<PAGE> 1
EXHIBIT 99.2
RISK FACTORS
RISK FACTORS RELATING TO CONTINENTAL
LEVERAGE AND LIQUIDITY
We have a higher proportion of debt compared to our equity capital than
some of our principal competitors. In addition, our cash resources are less than
some of our principal competitors. A majority of our property and equipment is
subject to liens securing indebtedness. Accordingly, we may be less able than
some of our competitors to withstand a prolonged recession in the airline
industry or respond as flexibly to changing economic and competitive conditions.
As of September 30, 2000, we had:
o approximately $3.2 billion (including current maturities) of
long-term debt and capital lease obligations. In addition, we have
minimum annual commitments under long-term operating leases of
aircraft or aircraft engines; and
o approximately $1.2 billion in cash and cash equivalents.
We have substantial commitments for capital expenditures, including for
the acquisition of new aircraft. As of September 30, 2000, we had agreed to
acquire or lease a total of 78 Boeing jet aircraft through 2005. We anticipate
taking delivery of 28 Boeing jet aircraft in 2000. We also have options for an
additional 99 aircraft (exercisable subject to certain conditions). The
estimated aggregate cost of our firm commitments for Boeing aircraft is
approximately $4.1 billion. We currently plan to finance our 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. We
had commitments or letters of intent for backstop financing for approximately
19% of the anticipated remaining acquisition cost of future Boeing deliveries.
In addition, at September 30, 2000, we had firm commitments to purchase 28 spare
engines related to the new Boeing aircraft for approximately $189 million, which
will be deliverable through March 2005.
As of September 30, 2000, Continental Express, Inc. ("Express"), our
subsidiary that operates regional jet and turboprop aircraft, had firm
commitments for 73 Embraer ERJ-145 50-seat regional jets, 75 ERJ-145XR 50-seat
regional jets and 35 ERJ-135 37-seat regional jets, with options for an
additional 100 Embraer ERJ aircraft exercisable through 2007. Express
anticipates taking delivery of 22 ERJ-145 and 12 ERJ-135 regional jets in 2000.
Neither we nor Express will have any obligation to take any such firm Embraer
aircraft that are not financed by a third party and leased to us or Express.
We expect to finance certain of our capital commitments through
operating leases, which will increase our operating expenses. For 1999, cash
expenditures under operating leases relating to aircraft approximated $758
million, compared to $702 million for 1998,
<PAGE> 2
and approximated $328 million relating to facilities and other rentals, compared
to $263 million in 1998.
Additional financing will be needed to satisfy our capital commitments.
We cannot predict whether sufficient financing will be available for capital
expenditures not covered by firm financing commitments.
HISTORICAL OPERATING RESULTS
We have recorded positive net income in each of the last five years.
However, we experienced significant operating losses in the previous eight
years. Historically, the financial results of the U.S. airline industry have
been cyclical. We cannot predict whether current industry conditions will
continue.
SIGNIFICANT COST OF AIRCRAFT FUEL
Fuel costs constitute a significant portion of our operating expenses.
Fuel costs were approximately 9.7% of operating expenses for the year ended
December 31, 1999, 10.2% for the year ended December 31, 1998 and 14.9% for the
nine months ended September 30, 2000 (in each case excluding fleet
disposition/impairment losses).
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. We enter into petroleum swap contracts,
petroleum call option contracts and/or jet fuel purchase commitments to provide
some short-term protection (generally three to six months) against a sharp
increase in jet fuel prices. Our fuel hedging strategy could result in our not
fully benefiting from certain fuel price declines. If a fuel supply shortage
were to arise from OPEC production curtailments, a disruption of oil imports or
otherwise, higher fuel prices or a reduction of scheduled airline service could
result. Continuation of current high jet fuel prices and any price increases
would materially affect our operating results.
LABOR MATTERS
In July 2000, we completed a three-year program bringing all employees
to industry standard wages and also announced a phased plan to bring employee
benefits to industry standard levels by 2003. The plan provides for increases in
vacation, paid holidays, increased 401(k) company matching contributions and
additional past service credit for most senior employees.
The current status of our principal labor union agreements is as
follows:
o Continental's Pilots. In June 1998, a five-year collective
bargaining agreement, retroactive to October 1997, was ratified by
our pilots. The agreement becomes amendable in October 2002.
o Express Pilots. In December 1998, Express and its pilots executed
a new agreement. This agreement will become amendable on October
1, 2002.
2
<PAGE> 3
o Flight Attendants. In March 2000, our flight attendants ratified a
54-month collective bargaining agreement, which becomes amendable
in September 2004. In June 2000, Express flight attendants
ratified a 54-month collective bargaining agreement that becomes
amendable in December 2004. In November 2000, we announced a
tentative collective bargaining agreement covering flight
attendants of Continental Micronesia, Inc. ("CMI"), our subsidiary
based in Guam, which is subject to ratification.
o Dispatchers. Our dispatchers ratified a new five-year collective
bargaining agreement in July 1998. The agreement becomes amendable
in October 2003. In July 2000, Express and its dispatchers
ratified a four-year collective bargaining agreement.
o Mechanics. Our mechanics are covered by a new agreement signed in
January 1999 that becomes amendable January 8, 2002. CMI's
mechanics are covered by a collective bargaining agreement that
becomes amendable March 31, 2001. In August 1999, Express'
mechanics ratified a four-year collective bargaining agreement.
The agreement becomes amendable in January 2003.
CONTINENTAL/NORTHWEST ALLIANCE AND THE NORTHWEST TRANSACTION
In November 1998, we and Northwest Airlines, Inc. (together with
Northwest Airlines Corporation and its affiliates, "Northwest") began
implementing a long-term global alliance involving extensive code sharing,
frequent flyer reciprocity and other cooperative activities (the "Northwest
Alliance"). Implementation of the Northwest Alliance continued throughout 1999
and is continuing in 2000. In a related transaction on November 20, 1998, a
Northwest affiliate acquired an equity interest in our company from our
principal stockholder and certain other parties. As of October 31, 2000, the
Northwest affiliate held approximately 14.9% of the common equity interest and
52.6% of the fully diluted voting power of our company. In addition, as of
October 31, 2000, Northwest held a limited proxy to vote certain additional
shares of our common stock that would raise its voting power to approximately
56.9% of our fully diluted voting power.
Our ability to finalize implementation of the Northwest Alliance and to
achieve the anticipated benefits is subject to certain risks and uncertainties,
including:
o Disapproval or delay by regulatory authorities or adverse
regulatory developments.
o Competitive pressures, including developments with respect to
alliances among other air carriers.
o Customer reaction to the alliance, including reaction to
differences in product and benefits provided by us and Northwest.
o Economic conditions in the principal markets served by us and
Northwest.
3
<PAGE> 4
o Increased costs or other implementation difficulties, including
those caused by employees.
o Our ability to modify certain contracts that restrict certain
aspects of the alliance.
On October 23, 1998, the Department of Justice ("DOJ") filed a lawsuit
against us and Northwest challenging Northwest's acquisition of an equity
interest in our company. The DOJ did not seek to preliminarily enjoin the
transaction before it closed on November 20, 1998, nor is the DOJ challenging
the Northwest Alliance. We are continuing to implement our alliance with
Northwest. Trial of the DOJ lawsuit commenced on November 1, 2000 in the U.S.
District Court for the Eastern District of Michigan.. Pursuant to the agreement
in principle reached with Northwest, as described below, both we and Northwest
agreed to support an adjournment of the DOJ lawsuit until November 14, 2000
(which adjournment was granted by the U.S. District Court on November 6, 2000
and subsequently extended until November 16, 2000). While it is not possible to
predict the ultimate outcome of this litigation, we believe that this litigation
will not have a material adverse effect on our company.
On November 6, 2000, we issued a joint press release with Northwest
announcing that we had reached an agreement in principle regarding the
recapitalization of our Class A common stock, our repurchase of certain Class A
common stock owned by Northwest and related matters as part of a proposal to
settle the DOJ litigation discussed in the previous paragraph (the "Northwest
Transaction"). The press release and certain information detailing the Northwest
Transaction were filed as exhibits to our current report on Form 8-K filed on
November 6, 2000, which is hereby incorporated herein by reference. If the
Northwest Transaction occurs, it will significantly affect the Northwest
Alliance.
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
COMPETITION AND INDUSTRY CONDITIONS
The airline industry is highly competitive and susceptible to price
discounting. Carriers have used discount fares to stimulate traffic during
periods of slack demand, to generate cash flow and to increase market share.
Some of our competitors have substantially greater financial resources or lower
cost structures than us.
Airline profit levels are highly sensitive to changes in fuel costs,
fare levels and passenger demand. Passenger demand and fare levels have in the
past been influenced by, among other things, the general state of the economy
(both internationally and domestically), international events, airline capacity
and pricing actions taken by carriers. Domestically, from 1990 to 1993, the weak
U.S. economy, turbulent international events and extensive price discounting by
carriers contributed to unprecedented losses for U.S. airlines. In the last
several years, the U.S. economy has improved and excessive price discounting has
abated. Recently, industry capacity and growth in the transatlantic market have
resulted in lower yields and revenue per available seat mile in those markets.
We cannot predict the extent to which these industry conditions will continue.
4
<PAGE> 5
In recent years, the major U.S. airlines have sought to form marketing
alliances with other U.S. and foreign air carriers. Such alliances generally
provide for "code sharing," frequent flyer reciprocity, coordinated scheduling
of flights of each alliance member to permit convenient connections and other
joint marketing activities. Such arrangements permit an airline to market
flights operated by other alliance members as its own. This increases the
destinations, connections and frequencies offered by the airline, which provide
an opportunity to increase traffic on such airline's segment of flights
connecting with alliance partners. The Northwest Alliance is an example of such
an arrangement, and we have existing alliances with numerous other air carriers.
Other major U.S. airlines have alliances or planned alliances more extensive
than ours. We cannot predict the extent to which we will benefit from our
alliances or be disadvantaged by competing alliances.
In recent years, and particularly since its deregulation in 1978, the
U.S. airline industry has also undergone substantial consolidation, and it may
in the future undergo additional consolidation. For example, in May 2000, United
Airlines, the nation's largest commercial airline, announced its agreement to
acquire US Airways, the nation's sixth largest commercial airline, subject to
regulatory approvals and other conditions. The impact on us of this pending
transaction and any additional consolidation within the U.S. airline industry
cannot be predicted at this time.
REGULATORY MATTERS
Airlines are subject to extensive regulatory and legal compliance
requirements. These requirements impose substantial costs on airlines. In the
last several years, the Federal Aviation Administration ("FAA") has issued a
number of directives and other regulations relating to the maintenance and
operation of aircraft that have required significant expenditures. Such FAA
requirements cover, among other things, retirement of older aircraft, security
measures, collision avoidance systems, airborne windshear avoidance systems,
noise abatement, commuter aircraft safety and increased inspections and
maintenance procedures to be conducted on older aircraft. We expect to continue
incurring expenses in complying with the FAA's regulations.
Additional laws, regulations, taxes and airport rates and charges have
been proposed from time to time that could significantly increase the cost of
airline operations or reduce revenues. For instance, in 1999 "passenger bill of
rights" legislation was introduced in Congress that would, among other things,
have required the payment of compensation to passengers as a result of certain
delays, and limited the ability of carriers to prohibit or restrict usage of
certain tickets in manners currently prohibited or restricted.
Restrictions on the ownership and transfer of airline routes have also
been proposed. In addition, the ability of U.S. carriers to operate
international routes is subject to change because the applicable arrangements
between the U.S. and foreign governments may be amended from time to time, or
because appropriate slots or facilities are not made available. We cannot
provide assurance that laws or regulations enacted in the future will not
adversely affect us.
The Federal Aviation Administration has designated John F. Kennedy
International Airport ("Kennedy") and LaGuardia Airport ("LaGuardia") in New
York, O'Hare International Airport in Chicago ("O'Hare") and Ronald Reagan
Washington National Airport in Washington,
5
<PAGE> 6
D.C. ("Reagan National") as "high density traffic airports" and has limited the
number of departure and arrival slots at those airports. In April 2000,
legislation was signed eliminating slot restrictions beginning in 2001 at O'Hare
and 2007 at LaGuardia and Kennedy. Slot restrictions at O'Hare, LaGuardia and
Kennedy have already begun to be eliminated through exemptions for new entrants
and small aircraft serving small and non-hub airports. Express has been awarded
slot exemptions to permit it to provide extensive service at LaGuardia using
regional jets. The Borough of Queens, the City of New York and the Mayor of New
York have asked the U.S. Court of Appeals for the Second Circuit to review and
reverse the Department of Transportation's decisions awarding slot exemptions at
LaGuardia and JFK to Express and other carriers. The Port Authority of New York
and New Jersey has recently taken action which purports to restrict the
provision of additional service at LaGuardia during certain hours, which may
adversely impact certain of our planned future services using such slot
exemptions.
RISK FACTORS RELATED TO OWNERSHIP OF OUR COMMON STOCK
ANTI-TAKEOVER PROVISIONS
We have a rights plan pursuant to which one preferred stock purchase
right is currently associated with each outstanding share of our common stock.
Each of these rights entitles the registered holder to purchase from us one
one-thousandth of a share of our junior preferred stock, par value $.01 per
share, at a purchase price of $200 per one one-thousandth of a share, subject to
adjustment. The rights have anti-takeover effects. The rights could cause
substantial dilution to a person or group that attempts to acquire us and effect
a change in the composition of our board of directors on terms not approved by
the board of directors, including by means of a tender offer at a premium to the
market price and, as a result, could delay or prevent a change of control or
other transaction that could provide our stockholders with a premium over the
then-prevailing market price of their shares or which might otherwise be in
their best interest. The rights should not interfere with any merger or business
combination approved by the board of directors.
Our certificate of incorporation and bylaws contain other provisions
that could make it difficult for a third party to acquire us without the consent
of our board of directors.
Pursuant to the Northwest Transaction, if consummated, we will issue to
Northwest a new series of preferred stock with a separate class vote in any
required vote of our stockholders relating to certain changes of control
affecting our company, If the Northwest Transaction is effected and the
preferred stock issued, this may delay or prevent the acquisition of our
company.
In addition, unless and until the Northwest Transaction is consummated,
the ownership of our stock by our principal stockholders could delay or prevent
a third party from acquiring us.
LIMITATION ON VOTING BY FOREIGN OWNERS
Our certificate of incorporation provides that no shares of capital
stock may be voted by or at the direction of persons who are not citizens of the
United States unless the shares are registered on a separate stock record. Our
bylaws further provide that no shares will be registered on this separate stock
record if the amount so registered would exceed applicable
6
<PAGE> 7
foreign ownership restrictions. U.S. law currently requires that no more than
25% of the voting stock of our company (or any other domestic airline) may be
owned directly or indirectly by persons who are not citizens of the United
States.
PAYMENT OF DIVIDENDS ON COMMON STOCK
We have not paid cash dividends in the past and do not intend to pay
dividends on our common stock in the foreseeable future. We have no obligation
to pay dividends on our common stock and currently intend to retain any earnings
for the future operation and development of our business. Our ability to make
dividend payments in the future will depend on our future performance and
liquidity. In addition, our credit facility contains restrictions on our ability
to pay cash dividends on our capital stock, including our common stock. As a
result, we may not be able to pay dividends on our common stock.
7
