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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-40217
https://cdn.kscope.io/7093f2b288cfefc2fc6555745ad041b9-sncy-20220331_g1.jpg
Sun Country Airlines Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-4092570
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2005 Cargo Road
Minneapolis, Minnesota
55450
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (651) 681-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareSNCY
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated Filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Number of shares outstanding by each class of common stock, as of March 31, 2022:
Common Stock, $0.01 par value – 57,964,320 shares outstanding


Table of Contents
Sun Country Airlines Holdings, Inc.
Form 10-Q
Table of Contents
Page
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Table of Contents
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, 2022December 31, 2021
ASSETS
Current Assets:
Cash and Cash Equivalents$272,402 $309,338 
Restricted Cash8,085 8,447 
Investments6,233 6,283 
  Accounts Receivable, net of an allowance for credit losses of $376 and $250, respectively
31,733 30,156 
Short-term Lessor Maintenance Deposits6,698 5,505 
  Inventory, net of a reserve for obsolescence of $1,366 and $1,275, respectively
5,624 5,405 
Prepaid Expenses10,166 8,511 
Other Current Assets8,302 1,798 
 Total Current Assets349,243 375,443 
Property & Equipment, net:
Aircraft and Flight Equipment486,374 440,356 
Ground Equipment and Leasehold Improvements 24,451 20,876 
Computer Hardware and Software9,125 8,785 
Finance Lease Assets275,547 209,457 
Rotable Parts9,271 9,150 
Property & Equipment804,768 688,624 
Accumulated Depreciation & Amortization(129,119)(115,013)
Total Property & Equipment, net675,649 573,611 
Other Assets:
Goodwill222,223 222,223 
Other Intangible Assets, net88,110 89,110 
Operating Lease Right-of-use Assets29,284 61,658 
Aircraft Deposits10,831 10,021 
Long-term Lessor Maintenance Deposits23,071 20,346 
Deferred Tax Asset15,955 18,737 
Other Assets5,226 5,495 
Total Other Assets394,700 427,590 
Total Assets$1,419,592 $1,376,644 
See accompanying Notes to Condensed Consolidated Financial Statements
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Table of Contents
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, 2022December 31, 2021
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable$49,890 $39,805 
Accrued Salaries, Wages, and Benefits24,484 28,527 
Accrued Transportation Taxes14,098 12,736 
Air Traffic Liabilities110,946 118,562 
Over-market Liabilities3,063 4,309 
Finance Lease Obligations31,106 11,705 
Loyalty Program Liabilities11,490 11,451 
Operating Lease Obligations10,176 17,231 
Current Maturities of Long-term Debt34,741 29,412 
Other Current Liabilities11,482 7,913 
Total Current Liabilities301,476 281,651 
Long-term Liabilities:
Over-market Liabilities4,730 10,428 
Finance Lease Obligations239,035 180,450 
Loyalty Program Liabilities5,884 8,267 
Operating Lease Obligations23,864 58,810 
Long-term Debt242,544 248,014 
Income Tax Receivable Agreement Liability105,600 98,800 
Other Long-term Liabilities3,168 3,413 
Total Long-term Liabilities624,825 608,182 
Total Liabilities926,301 889,833 
Commitments and Contingencies (see Note 12)
Stockholders' Equity:
Common Stock
Common stock with $0.01 par value, 995,000,000 shares authorized, 57,964,320 and 57,872,452 issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
580 579 
Preferred Stock
Preferred stock with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2022 and December 31, 2021.
  
Additional Paid-In Capital488,480 485,638 
Retained Earnings 4,231 594 
Total Stockholders' Equity493,291 486,811 
Total Liabilities and Stockholders' Equity$1,419,592 $1,376,644 
See accompanying Notes to Condensed Consolidated Financial Statements
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Table of Contents
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
20222021
Operating Revenues:
Passenger$202,033 $104,195 
Cargo21,053 21,585 
Other3,439 1,831 
Total Operating Revenue226,525 127,611 
Operating Expenses:
Aircraft Fuel64,544 24,274 
Salaries, Wages, and Benefits59,617 44,075 
Aircraft Rent3,186 5,599 
Maintenance11,995 9,210 
Sales and Marketing8,628 5,110 
Depreciation and Amortization15,328 12,615 
Ground Handling7,958 5,230 
Landing Fees and Airport Rent10,286 8,785 
Special Items, net (26,871)
Other Operating, net23,150 14,651 
Total Operating Expenses204,692 102,678 
  Operating Income21,833 24,933 
Non-operating Income (Expense):
Interest Income24 15 
Interest Expense(8,562)(7,121)
Other, net(6,876)(5)
Total Non-operating Income (Expense), net(15,414)(7,111)
  Income Before Income Tax6,419 17,822 
  Income Tax Expense2,782 5,406 
  Net Income$3,637 $12,416 
Net Income per share to common stockholders:
Basic$0.06 $0.26 
Diluted$0.06 $0.24 
Shares used for computation:
Basic57,907,655 48,496,077 
Diluted61,731,942 52,508,186 
See accompanying Notes to Condensed Consolidated Financial Statements
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Table of Contents
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2021
Common Stock Loans to
Stockholders
Additional
Paid-in Capital
Retained
Earnings (Deficit)
Total
SharesAmount
December 31, 202046,839,659$468$(3,500)$248,525$38,324$283,817
Shares Surrendered by Stockholders(140,737)(1)3,500(3,499)
Initial Public Offering, net10,454,545105224,552224,657
Net Income12,41612,416
Income Tax Receivable Agreement(115,200)(115,200)
Amazon Warrants1,4001,400
Stock-based Compensation2,8702,870
March 31, 202157,153,467$572$ $473,848$(64,460)$409,960
Three Months Ended March 31, 2022
Common Stock Additional
Paid-in Capital
Retained
Earnings
Total
SharesAmount
December 31, 202157,872,452 $579 $485,638 $594 $486,811 
Stock Option Exercises91,868 1 522 — 523 
Net Income— — — 3,637 3,637 
Amazon Warrants— — 1,400 — 1,400 
Stock-based Compensation— — 920 — 920 
March 31, 202257,964,320 $580 $488,480 $4,231 $493,291 
See accompanying Notes to Condensed Consolidated Financial Statements
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SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Net Income$3,637 $12,416 
Adjustments to reconcile Net Income to Cash from Operating Activities:
Depreciation and Amortization15,328 12,615 
Tax Receivable Agreement 6,800  
Operating Lease Right-of-use Assets2,989 5,401 
Non-Cash Gain on Asset Transactions, net(2)(8,729)
Unrealized Gain on Fuel Derivatives (2,386)
Amortization of Over-market Liabilities(921)(2,004)
Deferred Income Taxes2,782 5,406 
Amazon Warrants Vested1,400 1,400 
Stock-based Compensation Expense920 2,870 
Amortization of Debt Issuance Costs270 272 
Loss on Extinguishment of Debt1,557 1,224 
Changes in Operating Assets and Liabilities:  
Accounts Receivable(1,577)2,358 
Inventory(346)(173)
Prepaid Expenses(1,655)(3,676)
Lessor Maintenance Deposits(3,919)(2,219)
Aircraft Deposits(1,044)2,226 
Other Assets(6,262)233 
Accounts Payable9,500 626 
Accrued Transportation Taxes1,362 4,519 
Air Traffic Liabilities(7,616)(6,343)
Loyalty Program Liabilities(2,344)(1,295)
Operating Lease Obligations(3,240)(10,722)
Other Liabilities594 1,820 
Net Cash Provided by Operating Activities18,213 15,839 
Cash Flows from Investing Activities:  
Purchases of Property & Equipment(49,683)(54,399)
Proceeds from the Sale of Property & Equipment5  
Purchase of Investments(3)(337)
Proceeds from the Sale of Investments53 184 
Net Cash Used in Investing Activities(49,628)(54,552)
Cash Flows from Financing Activities:  
Cash Received from Stock Offering 235,894 
Costs of Stock Offering (7,226)
Proceeds from Stock Option and Warrant Exercises523  
Proceeds from Borrowings77,986 68,000 
Repayment of Finance Lease Obligations(4,466)(3,911)
Repayment of Borrowings(77,947)(46,068)
Debt Issuance Costs(1,979)(2,721)
Net Cash (Used In) Provided by Financing Activities(5,883)243,968 
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash(37,298)205,255 
Cash, Cash Equivalents and Restricted Cash--Beginning of the Period317,785 70,363 
Cash, Cash Equivalents and Restricted Cash--End of the Period$280,487 $275,618 
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Non-cash transactions:  
Lease Deposits Applied Against the Purchase of Aircraft$ $2,766 
Aircraft and Flight Equipment Acquired through Finance Leases$19,928 $ 
Finance Lease Asset Modifications$46,311 $ 
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets:
March 31, 2022March 31, 2021
Cash and Cash Equivalents$272,402 $269,599 
Restricted Cash8,085 6,019 
Total Cash, Cash Equivalents and Restricted Cash$280,487 $275,618 
See accompanying Notes to Condensed Consolidated Financial Statements
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1.    COMPANY BACKGROUND
Sun Country Airlines Holdings, Inc. is the parent company of Sun Country, Inc., which is a certificated air carrier providing scheduled passenger service, air cargo service, charter air transportation and related services. Services are provided to the general public, cargo customers, military branches, wholesale tour operators, individual entities, schools and companies for air transportation to various U.S. and international destinations. Except as otherwise stated, the financial information, accounting policies, and activities of Sun Country Airlines Holdings, Inc. are referred to as those of the Company (the “Company” or “Sun Country”).
Equity Transactions
On April 11, 2018 (the "Acquisition Date"), certain investment funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, Inc. (“Apollo”) acquired Sun Country, Inc. For more information on the Company’s equity transactions, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (“2021 10-K”).
Initial Public Offering of Common Stock
On March 16, 2021, the Company priced its initial public offering of 9,090,909 shares of common stock to the public at $24.00 per share. The stock began trading on the NASDAQ on March 17, 2021 under the symbol "SNCY". The underwriters had an option to purchase an additional 1,363,636 shares from the Company at the public offering price, which they exercised. In total, all 10,454,545 shares were issued on March 19, 2021 and the net proceeds to the Company were $225,329 after deducting underwriting discounts and commissions, and other offering expenses.
Concurrently with the closing of the initial public offering, SCA Horus Holdings, LLC, an affiliate of investment funds managed by affiliates of Apollo (the “Apollo Stockholder”), also completed a private placement in which the Apollo Stockholder sold 2,216,312 and 2,216,308 shares of common stock to PAR Investment Partners, L.P. and certain funds or accounts managed by an investment adviser subsidiary of Blackrock, Inc., respectively. Each of the two sales was based on an aggregate purchase price of $50,000 and a price per share equal to 94% of the initial public offering price of $24.00 per share.
Secondary Offerings
During May 2021 and October 2021, the Apollo Stockholder and other selling stockholders sold 7,250,000 and 8,500,000 shares of the Company's common stock at the public offering prices of $34.50 and $32.50, respectively. Under both transactions, the underwriters were given options to purchase additional shares of the Company's common stock at the public offering price. During the May 2021 and October 2021 offerings, the underwriters elected to purchase 1,087,500 and 435,291 of the option shares, respectively. The Company incurred offering expenses of $1,763 in conjunction with the two secondary offerings, and did not receive any of the proceeds from these offerings.
For more information on the 2021 secondary offerings, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Amazon Agreement
On December 13, 2019, the Company signed a six-year contract (with two, two-year extension options, for a maximum term of 10 years) with Amazon.com Services, Inc. (together with its affiliates, “Amazon”) to provide cargo services under an Air Transportation Services Agreement (the “ATSA”).
In connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to 9,482,606 shares of common stock at an exercise price of approximately $15.17 per share. There were 632,183 warrants that vested upon execution of the ATSA and 63,217 warrants will vest for each milestone of $8,000 in qualifying payments made by Amazon to the Company. During the three months ended March 31, 2022 and 2021, 189,652 warrants vested in each respective period. As of March 31, 2022 and March 31, 2021, the cumulative vested warrants held by Amazon were 1,833,311 and 1,074,704, respectively. The exercise period of these warrants is through the eighth anniversary of the issue date.
2.    BASIS OF PRESENTATION
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (“GAAP”) and has included the accounts of Sun Country Airlines Holdings, Inc. and its subsidiaries. The accompanying unaudited Condensed Consolidated Financial Statements of Sun Country Airlines Holdings, Inc. should be read in conjunction with the Consolidated Financial Statements contained in the 2021 10-K. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. The Company reclassified certain prior period amounts to conform to the current period presentation. All material intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant areas of judgment relate to passenger revenue recognition, maintenance under the built-in overhaul method, equity-based compensation, tax receivable agreement, lease accounting, impairment of goodwill, impairment of long-lived and intangible assets, air traffic liabilities, the loyalty program, as well as the valuation of Amazon warrants. During the three months ended March 31, 2022, there were no significant changes to the Company’s critical accounting policies.
Due to impacts from the global coronavirus (“COVID-19”) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, uncertainties in pilot staffing and other factors, operating results for the three months ended March 31, 2022 are not necessarily indicative of operating results for future quarters or for the year ending December 31, 2022. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers, unemployment levels, corporate travel budgets, extreme or severe weather and natural disasters, disease outbreaks, fears of terrorism or war, and other factors beyond the Company's control.
Recently Adopted Accounting Standards
On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
exchange. On January 1, 2022, the Company adopted ASU 2021-04 on a prospective basis, as required by the Standard. There was no financial statement impact upon adoption.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The new standard requires additional disclosures regarding government grants and money contributions. The standard requires disclosures on the nature of the transactions and related accounting policies, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transactions. The Company adopted this standard as of January 1, 2022, see Note 3 for additional information on COVID-19 related government assistance the Company has received.
3.    IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic resulted in a dramatic decline in passenger demand across the U.S. airline industry. Sun Country experienced a significant decline in demand related to the COVID-19 pandemic, which caused a material decline in first quarter 2021 revenues as compared to pre-pandemic levels, and negatively impacted the Company’s financial condition and operating results.
During the first quarter of 2022, Sun Country continued to see recovery in demand from the COVID-19 pandemic relative to demand in 2021, which may impact the comparability of results to prior periods. However, the ongoing impact of the COVID-19 pandemic on overall demand for air travel remains uncertain and cannot be predicted at this time.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
During 2021 and 2020, the Company received certain funds from the CARES Act. The cash awarded to the Company through the CARES Act was accounted for as grants, debt, and tax credits based on the terms and nature of the funds awarded.
During the first quarter of 2021, the Company received and recognized as income within Special Items, net $32,208 from the Treasury under the Payroll Support Program Extension (“PSP2”). The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”) which is a refundable tax credit against certain employment taxes. During March 31, 2021, the Company recorded $334 related to the CARES Employee Retention Credit within Special Items, net. Under the CARES Act Loan Program, the Company received a $45,000 loan (the “CARES Act Loan”) from the Treasury, which was repaid in full on March 24, 2021 using proceeds from the IPO. For more information on funds awarded through the CARES act, see Note 3 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.
In accordance with any grants and/or loans received under the CARES Act, the Company is required to comply with the relevant provisions of the CARES Act and the related implementing agreements which, among other things, include the following: the requirement to use the Payroll Support Payments exclusively for the continuation of payment of crewmember and employee wages, salaries and benefits; the requirement that certain levels of commercial air service be maintained until March 1, 2022, if ordered by the Department of Transportation ("DOT"); the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends until September 30, 2022; and restrictions on the payment of certain executive compensation until April 1, 2023. As of March 31, 2022, the Company was in compliance with these provisions.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
4.    REVENUE
Sun Country is a certificated air carrier generating Operating Revenues from Scheduled service, Charter service, Ancillary, Cargo and Other revenue. Scheduled service revenue mainly consists of base fares. Charter service revenue is primarily generated through service provided to the U.S. Department of Defense, collegiate and professional sports teams, and casinos. Ancillary revenues consist of revenue earned from air travel-related services, such as; baggage fees, seat selection fees, and on-board sales. Cargo consists of revenue earned from flying cargo aircraft under the ATSA. Other revenue consists primarily of revenue from services in connection with Sun Country Vacations products.
The significant categories comprising Operating Revenues are as follows:
Three Months Ended March 31,
20222021
Scheduled Service$124,068 $54,620 
Charter Service32,879 25,805 
Ancillary45,086 23,770 
   Passenger202,033 104,195 
Cargo21,05321,585
Other3,4391,831
Total Operating Revenue$226,525 $127,611 
The Company attributes and measures its Operating Revenue by geographic region as defined by the DOT for airline reporting based upon the origin of each passenger and cargo flight segment.
The Company’s operations are highly concentrated in the U.S., but include service to many international locations, primarily based on scheduled service to Latin America during the winter season and on military charter services.
Total Operating Revenues by geographic region are as follows:
Three Months Ended March 31,
20222021
Domestic$208,591 $119,312 
Latin America17,869 7,877 
Other65 422 
Total Operating Revenue$226,525 $127,611 
Contract Balances
The Company’s contract assets primarily relate to costs incurred to get Amazon cargo aircraft ready for service. The balances are included in Other Current Assets and Other Assets on the Condensed Consolidated Balance Sheets. These deferred up-front costs are being amortized into expense on a pro-rata basis over the initial six years of the ATSA. The amount expensed during the three months ended March 31, 2022 and 2021 was $161 and $138, respectively, and is included in Maintenance expense.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company’s significant contract liabilities are comprised of, 1) ticket sales for transportation that has not yet been provided (reported as Air Traffic Liabilities on the Condensed Consolidated Balance Sheets), 2) outstanding loyalty points that may be redeemed for future travel and other non-air travel awards (reported as Loyalty Program Liabilities on the Condensed Consolidated Balance Sheets) and, 3) the Amazon Deferred Up-front Payment received (reported within Other Liabilities on the Condensed Consolidated Balance Sheets).
Contract Assets and Liabilities are as follows:
March 31, 2022December 31, 2021
Contract Assets
Costs to fulfill contract with Amazon$2,658 $2,819 
Air Traffic Liabilities110,946 118,562 
Loyalty Program Liabilities17,374 19,718 
Amazon Deferred Up-front Payment3,959 4,200 
Total Contract Liabilities$132,279 $142,480 
The balance in the Air Traffic Liabilities fluctuates with seasonal travel patterns. Most tickets can be purchased no more than twelve months in advance, therefore any revenue associated with tickets sold for future travel will be recognized within that timeframe. For the three months ended March 31, 2022, $87,982 of revenue was recognized in Passenger revenue that was included in the Air Traffic Liabilities as of December 31, 2021.
As part of the ATSA executed in December 2019, Amazon paid the Company $10,300 toward start-up costs. Upon signing the ATSA, Amazon received 632,183 fully vested warrants to purchase the Company’s common stock, with a fair value of $4,667. This fair value was assigned to a portion of the $10,300 cash received from Amazon and the remaining $5,633 was recorded in Other Liabilities on the Company’s Condensed Consolidated Balance Sheets. This deferred up-front payment is being amortized into revenue on a pro-rata basis over the initial six years of the ATSA. For the three months ended March 31, 2022 and 2021, $240 and $231 was amortized into Cargo revenue, respectively.
Loyalty Program
The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. Loyalty points are earned as a result of travel and purchases using the Company’s co- branded credit card. The balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impacts the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue). Due to these reasons, the timing of loyalty point redemptions can vary significantly.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Changes in the Loyalty Program Liabilities are as follows:
20222021
Balance – January 1$19,718 $22,069 
Loyalty Points Earned1,819 857 
Loyalty Points Redeemed (1)
(4,163)(2,152)
Balance – March 31
$17,374 $20,774 
______________________
(1)Loyalty points are combined in one homogenous pool and are not separately identifiable. As such, the revenue recognized is comprised of points that were part of the Loyalty Program Liabilities balance at the beginning of the period, as well as points that were earned during the period.
5.    EARNINGS PER SHARE
The following table shows the computation of basic and diluted earnings per share:
Three Months Ended March 31,
20222021
Numerator:
  Net Income$3,637 $12,416 
Denominator:
  Weighted Average Common Shares Outstanding - Basic57,907,655 48,496,077 
  Dilutive effect of Stock Options, RSUs and Warrants (1)
3,824,287 4,012,109 
  Weighted Average Common Shares Outstanding - Diluted61,731,942 52,508,186 
Basic earnings per share$0.06 $0.26 
Diluted earnings per share$0.06 $0.24 
______________________
(1)
There were 3,550,810 and 3,557,432 performance-based stock options outstanding at March 31, 2022 and 2021, respectively. As a result of the Company’s initial public offering, 75% of these options are expected to meet the performance conditions and are included in the measure above to the extent they are dilutive at March 31, 2022 and 2021. In March 2022, 25% of the eligible outstanding performance-based stock options vested and were considered exercisable. The vested performance-based stock options are included in the measure above to the extent they are dilutive.
The Company's anti-dilutive shares for the periods presented were not material to the Condensed Consolidated Financial Statements.
Warrants held by Amazon are included in dilutive weighted average shares outstanding as of the date the warrants vest. The unvested warrants held by Amazon have not been included in dilutive shares as their performance condition had not been satisfied.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
6.    AIRCRAFT
As of March 31, 2022, Sun Country operated a fleet of 50 Boeing 737-NG aircraft, consisting of 49 Boeing 737-800s and one Boeing 737-700.
The following tables summarize the Company’s aircraft fleet activity for the three months ended March 31, 2022 and 2021, respectively:
December 31, 2021
AdditionsRemovals
March 31, 2022
Passenger:
Owned211

22
Finance leases9312
Operating leases6(2)4
Sun Country Airlines’ Fleet364(2)38
Cargo:
Aircraft Operated for Amazon1212
Total Aircraft Operated484(2)50
December 31, 2020AdditionsRemovalsMarch 31, 2021
Passenger:
Owned14 5  19 
Finance leases5   5 
Operating leases12  (5)7 
Sun Country Airlines’ Fleet31 5 (5)31 
Cargo:
Aircraft Operated for Amazon12   12 
Total Aircraft Operated43 5 (5)43 
During the three months ended March 31, 2022, the Company executed lease amendments to purchase two aircraft at the end of the lease term, which modified the lease classification from operating leases to finance leases with expiration dates in fiscal year 2026. The Company also acquired two additional 737-800 aircraft, one of which was financed using proceeds from the issuance of Class A and Class B pass-through trust certificates (the "2022-1 EETC") and another through a finance lease arrangement that is set to expire in fiscal year 2030.
Subsequent to March 31, 2022, the Company committed to lease an aircraft for a period of six years at approximately $2,220 per year. The Company expects to take delivery of the aircraft during fiscal year 2022. The Company also purchased an aircraft that was previously under a finance lease before the end of the lease term for a purchase price of $16,784 and took delivery of four incremental aircraft for a total purchase price of approximately $75,000. The Company financed these purchases using incremental 2022-1 EETC funds that were drawn upon subsequent to March 31, 2022.
The five aircraft purchased during the three months ended March 31, 2021 were financed through the Delayed Draw Term Loan Facility (see Note 7). All five additions were previously accounted for as operating leases.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Depreciation, amortization, and rent expense on aircraft are as follows:
Three Months Ended March 31,
Aircraft StatusExpense Type20222021
OwnedDepreciation$8,673 $7,830 
Finance LeasedAmortization4,069 2,435 
Operating Leased
Aircraft Rent (1)
3,186 5,599 
$15,928 $15,864 
(1)
Aircraft Rent expense includes credits for the amortization of over-market liabilities established at the Acquisition Date.
Depreciation expense on owned aircraft and amortization expense on finance leased aircraft are both classified in Depreciation and Amortization on the Condensed Consolidated Statements of Operations.
Aircraft Maintenance Deposits Contra-Assets
As of the Acquisition Date, the Company established a maintenance deposit contra-asset to offset the acquired maintenance deposits assets included in Short-term Lessor Maintenance Deposits on the Condensed Consolidated Balance Sheets. The assets represent funds paid by the previous owners of the Company to the lessor that were kept as funds on deposit for maintenance events and the contra-assets represent the Company’s obligation to perform planned maintenance events on leased aircraft held as of the Acquisition date. As reimbursable maintenance events are performed and Maintenance Expense is incurred, a portion of the contra-asset is recognized as a reduction to Maintenance Expense on the Condensed Consolidated Statements of Operations due to the fact that the previously acquired maintenance deposit is partially funding the maintenance event. As of March 31, 2022 and December 31, 2021, the remaining balance of the contra-asset was $22,348.
Over-market Liabilities
At the Acquisition Date, the Company acquired liabilities related to its over-market lease rates and over-market maintenance reserve payments.
As of the Acquisition Date, the Company recognized a liability representing lease terms which are unfavorable compared with market terms of similar leases. The over-market lease liability is recorded as a contra-asset offsetting the corresponding lease asset. The remaining unamortized balance of this contra-asset as of March 31, 2022 and December 31, 2021 was $383 and $10,363, respectively and is recorded within the Operating Lease Right-of-Use Assets. During the three months ended March 31, 2022, the Company executed lease amendments which modified two aircraft from operating leases to finance leases. As a result of the modifications, the Company reclassified $9,687 of the over-market lease liability from Operating Lease Right-of-Use Assets to Finance Lease Assets. The resulting reclassification reduces the Depreciation and Amortization for the related Finance Lease Assets.
As of the Acquisition Date, Sun Country’s existing leases included payments for maintenance reserves in addition to the stated aircraft lease payments. For a substantial portion of these maintenance reserve payments, the Company does not expect to be reimbursed by the lessor. Therefore, a liability was established representing over-market maintenance reserve lease terms compared to market terms of similar leases. The remaining balance of this liability at March 31, 2022 and December 31, 2021 was $7,793 and $14,737, respectively. Of the $6,944 reduction in the over-market maintenance reserve liabilities during the three months ended March 31, 2022, $6,023 was incorporated into the Finance Lease Assets in accordance with the terms of the executed lease amendments, as described above.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
7.    DEBT
Credit Facilities – On February 10, 2021, the Company executed a five-year credit agreement (the “Credit Agreement”) with a group of lenders that replaced the Company’s prior $25,000 asset-based revolving credit facility. The Credit Agreement includes a $25,000 Revolving Credit Facility (the "Revolving Credit Facility") and a $90,000 Delayed Draw Term Loan Facility (“DDTL”), which are collectively referred to as the “Credit Facilities.” The interest rate in effect as of March 31, 2022 was 6%, which is the minimum interest rate allowed under the Credit Agreement. Borrowings are subject to a possible interest rate adjustment in June 2022. In addition, there is a commitment fee on the unused Revolving Credit Facility of 0.5%. The proceeds from the Revolving Credit Facility can be used for general corporate purposes, whereas the proceeds from the DDTL are to be used solely to finance the acquisition of aircraft or engines to be registered in the United States. The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and minimum liquidity of $30,000 at the close of any business day. The Company was in compliance with these covenants as of March 31, 2022.
During 2021, the Company drew $80,500 on the DDTL to purchase six aircraft, which were previously under operating leases. The Company repaid the outstanding balance of the DDTL in full as of March 31, 2022 using proceeds it received from the 2022-1 EETC, which terminated the DDTL. As a result, no amounts under the DDTL were available to the Company as of March 31, 2022. The Company recorded a $1,557 loss on extinguishment of debt related to the refinancing of the DDTL, which represents the write-off of the unamortized deferred financing costs. As of March 31, 2022, the Revolving Credit Facility remained undrawn and available to the Company.
Long-term Debt – In December 2019, the Company arranged for the issuance of Class A, Class B and Class C pass-through trust certificates Series 2019-1 (the “2019-1 EETC”), in an aggregate face amount of $248,587 for the purpose of financing or refinancing 13 used aircraft, which was completed in 2020.
In March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft. The Company recorded $1,979 in debt issuance costs associated with the 2022-1 EETC. Five of the 13 aircraft were owned fleet assets previously financed by the DDTL, two of the aircraft were owned outright, five of the aircraft were acquired during the beginning of the second quarter of 2022, and the remaining aircraft is currently under lease and is expected to be purchased from the lessor later in 2022. The Company received gross proceeds of $77,986 with respect to seven of the aircraft on March 31, 2022, and an incremental $94,521 subsequent to March 31, 2022 with respect to five of the aircraft. The remaining $15,770 of gross proceeds is expected to be received on or before September 15, 2022 in connection with purchasing the thirteenth aircraft from the lessor. The Company is required to make semi-annual principal and interest payments each March and September beginning with the first payment on September 15, 2022. The 2022-1 EETC will be secured by a lien on the financed or refinanced aircraft and will be cross-collateralized by the other aircraft financed through the issuance. Total appraised value of the 12 aircraft was approximately $237,936 as of the original date of the agreement.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Long-term Debt includes the following:
March 31, 2022December 31, 2021
Notes payable under the Company's 2019-1 EETC agreement dated December 2019, with original loan amounts of $248,587 payable in bi-annual installments, in June and December, through December 2027. These notes bear interest at an annual rate between 4.13% and 6.95% and the weighted average interest rate is 4.76% as of March 31, 2022.
$202,984 $202,984 
Notes payable under the Company's 2022-1 EETC agreement dated March 2022, with a face amount of $188,277 payable in bi-annual installments, in March and September, through March 2031. These notes bear interest at an annual rate between 4.84% and 5.75% and the weighted average interest rate is 5.06% as of March 31, 2022.
77,986  
Delayed Draw Term Loan Facility (see terms and conditions above) 77,481 
Other Notes payable. These notes bear interest at an annual rate of approximately 5.00% and were repaid in full in February 2022.
 466 
  Total Debt280,970 280,931 
Less: Unamortized debt issuance costs(3,685)(3,505)
Less: Current Maturities of Long-term Debt(34,741)(29,412)
Total Long-term Debt$242,544 $248,014 
Future maturities of the outstanding Debt are as follows:
Debt Principal
Payments
Amortization of Debt
Issuance Costs
Net Debt
Remainder of 2022
$30,917 $(613)$30,304 
202347,534 (757)46,777 
202449,173 (633)48,540 
202554,257 (518)53,739 
202634,684 (348)34,336 
Thereafter64,405 (816)63,589 
Total as of March 31, 2022
$280,970 $(3,685)$277,285 
The fair value of debt was $271,837 as of March 31, 2022 and $272,004 as of December 31, 2021. The fair value of the Company’s debt was based on the discounted amount of future cash flows using the Company’s end-of-period incremental borrowing rate for similar obligations. The estimates were primarily based on Level 3 inputs.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
8.    FUEL DERIVATIVES AND RISK MANAGEMENT
The Company’s operations are inherently dependent upon the price of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into fuel option and swap contracts. The Company does not apply hedge accounting to its fuel derivative contracts, nor does it hold or issue them for trading purposes. As of March 31, 2022 and December 31, 2021, the Company had no outstanding fuel derivative contracts.
Fuel derivative contracts are recognized at fair value on the Condensed Consolidated Balance Sheets as Derivative Assets, if the fair value is in an asset position, or as Derivative Liabilities, if the fair value is in a liability position. Derivatives where the payment due date is greater than one year from the balance sheet date are classified as long-term. Fuel derivative gains and losses are classified in Aircraft Fuel on the Condensed Consolidated Statements of Operations.
Changes in Derivative Assets (Liabilities) are as follows:
Three Months Ended March 31,
20222021
Balance - January 1$ $(1,174)
Non-cash Gains 2,386 
Contract Settlements (7)
Balance - March 31
$ $1,205 
Fuel Derivative Gains consist of the following:
Three Months Ended March 31,
20222021
Non-cash Gains $ $2,386 
Cash Premiums Paid  
  Total Fuel Derivative Gains $ $2,386 
9.    FAIR VALUE MEASUREMENTS
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 12 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K.
Excluding the items discussed below, there were no additional assets or liabilities measured at fair value on a recurring basis as of March 31, 2022 or December 31, 2021.
Financial Instruments – Financial instruments including Cash and Cash Equivalents, Restricted Cash, Investments, Accounts Receivable, Accounts Payable and all other Current Liabilities have carrying values that approximate fair value.
Derivative Instruments – Derivative instruments are accounted for as either assets or liabilities and are carried at fair value. The fair value for fuel derivative options and swaps is determined utilizing an option pricing model that uses inputs that are readily available in active markets or can be derived from information available in active markets and are classified within Level 2.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Non-Financial Assets – Certain assets are measured at fair value on a nonrecurring basis. The Company’s non-financial assets, which primarily consist of Property & Equipment, Goodwill and Other Intangible Assets are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be recoverable, non-financial assets are assessed for impairment and, if applicable, written down to fair value using significant unobservable inputs, classified as Level 3.
Debt – See Note 7 for more information on the Company's debt financings and related fair values.
10.    INCOME TAXES
The Company's effective tax rate for the three months ended March 31, 2022 and 2021 was 43.3% and 30.3%, respectively. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items. The increase in the effective tax rate is primarily due to a non-deductible expense related to the Tax Receivable Agreement (the "Tax Receivable Agreement" or "TRA") liability, partially offset by stock compensation benefits.
Tax Receivable Agreement
In connection with the Company’s IPO, the Company entered into the TRA with our pre-IPO stockholders (the “TRA holders”). The TRA provides for the payment by the Company to the TRA holders of 85% of the amount of cash savings, if any, in U.S. federal, state, local, and foreign income tax that the Company actually realizes (or are deemed to realize in certain circumstances) as a result of certain tax attributes that existed at the time of the IPO (the “Pre-IPO Tax Attributes”). The Company will retain the benefit of the remaining 15% of these cash savings.
Upon the closing of the IPO in the first quarter of 2021, the Company recognized a non-current liability of $115,200, which represented undiscounted aggregate payments that were expected to be paid to the TRA holders under the TRA, with an offset to Stockholders’ Equity. The TRA balance as of March 31, 2022 and December 31, 2021 was $105,600 and $98,800, respectively. The TRA liability is an estimate and actual amounts payable under the Tax Receivable Agreement could differ from this estimate. During the three months ended March 31, 2022, the Company recorded an adjustment to the estimated TRA liability of $6,800. Adjustments to the TRA are recorded in Other, net Non-Operating Income (Expense) on the Company’s Condensed Consolidated Statements of Operations.
For more information on the TRA, see Note 13 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K.


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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
11.    SPECIAL ITEMS, NET
Special Items, net reflects expenses, or credits to expense, that are not representative of our ongoing costs for the period presented and may vary from period to period in nature, frequency, and amount.
Special Items, net on the Condensed Consolidated Statements of Operations consist of the following:
Three Months Ended March 31,
20222021
CARES Act grant recognition (see Note 3)
$ $(32,208)
CARES Act employee retention credit (See Note 3)
 (334)
Aircraft lease buy-out expense (1)
 5,664 
Other 7 
Total Special Items, net$ $(26,871)
(1)
Five aircraft were purchased in March 2021 that were previously under operating leases. Aircraft lease buy-out expense represents the net costs incurred to terminate the leases on those five aircraft. This includes the associated lease termination costs, write-off of previously capitalized maintenance deposits, and the write-off of over-market liabilities.
12.    COMMITMENTS AND CONTINGENCIES
The Company has contractual obligations and commitments primarily with regard to lease arrangements, repayment of debt (see Note 7), payments under the TRA (see Note 10), and probable future purchases of aircraft.
As of March 31, 2022, the Company had a commitment of approximately $75,000 to purchase four aircraft using proceeds from the 2022-1 EETC, which were delivered in the second quarter of 2022. A deposit totaling $7,500 was remitted to the seller during the first quarter of 2022 and has been accounted for within Other Current Assets on the Condensed Consolidated Balance Sheets as of March 31, 2022. The remaining purchase amount was financed using incremental proceeds from the 2022-1 EETC and were remitted to the seller upon delivery of the aircraft.
During the first quarter of 2022, the Company executed an agreement to purchase a flight simulator at a total purchase price of $9,745. An initial installment of $2,934 was remitted to the seller during the first quarter of 2022 and is accounted for within Property & Equipment on the Condensed Consolidated Balance Sheets as of March 31, 2022. The remaining purchase price is to be remitted upon shipment of the simulator.
The Company is subject to various legal proceedings in the normal course of business and expenses legal costs as incurred. Management does not believe these proceedings will have a materially adverse effect on the Company.
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
13.    OPERATING SEGMENTS
The following tables present financial information for the Company’s two operating segments: Passenger and Cargo. For more information on the Company’s segments, see Note 17 of the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2021 10-K.
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
PassengerCargoConsolidatedPassengerCargoConsolidated
Operating Revenues$205,472 $21,053 $226,525 $106,026 $21,585 $127,611 
Non-Fuel Operating Expenses120,810 19,338 140,148 87,205 18,070 105,275 
Aircraft Fuel64,544  64,544 24,253 21 24,274 
Special Items, net   (18,206)(8,665)(26,871)
Total Operating Expenses185,354 19,338 204,692 93,252 9,426 102,678 
Operating Income $20,118 $1,715 21,833 $12,774 $12,159 24,933 
Interest Income24