As discussed above, Air Wisconsin is paid a fixed amount per aircraft per day for each month during the term of the United capacity purchase agreement. In accordance with GAAP, the Company recognizes revenue related to the fixed payments on a proportional basis taking into account the number of flights actually completed in that period relative to the number of flights expected to be completed in subsequent periods during the remaining term of the United capacity purchase agreement. Due to the material decrease in completed flights for the three and six months ended June 30, 2021 as compared to levels prior to the
COVID-19
pandemic and anticipated future flight levels in periods within the remaining contract term, Air Wisconsin determined that the amount of the fixed payments it received for the three and six months ended June 30, 2021 was disproportionately high relative to anticipated fixed revenue for future periods. Air Wisconsin anticipates the future number of flights it will complete over the remainder of the agreement will significantly increase as compared to the prior twelve months. Accordingly, Air Wisconsin deferred the recognition of $7,440 and $15,351 of revenue in the three and six months ended June 30, 2021, respectively, compared to $22,484 for both the three and six months ended June 30, 2020. Air Wisconsin’s deferred
revenues
related to the fixed portion of revenue under the United capacity purchase agreement will adjust over the remaining contract term based on the number of flights completed in each reporting period relative to the number of flights anticipated to be completed over the remaining contract term.
The current portion of deferred
revenues, in the amount of
$33,133,
is recorded as part of contract liabilities, and the long-term portion of deferred
fixed
revenues, in the amount of
$25,438,
is recorded as deferred revenues on the consolidated balance sheets. Consistent with the analysis above, for the three and six months ended June 30, 2021, Air Wisconsin also recognized less non-refundable upfront fee revenue, as well as lower fulfillment costs, both of which are being amortized over the remaining term of the United capacity purchase agreement in proportion to flights flown. During the three
and six months ended June 30, 2021, Air Wisconsin recorded
$685 and $1,346 of revenue from upfront fees and $73 and $144 of fulfillment costs, respectively, compared to $271 and $1,204 in revenue from upfront fees and $29 and $129 for the three and six months ended June 30, 2020,
respectively. The current portion of the deferred upfront fee revenue, in the amount of $4,698, is recorded as part of contract liabilities, and the long-term portion of the deferred upfront fee revenue, in the amount of $3,270, is recorded as long-term contract liabilities on the consolidated balance sheets. As part of the October 2020 amendment to the United capacity purchase agreement described below (CPA Amendment), United accrued a liability to
Air Wisconsin in the amount of $11,048 along with a cash settlement of $670, of which $4,411 was deferred as of December 31, 2020, with the
remaining portion to be recognized in proportion to the number of flights expected to be completed in subsequent periods. For the three and six months ended June 30, 2021, Air Wisconsin recorded $324 and $637, respectively, of revenue related to these items, compared to $0 for the three and six
m
onths ended June 30, 2020. The current portion of the deferred CPA Amendment revenue, in the amount of $2,225, is recorded as part of contract liabilities, and the long-term portion of the deferred CPA Amendment revenue, in the amount of $1,548, is recorded as long-term contract liabilities on
the consolidated balance sheets. The timing of the recognition of these items in future periods is subject to considerable uncertainty due to a number of factors, including the actual number of completed flights in any particular period relative to the estimated number of flights anticipated to be flown at
the beginning of the same period.
The amount of revenues
recognized for the three and six months ended June 30, 2021 that was previously recorded as a contract liability is $1,010 and $1,983, respectively.
The CPA Amendment provided, among other things, for the payment or accrual of certain amounts by United to Air Wisconsin based on scheduling benchmarks. In conjunction with the significant reduction in departures and block hours resulting from the
COVID-19
pandemic, and consistent with the terms of the CPA Amendment, management determined that, from an accounting perspective, a new performance obligation was created by United requiring Air Wisconsin to stand ready to deliver flight services. Air Wisconsin determined, using the expected cost plus a margin method, that the United stand ready rate represents the relative stand-alone selling price of the performance obligation. The stand ready performance obligation will be recognized over time on a straight-line basis based on the number of unscheduled block hours below a minimum threshold at the stand ready rate as determined in a manner consistent with the CPA Amendment. For the three and six months ended June 30, 2021, Air Wisconsin recorded $5,736 and $12,972, respectively, in revenue related to this performance obligation. Under the CPA Amendment, United pays this amount by the delivery of a long-term note. Therefore, this amount was recorded in long-term notes receivable on the unaudited consolidated balance sheet as of June 30, 2021. The long-term notes receivable contain a significant financing component and any interest income is separately reported in the consolidated statements of operations. As of June 30, 2021, these notes totaled $45,411, bore interest at the rate of 4.5%, and had a maturity date of February 28, 2023. As of June 30, 2021, interest receivable on these notes totaled $1,114.
