by Executive of his employment duties, Executive's repeated material lack of diligence and attention in performing his employment duties, or Executive's repeated failure to implement or adhere to Company policies; (b) conduct of a criminal nature that may have an adverse impact on the Company's reputation in the community; (c) fraudulent conduct in connection with the business affairs of the Company, regardless of whether said conduct is designed to defraud the Company or others; (d) conduct at any time or place which is detrimental to the Company's reputation and/or goodwill among its customers and/or the community; (e) conduct in violation of the Company's and/or its parent company's corporate compliance rules, practices, procedures and ethical guidelines; (f) material violation of the Company's House Rules, a copy of which has been provided to Executive by the Company.
4.2 Good Reason. "Good Reason" shall mean Executive's termination of employment following the expiration of any cure period (discussed below) following the occurrence, without Executive's express written consent, of one or more of the following:
(a) a material reduction of Executive's duties, authority or responsibilities; or
(b) a material reduction by the Company in Executive's annual total target cash compensation (other than pursuant to a reduction applying generally to employees of the same corporate rank); or
(c) Executive's relocation to principal offices that are either (i) not located on Oahu, Hawaii, or (ii) not within 40 miles of Honolulu, Hawaii.
Executive may not resign for Good Reason without first providing the Company with written notice within sixty (60) days of the event that Executive believes constitutes "Good Reason" specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice.
4.3 Termination Date. "Termination Date" shall mean the Executive's last day on the payroll of the Company.
5. Section 409A.
5.1 General . This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Section 409A of the Internal Revenue Code and the Department of Treasury Regulations and other guidance promulgated thereunder. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided under this Agreement will be subject to the additional tax imposed under Section 409A, and any ambiguities in this Agreement will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Employee.
5.2 Specified Employee Delay . Notwithstanding any provision to the contrary in this Agreement, if (a) Executive is a "specified employee" within the meaning of Section 409A on the date upon which the severance payment under this Agreement would otherwise be made and (b) the severance payment would otherwise subject Executive to any tax, interest or penalty imposed under Section 409A, then the severance payment that would otherwise be paid during the first six months after Executive's separation from service within the meaning of Section 409A shall be accumulated and shall be paid on the earlier of (1) the first day which is at least six (6) months after Executive's separation from service within the meaning of Section 409A or (2) the date of Executive's death (as applicable, the "Specified Employee Payment Date").
5.3 Separation from Service . Notwithstanding anything to the contrary in this Agreement, no severance payment under this Agreement will be considered due or payable until and unless Executive has a "separation from service" within the meaning of Section 409A. Notwithstanding anything herein to the contrary, if Executive dies following his "separation from service" but prior to the six (6) month anniversary of the date of his "separation from service," then any severance payment delayed in accordance with this Section will be payable in a lump sum as soon as administratively practicable after the date of Executive's death, but not later than ninety (90) days after the date of Executive's death.
2
6. Miscellaneous.
6.1 Notices. Any notices delivered under this Agreement shall be deemed duly delivered four (4) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party. All notices to the Company shall also be addressed to the attention of the President of the Company.
6.2 Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
6.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.
6.4 Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.
6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii. Any action, suit or other legal arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Hawaii (or, if appropriate, a federal court located within the State of Hawaii), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him or her.
6.7 Waivers. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
6.8 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.
6.9 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
3
IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the dates set forth below.
HAWAIIAN AIRLINES, INC. | ||||
|
|
By |
|
/s/ Mark B. Dunkerley Mark B. Dunkerley "Company" |
|
|
|
|
Its President |
|
|
Date: |
|
February 7, 2012 |
|
|
|
|
/s/ Glenn G. Taniguchi Glenn G. Taniguchi "Executive" |
|
|
|
|
Senior Vice PresidentMarketing and Sales |
|
|
Date: |
|
February 7, 2012 |
4
THIS EXECUTIVE SEVERANCE AGREEMENT dated as of the last date signed below ("Agreement"), by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation (the "Company") headquartered 3375 Koapaka St., Ste. G350, Honolulu, HI 96819, and HOYT H. ZIA (the "Executive"), a Hawaii resident (collectively, the "Parties").
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the "Committee") has determined that Executive plays a critical role in the operations of the Company as a Senior Vice President;
NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Parties agree that the Executive shall receive the severance benefits set forth below in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below.
1. Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating his employment. Executive understands and acknowledges that he is an employee-at-will and that either he or the Company may terminate the employment relationship between them at any time and for any reason.
2. Severance Pay Upon Termination Without Cause or for Good Reason. In the event the employment of the Executive is terminated by the Company for a reason other than for Cause (as defined below) or by the Executive for Good Reason (as defined below), then the Company shall pay to the Executive, as severance pay, a lump sum payment equal to twelve (12) months' base salary, less applicable federal and state income tax withholdings. Executive agrees that this payment is subject to Executive signing and not revoking a release of claims based on the Company's standard form separation agreement and release (the "Release"), the lapse of any statutory period for revoking the Release, and such Release becoming effective in accordance with its terms within twenty-eight (28) days following Employee's Termination Date. The severance payment will be made by the Company on the twenty-ninth (29 th ) day following the Termination Date, or such later date as is required to avoid the imposition of additional taxes under Internal Revenue Code Section 409A, as specified in Section 5.
3. Sole Remedy. The payment to the Executive of the amounts payable under Section 2 shall constitute the sole remedy of the Executive in the event of a termination of the Executive's employment by the Company that results in payment of benefits under Section 2.
4. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
4.1 Cause. "Cause" shall mean a good faith finding by the Company of any of the following: (a) repeated neglect by Executive of his employment duties, Executive's repeated material lack of diligence and attention in performing his employment duties, or Executive's repeated failure to implement or adhere to Company policies; (b) conduct of a criminal nature that may have an adverse impact on the Company's reputation in the community; (c) fraudulent conduct in connection with the business affairs of the Company, regardless of whether said conduct is designed to defraud the Company or others; (d) conduct at any time or place which is detrimental to the Company's reputation and/or goodwill among its customers and/or the community; (e) conduct in violation of the Company's and/or its parent company's corporate compliance rules, practices, procedures and ethical guidelines; (f) material violation of the Company's House Rules, a copy of which has been provided to Executive by the Company.
4.2 Good Reason. "Good Reason" shall mean Executive's termination of employment following the expiration of any cure period (discussed below) following the occurrence, without Executive's express written consent, of one or more of the following:
(a) a material reduction of Executive's duties, authority or responsibilities; or
(b) a material reduction by the Company in Executive's annual total target cash compensation (other than pursuant to a reduction applying generally to employees of the same corporate rank); or
(c) Executive's relocation to principal offices that are either (i) not located on Oahu, Hawaii, or (ii) not within 40 miles of Honolulu, Hawaii.
Executive may not resign for Good Reason without first providing the Company with written notice within sixty (60) days of the event that Executive believes constitutes "Good Reason" specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice.
4.3 Termination Date. "Termination Date" shall mean the Executive's last day on the payroll of the Company.
5. Section 409A.
5.1 General . This Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Section 409A of the Internal Revenue Code and the Department of Treasury Regulations and other guidance promulgated thereunder. It is the intent of this Agreement to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided under this Agreement will be subject to the additional tax imposed under Section 409A, and any ambiguities in this Agreement will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to Employee.
5.2 Specified Employee Delay . Notwithstanding any provision to the contrary in this Agreement, if (a) Executive is a "specified employee" within the meaning of Section 409A on the date upon which the severance payment under this Agreement would otherwise be made and (b) the severance payment would otherwise subject Executive to any tax, interest or penalty imposed under Section 409A, then the severance payment that would otherwise be paid during the first six months after Executive's separation from service within the meaning of Section 409A shall be accumulated and shall be paid on the earlier of (1) the first day which is at least six (6) months after Executive's separation from service within the meaning of Section 409A or (2) the date of Executive's death (as applicable, the "Specified Employee Payment Date").
5.3 Separation from Service . Notwithstanding anything to the contrary in this Agreement, no severance payment under this Agreement will be considered due or payable until and unless Executive has a "separation from service" within the meaning of Section 409A. Notwithstanding anything herein to the contrary, if Executive dies following his "separation from service" but prior to the six (6) month anniversary of the date of his "separation from service," then any severance payment delayed in accordance with this Section will be payable in a lump sum as soon as administratively practicable after the date of Executive's death, but not later than ninety (90) days after the date of Executive's death.
2
6. Miscellaneous.
6.1 Notices. Any notices delivered under this Agreement shall be deemed duly delivered four (4) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party. All notices to the Company shall also be addressed to the attention of the President of the Company.
6.2 Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
6.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.
6.4 Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.
6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii. Any action, suit or other legal arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of Hawaii (or, if appropriate, a federal court located within the State of Hawaii), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Executive are personal and shall not be assigned by him or her.
6.7 Waivers. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
6.8 Captions. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.
6.9 Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.
THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
3
IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the dates set forth below.
HAWAIIAN AIRLINES, INC. | ||||
|
|
By |
|
/s/ Mark B. Dunkerley Mark B. Dunkerley "Company" |
|
|
|
|
Its President |
|
|
Date: |
|
February 7, 2012 |
|
|
|
|
/s/ Hoyt H. Zia Hoyt H. Zia "Executive" |
|
|
|
|
Senior Vice President, General Counsel and Corporate Secretary |
|
|
Date: |
|
February 7, 2012 |
4
Hawaiian Holdings, Inc
Computation of Ratio of Earnings to Fixed Charges
|
Year ended December 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||
|
(in thousands, except for ratio)
|
|||||||||||||||
Earnings |
||||||||||||||||
Income (loss) before income taxes |
$ | (2,071 | ) | $ | 53,209 | $ | 97,196 | $ | 81,989 | $ | (1,082 | ) | ||||
Additions: |
||||||||||||||||
Total fixed charges (see below) |
65,238 | 63,574 | 66,147 | 68,034 | 71,536 | |||||||||||
Subtractions: |
||||||||||||||||
Interest capitalized |
1,309 | | | 2,665 | 7,771 | |||||||||||
Earnings as adjusted |
$ | 61,858 | $ | 116,783 | $ | 163,343 | $ | 147,358 | $ | 62,683 | ||||||
Fixed Charges: |
||||||||||||||||
Interest on indebtedness, expensed or capitalized |
$ | 24,035 | $ | 19,289 | $ | 19,378 | $ | 15,703 | $ | 20,991 | ||||||
Amortization of debt expense and accretion of convertible debt |
1,475 | 1,367 | 1,275 | 1,132 | 3,530 | |||||||||||
Portion of rental expense representative of the interest factor(1) |
39,728 | 42,918 | 45,494 | 51,199 | 47,015 | |||||||||||
Total fixed charges |
$ | 65,238 | $ | 63,574 | $ | 66,147 | $ | 68,034 | $ | 71,536 | ||||||
Ratio of earnings to fixed charges |
| 1.84 | 2.47 | 2.17 | | |||||||||||
Coverage deficiency |
$ | 3,380 | $ | | $ | | $ | | $ | 8,853 | ||||||
LIST OF SUBSIDIARIES OF HAWAIIAN HOLDINGS, INC.
Hawaiian Airlines, Inc.
Hawaiian Gifts, LLC
Airline Contract Maintenance and Equipment, Inc.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
of our report dated February 9, 2012, with respect to the consolidated financial statements and schedule of Hawaiian Holdings, Inc. and the effectiveness of internal control over financial reporting of Hawaiian Holdings, Inc., included in this Annual Report (Form 10-K) of Hawaiian Holdings, Inc. for the year ended December 31, 2011.
/s/ ERNST & YOUNG LLP
Honolulu,
Hawaii
February 9, 2012
CERTIFICATION
I, Mark B. Dunkerley, certify that:
Date: February 9, 2012 |
By: |
/s/ MARK B. DUNKERLEY
Mark B. Dunkerley President and Chief Executive Officer |
CERTIFICATION
I, Scott E. Topping, certify that:
Date: February 9, 2012 |
By: |
/s/ SCOTT E. TOPPING
Scott E. Topping Executive Vice President, Chief Financial Officer and Treasurer |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Hawaiian Holdings, Inc. (the Company) for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark B. Dunkerley, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: February 9, 2012 |
By: |
/s/ MARK B. DUNKERLEY
Mark B. Dunkerley President and Chief Executive Officer |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Hawaiian Holdings, Inc. (the Company) for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Scott E. Topping, Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: February 9, 2012 |
By: |
/s/ SCOTT E. TOPPING
Scott E. Topping Executive Vice President, Chief Financial Officer and Treasurer |