UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-9781
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
713-324-2950
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 X No _____
_______________
As of July 16, 1999, 11,406,580 shares of Class A common stock and
61,079,850 shares of Class B common stock were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenue:
Passenger . . . . . . . $2,028 $1,888 $3,928 $3,602
Cargo and mail. . . . . 70 68 137 136
Other . . . . . . . . . 100 80 189 152
2,198 2,036 4,254 3,890
Operating Expenses:
Wages, salaries and
related costs. . . . . 622 521 1,238 1,018
Aircraft rentals. . . . 189 162 373 318
Maintenance, materials
and repairs. . . . . . 155 152 298 305
Aircraft fuel . . . . . 154 183 304 373
Commissions . . . . . . 142 152 285 293
Other rentals and
landing fees . . . . . 121 99 235 200
Depreciation and
amortization . . . . . 88 72 173 140
Other . . . . . . . . . 471 415 932 813
1,942 1,756 3,838 3,460
Operating Income . . . . 256 280 416 430
Nonoperating Income
(Expense):
Interest expense. . . . (57) (44) (110) (84)
Interest capitalized. . 16 15 29 28
Interest income . . . . 15 14 30 26
Other, net. . . . . . . (4) 10 9 12
(30) (5) (42) (18)
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income before Income
Taxes, Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . $ 226 $ 275 $ 374 $ 412
Income Tax Provision . . (89) (105) (147) (157)
Distributions on
Preferred Securities
of Trust, Net of
Applicable Income
Taxes of $2 and $4,
respectively. . . . . . - (3) - (7)
Income before Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . 137 167 227 248
Cumulative Effect of a
Change in Accounting
Principle, Net of
Applicable Income Taxes
of $3 . . . . . . . . . - - (6) -
Extraordinary Charge,
Net of Applicable
Income Taxes of $2. . . - (4) - (4)
Net Income . . . . . . . $ 137 $ 163 $ 221 $ 244
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings per Common Share:
Income Before Cumulative
Effect of Change in
Accounting Principle and
Extraordinary Charge. $ 1.93 $ 2.74 $ 3.25 $ 4.13
Cumulative Effect of a
Change in Accounting
Principle, net of tax - - (0.08) -
Extraordinary Charge,
net of tax. . . . . . - (0.06) - (0.05)
Net Income . . . . . . $ 1.93 $ 2.68 $ 3.17 $ 4.08
Earnings per Common Share
Assuming Dilution:
Income Before Cumulative
Effect of Change in
Accounting Principle and
Extraordinary Charge. $ 1.80 $ 2.11 $ 2.98 $ 3.16
Cumulative Effect of a
Change in Accounting. - - (0.07) -
Principle, net of tax
Extraordinary Charge,
net of tax. . . . . . - (0.05) - (0.04)
Net Income . . . . . . $ 1.80 $ 2.06 $ 2.91 $ 3.12
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents, including
restricted cash and cash equivalents
of $11 . . . . . . . . . . . . . . . . . $1,259 $1,399
Accounts receivable, net. . . . . . . . . 496 449
Spare parts and supplies, net . . . . . . 207 166
Deferred income taxes . . . . . . . . . . 234 234
Prepayments and other . . . . . . . . . . 175 106
Total current assets . . . . . . . . . . 2,371 2,354
Property and Equipment:
Owned property and equipment:
Flight equipment . . . . . . . . . . . . 3,181 2,459
Other. . . . . . . . . . . . . . . . . . 765 632
3,946 3,091
Less: Accumulated depreciation. . . . . 727 625
3,219 2,466
Purchase deposits for flight equipment 538 410
Capital leases:
Flight equipment. . . . . . . . . . . . . 372 361
Other . . . . . . . . . . . . . . . . . . 57 56
429 417
Less: Accumulated amortization . . . . . 192 178
237 239
Total property and equipment . . . . . . 3,994 3,115
Other Assets:
Routes, gates and slots, net. . . . . . . 1,156 1,181
Investments . . . . . . . . . . . . . . . 152 151
Other assets, net . . . . . . . . . . . . 270 285
Total other assets . . . . . . . . . . . 1,578 1,617
Total Assets. . . . . . . . . . . . . . $7,943 $7,086
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt. . . $ 189 $ 184
Current maturities of capital leases. . . 46 47
Accounts payable. . . . . . . . . . . . . 827 843
Air traffic liability . . . . . . . . . . 1,037 854
Accrued payroll and pensions. . . . . . . 221 265
Accrued other liabilities . . . . . . . . 244 249
Total current liabilities. . . . . . . . 2,564 2,442
Long-Term Debt . . . . . . . . . . . . . . 2,630 2,267
Capital Leases . . . . . . . . . . . . . . 208 213
Deferred Credits and Other Long-Term
Liabilities:
Deferred income taxes . . . . . . . . . . 521 372
Accruals for aircraft retirements and
excess facilities. . . . . . . . . . . . 77 95
Other . . . . . . . . . . . . . . . . . . 328 393
Total deferred credits and other
long-term liabilities . . . . . . . . . 926 860
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures. . . . . . . . . . . . . . . . - 111
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Common Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,406,580 and 11,406,732 shares
issued and outstanding in 1999
and 1998, respectively . . . . . . . . . $ - $ -
Class B common stock - $.01 par,
200,000,000 shares authorized;
63,923,431 and 53,370,741 shares
issued, respectively . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 872 634
Retained earnings . . . . . . . . . . . . 880 659
Accumulated other comprehensive income. . (69) (88)
Treasury stock - 1,783,413 and 399,524
Class B shares, respectively, at cost. . (69) (13)
Total common stockholders' equity. . . . 1,615 1,193
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . $7,943 $7,086
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Six Months
Ended June 30,
1999 1998
(Unaudited)
<S> <C> <C>
Net cash provided by operating
activities. . . . . . . . . . . . . . .$ 398 $ 549
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries. . . . (685) (361)
Purchase deposits refunded in
connection with aircraft delivered . . 522 287
Capital expenditures. . . . . . . . . . (313) (311)
Proceeds from sale of investments . . . 20 9
Purchase of short-term investments. . . - (117)
Investment in Partner Airlines. . . . . - (53)
Other . . . . . . . . . . . . . . . . . (9) (6)
Net cash used by investing
activities. . . . . . . . . . . . . . (465) (552)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
debt, net. . . . . . . . . . . . . . . 230 395
Payments on long-term debt and
capital lease obligations. . . . . . . (159) (301)
Purchase of Class B common stock. . . . (171) (120)
Proceeds from issuance of common stock. 19 44
Dividends paid on preferred securities
of trust . . . . . . . . . . . . . . . - (11)
Other . . . . . . . . . . . . . . . . . 8 39
Net cash (used) provided by
financing activities. . . . . . . . . (73) 46
Net (Decrease) Increase in Cash and
Cash Equivalents. . . . . . . . . . . . (140) 43
Cash and Cash Equivalents - Beginning
of Period (A) . . . . . . . . . . . . . 1,388 1,010
Cash and Cash Equivalents - End of
Period (A). . . . . . . . . . . . . . . $1,248 $1,053
</TABLE>
(continued on next page)
<TABLE>
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Six Months
Ended June 30,
1999 1998
(Unaudited)
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . $ 101 $ 72
Income taxes paid . . . . . . . . . . . $ 8 $ 4
Investing and Financing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 501 $ 263
Capital lease obligations incurred. . . $ 21 $ 109
Conversion of trust originated
preferred securities . . . . . . . . . $ 111 $ -
Conversion of 6-3/4% Convertible
Subordinated Notes . . . . . . . . . . $ 230 $ -
</TABLE>
(A) Excludes restricted cash of $11 million and $15 million at
January 1, 1999 and 1998, respectively, and $11 million and $14
million at June 30, 1999 and 1998, respectively.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments necessary to
present fairly the financial position, results of operations and
cash flows for the periods indicated. Such adjustments are of a
normal, recurring nature. The accompanying consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Annual
Report of Continental Airlines, Inc. (the "Company" or
"Continental") on Form 10-K for the year ended December 31, 1998
(the "1998 10-K").
Certain reclassifications have been made in the prior year's
financial statements to conform to the current year presentation.
<PAGE>
NOTE 1 - EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Income before cumulative effect
of change in accounting
principle and extraordinary
charge . . . . . . . . . . . . $137 $167 $227 $248
Cumulative effect of change in
accounting principle, net of
applicable income taxes. . . . - - (6) -
Extraordinary charge, net of
applicable income taxes. . . . - (4) - (4)
Numerator for basic earnings
per share - net income . . . . 137 163 221 244
Effect of dilutive securities:
Preferred Securities of Trust . - 3 - 7
6-3/4% convertible subordinated
notes. . . . . . . . . . . . . 1 2 3 4
1 5 3 11
Numerator for diluted earnings
per share - net income after
assumed conversions. . . . . . $138 $168 $224 $254
Denominator:
Denominator for basic earnings
per share - weighted-average
shares . . . . . . . . . . . . 70.9 60.7 69.7 59.9
Effect of dilutive securities:
Employee stock options . . . . 1.7 2.0 1.5 2.0
Warrants . . . . . . . . . . . - 0.7 - 1.7
Preferred Securities of Trust. - 10.3 0.1 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . 4.2 7.6 5.9 7.6
Dilutive potential common
shares. . . . . . . . . . . . 5.9 20.6 7.5 21.6
Denominator for diluted
earnings per share - adjusted
weighted-average and assumed
conversions. . . . . . . . . . 76.8 81.3 77.2 81.5
</TABLE>
<PAGE>
NOTE 2 - INCOME TAXES
Income taxes for the three and six months ended June 30, 1999 and
1998 were provided at the estimated annual effective tax rate.
Such rate differs from the federal statutory rate of 35%, primarily
due to state income taxes and the effect of certain expenses that
are not deductible for income tax purposes.
At December 31, 1998, the Company had estimated net operating
losses ("NOLs") of $1.1 billion for federal income tax purposes
that will expire through 2009 and federal investment tax credit
carryforwards of $45 million that will expire through 2001. As a
result of a change in ownership of the Company on April 27, 1993,
the ultimate utilization of the Company's NOLs and investment tax
credits may be limited. Reflecting this limitation, the Company
recorded a valuation allowance of $263 million as of December 31,
1998.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would reduce routes, gates and slots.
NOTE 3 - COMPREHENSIVE INCOME
The Company includes unrealized gains and losses on available-for-
sale securities, changes in minimum pension liabilities and changes
in the fair value of derivative financial instruments which qualify
for hedge accounting in other comprehensive income. During the
second quarter of 1999 and 1998, total comprehensive income
amounted to $128 and $158 million, respectively. For the six
months ended 1999 and 1998, total comprehensive income amounted to
$240 million and $243 million, respectively. The significant
difference between net income and total comprehensive income during
the first half of 1999 was attributable to the $17 million net
increase in fair value (net of applicable income taxes and hedge
ineffectiveness) related to petroleum swap contracts and call
options held by the Company as of June 30, 1999 to hedge a portion
of anticipated jet fuel purchases through October 1999.
NOTE 4 - CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Continental adopted Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities ("SOP 98-5)") in the first quarter of
1999. SOP 98-5 amended Statement of Position 88-1, "Accounting for
Developmental and Preoperating Costs, Purchases and Exchanges of
Take-Off and Landing Slots, and Airframe Modifications" by
requiring preoperating costs related to the integration of new
types of aircraft to be expensed as incurred and requiring all
unamortized start-up costs (e.g., pilot training costs related to
induction of new aircraft) to be expensed upon adoption. This
resulted in the Company recording a $6 million cumulative effect of
a change in accounting principle, net of tax, in the first quarter
of 1999.
<PAGE>
NOTE 5 - PREFERRED SECURITIES OF TRUST
In December 1998, the Company called for redemption its remaining
8-1/2% Convertible Trust Originated Preferred Securities ("TOPrS")
then outstanding. As a result, the remaining 2,298,327 TOPrS were
converted into 4,752,522 shares of Class B common stock during
January 1999.
NOTE 6 - 6-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006
On April 15, 1999, the Company exercised its right and called for
redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7,617,120 shares of Class B common stock during May 1999.
NOTE 7 - REGULATORY MATTERS
The Company recently received approval from the Port Authority of
New York and New Jersey for a major facility expansion at Newark
International Airport ("Newark"). Major construction is scheduled
to begin in August 1999 and to be completed in 2002.
As more fully described in the Risk Factors section of the
Company's 1998 10-K, airlines are subject to extensive regulatory
and legal compliance requirements that engender significant costs
and in some cases reduce revenue. For instance, "passenger bill of
rights" legislation has been introduced in Congress that would,
among other things, require the payment of compensation to
passengers as a result of certain delays, and limit the ability of
carriers to prohibit or restrict usage of certain tickets in
manners currently prohibited or restricted. The Department of
Transportation (the "DOT") has proposed rules that would
significantly limit major carriers' ability to compete with new
entrant carriers. If adopted, these measures could have the effect
of raising ticket prices, reducing revenue and increasing costs.
The Federal Aviation Administration has designated John F. Kennedy
International Airport ("John F. Kennedy"), New York LaGuardia
Airport ("LaGuardia"), Chicago O'Hare International Airport
("O'Hare") and Ronald Reagan Washington National Airport in
Washington, D.C. ("Reagan National") as "high density traffic
airports" and has limited the number of departure and arrival slots
at those airports. Currently, such slots may be voluntarily sold
or transferred between carriers. The DOT has in the past
reallocated slots to other carriers and reserves the right to
withdraw slots. Various amendments to the slot system proposed
from time to time could, if adopted, significantly affect
operations at high density traffic airports, significantly change
the value of the slots, grant slots to other carriers or for route
or aircraft specific usage, expand slots to other airports or
eliminate slots entirely. The DOT has proposed the elimination of
slot restrictions at high density airports other than Reagan
National. Legislation containing a similar proposal which could
eliminate slots as early as 2002 at O'Hare and 2007 at LaGuardia
and John F. Kennedy, and which doubles the maximum passenger
facilities charges permitted to be charged by airport authorities,
has passed the full House of Representatives. The Company cannot
predict whether any of these proposals will be adopted. However,
if legislation or regulation eliminating slots is adopted, the
value of such slots could be deemed to be permanently impaired,
resulting in a loss being charged to earnings for the relevant
period. Moreover, the elimination of slots could have an adverse
effect upon future results of operations of the Company.
NOTE 8 - OTHER
On January 5, 1999, the Company's mechanics ratified an initial
three-year collective bargaining agreement between the Company and
the International Brotherhood of Teamsters ("IBT"). The contract
becomes amendable in January 2002.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft scheduled to be delivered from
March 1999 through September 1999.
The Company holds a membership interest in The SITA Foundation
("SITA"), an organization providing data communication services to
the airline industry. SITA's primary asset is an ownership
interest in Equant N.V. ("Equant"). In February 1999, SITA sold a
portion of its Equant interest in a secondary public offering and
distributed the pro rata proceeds to certain of its members
(including Continental) that elected to participate in the
offering. Continental recorded a gain of $20 million ($12 million
after tax) related to this transaction. The gain is included in
other nonoperating income (expense) in the accompanying
consolidated statement of operations.
In March 1999, the Company obtained a $160 million Credit Facility,
with a maturity date of March 2001, to finance pre-delivery
deposits for certain new Boeing aircraft to be delivered between
March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of July 16, 1999, the
Company had repurchased 9,812,200 shares of Class B common stock
for $437 million.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
<PAGE>
In July 1999, a tentative initial agreement was reached between
Continental Express, Inc. ("Express"), a wholly owned subsidiary of
the Company, and the IBT, which represents Express's mechanics.
The IBT will now present the tentative agreement to the covered
employees for ratification, a process that is expected to be
completed by mid-August 1999. If ratified, the agreement will
become amendable in January 2003.
During the three months ended June 30, 1999, the Company recognized
approximately a $36 million gain on its fuel hedging program. The
gain is included in fuel expense in the accompanying consolidated
statement of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the risk factors set forth in
the Company's 1998 10-K which identify important factors such as
the Company's leverage and its liquidity, its history of operating
losses, the cost of aircraft fuel, labor matters, certain tax
matters, regional and global economic downturns, the significant
ownership interest of Northwest Airlines in the Company and risks
relating to the Company's strategic alliance with Northwest
Airlines, year 2000 computer risk, competition and industry
conditions, regulatory matters and the seasonal nature of the
airline business, that could cause actual results to differ
materially from those in the forward-looking statements.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, employee job actions (including at
other airlines), fare sale activities, excise and similar taxes,
changing levels of operations, fuel prices, foreign currency
exchange rates, changes in regulations and aviation treaties and
general economic conditions. Although the results in Asia of
Continental Micronesia, Inc. ("CMI"), a wholly owned subsidiary of
the Company, have declined in recent years, the Company
successfully redeployed CMI capacity into the stronger U.S.
domestic markets and CMI's recent results have improved. In
addition, management believes the Company is well positioned to
respond to market conditions in the event of a sustained economic
downturn for the following reasons: underdeveloped hubs with strong
local traffic; a flexible fleet plan; a strong cash balance, a $225
million unused revolving credit facility and a well developed
alliance network.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three and six months ended June 30, 1999 as compared to the
corresponding periods ended June 30, 1998.
Comparison of Three Months Ended June 30, 1999 to Three Months
Ended June 30, 1998
The Company recorded consolidated net income of $137 million for
the three months ended June 30, 1999 as compared to consolidated
net income of $163 million for the three months ended June 30,
1998.
<PAGE>
Passenger revenue increased 7.4%, $140 million, during the quarter
ended June 30, 1999 as compared to the same period in 1998, which
was principally due to a 9.1% increase in revenue passenger miles,
partially offset by a 2.4% decrease in yield. The decrease in
yield was due to lower industry-wide fare levels and a 6.4%
increase in average stage length.
Other operating revenue increased 25.0%, $20 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year, primarily due to an increase in revenue related to the
Company's frequent flyer program ("OnePass").
Wages, salaries and related costs increased 19.4%, $101 million,
during the quarter ended June 30, 1999 as compared to the same
period in 1998, primarily due to a 7.2% increase in average full-
time equivalent employees to support increased flying and higher
wage rates resulting from the Company's decision to increase
employee wages to industry standards by the year 2000.
Aircraft rentals increased 16.7%, $27 million, in the second
quarter of 1999 compared to the second quarter of 1998, due to the
delivery of new aircraft.
Aircraft fuel expense decreased 15.8%, $29 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year. The average price per gallon decreased 18.8% from
46.96 cents in the second quarter of 1998 to 38.13 cents in the
second quarter of 1999. This reduction was partially offset by a
2.4% increase in the quantity of jet fuel used, principally
reflecting increased capacity. In addition, during the second
quarter of 1999, the Company recognized approximately a $36 million
gain related to its fuel hedging program. See "Fuel Hedging"
below.
Commissions expense decreased 6.6%, $10 million, in the second
quarter of 1999 compared to the second quarter of 1998 due to a
lower volume of commissionable sales and lower rates as a result of
the international commission cap, partially offset by increased
passenger revenue.
Other rentals and landing fees increased 22.2%, $22 million, in the
three months ended June 30, 1999 as compared to the same period in
the prior year primarily due to higher facilities rent due to
increased rates and space, and higher landing fees resulting from
increased operations.
Depreciation and amortization expense increased 22.2%, $16 million,
in the second quarter of 1999 compared to the second quarter of
1998 due principally to the addition of new aircraft and related
spare parts. These increases were partially offset by
approximately a $2 million reduction in the amortization of routes,
gates and slots resulting from the recognition of previously
unbenefitted NOLs during 1998.
<PAGE>
Other operating expense increased 13.5%, $56 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year, as a result of increases in reservations and sales
expense, passenger services expense, aircraft servicing expense and
other miscellaneous expense, resulting primarily from an increase
in enplanements and revenue passenger miles.
Interest expense increased 29.5%, $13 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
offset by interest savings of $1.7 million due to the conversion of
the Company's 6-3/4% Convertible Subordinated Notes.
The Company's other nonoperating income (expense) in the three
months ended June 1999 includes foreign currency losses of $4.1
million. Other nonoperating income (expense) in the three months
ended June 30, 1998 included a $6 million gain on the sale of
certain stock of America West Holdings Corporation ("America
West").
Comparison of Six Months Ended June 30, 1999 to Six Months Ended
June 30, 1998
The Company recorded consolidated net income of $221 million and
$244 million for the six months ended June 30, 1999 and 1998,
respectively. Net income for the first quarter of 1999 included
the cumulative effect of a change in accounting principle charge
($6 million, net of taxes) related to the write-off of pilot
training costs.
Passenger revenue increased 9.1%, $326 million, during the six
months ended June 30, 1999 as compared to the same period in 1998.
The increase was due to a 11.3% increase in revenue passenger
miles, partially offset by a 2.9% decrease in yield. The Company
estimates that passenger revenue in the first quarter of 1999
increased by $19 million due to a significant number of flight
cancellations at one of its competitors. The decrease in yield was
due to lower industry-wide fare levels and a 6.5% increase in
average stage length.
Other operating revenue increased 24.3%, $37 million, in the six
months ended June 30, 1999 compared to the same period in the prior
year primarily due to an increase in OnePass revenue.
Wages, salaries and related costs increased 21.6%, $220 million,
during the six months ended June 30, 1999 as compared to the same
period in 1998, primarily due to an 8.7% increase in average full-
time equivalent employees to support increased flying, increased
on-time bonus payments and higher wage rates resulting from the
Company's decision to increase employee wages to industry standards
by the year 2000.
Aircraft rentals increased 17.3%, $55 million, during the six
months ended June 30, 1999 as compared to the same period in 1998,
due primarily to the delivery of new aircraft.
Maintenance, materials and repairs decreased 2.3%, $7 million,
during the six months ended June 30, 1999 as compared to the same
period in the prior year due to newer aircraft and the volume and
timing of engine overhauls as part of the Company's ongoing
maintenance program.
Aircraft fuel expense decreased 18.5%, $69 million, in the six
months ended June 30, 1999 as compared to the same period in the
prior year. The average price per gallon decreased 22.2% from
49.30 cents in the first six months of 1998 to 38.37 cents in the
first six months of 1999. This reduction was partially offset by
a 3.9% increase in the quantity of jet fuel used principally
reflecting increased capacity. In addition, during the first six
months of 1999, the Company recognized approximately a $37 million
gain related to its fuel hedging program. See "Fuel Hedging"
below.
Commissions expense decreased 2.7%, $8 million, during the six
months ended June 30, 1999 as compared to the same period in 1998
due to a lower volume of commissionable sales and lower rates as
the result of the international commission cap, partially offset by
increased passenger revenue.
Other rentals and landing fees increased 17.5%, $35 million,
primarily due to higher facilities rent due to increased rates and
volume, and higher landing fees resulting from increased
operations.
Depreciation and amortization expense increased 23.6%, $33 million,
in the first six months of 1999 compared to the same period in 1998
primarily due to the addition of new aircraft and related spare
parts. These increases were partially offset by approximately a $4
million reduction in the amortization of routes, gates and slots
resulting from the recognition of previously unbenefitted NOLs
during 1998.
Other operating expense increased 14.6%, $119 million, in the six
months ended June 30, 1999 as compared to the same period in the
prior year, primarily as a result of increases in passenger
services expense, aircraft servicing expense, reservations and
sales expense and other miscellaneous expense, primarily due to an
increase in enplanements and revenue passenger miles.
Interest expense increased 31.0%, $26 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
offset by interest savings of $1.7 million due to the conversion of
the Company's 6-3/4% Convertible Subordinated Notes.
The Company's other nonoperating income (expense) in the six months
ended June 30, 1999 includes a $20 million gain on the sale of a
portion of the Company's indirect interest in Equant partially
offset by foreign currency losses of $10.5 million. Other
nonoperating income (expense) in the first six months of 1998
included a $6 million gain on the sale of certain America West
stock.
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jet operations, for the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three Months Ended Net
June 30, Increase/
1999 1998 (Decrease)
<S> <C> <C> <C>
Revenue passenger miles
(millions) (1). . . . . . . . . . 14,919 13,675 9.1 %
Available seat miles
(millions) (2). . . . . . . . . . 20,163 18,574 8.6 %
Passenger load factor (3). . . . . 74.0% 73.6% 0.4 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 61.9% 59.0% 2.9 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.20 9.39 (2.0)%
Total revenue per available
seat mile (cents) . . . . . . . . 10.15 10.27 (1.2)%
Operating cost per available
seat mile (cents) . . . . . . . . 8.97 8.85 1.4 %
Average yield per revenue
passenger mile (cents) (5) . . . 12.44 12.75 (2.4)%
Average fare per revenue
passenger . . . . . . . . . . . .$161.47 $154.80 4.3 %
Revenue passengers (thousands) . .11,493 11,261 2.1 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,104 1,038 6.4 %
Average daily utilization of
each aircraft (hours) (6). . . . 10:35 10:19 2.6 %
Actual aircraft in fleet at
end of period (7) . . . . . . . . 360 353 2.0 %
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Net
June 30, Increase/
1999 1998 (Decrease)
<S> <C> <C> <C>
Revenue passenger miles
(millions) (1). . . . . . . . . .28,656 25,747 11.3 %
Available seat miles
(millions) (2). . . . . . . . . .39,388 36,097 9.1 %
Passenger load factor (3). . . . . 72.8% 71.3% 1.5 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 62.7% 59.8% 2.9 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.17 9.25 (0.9)%
Total revenue per available
seat mile (cents) . . . . . . . . 10.10 10.15 (0.5)%
Operating cost per available
seat mile (cents) . . . . . . . . 9.09 8.99 1.1 %
Average yield per revenue
passenger mile (cents) (5) . . . 12.60 12.98 (2.9)%
Average fare per revenue
passenger . . . . . . . . . . . .$162.16 $156.60 3.6 %
Revenue passengers (thousands) . .22,271 21,333 4.4 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,093 1,026 6.5 %
Average daily utilization of
each aircraft (hours) (6). . . . 10:23 10:16 1.1 %
Actual aircraft in fleet at
end of period (7) . . . . . . . . 360 353 2.0 %
</TABLE>
Continental has entered into block-space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. For the three months ended June
30, 1999 and June 30, 1998, the table above excludes 633 million
and 346 million available seat miles, and related revenue passenger
miles and enplanements, operated by Continental but purchased and
marketed by the other carrier, and includes 258 million and 43
million available seat miles, and related revenue passenger miles
and enplanements, operated by other carriers but purchased and
marketed by Continental. For the six months ended June 30, 1999
and June 30, 1998, the table above excludes 1.3 billion and 676
million available seat miles, and related revenue passenger miles
and enplanements, operated by Continental but purchased and
marketed by the other carrier, and includes 490 million and 65
million available seat miles, and related revenue passenger miles
and enplanements, operated by other carriers but purchased and
marketed by Continental.
__________________
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) The average revenue received for each mile a revenue
passenger is carried.
(6) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(7) Excludes six all-cargo 727 aircraft at CMI in 1999 and 1998.
During the first six months of 1999, the Company took
delivery of 24 aircraft and removed 27 aircraft from service.
LIQUIDITY AND CAPITAL COMMITMENTS
In the first six months of 1999, the Company completed several
transactions intended to strengthen its long-term financial
position and enhance earnings.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft scheduled to be delivered from
March 1999 through September 1999.
In March of 1999, the Company completed a $160 million Credit
Facility, with a maturity date of March 2001, to finance pre-
delivery deposits for certain new Boeing aircraft to be delivered
between March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of July 16, 1999, the
Company had repurchased 9,812,200 shares of Class B common stock
for $437 million.
Also on April 15, 1999, the Company exercised its right and called
for redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7,617,120 shares of Class B common stock during May 1999.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
As of June 30, 1999, the Company had $1.2 billion in cash and cash
equivalents (excluding restricted cash of $11 million). Net cash
provided by operating activities decreased $151 million during the
six months ended June 30, 1999 compared to the same period in the
prior year primarily due to a decrease in net income and changes in
working capital. Net cash used by investing activities decreased
$87 million for the six months ended June 30, 1999 compared to the
same period in the prior year, primarily as a result of the
purchase of short-term investments in the second quarter of 1998.
Net cash used by financing activities for the six months ended June
30, 1999 compared to the same period in the prior year increased
$119 million primarily due to a decrease in proceeds from the
issuance of long-term debt and an increase in the purchase of the
Company's Class B common stock, partially offset by a decrease in
payments on long-term debt and capital lease obligations.
Deferred Tax Assets. The Company had, as of December 31, 1998,
deferred tax assets aggregating $803 million, including
$372 million of NOLs and a valuation allowance of $263 million. To
the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
As a result of NOLs, the Company will not pay United States federal
income taxes (other than alternative minimum tax) until it has
recorded approximately an additional $1.1 billion of taxable income
following December 31, 1998. Section 382 of the Internal Revenue
Code ("Section 382") imposes limitations on a corporation's ability
to utilize NOLs if it experiences an "ownership change." In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year
period.
On November 20, 1998, an affiliate of Northwest Airlines, Inc.
completed its acquisition of certain equity of the Company
previously held by Air Partners, L.P. and its affiliates, together
with certain Class A common stock of the Company held by certain
other investors, totaling 8,661,224 shares of Class A common stock
(the "Air Partners Transaction"). Based on information currently
available, the Company does not believe that the Air Partners
Transaction resulted in an ownership change for purposes of Section
382.
Purchase Commitments. Continental has substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of July 16, 1999, Continental had agreed to acquire
a total of 101 Boeing jet aircraft through 2005. The Company
anticipates taking delivery of 61 Boeing jet aircraft in 1999 (24
of which were delivered during the first six months of 1999 and
financed through enhanced equipment trust certificates, with the
Company purchasing 14 of those aircraft and leasing the other ten).
Continental also has options for an additional 121 Boeing aircraft
(exercisable subject to certain conditions). The estimated
aggregate cost of the Company's firm commitments for Boeing
aircraft is approximately $4.8 billion. Continental currently
plans to finance its new Boeing aircraft with a combination of
enhanced pass through trust certificates, lease equity and other
third-party financing, subject to availability and market
conditions. As of July 16, 1999, Continental had approximately
$948 million in financing arranged for such future Boeing
deliveries. In addition, Continental has commitments or letters of
intent for backstop financing for approximately one-third of the
anticipated remaining acquisition cost of such Boeing deliveries.
In addition, at July 16, 1999, Continental had firm commitments to
purchase 28 spare engines related to the new Boeing aircraft for
approximately $200 million which will be deliverable through
December 2004.
As of July 16, 1999, Express had firm commitments to acquire 27
Embraer ERJ-145 ("ERJ-145") 50-seat regional jets and 25 Embraer
ERJ-135 ("ERJ-135") 37-seat regional jets, with options for an
additional 125 ERJ-145 and 50 ERJ-135 aircraft exercisable through
2008. Express anticipates taking delivery of 19 ERJ-145 (ten of
which were delivered in the first six months of 1999) and six ERJ-
135 regional jets in 1999 and the remainder of its firm orders
through the third quarter of 2001. Neither Express nor Continental
will have any obligation to take any of the firm ERJ-145 or ERJ-135
aircraft that are not financed by a third-party and leased to
Continental.
Additional financing will be needed to satisfy the Company's
capital commitments for other aircraft and aircraft-related
expenditures such as engines, spare parts, simulators and related
items. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not
covered by firm financing commitments. Deliveries of new Boeing
aircraft are expected to continue to increase aircraft rental,
depreciation and interest costs while generating cost savings in
the areas of maintenance, fuel and pilot training.
Continental expects its cash outlays for 1999 capital expenditures,
exclusive of fleet plan requirements, to aggregate $254 million,
primarily relating to mainframe, software application and
automation infrastructure projects, aircraft modifications and
mandatory maintenance projects, passenger terminal facility
improvements and office, maintenance, telecommunications and ground
equipment. Continental's capital expenditures during the six
months ended June 30, 1999 aggregated $105 million, exclusive of
fleet plan expenditures.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Year 2000. The Year 2000 issue arises as a result of computer
programs having been written using two digits (rather than four) to
define the applicable year, among other problems. Any information
technology ("IT") systems that have time-sensitive software might
recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures.
The problem also extends to many "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems.
In addition, the Company is at risk from Year 2000 failures on the
part of third-party suppliers and governmental agencies with which
the Company interacts.
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1996 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involves the review of a number of internal and
third-party systems. Each system is subjected to the project's
five phases which consist of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The Company anticipates completing its review or
modification implementation of systems in July 1999 and believes
that, with modifications to its existing software and systems
and/or conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems.
The Company also is conducting extensive communications and on-site
visits with its significant suppliers, vendors and governmental
agencies with which its systems interface and exchange data or upon
which its business depends. The Company is coordinating efforts
with these parties to minimize the extent to which its business may
be vulnerable to their failure to remediate their own Year 2000
problems. The Company's business is dependent upon certain
domestic and foreign governmental organizations or entities such as
the Federal Aviation Administration ("FAA") that provide essential
aviation industry infrastructure. There can be no assurance that
the systems of such third parties on which the Company's business
relies will be modified on a timely basis. The Company's business,
financial condition or results of operations could be materially
adversely affected by the failure of its equipment or systems or
those operated by other parties to operate properly beyond 1999.
Although the Company currently has day-to-day operational
contingency plans, management is in the process of updating these
plans for possible Year 2000-specific operational requirements. To
facilitate the completion of these plans, the Company has hired an
outside consultant. Based on current progress, the Company
anticipates completing the revision of current contingency plans
and the creation of additional contingency plans by September 1999.
In addition, the Company will continue to monitor third-party
(including governmental) readiness and will modify its contingency
plans accordingly. While the Company does not currently expect any
significant modification of its operations in response to the Year
2000 issue, in a worst-case scenario the Company could be required
to suspend flights to certain locations or otherwise alter its
operations significantly.
The total cost of the Company's Year 2000 project (excluding
internal payroll) is currently estimated at $18-20 million and has
been and will be funded through cash from operations. As of June
30, 1999, the Company had incurred and expensed approximately $18
million relating to its Year 2000 project. The cost of the Year
2000 project is limited by the substantial outsourcing of the
Company's systems and the significant implementation of new systems
following the Company's emergence from bankruptcy in 1993. The
costs of the Company's Year 2000 project and the date on which the
Company believes it will be completed are based on management's
best estimates and include assumptions regarding third-party
modification plans. However, in particular due to the potential
impact of third-party modification plans, there can be no assurance
that these estimates will be achieved, and actual results could
differ materially from those anticipated.
Bond Financings. In July 1996, the Company announced plans to
expand its gates and related facilities into Terminal B at Bush
Intercontinental Airport, as well as planned improvements at
Terminal C and the construction of a new automated people mover
system linking Terminal B and Terminal C which was completed in May
1999. In April 1997 and January 1999, the City of Houston
completed the offering of $190 million and $46 million,
respectively, aggregate principal amount of tax-exempt special
facilities revenue bonds (the "IAH Bonds"). The IAH Bonds are
unconditionally guaranteed by Continental. In connection
therewith, the Company has entered into long-term leases (or
amendments to existing leases) with the City of Houston providing
for the Company to make rental payments sufficient to service the
related tax-exempt bonds, which have a term no longer than 30
years. The majority of the Company's expansion project is expected
to be completed during the summer of 1999.
Employees. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000 as revenue, interest rates
and rental rates also reach industry standards.
On January 5, 1999, the Company's mechanics ratified an initial
three-year collective bargaining agreement between the Company and
the IBT. The contract becomes amendable in January 2002.
On June 4, 1999, following a mail ballot election, the National
Mediation Board ("NMB") determined that fewer than 29% of the
Company and Express's 8,000 fleet service employees desired to be
represented by the International Association of Machinists ("IAM"),
and dismissed the IAM's representation petition. Pursuant to the
NMB's rules there is a one-year bar from the date of the dismissal
on union organizing.
In July 1999, a tentative initial agreement was reached between
Express and the IBT, which represents Express's mechanics. The IBT
will now present the tentative agreement to the covered employees
for ratification, a process that is expected to be completed by
mid-August 1999. If ratified, the agreement will become amendable
in January 2003.
In addition, the Company's and Express's flight attendants, pilots
and dispatchers are represented by unions as are CMI's flight
attendants, mechanics and related employees and agents. The other
employees of Continental, Express and CMI are not represented and
are not covered by collective bargaining agreements.
Fuel Hedging. The Company uses a combination of petroleum swap
contracts, petroleum call options, and jet fuel purchase
commitments to provide some short-term protection against a sharp
increase in jet fuel prices. During the second quarter, the
Company entered into petroleum swap contracts and call options to
hedge jet fuel prices for approximately 95% of its anticipated fuel
requirements through October 1999. The fair value was
approximately $22 million at June 30, 1999 and has been recorded in
other assets with the offset to other comprehensive income, net of
applicable income taxes and hedge ineffectiveness. As of July 16,
1999, the fair value of the petroleum swap contracts and call
options was approximately $36 million.
Other. Management believes that the Company's costs are likely to
be affected in the future by (i) higher aircraft ownership costs as
new aircraft are delivered, (ii) higher wages, salaries and related
costs as the Company compensates its employees comparable to
industry average, (iii) changes in the costs of materials and
services (in particular, the cost of fuel, which can fluctuate
significantly in response to global market conditions),
(iv) changes in governmental regulations and taxes affecting air
transportation and the costs charged for airport access, including
new security requirements, (v) changes in the Company's fleet and
related capacity and (vi) the Company's continuing efforts to
reduce costs throughout its operations, including reduced
maintenance costs for new aircraft, reduced distribution expense
from using Continental's electronic ticket product and the internet
for bookings, and reduced interest expense.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The information called for by this item is provided under the
caption "Fuel Hedging" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. Also
see Item 7A. Quantitative and Qualitative Disclosures About Market
Risk in Continental's 1998 10-K.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Following the announcement of the long-term global alliance with
Northwest, the Air Partners Transaction and the related governance
agreement between the Company and certain affiliates of Northwest
(collectively, the "Northwest Transaction"), six separate lawsuits
were filed against the Company and its Directors and certain other
parties (the "Stockholder Litigation"). The complaints in the
Stockholder Litigation generally alleged that the Company's
Directors improperly accepted the Northwest Transaction in
violation of their fiduciary duties owed to the stockholders of the
Company. They further allege that Delta Air Lines, Inc. submitted
a proposal to purchase the Company which, in the plaintiffs'
opinion, was superior to the Northwest Transaction. On April 1,
1999, the plaintiffs voluntarily dismissed their lawsuit. On April
12, 1999, the judge approved the dismissal. Although the dismissal
is without prejudice, so the plaintiffs could again file their
claim, the Company does not expect them to do so.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on May 18,
1999. The following individuals were elected to the Company's
Board of Directors to hold office for the ensuing year:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
<S> <C> <C>
Thomas J. Barrack, Jr. 152,431,654 2,273,512
Gordon M. Bethune 152,429,309 2,275,857
David Bonderman 152,240,815 2,464,351
Gregory D. Brenneman 152,431,517 2,273,649
Kirbyjon H. Caldwell 154,705,166 -
Patrick Foley 152,430,705 2,274,461
Douglas H. McCorkindale 152,431,975 2,273,191
George G.C. Parker 152,430,957 2,274,209
Richard W. Pogue 152,431,222 2,273,944
William S. Price III 152,431,653 2,273,513
Donald L. Sturm 152,431,124 2,274,042
Charles A. Yamarone 152,431,716 2,273,450
Karen Hastie Williams 152,245,789 2,459,377
</TABLE>
<PAGE>
A proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December
31, 1999 was voted on by the stockholders as follows:
<TABLE>
<CAPTION>
Votes Votes Broker
Votes For Against Abstaining Non-Votes
<S> <C> <C> <C>
154,567,557 60,862 76,747 -
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 First Amendment to Continental Airlines, Inc.
Deferred Compensation Plan, effective January 1,
1999.
10.2 Amendment to Employment Agreement between the
Company and Gordon M. Bethune, dated as of May
19, 1999.
10.3 Amendment to Employment Agreement between the
Company and Gregory D. Brenneman, dated as of May
19, 1999.
10.4 Amendment to Employment Agreement between the
Company and Lawrence W. Kellner, dated as of May
19, 1999.
10.5 Amendment to Employment Agreement between the
Company and C.D. McLean, dated as of May 19,
1999.
10.6 Amendment to Employment Agreement between the
Company and Jeffery A. Smisek, dated as of May
19, 1999.
10.7 Supplemental Agreement No. 11, including side
letters, to Boeing Purchase Agreement No. 1951,
dated May 14, 1999.
10.8 Supplemental Agreement No. 2, including side
letter, to Boeing Purchase Agreement No. 2060,
dated June 8, 1999.
10.9 Supplemental Agreement No. 6, including side
letter, to Boeing Purchase Agreement No. 2061,
dated May 14, 1999.
27.1 Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K:
(i) Report dated May 18, 1999 reporting Item 5.
"Other Events". No financial statements were
filed with the report, which included a Press
Release related to the election of Kirbyjon H.
Caldwell to the Board of Directors.
(ii) Report dated June 25, 1999 reporting Item 7.
"Financial Statements and Exhibits". No
financial statements were filed with the report,
which included an Exhibit Index related to the
Continental 1999-2 offering of pass through
certificates.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL AIRLINES, INC.
(Registrant)
Date: July 23, 1999 by: /s/ Lawrence W. Kellner
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: July 23, 1999 /s/ Michael P. Bonds
Michael P. Bonds
(Principle Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
10.1 First Amendment to Continental Airlines, Inc. Deferred
Compensation Plan, effective January 1, 1999.
10.2 Amendment to Employment Agreement between the Company and
Gordon M. Bethune, dated as of May 19, 1999.
10.3 Amendment to Employment Agreement between the Company and
Gregory D. Brenneman, dated as of May 19, 1999.
10.4 Amendment to Employment Agreement between the Company and
Lawrence W. Kellner, dated as of May 19, 1999.
10.5 Amendment to Employment Agreement between the Company and
C.D. McLean, dated as of May 19, 1999.
10.6 Amendment to Employment Agreement between the Company and
Jeffery A. Smisek, dated as of May 19, 1999.
10.7 Supplemental Agreement No. 11, including side letters, to
Boeing Purchase Agreement No. 1951, dated May 14, 1999.
(1)
10.8 Supplemental Agreement No. 2, including side letter, to
Boeing Purchase Agreement No. 2060, dated June 8, 1999.
(1)
10.9 Supplemental Agreement No. 6, including side letter, to
Boeing Purchase Agreement No. 2061, dated May 14, 1999.
(1)
27.1 Financial Data Schedule.
__________________________
(1) The Company has applied to the Commission for confidential
treatment for a portion of this exhibit.
EXHIBIT 10.1
FIRST AMENDMENT TO
CONTINENTAL AIRLINES, INC.
DEFERRED COMPENSATION PLAN
WHEREAS, CONTINENTAL AIRLINES, INC. (the "Company") has
heretofore adopted the CONTINENTAL AIRLINES, INC. DEFERRED
COMPENSATION PLAN (the "Plan") for the benefit of certain of its
employees and directors and certain employees of its adopting
subsidiaries; and
WHEREAS, the Company desires to amend the Plan in certain
respects;
NOW, THEREFORE, the Plan shall be amended as follows,
effective as of January 1, 1999:
1. The following shall be added to the end of Section 6.3(a)
of the Plan:
"Notwithstanding the preceding provisions of this Section
6.3(a), a Member shall not be entitled to a withdrawal
under this Section 6.3(a) if the Committee determines, in
its sole discretion, that the primary purpose of such
withdrawal is the cessation of Compensation deferrals
under the Plan. The Committee shall consider such
factors as it deems appropriate in order to make a
determination pursuant to the preceding sentence,
including, without limitation, the amount of the
requested withdrawal, the balance in the Member's
Account, the Member's Compensation deferral election then
in effect, and the timing of such withdrawal request."
2. As amended hereby, the Plan is specifically ratified and
reaffirmed.
IN WITNESS WHEREOF, the undersigned officer of the Company
acting pursuant to authority granted to him by the Human Resources
Committee of the Company's Board of Directors has executed this
instrument on this 18th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By:/s/ Jeffery A. Smisek
Jeffery A. Smisek
Executive Vice President
EXHIBIT 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Gordon M. Bethune ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 20,
1998 (the "Existing Agreement"); and
WHEREAS, the Board of Directors of the Company, and the Human
Resources Committee of the Board of Directors of the Company, by
resolutions duly adopted on May 18, 1999, have authorized the
execution and delivery of this Amendment; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4.7(iii) of the Existing Agreement (the
definition of "Flight Benefits") is hereby amended to
read in its entirety as follows:
""Flight Benefits" shall mean flight benefits on each
airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family
members (as such eligibility is in effect on May 18,
1999), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a
similar charge card permitting the purchase of air travel
through direct billing to the Company or any successor or
successors thereto (a "Similar Card")) in Executive's
name for charging on an annual basis up to the applicable
Annual Travel Limit (as hereinafter defined) with respect
to such year in value (valued identically to the
calculation of imputed income resulting from such flight
benefits described below) of flights (in any fare class)
on the CO system for Executive, Executive's spouse,
Executive's family and significant others as determined
by Executive, a Platinum Elite OnePass Card (or similar
highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership
for Executive and Executive's spouse in the Company's
President's Club (or any successor program maintained in
the CO system) and payment by the Company to Executive of
an annual amount (not to exceed in any year the
applicable Annual Gross Up Limit (as hereinafter defined)
with respect to such year) sufficient to pay, on an after
tax basis (i.e., after the payment by Executive of all
taxes on such amount), the U.S. federal, state and local
income taxes on imputed income resulting from such
flights (such imputed income to be calculated during the
term of such Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless
of the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight
benefits extended to Executive as a result of Executive's
service as an executive of the Company;"
2. The last paragraph of Section 4.7 (Certain Definitions
and Additional Terms), which immediately follows the last
numbered subsection of Section 4.7, is hereby deleted and
replaced in its entirety as follows:
"As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Travel Limit" shall mean an
amount (initially $50,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Company's average fare per revenue
passenger for its jet operations (excluding regional
jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported,
as determined by the Company's independent auditors) (the
"Average Fare") for such year, and the denominator of
which shall be the Average Fare for the prior year, (ii)
annually to add thereto any portion of such amount unused
since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed
income from flights (as compared with the valuation
methodology for imputed income from flights used by the
Company as of May 18, 1999), so as to preserve the
benefit of $50,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of flights relative to the
valuations resulting from the valuation methodology used
by the Company as of May 18, 1999 (e.g., if a change in
the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that
would result using the valuation methodology used by the
Company as of May 18, 1999, then the Annual Travel Limit
would be increased by 15% to $57,500, assuming no other
adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii)
above, the Company shall be entitled to rely on a good
faith calculation performed by its independent auditors
based on a statistically significant random sampling of
flight valuations compared with the applicable prior
valuations of identical flights, which calculation (and
the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request.
The Company will promptly notify Executive in writing of
any adjustments to the Annual Travel Limit described in
this paragraph.
As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Gross Up Limit" shall mean an
amount (initially $10,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Average Fare for such year, and the
denominator of which shall be the Average Fare for the
prior year, (ii) annually to add thereto any portion of
such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above,
automatically upon any change in the valuation
methodology for imputed income from flights (as compared
with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to
preserve the benefit of $10,000 annually (adjusted in
accordance with clauses (i) and (ii) above) of tax gross
up relative to the valuations resulting from the
valuation methodology used by the Company as of May 18,
1999 (e.g., if a change in the valuation methodology
results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then
the Annual Gross Up Limit would be increased by 15% to
$11,500, assuming no other adjustments pursuant to
clauses (i) and (ii) above). In determining any
adjustment pursuant to clause (iii) above, the Company
shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a
statistically significant random sampling of flight
valuations compared with the applicable prior valuations
of identical flights, which calculation (and the basis
for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any
adjustments to the Annual Gross Up Limit described in
this paragraph.
As used for purposes of Flight Benefits, a year may
consist of twelve consecutive months other than a
calendar year, it being the Company's practice as of May
18, 1999 for purposes of Flight Benefits for a year to
commence on December 1 and end on the following November
30 (for example, the twelve-month period from December 1,
1998 to November 30, 1999 is considered the year 1999 for
purposes of Flight Benefits); provided that all
calculations for purposes of clause (i) in the prior two
paragraphs shall be with respect to fiscal years of the
Company.
As used for purposes of Flight Benefits, the term
"affiliates" of the Company means any entity controlled
by, controlling, or under common control with the
Company, it being understood that control of an entity
shall require the direct or indirect ownership of a
majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from
the Company or its successor or successors (i.e., no
travel agent or other fee or commission based distributor
may be used), nor may any such tickets be sold or
transferred by Executive or any other person, nor may any
such tickets be used by any person other than the person
in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting
statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other
accounting statement) reimburse the Company for all
charges on his UATP card (or Similar Card) which are not
for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of
paragraph 3.7(ii) hereof, or which are for tickets in
excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's
UATP card (or Similar Card) may be suspended if Executive
does not timely reimburse the Company as described in the
foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of
Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning
the next following year and after such reimbursement),
the credit availability under Executive's UATP card (or
Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be
the imputed income with respect to flights on the CO
system charged on Executive's UATP card (or Similar
Card), calculated throughout the term of Executive's
Flight Benefits at the lowest published fare (i.e., 21
day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for
the applicable itinerary (or similar flights on or around
the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law,
and reported to Executive as required by applicable law.
With respect to any period for which the Company is
obligated to provide the tax gross up described above,
Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax
rate sufficient to permit the Company to calculate
accurately the amount to be paid to Executive.
Executive will be issued a UATP card (or Similar Card),
a Platinum Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership
card in the Company's Presidents Club (or any successor
program maintained in the CO system) for Executive and
Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the
term of Executive's Flight Benefits."
3. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full
force and effect in accordance with its terms.
*******
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 19th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Jeffery A. Smisek
Executive Vice President
EXECUTIVE
_________________________________
Gordon M. Bethune
EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Gregory D. Brenneman ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 20,
1998 (the "Existing Agreement"); and
WHEREAS, the Board of Directors of the Company, and the Human
Resources Committee of the Board of Directors of the Company, by
resolutions duly adopted on May 18, 1999, have authorized the
execution and delivery of this Amendment; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4.7(iii) of the Existing Agreement (the
definition of "Flight Benefits") is hereby amended to
read in its entirety as follows:
""Flight Benefits" shall mean flight benefits on each
airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family
members (as such eligibility is in effect on May 18,
1999), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a
similar charge card permitting the purchase of air travel
through direct billing to the Company or any successor or
successors thereto (a "Similar Card")) in Executive's
name for charging on an annual basis up to the applicable
Annual Travel Limit (as hereinafter defined) with respect
to such year in value (valued identically to the
calculation of imputed income resulting from such flight
benefits described below) of flights (in any fare class)
on the CO system for Executive, Executive's spouse,
Executive's family and significant others as determined
by Executive, a Platinum Elite OnePass Card (or similar
highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership
for Executive and Executive's spouse in the Company's
President's Club (or any successor program maintained in
the CO system) and payment by the Company to Executive of
an annual amount (not to exceed in any year the
applicable Annual Gross Up Limit (as hereinafter defined)
with respect to such year) sufficient to pay, on an after
tax basis (i.e., after the payment by Executive of all
taxes on such amount), the U.S. federal, state and local
income taxes on imputed income resulting from such
flights (such imputed income to be calculated during the
term of such Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless
of the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight
benefits extended to Executive as a result of Executive's
service as an executive of the Company;"
2. The last paragraph of Section 4.7 (Certain Definitions
and Additional Terms), which immediately follows the last
numbered subsection of Section 4.7, is hereby deleted and
replaced in its entirety as follows:
"As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Travel Limit" shall mean an
amount (initially $50,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Company's average fare per revenue
passenger for its jet operations (excluding regional
jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported,
as determined by the Company's independent auditors) (the
"Average Fare") for such year, and the denominator of
which shall be the Average Fare for the prior year, (ii)
annually to add thereto any portion of such amount unused
since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed
income from flights (as compared with the valuation
methodology for imputed income from flights used by the
Company as of May 18, 1999), so as to preserve the
benefit of $50,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of flights relative to the
valuations resulting from the valuation methodology used
by the Company as of May 18, 1999 (e.g., if a change in
the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that
would result using the valuation methodology used by the
Company as of May 18, 1999, then the Annual Travel Limit
would be increased by 15% to $57,500, assuming no other
adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii)
above, the Company shall be entitled to rely on a good
faith calculation performed by its independent auditors
based on a statistically significant random sampling of
flight valuations compared with the applicable prior
valuations of identical flights, which calculation (and
the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request.
The Company will promptly notify Executive in writing of
any adjustments to the Annual Travel Limit described in
this paragraph.
As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Gross Up Limit" shall mean an
amount (initially $10,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Average Fare for such year, and the
denominator of which shall be the Average Fare for the
prior year, (ii) annually to add thereto any portion of
such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above,
automatically upon any change in the valuation
methodology for imputed income from flights (as compared
with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to
preserve the benefit of $10,000 annually (adjusted in
accordance with clauses (i) and (ii) above) of tax gross
up relative to the valuations resulting from the
valuation methodology used by the Company as of May 18,
1999 (e.g., if a change in the valuation methodology
results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then
the Annual Gross Up Limit would be increased by 15% to
$11,500, assuming no other adjustments pursuant to
clauses (i) and (ii) above). In determining any
adjustment pursuant to clause (iii) above, the Company
shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a
statistically significant random sampling of flight
valuations compared with the applicable prior valuations
of identical flights, which calculation (and the basis
for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any
adjustments to the Annual Gross Up Limit described in
this paragraph.
As used for purposes of Flight Benefits, a year may
consist of twelve consecutive months other than a
calendar year, it being the Company's practice as of May
18, 1999 for purposes of Flight Benefits for a year to
commence on December 1 and end on the following November
30 (for example, the twelve-month period from December 1,
1998 to November 30, 1999 is considered the year 1999 for
purposes of Flight Benefits); provided that all
calculations for purposes of clause (i) in the prior two
paragraphs shall be with respect to fiscal years of the
Company.
As used for purposes of Flight Benefits, the term
"affiliates" of the Company means any entity controlled
by, controlling, or under common control with the
Company, it being understood that control of an entity
shall require the direct or indirect ownership of a
majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from
the Company or its successor or successors (i.e., no
travel agent or other fee or commission based distributor
may be used), nor may any such tickets be sold or
transferred by Executive or any other person, nor may any
such tickets be used by any person other than the person
in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting
statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other
accounting statement) reimburse the Company for all
charges on his UATP card (or Similar Card) which are not
for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of
paragraph 3.7(ii) hereof, or which are for tickets in
excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's
UATP card (or Similar Card) may be suspended if Executive
does not timely reimburse the Company as described in the
foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of
Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning
the next following year and after such reimbursement),
the credit availability under Executive's UATP card (or
Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be
the imputed income with respect to flights on the CO
system charged on Executive's UATP card (or Similar
Card), calculated throughout the term of Executive's
Flight Benefits at the lowest published fare (i.e., 21
day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for
the applicable itinerary (or similar flights on or around
the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law,
and reported to Executive as required by applicable law.
With respect to any period for which the Company is
obligated to provide the tax gross up described above,
Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax
rate sufficient to permit the Company to calculate
accurately the amount to be paid to Executive.
Executive will be issued a UATP card (or Similar Card),
a Platinum Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership
card in the Company's Presidents Club (or any successor
program maintained in the CO system) for Executive and
Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the
term of Executive's Flight Benefits."
3. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full
force and effect in accordance with its terms.
*******
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 19th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Jeffery A. Smisek
Executive Vice President
EXECUTIVE
_________________________________
Gregory D. Brenneman
EXHIBIT 10.4
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Lawrence W. Kellner ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, and Amendment to Employment Agreement dated as
of November 20, 1998 (as so amended, the "Existing Agreement"); and
WHEREAS, the Board of Directors of the Company, and the Human
Resources Committee of the Board of Directors of the Company, by
resolutions duly adopted on May 18, 1999, have authorized the
execution and delivery of this Amendment; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4.7(iv) of the Existing Agreement (the definition
of "Flight Benefits") is hereby amended to read in its
entirety as follows:
""Flight Benefits" shall mean flight benefits on each
airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family
members (as such eligibility is in effect on May 18,
1999), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a
similar charge card permitting the purchase of air travel
through direct billing to the Company or any successor or
successors thereto (a "Similar Card")) in Executive's
name for charging on an annual basis up to the applicable
Annual Travel Limit (as hereinafter defined) with respect
to such year in value (valued identically to the
calculation of imputed income resulting from such flight
benefits described below) of flights (in any fare class)
on the CO system for Executive, Executive's spouse,
Executive's family and significant others as determined
by Executive, a Platinum Elite OnePass Card (or similar
highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership
for Executive and Executive's spouse in the Company's
President's Club (or any successor program maintained in
the CO system) and payment by the Company to Executive of
an annual amount (not to exceed in any year the
applicable Annual Gross Up Limit (as hereinafter defined)
with respect to such year) sufficient to pay, on an after
tax basis (i.e., after the payment by Executive of all
taxes on such amount), the U.S. federal, state and local
income taxes on imputed income resulting from such
flights (such imputed income to be calculated during the
term of such Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless
of the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight
benefits extended to Executive as a result of Executive's
service as an executive of the Company;"
2. The last paragraph of Section 4.7 (Certain Definitions
and Additional Terms), which immediately follows the last
numbered subsection of Section 4.7, is hereby deleted and
replaced in its entirety as follows:
"As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Travel Limit" shall mean an
amount (initially $50,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Company's average fare per revenue
passenger for its jet operations (excluding regional
jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported,
as determined by the Company's independent auditors) (the
"Average Fare") for such year, and the denominator of
which shall be the Average Fare for the prior year, (ii)
annually to add thereto any portion of such amount unused
since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed
income from flights (as compared with the valuation
methodology for imputed income from flights used by the
Company as of May 18, 1999), so as to preserve the
benefit of $50,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of flights relative to the
valuations resulting from the valuation methodology used
by the Company as of May 18, 1999 (e.g., if a change in
the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that
would result using the valuation methodology used by the
Company as of May 18, 1999, then the Annual Travel Limit
would be increased by 15% to $57,500, assuming no other
adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii)
above, the Company shall be entitled to rely on a good
faith calculation performed by its independent auditors
based on a statistically significant random sampling of
flight valuations compared with the applicable prior
valuations of identical flights, which calculation (and
the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request.
The Company will promptly notify Executive in writing of
any adjustments to the Annual Travel Limit described in
this paragraph.
As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Gross Up Limit" shall mean an
amount (initially $10,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Average Fare for such year, and the
denominator of which shall be the Average Fare for the
prior year, (ii) annually to add thereto any portion of
such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above,
automatically upon any change in the valuation
methodology for imputed income from flights (as compared
with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to
preserve the benefit of $10,000 annually (adjusted in
accordance with clauses (i) and (ii) above) of tax gross
up relative to the valuations resulting from the
valuation methodology used by the Company as of May 18,
1999 (e.g., if a change in the valuation methodology
results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then
the Annual Gross Up Limit would be increased by 15% to
$11,500, assuming no other adjustments pursuant to
clauses (i) and (ii) above). In determining any
adjustment pursuant to clause (iii) above, the Company
shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a
statistically significant random sampling of flight
valuations compared with the applicable prior valuations
of identical flights, which calculation (and the basis
for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any
adjustments to the Annual Gross Up Limit described in
this paragraph.
As used for purposes of Flight Benefits, a year may
consist of twelve consecutive months other than a
calendar year, it being the Company's practice as of May
18, 1999 for purposes of Flight Benefits for a year to
commence on December 1 and end on the following November
30 (for example, the twelve-month period from December 1,
1998 to November 30, 1999 is considered the year 1999 for
purposes of Flight Benefits); provided that all
calculations for purposes of clause (i) in the prior two
paragraphs shall be with respect to fiscal years of the
Company.
As used for purposes of Flight Benefits, the term
"affiliates" of the Company means any entity controlled
by, controlling, or under common control with the
Company, it being understood that control of an entity
shall require the direct or indirect ownership of a
majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from
the Company or its successor or successors (i.e., no
travel agent or other fee or commission based distributor
may be used), nor may any such tickets be sold or
transferred by Executive or any other person, nor may any
such tickets be used by any person other than the person
in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting
statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other
accounting statement) reimburse the Company for all
charges on his UATP card (or Similar Card) which are not
for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in
excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's
UATP card (or Similar Card) may be suspended if Executive
does not timely reimburse the Company as described in the
foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of
Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning
the next following year and after such reimbursement),
the credit availability under Executive's UATP card (or
Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be
the imputed income with respect to flights on the CO
system charged on Executive's UATP card (or Similar
Card), calculated throughout the term of Executive's
Flight Benefits at the lowest published fare (i.e., 21
day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for
the applicable itinerary (or similar flights on or around
the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law,
and reported to Executive as required by applicable law.
With respect to any period for which the Company is
obligated to provide the tax gross up described above,
Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax
rate sufficient to permit the Company to calculate
accurately the amount to be paid to Executive.
Executive will be issued a UATP card (or Similar Card),
a Platinum Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership
card in the Company's Presidents Club (or any successor
program maintained in the CO system) for Executive and
Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the
term of Executive's Flight Benefits."
3. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 19th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Jeffery A. Smisek
Executive Vice President
EXECUTIVE
_________________________________
Lawrence W. Kellner
EXHIBIT 10.5
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and C.D. McLean ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, and Amendment to Employment Agreement dated as
of November 20, 1998 (as so amended, the "Existing Agreement"); and
WHEREAS, the Board of Directors of the Company, and the Human
Resources Committee of the Board of Directors of the Company, by
resolutions duly adopted on May 18, 1999, have authorized the
execution and delivery of this Amendment; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4.7(iv) of the Existing Agreement (the definition
of "Flight Benefits") is hereby amended to read in its
entirety as follows:
""Flight Benefits" shall mean flight benefits on each
airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family
members (as such eligibility is in effect on May 18,
1999), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a
similar charge card permitting the purchase of air travel
through direct billing to the Company or any successor or
successors thereto (a "Similar Card")) in Executive's
name for charging on an annual basis up to the applicable
Annual Travel Limit (as hereinafter defined) with respect
to such year in value (valued identically to the
calculation of imputed income resulting from such flight
benefits described below) of flights (in any fare class)
on the CO system for Executive, Executive's spouse,
Executive's family and significant others as determined
by Executive, a Platinum Elite OnePass Card (or similar
highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership
for Executive and Executive's spouse in the Company's
President's Club (or any successor program maintained in
the CO system) and payment by the Company to Executive of
an annual amount (not to exceed in any year the
applicable Annual Gross Up Limit (as hereinafter defined)
with respect to such year) sufficient to pay, on an after
tax basis (i.e., after the payment by Executive of all
taxes on such amount), the U.S. federal, state and local
income taxes on imputed income resulting from such
flights (such imputed income to be calculated during the
term of such Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless
of the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight
benefits extended to Executive as a result of Executive's
service as an executive of the Company;"
2. The last paragraph of Section 4.7 (Certain Definitions
and Additional Terms), which immediately follows the last
numbered subsection of Section 4.7, is hereby deleted and
replaced in its entirety as follows:
"As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Travel Limit" shall mean an
amount (initially $50,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Company's average fare per revenue
passenger for its jet operations (excluding regional
jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported,
as determined by the Company's independent auditors) (the
"Average Fare") for such year, and the denominator of
which shall be the Average Fare for the prior year, (ii)
annually to add thereto any portion of such amount unused
since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed
income from flights (as compared with the valuation
methodology for imputed income from flights used by the
Company as of May 18, 1999), so as to preserve the
benefit of $50,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of flights relative to the
valuations resulting from the valuation methodology used
by the Company as of May 18, 1999 (e.g., if a change in
the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that
would result using the valuation methodology used by the
Company as of May 18, 1999, then the Annual Travel Limit
would be increased by 15% to $57,500, assuming no other
adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii)
above, the Company shall be entitled to rely on a good
faith calculation performed by its independent auditors
based on a statistically significant random sampling of
flight valuations compared with the applicable prior
valuations of identical flights, which calculation (and
the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request.
The Company will promptly notify Executive in writing of
any adjustments to the Annual Travel Limit described in
this paragraph.
As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Gross Up Limit" shall mean an
amount (initially $10,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Average Fare for such year, and the
denominator of which shall be the Average Fare for the
prior year, (ii) annually to add thereto any portion of
such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above,
automatically upon any change in the valuation
methodology for imputed income from flights (as compared
with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to
preserve the benefit of $10,000 annually (adjusted in
accordance with clauses (i) and (ii) above) of tax gross
up relative to the valuations resulting from the
valuation methodology used by the Company as of May 18,
1999 (e.g., if a change in the valuation methodology
results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then
the Annual Gross Up Limit would be increased by 15% to
$11,500, assuming no other adjustments pursuant to
clauses (i) and (ii) above). In determining any
adjustment pursuant to clause (iii) above, the Company
shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a
statistically significant random sampling of flight
valuations compared with the applicable prior valuations
of identical flights, which calculation (and the basis
for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any
adjustments to the Annual Gross Up Limit described in
this paragraph.
As used for purposes of Flight Benefits, a year may
consist of twelve consecutive months other than a
calendar year, it being the Company's practice as of May
18, 1999 for purposes of Flight Benefits for a year to
commence on December 1 and end on the following November
30 (for example, the twelve-month period from December 1,
1998 to November 30, 1999 is considered the year 1999 for
purposes of Flight Benefits); provided that all
calculations for purposes of clause (i) in the prior two
paragraphs shall be with respect to fiscal years of the
Company.
As used for purposes of Flight Benefits, the term
"affiliates" of the Company means any entity controlled
by, controlling, or under common control with the
Company, it being understood that control of an entity
shall require the direct or indirect ownership of a
majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from
the Company or its successor or successors (i.e., no
travel agent or other fee or commission based distributor
may be used), nor may any such tickets be sold or
transferred by Executive or any other person, nor may any
such tickets be used by any person other than the person
in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting
statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other
accounting statement) reimburse the Company for all
charges on his UATP card (or Similar Card) which are not
for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in
excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's
UATP card (or Similar Card) may be suspended if Executive
does not timely reimburse the Company as described in the
foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of
Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning
the next following year and after such reimbursement),
the credit availability under Executive's UATP card (or
Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be
the imputed income with respect to flights on the CO
system charged on Executive's UATP card (or Similar
Card), calculated throughout the term of Executive's
Flight Benefits at the lowest published fare (i.e., 21
day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for
the applicable itinerary (or similar flights on or around
the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law,
and reported to Executive as required by applicable law.
With respect to any period for which the Company is
obligated to provide the tax gross up described above,
Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax
rate sufficient to permit the Company to calculate
accurately the amount to be paid to Executive.
Executive will be issued a UATP card (or Similar Card),
a Platinum Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership
card in the Company's Presidents Club (or any successor
program maintained in the CO system) for Executive and
Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the
term of Executive's Flight Benefits."
3. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 19th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Jeffery A. Smisek
Executive Vice President
EXECUTIVE
_________________________________
C.D. McLean
EXHIBIT 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Jeffery A. Smisek ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996, Amendment to Employment Agreement dated as of
September 30, 1996, and Amendment to Employment Agreement dated as
of November 20, 1998 (as so amended, the "Existing Agreement"); and
WHEREAS, the Board of Directors of the Company, and the Human
Resources Committee of the Board of Directors of the Company, by
resolutions duly adopted on May 18, 1999, have authorized the
execution and delivery of this Amendment; and
WHEREAS, Company and Executive desire to amend the Existing
Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 4.7(iv) of the Existing Agreement (the definition
of "Flight Benefits") is hereby amended to read in its
entirety as follows:
""Flight Benefits" shall mean flight benefits on each
airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and Executive's eligible family
members (as such eligibility is in effect on May 18,
1999), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a
similar charge card permitting the purchase of air travel
through direct billing to the Company or any successor or
successors thereto (a "Similar Card")) in Executive's
name for charging on an annual basis up to the applicable
Annual Travel Limit (as hereinafter defined) with respect
to such year in value (valued identically to the
calculation of imputed income resulting from such flight
benefits described below) of flights (in any fare class)
on the CO system for Executive, Executive's spouse,
Executive's family and significant others as determined
by Executive, a Platinum Elite OnePass Card (or similar
highest category successor frequent flyer card) in
Executive's name for use on the CO system, a membership
for Executive and Executive's spouse in the Company's
President's Club (or any successor program maintained in
the CO system) and payment by the Company to Executive of
an annual amount (not to exceed in any year the
applicable Annual Gross Up Limit (as hereinafter defined)
with respect to such year) sufficient to pay, on an after
tax basis (i.e., after the payment by Executive of all
taxes on such amount), the U.S. federal, state and local
income taxes on imputed income resulting from such
flights (such imputed income to be calculated during the
term of such Flight Benefits at the lowest published fare
(i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare, or other lowest
available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless
of the actual fare class booked or flown, or as otherwise
required by law) or resulting from any other flight
benefits extended to Executive as a result of Executive's
service as an executive of the Company;"
2. The last paragraph of Section 4.7 (Certain Definitions
and Additional Terms), which immediately follows the last
numbered subsection of Section 4.7, is hereby deleted and
replaced in its entirety as follows:
"As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Travel Limit" shall mean an
amount (initially $50,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Company's average fare per revenue
passenger for its jet operations (excluding regional
jets) with respect to the applicable year as reported in
its Annual Report on Form 10-K (or, if not so reported,
as determined by the Company's independent auditors) (the
"Average Fare") for such year, and the denominator of
which shall be the Average Fare for the prior year, (ii)
annually to add thereto any portion of such amount unused
since the year 1999, and (iii) after adjustments
described in clauses (i) and (ii) above, automatically
upon any change in the valuation methodology for imputed
income from flights (as compared with the valuation
methodology for imputed income from flights used by the
Company as of May 18, 1999), so as to preserve the
benefit of $50,000 annually (adjusted in accordance with
clauses (i) and (ii) above) of flights relative to the
valuations resulting from the valuation methodology used
by the Company as of May 18, 1999 (e.g., if a change in
the valuation methodology results, on average, in such
flights being valued 15% higher than the valuation that
would result using the valuation methodology used by the
Company as of May 18, 1999, then the Annual Travel Limit
would be increased by 15% to $57,500, assuming no other
adjustments pursuant to clauses (i) and (ii) above). In
determining any adjustment pursuant to clause (iii)
above, the Company shall be entitled to rely on a good
faith calculation performed by its independent auditors
based on a statistically significant random sampling of
flight valuations compared with the applicable prior
valuations of identical flights, which calculation (and
the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request.
The Company will promptly notify Executive in writing of
any adjustments to the Annual Travel Limit described in
this paragraph.
As used for purposes of Flight Benefits, with respect to
any year, the term "Annual Gross Up Limit" shall mean an
amount (initially $10,000), which amount shall be
adjusted (i) annually (beginning with the year 2000) by
multiplying such amount by a fraction, the numerator of
which shall be the Average Fare for such year, and the
denominator of which shall be the Average Fare for the
prior year, (ii) annually to add thereto any portion of
such amount unused since the year 1999, and (iii) after
adjustments described in clauses (i) and (ii) above,
automatically upon any change in the valuation
methodology for imputed income from flights (as compared
with the valuation methodology for imputed income from
flights used by the Company as of May 18, 1999), so as to
preserve the benefit of $10,000 annually (adjusted in
accordance with clauses (i) and (ii) above) of tax gross
up relative to the valuations resulting from the
valuation methodology used by the Company as of May 18,
1999 (e.g., if a change in the valuation methodology
results, on average, in flights being valued 15% higher
than the valuation that would result using the valuation
methodology used by the Company as of May 18, 1999, then
the Annual Gross Up Limit would be increased by 15% to
$11,500, assuming no other adjustments pursuant to
clauses (i) and (ii) above). In determining any
adjustment pursuant to clause (iii) above, the Company
shall be entitled to rely on a good faith calculation
performed by its independent auditors based on a
statistically significant random sampling of flight
valuations compared with the applicable prior valuations
of identical flights, which calculation (and the basis
for any adjustments pursuant to clauses (i) or (ii)
above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any
adjustments to the Annual Gross Up Limit described in
this paragraph.
As used for purposes of Flight Benefits, a year may
consist of twelve consecutive months other than a
calendar year, it being the Company's practice as of May
18, 1999 for purposes of Flight Benefits for a year to
commence on December 1 and end on the following November
30 (for example, the twelve-month period from December 1,
1998 to November 30, 1999 is considered the year 1999 for
purposes of Flight Benefits); provided that all
calculations for purposes of clause (i) in the prior two
paragraphs shall be with respect to fiscal years of the
Company.
As used for purposes of Flight Benefits, the term
"affiliates" of the Company means any entity controlled
by, controlling, or under common control with the
Company, it being understood that control of an entity
shall require the direct or indirect ownership of a
majority of the outstanding capital stock of such entity.
No tickets issued on the CO system in connection with the
Flight Benefits may be purchased other than directly from
the Company or its successor or successors (i.e., no
travel agent or other fee or commission based distributor
may be used), nor may any such tickets be sold or
transferred by Executive or any other person, nor may any
such tickets be used by any person other than the person
in whose name the ticket is issued. Executive agrees
that, after receipt of an invoice or other accounting
statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other
accounting statement) reimburse the Company for all
charges on his UATP card (or Similar Card) which are not
for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of
paragraph 3.4(i) hereof, or which are for tickets in
excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's
UATP card (or Similar Card) may be suspended if Executive
does not timely reimburse the Company as described in the
foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided,
that, immediately upon the Company's receipt of
Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning
the next following year and after such reimbursement),
the credit availability under Executive's UATP card (or
Similar Card) will be restored.
The sole cost to Executive of flights on the CO system
pursuant to use of Executive's Flight Benefits will be
the imputed income with respect to flights on the CO
system charged on Executive's UATP card (or Similar
Card), calculated throughout the term of Executive's
Flight Benefits at the lowest published fare (i.e., 21
day advance purchase coach fare, lowest negotiated
consolidator net fare or other lowest available fare) for
the applicable itinerary (or similar flights on or around
the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law,
and reported to Executive as required by applicable law.
With respect to any period for which the Company is
obligated to provide the tax gross up described above,
Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax
rate sufficient to permit the Company to calculate
accurately the amount to be paid to Executive.
Executive will be issued a UATP card (or Similar Card),
a Platinum Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership
card in the Company's Presidents Club (or any successor
program maintained in the CO system) for Executive and
Executive's spouse, and an appropriate flight pass
identification card, each valid at all times during the
term of Executive's Flight Benefits."
3. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 19th day of May, 1999.
CONTINENTAL AIRLINES, INC.
By: ____________________________
Gordon M. Bethune
Chief Executive Officer
EXECUTIVE
_________________________________
Jeffery A. Smisek
EXHIBIT 10.7
Supplemental Agreement No. 11
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
May 14, 1999, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] as described in Paragraph 3 of Letter
Agreement 6-1162-GOC-131R2; and
WHEREAS, Buyer has requested [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and
WHEREAS, Buyer has requested [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed that the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] as described in Paragraph 3 of Letter
Agreement 6-1162-GOC-131R2; and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 11.
1.2 Remove and replace, in its entirely, page T-2 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-700 Aircraft with new page T-2 attached hereto for the
Model 737-700 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
1.3 Remove and replace, in its entirely, page T-3 of Table
1 entitled "Aircraft Deliveries and Descriptions" that relates to
Model 737-800 Aircraft with new page T-3 attached hereto for the
Model 737-800 Aircraft reflecting the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1951-3R6, "Option Aircraft - Model 737-824 Aircraft" with Letter
Agreement 1951-3R7, "Option Aircraft - Model 737-824 Aircraft",
attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
2.2 Remove and replace, in its entirety, Letter Agreement
1951-9R4, "Option Aircraft - Model 737-724 Aircraft" with Letter
Agreement 1951-9R5, "Option Aircraft - Model 737-724 Aircraft",
attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
The Agreement will be deemed to be supplemented to the extent
herein provided as of the date hereof and as so supplemented will
continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page SA
Number Number
<S> <C> <C> <C>
ARTICLES
1. Subject Matter of Sale . . . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk of Loss . . . . . 2-1
3. Price of Aircraft. . . . . . . . . . . . . 3-1 SA 5
4. Taxes. . . . . . . . . . . . . . . . . . . 4-1
5. Payment. . . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay. . . . . . . . . . . . . . 6-1
7. Changes to the Detail Specification. . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License. . . . . . 8-1 SA 5
9. Representatives, Inspection, Flights and
Test Data. . . . . . . . . . . . . . . . . 9-1
10. Assignment, Resale or Lease. . . . . . . . 10-1
11. Termination for Certain Events . . . . . . 11-1
12. Product Assurance; Disclaimer and Release;
Exclusion of Liabilities; Customer Support;
Indemnification and Insurance. . . . . . . 12-1
13. Buyer Furnished Equipment and Spare Parts. 13-1
14. Contractual Notices and Requests . . . . . 14-1
15. Miscellaneous. . . . . . . . . . . . . . . 15-1
</TABLE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page SA
Number Number
<S> <C> <C>
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500 . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700 . . . . . . . . T-2 SA 11
Aircraft Deliveries and
Descriptions - 737-800 . . . . . . . . T-3 SA 11
Aircraft Deliveries and
Descriptions - 737-600 . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900 . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724 SA 2
A-2 Aircraft Configuration - Model 737-824 SA 2
A-3 Aircraft Configuration - Model 737-624 SA 1
A-4 Aircraft Configuration - Model 737-524 SA 3
A-5 Aircraft Configuration - Model 737-924 SA 5
B Product Assurance Document . . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences. . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences. . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price). SA 1
D1 Airframe and Engine Price Adjustments - Current
Generation Aircraft. . . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price). SA 5
E Buyer Furnished Equipment
Provisions Document. . . . . . . . . . SA 5
F Defined Terms Document . . . . . . . . SA 5
</TABLE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
SA
Number
LETTER AGREEMENTS
<S> <C> <C>
1951-1 Not Used . . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment . . . . . . . SA 5
1951-3R7 Option Aircraft-Model 737-824 Aircraft . SA 11
1951-4R1 Waiver of Aircraft Demonstration . . . . SA 1
1951-5R2 Promotional Support - New Generation . . SA 5
Aircraft
1951-6 Configuration Matters. . . . . . . . . .
1951-7R1 Spares Initial Provisioning. . . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft . . . . . . . . . . . . . . . . SA 4
1951-9R5 Option Aircraft-Model 737-724 Aircraft . SA 11
1951-11R1 Escalation Sharing-Current Generation
Aircraft . . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft SA 5
1951-13 Configuration Matters - Model 737-924. . SA 5
</TABLE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
SA
Number
<S> <C>
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft. . . . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft. . . . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . . . . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED . . SA 1
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED . . SA 5
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-MMF-312R1 Special Purchase Agreement
Provisions. . . . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft. . . . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft. . . . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED . . SA 2
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-GOC-131R2 Special Matters. . . . . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft. . . . . . . . . SA 5
6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]SA 8
6-1162-DMH-680 Delivery Delay Resolution Program. SA 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . . . . October 10,1996
Supplemental Agreement No. 2 . . . . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . . . . November 12,1998
Supplemental Agreement No. 8 . . . . . . . . . . December 7,1998
Supplemental Agreement No. 9 . . . . . . . . . . February 18,1999
Supplemental Agreement No. 10. . . . . . . . . . March 19,1999
Supplemental Agreement No. 11. . . . . . . . . . May 14, 1999
<PAGE>
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
1951-3R7
May 14, 1999
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 1951-3R7 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-824 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996(the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737-824
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-3R6 dated March 19,
1999.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model
737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms
and conditions set forth in the Agreement, except as otherwise
described in Attachment A hereto, and subject to the terms and
conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay a
deposit to Boeing of $200,000 for each Option Aircraft (the Option
Deposit) on the date of this Letter Agreement. In the event Buyer
exercises an option herein for an Option Aircraft, the amount of
the Option Deposit for such Option Aircraft will be credited
against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in Article 5 of
the Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before the
first business day of the month in each Option Exercise Date shown
below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the applicable
Option Aircraft to the Agreement as a firm Aircraft (the Option
Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this Letter Agreement, or
in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for any
reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect to
such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been cancelled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney In Fact
ACCEPTED AND AGREED TO this
Date: May 14, 1999
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Model 737-824 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808, Revision E,
dated September 15, 1995, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-800
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above shall
include the effects of such changes upon Option Aircraft weight,
balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft price
(pursuant to Article 3 of the Agreement) of the Option Aircraft
will be adjusted to Boeing's and the engine manufacturer's then-
current prices as of the date of execution of the Option Aircraft
Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe and
special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to signing the
Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price for
items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
<PAGE>
1951-9R5
May 14, 1999
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 1951-9R5 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-724 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996(the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737-724
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-9R4 dated March 19,
1999.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to - thirty-five (35) additional
Model 737-724 Aircraft (the Option Aircraft) to Buyer, on the same
terms and conditions set forth in the Agreement, except as
otherwise described in Attachment A hereto, and subject to the
terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay a
deposit to Boeing of $200,000 for each Option Aircraft (the Option
Deposit) on the date of this Letter Agreement. In the event Buyer
exercises an option herein for an Option Aircraft, the amount of
the Option Deposit for such Option Aircraft will be credited
against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in Article 5 of
the Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before the
first business day of the month in each Option Exercise Date shown
below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the applicable
Option Aircraft to the Agreement as a firm Aircraft (the Option
Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this Letter Agreement, or
in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for any
reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect to
such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been cancelled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: May 14, 1999
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Model 737-724 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808-42, dated as of
January 6, 1997, as amended and revised pursuant to the Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-700
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above shall
include the effects of such changes upon Option Aircraft weight,
balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft price
(pursuant to Article 3 of the Agreement) of the Option Aircraft
will be adjusted to Boeing's and the engine manufacturer's then-
current prices as of the date of execution of the Option Aircraft
Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe and
special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to signing the
Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price for
items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Agreement.
EXHIBIT 10.8
Supplemental Agreement No. 2
to
Purchase Agreement No. 2060
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 767-400ER Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of June
8, 1999, by and between THE BOEING COMPANY, a Delaware corporation
with its principal office in Seattle, Washington, (Boeing) and
CONTINENTAL AIRLINES, INC., a Delaware corporation with its
principal office in Houston, Texas (Customer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 2060 dated October 10, 1997, (the Purchase Agreement) relating
to Boeing Model 767-400ER aircraft, (Aircraft); and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Customer wish to update the Agreement to
reflect the finalized configuration of the Aircraft; and
WHEREAS, Boeing and Customer wish to update the Agreement to
reflect the Installation of Cabin Systems Equipment; and
WHEREAS, Boeing and Customer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents:
Remove and replace, in its entirety, the "Table of Contents",
with the Table of Contents attached hereto, to reflect the changes
made by this Supplemental Agreement No. 2.
<PAGE>
2. Table 1:
Remove and replace, in its entirety, "Table 1, Aircraft
Delivery, Description, Price and Advance Payments" with the revised
"Table 1, Aircraft Delivery, Description, Price and Advance
Payments", attached hereto, to reflect the revised delivery
schedule for the Aircraft and certain other changes.
3. Exhibits:
Exhibit A is deleted in its entirety and the revised Exhibit
A (attached hereto) is substituted in lieu thereof.
4. Letter Agreements:
Add Letter Agreement 6-1162-JMG-165, "Installation of Cabin
Systems Equipment" to incorporate the agreement regarding Cabin
Systems Equipment.
5. Payment of Additional Advance Payments:
Within three (3) business days after execution of this
Supplemental Agreement, Buyer shall transfer to Boeing's account at
Chase Manhattan Bank, New York, N.Y., the sum of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT], which sum represents advance payments then due with
respect the changes to the Advanced Payment Base Price.
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ J. A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President________
<PAGE>
TABLE OF CONTENTS
ARTICLES Revised By:
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table SA No. 2
EXHIBIT
A. Aircraft Configuration SA No. 2
B. Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty and Patent
Indemnity
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
<PAGE>
TABLE OF CONTENTS
LETTER AGREEMENTS Revised By:
2060-1 not used
2060-2 Demonstration Flights
2060-3 Spares Initial Provisioning
2060-4 Flight Crew Training Spares
2060-5 Escalation Sharing
6-1162-JMG-165 Installation of Cabin Systems SA No. 2
Equipment
<PAGE>
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS Revised By:
6-1161-GOC-084 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-GOC-085 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-GOC-086 Special Matters
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 December 18, 1997
Supplemental Agreement No. 2 June 8, 1999
<PAGE>
Table 1
to Purchase Agreement No. 2060
Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Exhibit A to Purchase Agreement Number 2060
<PAGE>
AIRCRAFT CONFIGURATION
Dated June 1999
relating to
BOEING MODEL 767-400ER AIRCRAFT
The Detail Specification is Boeing Detail Specification
D019T001-CAL-64E1 dated as of even date herewith. Such Detail
Specification will be comprised of Boeing Configuration
Specification D019T003, revision A, dated March 13, 1997 as amended
to incorporate the Options listed below, including the effects on
Manufacturer's Empty Weight (MEW) and Operating Empty Weight (OEW).
Such Options are set forth in Boeing Document D019TCR1-CAL-64E1.
As soon as practicable, Boeing will furnish to Buyer copies of the
Detail Specification, which copies will reflect such Options. The
Aircraft Basic Price reflects and includes all effects of such
Options, except such Aircraft Basic Price does not include the
price effects of any Buyer Furnished Equipment or Seller Purchased
Equipment.
<PAGE>
Exhibit A to
Purchase Agreement No. 2060
Page 2
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
June 8, 1999
6-1162-JMG-165
Continental Airlines, Inc.
1600 Smith Street
Houston, TX 77002
Subject: Installation of Cabin Systems Equipment
Reference: Purchase Agreement No. 2060 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-400
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Customer has requested that Boeing install in the Aircraft the
inflight entertainment and cabin communications systems (IFE/CCS)
described in Attachment A to this Letter Agreement.
Because of the complexity of the IFE/CCS, special attention and
additional resources will be required during the development,
integration, certification, and manufacture of the Aircraft to
achieve proper operation of the IFE/CCS at the time of delivery of
the Aircraft. To assist Customer, Boeing will perform the
functions of project manager (the Project Manager) as set forth in
Attachment B, according to the requirement of Attachment C.
1. Responsibilities.
1.1 Customer will:
1.1.1 Provide Customer's IFE/CCS system requirements
to Boeing;
1.1.2 Select the IFE/CCS suppliers (Suppliers) from
among those suppliers identified in the Change Requests listed in
Attachment A to this Letter Agreement as otherwise formally offered
by Boeing.
1.1.3 Promptly after selecting Suppliers, participate
with Boeing in meetings with Suppliers to ensure that Supplier's
functional system specifications meet Customer's and Boeing's
respective requirements. Such functional systems specifications
define functionality to which Boeing will test prior to delivery
but is not a guarantee of functionality at delivery;
1.1.4 Select Supplier part numbers;
1.1.5 Negotiate and obtain agreements on product
assurance, product support following Aircraft delivery (including
spares support), and any other special business arrangements
directly with Suppliers;
1.1.6 Provide pricing information for part numbers
selected above to Boeing by a mutually selected date;
1.1.7 Negotiate and obtain agreements with any
required service providers; and
1.1.8 Include in Customer's contract with any seat
supplier a condition obligating such seat supplier to enter into
and comply with a Boeing approved bonded stores agreement. This
bonded stores agreement will set forth the procedures concerning
the use, handling and storage for the Boeing owned IFE/CCS
equipment during the time such equipment is under the seat
supplier's control.
1.1.9 Authorize Boeing to obtain production IFE/CCS
spares for test and or rejection replacement as follows:
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] overage for in-seat LCD monitors, in-seat
cables, handsets, cord reels, and remote jacks; [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] overage for seat boxes; and, one each of the head-end
equipment. Unused parts will be returned to the Customer with the
aircraft delivery and any parts returned to the supplier for repair
will be returned to the Customer, at no further cost, after
aircraft delivery.
1.2 Boeing will:
1.2.1 Perform the Project Manager functions stated in
Attachment B;
1.2.2 Provide Aircraft interface requirements to
Suppliers;
1.2.3 Assist Suppliers in the development of their
IFE/CCS system specifications and approve such specifications;
1.2.4 Negotiate terms and conditions (except for
price, product assurance, product support following Aircraft
delivery and any other special business arrangements) and enter
into contracts with Suppliers and manage such contracts for the
IFE/CCS;
1.2.5 Coordinate the resolution of technical issues
with Suppliers;
1.2.6 Ensure that at time of Aircraft delivery the
IFE/CCS configuration meets the requirements of the Options
contained in Attachment A to this Letter Agreement as such
Attachment A may be amended from time to time; and
1.2.7 Obtain FAA certification of the Aircraft with
the IFE/CCS installed therein.
2. Software.
IFE/CCS systems may contain software of the following two
types.
2.1 Systems Software. The software required to operate and
certify the IFE/CCS systems on the Aircraft is the Systems Software
and is part of the IFE/CCS.
2.2 Customer's Software. The software accessible to the
Aircraft passengers which controls Customer's specified optional
features is Customer's Software and is not part of the IFE/CCS.
2.2.1 Customer is solely responsible for specifying
Customer's Software functional and performance requirements and
ensuring that Customer's Software meets such requirements.
Customer and Customer's Software supplier will have total
responsibility for the writing, certification, modification,
revision, or correction of any of Customer's Software. Boeing will
not perform the functions and obligations described in paragraph
1.2 above, nor the Project Manager's functions described in
Attachment B, for Customer's Software.
2.2.2 The omission of any Customer's Software or the
lack of any functionality of Customer's Software will not be a
valid condition for Customer's rejection of the Aircraft at the
time of Aircraft delivery.
2.2.3 Boeing has no obligation to approve any
documentation to support Customer's Software certification. Boeing
will only review and operate Customer's Software if in Boeing's
reasonable opinion such review and operation is necessary to
certify the IFE/CCS system on the Aircraft.
2.2.4 Boeing will not be responsible for obtaining FAA
certification for Customer's Software.
3. Changes.
3.1 After Boeing and Supplier have entered into a contract
for the purchase of the IFE/CCS, changes to such contract may only
be made by Boeing. Any Customer request for changes to the IFE/CCS
specification after the Boeing/Supplier contract has been signed
must be made in writing directly to Boeing. Boeing shall respond
to such request by Customer in a timely manner. If such change is
technically feasible and Boeing has the resources and time to
incorporate such change, then Boeing shall negotiate with the
Supplier to incorporate such change into the contract for the
IFE/CCS. Any Supplier price increase resulting from such a change
will be negotiated between Customer and Supplier.
3.2 Boeing and Customer recognize that the developmental
nature of the IFE/CCS may require changes to the IFE/CCS or the
Aircraft in order to ensure (i) compatibility of the IFE/CCS with
the Aircraft and all other Aircraft systems, and (ii) FAA
certification of the Aircraft with the IFE/CCS installed therein.
In such event Boeing will notify Customer and recommend to Customer
the most practical means for incorporating any such change. If
within 15 days after such notification Customer and Boeing through
negotiations cannot mutually agree on the incorporation of any such
change or alternate course of action, then the remedies available
to Boeing in Paragraph 6 shall apply.
3.3 The incorporation into the Aircraft of any mutually
agreed change to the IFE/CCS may result in Boeing adjusting the
price of the Change Request contained in Attachment A to this
Letter Agreement.
3.4 Boeing's obligation to obtain FAA certification of the
Aircraft with the IFE/CCS installed is limited to the IFE/CCS as
described in Attachment A, as Attachment A may be amended from time
to time.
4. Supplier Defaults.
Boeing shall notify Customer in a timely manner in the event
of a default by a Supplier under the Supplier's contract with
Boeing. Within 15 days of Customer's receipt of such notification,
Boeing and Customer shall agree through negotiations on an
alternative Supplier or other course of action. If Boeing and
Customer are unable to agree on an alternative Supplier or course
of action within such time, the remedies available to Boeing in
Paragraph 6 shall apply.
5. Exhibits B and C to the AGTA.
IFE/CCS is deemed to be BFE for the purposes of Exhibit B,
Customer Support Document, and Exhibit C, the Product Assurance
Document, of the AGTA.
6. Boeing's Remedies.
If Customer does not comply with any of its obligations set
forth herein, Boeing may:
6.1 delay delivery of the Aircraft pursuant to the
provisions of Article 7, Excusable Delay, of the AGTA; or
6.2 deliver the Aircraft without part or all of the IFE/CCS
installed, or with part or all of the IFE/CCS inoperative.
6.3 increase the Aircraft Price by the amount of Boeing's
additional costs attributable to such noncompliance.
7. Advance Payments.
7.1 Estimated Price for the IFE/CCS. An estimated price for
the IFE/CCS purchased by Boeing will be included in the Aircraft
Advance Payment Base Price to establish the advance payments for
each Aircraft. The estimated price for the Boeing purchased
IFE/CCS installed on each Aircraft by Change Requests listed in
Attachment A is [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] U.S. dollars expressed in 1995 dollars.
7.2 Aircraft Price. The Aircraft Price will include the
actual IFE/CCS prices and any associated transportation costs
charged Boeing by Suppliers.
8. Customer's Indemnification of Boeing.
Customer will indemnify and hold harmless Boeing from and
against all claims and liabilities, including costs and expenses
(including attorneys' fees) incident thereto or incident to
successfully establishing the right to indemnification, for injury
to or death of any person or persons, including employees of
Customer but not employees of Boeing, or for loss of or damage to
any property, including Aircraft, arising out of or in any way
connected with any nonconformance or defect in any IFE/CCS, and
whether or not arising in tort or occasioned in whole or in part by
the negligence of Boeing. This indemnity will not apply with
respect to any nonconformance or defect caused solely by Boeing's
installation of the IFE/CCS.
9. Title and Risk of Loss.
Title and risk of loss of IFE/CCS equipment will remain with Boeing
until the Aircraft title is transferred to Customer.
If the foregoing correctly sets forth your understanding of our
agreement with respect to the matters treated above, please
indicate your acceptance and approval below.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: June 8,1999
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
<PAGE>
Attachment A
Cabin Systems Equipment
The following Options describe the items of equipment that
under the terms and conditions of this Letter Agreement are
considered to be IFE/CCS. Final configuration will be based on
Customer acceptance of any or all options listed below.
Option Numbers and Titles
2318A045B85 Cabin Telecommunication - Cabin Telecommunication Unit
- - Matsushita
2331-000614 Passenger Address - Passenger Address (PA) System -
Rockwell Collins - Dual Class
2331A045B16 Passenger Address - Pre-Recorded Announcement And
Boarding Music System M - Matsushita
2332-002405 Video Entertainment - Interactive In-Seat Video System
- - Partial Provisions - Forward Cabin
2332-002406 Video Entertainment - Interactive In-Seat Video System
- - Partial Provisions - Mid Cabin
2332-002408 Video Entertainment - Interactive In-Seat Video System
- - Partial Provisions - Aft. Cabin
2332-002423 Video Entertainment - Overhead Video System - Partial
Provisions - Video Distribution Unit (VDU) Based Systems
2332-002717 Video Entertainment - Passenger Flight Information
System (PFIS) - Airshow 420
2332A045B14 Video Entertainment - In-Seat Video System - Matsushita
- - With Matsushita 16 Channel CD Player
2332A045B83 Video Entertainment - Video Entertainment - Overhead
Video System - Matsushita
2454A237A06 Electrical Power Outlet For Personal Computer -
Installation - Business Class And 8 Rows Of Economy Class Passenger
Seats
<TABLE>
<CAPTION>
Attachment B
Project Manager
<S> <C>
This Attachment B describes the functions that Boeing will perform as Project Manager to
support (i) the development and integration of the IFE/CCS and (ii) the FAA certification of
the IFE/CCS when installed on the Aircraft.
1. Project Management
Boeing will perform the following functions for the IFE/CCS. Boeing will have authority
to make day-to-day management decisions, and decisions on technical details which in Boeing's
reasonable opinion do not significantly affect form, fit, function, cost or aesthetics.
Boeing will be responsible for:
A. Managing the development of all program schedules;
B. Evaluating and approving Supplier's program management and developmental plans;
C. Defining program metrics and status requirements;
D. Scheduling and conducting program status reviews;
E. Scheduling and conducting design and schedule reviews with Customer and Suppliers;
F. Monitoring compliance with schedules;
G. Evaluating and approving any recovery plans or plan revisions which may be
required of either Suppliers or Customer;
H. Leading the development of a joint IFE/CCS project management plan (the Program
Plan) and;
I. Managing the joint development of the System Specification
<PAGE>
2. System Integration
Boeing's performance as Project Manager will include the functions of systems integrator
(Systems Integrator). As Systems Integrator Boeing will perform the following functions:
A. As required, assist Suppliers in defining their system specifications for the
IFE/CCS, approve such specifications and develop an overall system functional
specification;
B. Coordinate Boeing, Customer and Supplier teams to ensure sufficient Supplier and
Supplier sub system testing and an overall cabin system acceptance test are
included in the Program Plan; and
C. Organize and conduct technical coordination meetings with Customer and Suppliers
to review responsibilities, functionality, Aircraft installation requirements and
overall program schedule, direction and progress.
3. Seat Integration
A. Boeing will coordinate the interface requirements between seat suppliers and
Suppliers. Interface requirements are defined in Boeing Document Nos. D6-36230,
"Passenger Seat Design and Installation"; D6-36238, "Passenger Seat Structural
Design and Interface Criteria"; D222W232, "Seat Wiring and Control Requirements";
and D222W013-4, "Seat Assembly Functional Test Plan".
B. The Suppliers will be required to coordinate integration testing and provide seat
assembly functional test procedures for seat electronic parts to seat suppliers
and Boeing, as determined by Boeing.
C. The Suppliers will assist the seat suppliers in the preparation of seat assembly
functional test plans.
</TABLE>
<TABLE>
<CAPTION>
Attachment C
Continental Airlines 767-400
Critical Impact Events
<S> <C> <C> <C>
The Contingency Plan is the alternate course of action which will be implemented if the
critical decision date is not met or other course of action is not agreed to by Boeing and
Buyer. The critical impact events listed below are milestones which must be met by IFE and
BFE Seat Suppliers to achieve the in-sequence installation of the IFE. The Required Due
Dates in such tables are the dates on which Boeing begins to incur disruption costs. The
Critical Decision Dates are the dates after which the critical impact event cannot be
accomplished to maintain the delivery schedule and/or full system testing, certification or
installation. A meeting to discuss a recovery plan cost impact and/or an alternate course
of action will be held within one week of knowledge of delinquency or impending delinquency.
Event Required Critical Contingency Plan
Due Date Decision
Date
Approvable seat dynamic test plan [CONFIDENTIAL MATERIAL Assess out-of -sequence
submitted OMITTED AND FILED charges
SEPARATELY WITH THE
Abuse load test hardware on-dock at SECURITIES AND Assess out-of -sequence
seat supplier EXCHANGE COMMISSION charges
PURSUANT TO A REQUEST
Dynamic test hardware on-dock at FOR CONFIDENTIAL Assess out-of -sequence
seat supplier TREATMENT] charges
Cable routing data from seat Suppliers IFE/Passenger Service
to Boeing and Matsushita System - inoperative at
Delivery
Seat dynamic test conduct Deliver airplane without
seats - installed (zero
passenger) or assess
out-of sequence charges
<PAGE>
Attachment C (continued)
Continental Airlines 767-400
Critical Impact Events
Event Required Critical Contingency Plan
Due Date Decision
Date
Seat abuse load test plan approval [CONFIDENTIAL MATERIAL Assess out-of-sequence
OMITTED AND FILED charges
SEPARATELY WITH THE
Seat abuse load test conduct SECURITIES AND Deliver airplane without
EXCHANGE COMMISSION seats installed (zero
PURSUANT TO A REQUEST passenger) or assess
FOR CONFIDENTIAL out-of sequence charges
TREATMENT]
Seat dynamic test report submittal Assess out-of-sequence
charges
Seat abuse load test report submittal Assess out-of-sequence
charges
IFE production hardware on-dock
at seat supplier
Seats on-dock (complete and in-seat Deliver airplane without
IFE hardware functionality tested) seats installed (zero
at Boeing passenger) or assess
additional out-of-sequence
charges
<PAGE>
Attachment C (continued)
Continental Airlines 767-400
Critical Impact Events
Event Required Critical Contingency Plan
Due Date Decision
Date
VCC structural substantiation plan to [CONFIDENTIAL MATERIAL Assess out-of-sequence
Boeing OMITTED AND FILED charges
SEPARATELY WITH THE
VCC general arrangement drawings to SECURITIES AND Assess out-of-sequence
Boeing EXCHANGE COMMISSION charges
PURSUANT TO A REQUEST
Initial interface loads analysis to FOR CONFIDENTIAL Assess out-of-sequence
Boeing TREATMENT] charges
VCC approvable drawings submitted Assess out-of-sequence
charges
Final interface loads analysis submittal Assess out-of-sequence
charges or no VCC installed
at delivery and IFE
inoperative
VCC stress analysis submittal Assess out-of-sequence
charges or no VCC installed
at delivery and IFE
inoperative
VCC FAI Assess out-of-sequence
charges
VCC on dock at Boeing Assess additional out-of-
sequence charges or deliver
airplane without VCC and IFE
inoperative
</TABLE>
EXHIBIT 10.9
Supplemental Agreement No. 6
to
Purchase Agreement No. 2061
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 777 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of May 14, 1999,
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Customer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 2061 dated October 10, 1997, (the Purchase Agreement) relating
to Boeing Model 777-200IGW aircraft, (the Aircraft); and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]; and
WHEREAS, Boeing and Customer have mutually agreed to
reschedule the delivery of the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] Option Aircraft
to the years [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT];
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents:
Remove and replace, in its entirety, the "Table of Contents",
with the "Table of Contents" attached hereto, to reflect the
changes made by this Supplemental Agreement No. 6.
<PAGE>
2. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement
2061-1R2 "Option Aircraft" with the revised Letter Agreement 2061-
1R3, attached hereto, to reflect [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] and revised
delivery of Option Aircraft.
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
<PAGE>
TABLE OF CONTENTS
ARTICLES Revised By:
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table SA No. 5
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty and Patent
Indemnity
SLP1. Service Life Policy Components
<PAGE>
TABLE OF CONTENTS
LETTER AGREEMENTS Revised By:
2061-1R3 Option Aircraft SA No. 6
2061-2 Demonstration Flights
2061-3 Installation of Cabin Systems Equipment
2061-4 Spares Initial Provisioning
2061-5 Flight Crew Training Spares
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<PAGE>
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS Revised By:
6-1161-GOC-087 Aircraft Performance Guarantees
6-1162-GOC-088 Promotion Support
6-1162-GOC-089R1 Special Matters SA No. 3
6-1162-GOC-172 Additional Matters SA No. 1
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 December 18, 1997
Supplemental Agreement No. 2 July 30, 1998
Supplemental Agreement No. 3 September 25, 1998
Supplemental Agreement No. 4 February 3, 1999
Supplemental Agreement No. 5 March 26, 1999
Supplemental Agreement No. 6 May 14, 1999
<PAGE>
May 14, 1999
2061-1R3
Continental Airlines, Inc.
1600 Smith Street
Houston, TX 77002
Subject: Option Aircraft
Reference: Purchase Agreement No. 2061 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to
Model 777-200IGW aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement. This Letter
Agreement supersedes and replaces in its entirely Letter Agreement
2061-1R2 dated February 3, 1999.
Boeing agrees to manufacture and sell to Customer additional Model
777-200IGW aircraft as Option Aircraft. The delivery months,
number of aircraft, Advance Payment Base Price per aircraft and
advance payment schedule are listed in the Attachment to this
Letter Agreement (the Attachment).
1. Aircraft Description and Changes
1.1 Aircraft Description: The Option Aircraft are described
by the Detail Specification listed in the Attachment.
1.2 Changes: The Detail Specification will be revised to
include:
(i) Changes applicable to the basic Model 777
aircraft which are developed by Boeing between
the date of the Detail Specification and the
signing of the definitive agreement to purchase
the Option Aircraft;
(ii) Changes required to obtain required regulatory
certificates; and
(iii) Changes mutually agreed upon.
2. Price
2.1 The pricing elements of the Option Aircraft are listed
in the Attachment.
2.2 Price Adjustments.
2.2.1 Optional Features. The Optional Features Prices
for the Option Aircraft will be adjusted to Boeing's current prices
as of the date of execution of the definitive agreement for the
Option Aircraft.
2.2.2 Escalation Adjustments. The Airframe Price and
the Optional Features Prices for Option Aircraft delivering before
January 2003, will be escalated on the same basis as the Aircraft.
The engine manufacturer's current escalation provisions, listed in
Exhibit Supplement EE1 to the Purchase Agreement, have been
estimated to the months of scheduled delivery using commercial
forecasts to calculate the Advance Payment Base Price listed in the
Attachment to this Letter Agreement. The engine escalation
provisions will be revised if they are changed by the engine
manufacturer prior to the signing of a definitive agreement for the
Option Aircraft.
2.2.3 Base Price Adjustments. The Airframe Price and
the Engine Price of the Option Aircraft delivering before January,
2003, will be adjusted to Boeing's and the engine manufacturer's
then current prices as of the date of execution of the definitive
agreement for the Option Aircraft.
2.2.4 Prices for Long Lead Time Aircraft. Boeing and
the engine manufacturer have not established prices and escalation
provisions for Model 777-200IGWaircraft and engines for delivery in
the year 2003 and after. When prices and the pricing bases are
established for the Model 777-200IGW aircraft delivering in the
year 2003 and after, the information listed in the Attachment will
be appropriately amended.
3. Payment.
3.1 Customer will pay a deposit to Boeing in the amount
shown in the Attachment for each Option Aircraft (Deposit), on the
date of this Letter Agreement. If Customer exercises an option,
the Deposit will be credited against the first advance payment due.
If Customer does not exercise an option, Boeing will retain the
Deposit for that Option Aircraft.
3.2 Following option exercise, advance payments in the
amounts and at the times listed in the Attachment will be payable
for the Option Aircraft. The remainder of the Aircraft Price for
the Option Aircraft will be paid at the time of delivery.
4. Option Exercise.
Customer may exercise an option by giving written notice to Boeing
on or before the date [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] months prior to the first
business day of the applicable delivery month listed in the
Attachment (Option Exercise Date).
5. Contract Terms.
Boeing and Customer will use their best efforts to reach a
definitive agreement for the purchase of an Option Aircraft,
including the terms and conditions contained in this Letter
Agreement, in the Purchase Agreement, and other terms and
conditions as may be agreed upon to add the Option Aircraft to the
Purchase Agreement as an Aircraft. In the event the parties have
not entered into a definitive agreement within 30 days following
option exercise, either party may terminate the purchase of such
Option Aircraft by giving written notice to the other within 5
days. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: May 14, 1999
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
Attachment
<PAGE>
Attachment to
Letter Agreement 2061-1R3 Option Aircraft Delivery,
Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,259
<SECURITIES> 0
<RECEIVABLES> 496
<ALLOWANCES> 0
<INVENTORY> 207
<CURRENT-ASSETS> 2,371
<PP&E> 3,994
<DEPRECIATION> 919
<TOTAL-ASSETS> 7,943
<CURRENT-LIABILITIES> 2,564
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 1,614
<TOTAL-LIABILITY-AND-EQUITY> 7,943
<SALES> 4,254
<TOTAL-REVENUES> 4,254
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 374
<INCOME-TAX> 147
<INCOME-CONTINUING> 227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 6
<NET-INCOME> 221
<EPS-BASIC> 3.17
<EPS-DILUTED> 2.91
</TABLE>
