<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____ to_____
Commission file number 1-8836
HAWAIIAN AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Hawaii 99-0042880
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (808) 835-3700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
As of August 1, 2000, 39,820,735 shares of Common Stock shares were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAWAIIAN AIRLINES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 92,272 $ 63,631
Accounts receivable, net........................................................... 29,352 24,921
Inventories, net................................................................... 12,751 13,965
Deferred tax assets, net........................................................... 9,625 9,625
Prepaid expenses and other......................................................... 10,827 7,671
--------------- ---------------
TOTAL CURRENT ASSETS........................................................... 154,827 119,813
--------------- ---------------
Property and equipment, less accumulated depreciation and
amortization of $18,876 and $12,541 in 2000 and 1999, respectively................. 85,976 65,272
Deferred tax assets, net............................................................... 10,724 12,375
Other assets........................................................................... 6,686 7,780
Reorganization value in excess of amounts
allocable to identifiable assets, net ("Excess Reorganization Value").............. 32,744 33,897
--------------- ---------------
TOTAL ASSETS................................................................... $290,957 $239,137
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................................. $ 3,389 $ 3,853
Current portion of capital lease obligations....................................... 809 3,379
Accounts payable................................................................... 43,379 41,864
Accrued liabilities................................................................ 23,079 20,920
Air traffic liability.............................................................. 91,423 50,426
--------------- ---------------
TOTAL CURRENT LIABILITIES...................................................... 162,079 120,442
--------------- ---------------
Long-Term Debt......................................................................... 38,907 23,858
Capital Lease Obligations.............................................................. 2,413 2,790
Other Liabilities and Deferred Credits................................................. 24,506 25,921
SHAREHOLDERS' EQUITY:
Common and Special Preferred Stock................................................. 410 410
Capital in excess of par value..................................................... 97,481 99,418
Warrants........................................................................... - 3,153
Notes receivable from Common Stock sales........................................... (1,584) (1,581)
Accumulated deficit................................................................ (33,255) (35,274)
--------------- ---------------
SHAREHOLDERS' EQUITY........................................................... 63,052 66,126
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $290,957 $239,137
=============== ===============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
</TABLE>
2
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger......................................$ 122,011 $ 101,581 $ 226,441 $ 192,067
Charter........................................ 20,136 9,663 40,307 19,850
Cargo.......................................... 7,026 5,912 13,472 11,047
Other.......................................... 5,384 4,817 10,370 8,684
-------------- -------------- ----------------- -------------
TOTAL...................................... 154,557 121,973 290,590 231,648
-------------- -------------- ----------------- --------------
OPERATING EXPENSES:
Wages and benefits............................. 39,371 34,486 78,282 67,476
Aircraft fuel, including taxes and oil......... 28,759 17,473 56,905 31,259
Maintenance materials and repairs.............. 30,415 24,542 58,709 48,302
Rentals and landing fees....................... 9,837 7,227 18,760 14,647
Sales commissions.............................. 3,196 3,625 5,554 7,039
Depreciation and amortization.................. 4,057 4,210 7,989 7,806
Other.......................................... 31,413 26,402 61,338 49,972
-------------- -------------- ------------- -------------
TOTAL...................................... 147,048 117,965 287,537 226,501
-------------- -------------- ------------- -------------
OPERATING INCOME................................... 7,509 4,008 3,053 5,147
-------------- -------------- ------------- -------------
NONOPERATING EXPENSE:
Interest expense, net.......................... 379 (429) 451 (658)
Loss on disposition of equipment............... (26) (363) (179) (783)
Other, net..................................... 533 (26) 346 622
-------------- -------------- ------------- -------------
TOTAL...................................... 886 (818) 618 (819)
-------------- -------------- ------------- -------------
INCOME BEFORE INCOME TAXES......................... 8,395 3,190 3,671 4,328
INCOME TAX PROVISION............................... (3,777) (1,482) (1,652) (2,017)
-------------- -------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE............. 4,618 1,708 2,019 2,311
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES............................ - - - (772)
-------------- -------------- ------------- -------------
NET INCOME......................................... 4,618 1,708 2,019 1,539
OTHER COMPREHENSIVE INCOME (LOSS).................. - - - -
-------------- -------------- ------------- -------------
COMPREHENSIVE INCOME...............................$ 4,618 $ 1,708 $ 2,019 $ 1,539
============== ============== ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
3
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HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON STOCK SHARE:
BASIC
Before Cumulative Effect of Change in Accounting Principle.. $ 0.11 $ 0.04 $ 0.05 $ 0.06
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes....................................... - - - (0.02)
--------- --------- --------- --------
NET INCOME PER COMMON STOCK SHARE............................... $ 0.11 $ 0.04 $ 0.05 $ 0.04
========= ========= ========= ========
DILUTED
Before Cumulative Effect of Change in Accounting Principle.. $ 0.11 $ 0.04 $ 0.05 $ 0.05
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes....................................... - - - (0.02)
--------- --------- --------- --------
NET INCOME PER COMMON STOCK SHARE................................$ 0.11 $ 0.04 $ 0.05 $ 0.03
========= ========= ========= ========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
SHARES OUTSTANDING:
Basic............................................................ 40,551 40,997 40,774 40,997
========= ========= ========= =========
Diluted.......................................................... 41,543 42,223 41,893 42,218
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
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HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 2,019 $ 1,539
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.................................... 5,176 5,495
Amortization.................................... 2,813 2,311
Net periodic postretirement benefit cost........ 559 694
Loss on disposition of equipment................ 179 783
Increase in accounts receivable................. (4,431) (2,375)
Increase (decrease) in inventories.............. 1,214 (1,574)
Decrease in deferred taxes, net................. 1,651 -
Increase in prepaid expenses and other.......... (4,306) (208)
Increase in accounts payable.................... 1,515 5,861
Increase in accrued liabilities................. 2,159 8,141
Increase in air traffic liability............... 40,997 11,411
Other, net...................................... (999) (5,134)
------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES... 48,546 26,944
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Progress payments on flight equipment............... (22,640) -
Purchase of property and equipment.................. (3,859) (25,229)
Net proceeds from disposition of equipment.......... 46 305
------------- --------------
NET CASH USED IN INVESTING ACTIVITIES....... (26,453) (24,924)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.......................... 16,120 12,281
Repurchase of Common Stock.......................... (2,459) -
Repurchase of warrants.............................. (2,631) -
Repayment of long-term debt......................... (1,535) (1,453)
Repayment of capital lease obligations.............. (2,947) (2,267)
------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES... 6,548 8,561
NET INCREASE IN CASH AND CASH EQUIVALENTS... 28,641 10,581
Cash and cash equivalents - Beginning of Period.......... 63,631 31,011
------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD................ $92,272 $41,592
============= ==============
</TABLE>
5
<PAGE>
HAWAIIAN AIRLINES, INC.
STATISTICAL DATA
(IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ --------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers flown............................. 1,526 1,336 2,933 2,631
Revenue passenger miles ("RPM")...................... 1,197,280 1,033,123 2,176,152 1,931,428
Available seat miles ("ASM")......................... 1,478,077 1,371,776 2,885,385 2,627,109
Passenger load factor................................ 81.0% 75.3% 75.4% 73.5%
Passenger revenue per passenger mile ("Yield")....... 10.2CENTS 9.8CENTS 10.4CENTS 9.9CENTS
OVERSEAS CHARTER OPERATIONS:
Revenue passengers flown............................. 95 63 191 132
RPM.................................................. 293,369 175,565 592,093 368,022
ASM.................................................. 319,507 186,903 638,532 385,690
TOTAL OPERATIONS:
Revenue passengers flown............................. 1,621 1,399 3,124 2,763
RPM.................................................. 1,490,649 1,208,688 2,768,245 2,299,450
ASM.................................................. 1,797,584 1,558,679 3,523,917 3,012,799
Revenue per ASM...................................... 8.60CENTS 7.83CENTS 8.25CENTS 7.69CENTS
Cost per ASM......................................... 8.18CENTS 7.57CENTS 8.16CENTS 7.52CENTS
</TABLE>
6
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was
incorporated in January 1929 under the laws of the Territory of Hawaii and is
the largest airline headquartered in Hawaii based on operating revenues. The
Company is engaged primarily in the scheduled transportation of passengers,
cargo and mail. The Company's passenger airline business is its chief source
of revenue. Scheduled passenger service consists of, on average and depending
on seasonality, approximately 175 flights per day with daily service from
Hawaii, principally Honolulu to Las Vegas, Nevada and the four key United
States ("U.S.") West Coast gateway cities of Los Angeles and San Francisco,
California, Seattle, Washington and Portland, Oregon ("Transpac"), daily
service among the six major islands of the State of Hawaii ("Interisland")
and twice weekly service to each of Pago Pago, American Samoa and Papeete,
Tahiti in the South Pacific ("Southpac"). The Company also provides charter
service from Honolulu to Las Vegas and Anchorage, Alaska and from Los Angeles
to Papeete, Tahiti ("Overseas Charter"). The Company operates a fleet
consisting of DC-9 aircraft and DC-10 aircraft.
In the opinion of management, the unaudited condensed financial statements
included in this report contain all adjustments necessary for a fair
presentation of the results of operations and statements of cash flows for
the interim periods covered and the financial condition of Hawaiian Airlines,
Inc. ("Hawaiian Airlines" or the "Company") as of June 30, 2000 and December
31, 1999. The operating results for the interim period are not necessarily
indicative of the results to be expected for the full fiscal year.
The accompanying financial statements should be read in conjunction with the
financial statements and the notes thereto contained in Hawaiian Airlines'
Annual Report on Form 10-K for the year ended December 31, 1999.
2. INCOME TAXES
The Company's reorganization and the associated implementation of fresh start
reporting in September 1994 gave rise to significant items of expense for
financial reporting purposes that are not deductible for income tax purposes.
In large measure, it is these nondeductible expenses that result in an
effective tax rate (for financial reporting purposes) significantly higher
than the current United States ("U.S.") corporate statutory rate of 35.0%.
The Company presently expects that its full year 2000 results will require a
provision for income taxes.
3. FREQUENT FLYER PROGRAM
The Company sells mileage credits to participating partners such as hotels,
car rental agencies and credit card companies. During 1999, as promulgated by
the Securities and Exchange Commissions' Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements," the Company changed the method
it uses to account for the sale of these mileage credits. This change,
applied retroactively to January 1, 1999, totaled approximately $772,000, net
of income tax benefit of approximately $515,000 and is reflected as a
cumulative effect of change in accounting principle in the accompanying
condensed statements of operations. This change also decreased the Company's
income before cumulative effect of change in accounting principle for the six
months ended June 30, 1999 by $365,000. Under the new accounting method,
revenue from the sale of mileage credits is deferred and recognized when
transportation is provided. Previously, the resulting revenue was recorded in
the period in which the credits were sold. The quarterly information for 1999
presented herein reflects this change.
7
<PAGE>
4. RECLASSIFICATIONS
Certain prior year amounts were reclassified to conform to the 2000
presentation. Such reclassifications had no effect on previously reported
financial condition and/or results of operations.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The provisions of SFAS No. 133, as amended
by SFAS No. 137, are effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 on January
1, 2001 but has not yet determined the impact of its adoption.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements contained here and throughout, that are not related to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, future financial position and
estimated cost savings, are forward-looking statements within the meaning of
the Safe Harbor Provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act, as amended.
Forward-looking statements involve risks and uncertainties that may impact
the actual results of operations. In some cases, identification of
forward-looking statements can be made through use of terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology. Although the Company believes that
the assumptions on which any forward-looking statements are based are
reasonable, there can be no assurance that such assumptions will prove to be
accurate and actual results could differ materially from those discussed in
the forward-looking statements. In evaluating these statements, specific
consideration should be made to factors that could cause or contribute to
such differences which include those discussed in the notes to the financial
statements under Part I, Item 1, of this Form 10-Q, as well as those
discussed elsewhere in this Form 10-Q. The Company will not undertake and
expressly disavows any obligations to update any forward-looking statements
contained in this Form 10-Q.
It is not reasonably possible to itemize all of the many factors and specific
events that could affect the outlook of an airline operating in the global
economy. Some factors that could significantly impact capacity, load factors,
revenues, expenses and cash flows include the airline pricing environment,
fuel costs, labor union situations both at the Company and other carriers,
low-fare carrier expansion, capacity decisions of other carriers, actions of
the U.S. and foreign governments, foreign currency exchange rate
fluctuations, inflation, the general economic environment and other factors
discussed herein.
Developments in any of these areas, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange
Commission filings, could cause the Company's results to differ from results
that have been or may be projected by or on behalf of the Company. The
Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements that may be made from time to time by or on behalf of the Company.
8
<PAGE>
SEGMENT INFORMATION
Principally all operations of the Company either originate or end in the
State of Hawaii. The management of such operations is based on a system-wide
approach due to the interdependence of the Company's route structure in its
various markets. The Company operates as a matrix form of organization as it
has overlapping sets of components for which managers are held responsible.
Managers report to the Company's decision-makers on both the Company's
geographic components and the Company's product and service components, with
the result that major components based on products and services constitute
the operating segment. As the Company offers only one service (i.e., air
transportation), management has concluded that it has only one reportable
segment.
9
<PAGE>
RESULTS OF OPERATIONS
In second quarter 2000, the Company experienced operating and net income of
$7.5 million and $4.6 million, respectively. This represents increases of
$3.5 million or 87.4% and $2.9 million or 170.4% from second quarter 1999
operating and net income, respectively. For the six month period ended June
30, 2000, the Company earned operating and net income of $3.1 million and
$2.0 million, respectively.
The Company continues to experience favorable impacts to its operating
revenues as a result of strategies which introduced higher fares and
additional capacity and services into its Transpac, Interisland and Overseas
Charter products. Operating expenses continue to be adversely impacted by the
cost of aircraft fuel, which on average has continued its record high levels.
THREE MONTH PERIOD ENDED JUNE 30, 2000
The following table compares second quarter 2000 operating passenger revenues
and statistics to those in second quarter 1999, in thousands, except as
otherwise indicated:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Operating Passenger ------------------------------------ Increase
Revenues and Statistics 2000 1999 (Decrease) %
------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Scheduled:
Passenger revenues............. $ 122,011 $ 101,581 $ 20,430 20.1
Revenue passengers flown....... 1,526 1,336 190 14.2
RPM............................ 1,197,280 1,033,123 164,157 15.9
ASM............................ 1,478,077 1,371,776 106,301 7.7
Passenger load factor.......... 81.0% 75.3% 5.7 7.6
Yield.......................... 10.2CENTS 9.8CENTS 0.4CENTS 4.1
Overseas Charter:
Charter revenues............... $ 20,136 $ 9,663 $ 10,473 108.4
Revenue passengers flown....... 95 63 32 50.8
RPM............................ 293,369 175,565 117,804 67.1
ASM............................ 319,507 186,903 132,604 70.9
Total Operations:
Scheduled passenger and
overseas charter revenues... $ 142,147 $ 111,244 $ 30,903 27.8
Revenue passengers flown....... 1,621 1,399 222 15.9
RPM............................ 1,490,649 1,208,688 281,961 23.3
ASM............................ 1,797,584 1,558,679 238,905 15.3
</TABLE>
Significant quarter to quarter variances were as follows:
Scheduled passenger revenues totaled $122.0 million in second quarter 2000,
an increase of $20.4 million or 20.1% over second quarter 1999. As discussed
above, due to higher fares and increased capacity, the Company experienced
increases in its Transpac and Interisland passenger revenues of $12.2 million
and $7.5 million, respectively. The Transpac increase was primarily driven by
15% and 3% increases in revenue passengers flown and yield, respectively.
Interisland revenue passengers flown and yield also experienced favorable
increases of 14% and 6%, respectively.
10
<PAGE>
Charter revenues increased $10.5 million or 108.4% as second quarter 2000
included revenue for the Renaissance Cruise charter flights between Los
Angeles and Papeete, Tahiti which commenced in August 1999.
The following table compares operating expenses per ASM for second quarter
2000 with second quarter 1999 by major category:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------- Increase
Operating Expenses Per ASM 2000 1999 (Decrease) %
------------------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Wages and benefits...................................... 2.19CENTS 2.21CENTS (0.02)CENTS (0.9)
Aircraft fuel, including taxes and oil.................. 1.60 1.12 0.48 42.9
Maintenance materials and repairs....................... 1.69 1.57 0.12 7.6
Rentals and landing fees................................ 0.55 0.46 0.09 19.6
Sales commissions....................................... 0.18 0.23 (0.05) (21.7)
Depreciation and amortization........................... 0.23 0.27 (0.04) (14.8)
Other................................................... 1.75 1.69 0.06 3.6
---------- ---------- ---------- -----------
Total........................................ 8.19CENTS 7.55CENTS 0.64CENTS 8.5
========== ========== ========== ===========
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASMs of approximately 15.3% quarter over quarter. Significant
quarter to quarter variances were as follows:
Wages and benefits totaled $39.4 million in second quarter 2000 versus $34.5
million in second quarter 1999, an increase of $4.9 million or 14.2%. A
majority of the increase is attributable to (1) a 3% wage increase effective
January 1, 2000 and (2) on average, additional employee headcount quarter
over quarter of approximately 14% due to increased flying and implementation
of the Company's 2000 growth strategies. Wages and benefits per ASM, however,
declined due to the substantial growth in ASMs.
Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") per ASM
increased by 0.48CENTS or 42.9%. Quarter over quarter, the Company incurred
approximately $11.3 million or 64.6% more Aircraft Fuel Cost. The average
cost of aircraft fuel per gallon of 81.7CENTS, including taxes and the
effects of the Company's fuel hedging program, increased by 22.8CENTS or
38.6% in second quarter 2000. The Company also consumed 5.6 million or 18.8%
more gallons in second quarter 2000. The Company anticipates high aircraft
fuel prices for the foreseeable future. For the month ended June 30, 2000,
the Company's average cost per gallon was 76.5CENTS. A one-cent change in the
cost per gallon of fuel has an impact on the Company's operating expenses of
approximately $101,000 per month (based on 1999 consumption). As such,
significant changes in fuel costs or continuation of high current fuel prices
will materially affect the Company's operating results.
Maintenance materials and repairs per ASM increased by 0.12CENTS or 7.6%.
Quarter over quarter, the Company incurred approximately $5.9 million or
23.9% in additional maintenance expense due to (1) $3.7 million more in DC-10
maintenance expense, the result of increases in maintenance rates and the
number of DC-10 aircraft used and hours flown and (2) $2.3 million more in
DC-9 airframe and engine repairs.
11
<PAGE>
Rentals and landing fees per ASM increased by 0.09CENTS or 19.6%. Second
quarter 2000 increased by $2.6 million or 36.1% when compared to second
quarter 1999. The increase is principally due to $1.5 million of additional
landing fees in 2000 as the two-year moratorium placed on landing fees at all
airports in the State of Hawaii ended on September 1, 1999.
Other operating expenses increased quarter over quarter by $5.0 million or
19.0%. The increase is due to a combination of additional expenses incurred
in second quarter 2000 including (1) $2.2 million or 28.4% of aircraft
service related expenses; (2) $1.1 million or 32.4% in passenger food and
beverage; and (3) $1.9 million or 21.0% in general and administrative
expenses.
SIX MONTH PERIOD ENDED JUNE 30, 2000
The following table compares operating passenger revenues and statistics for
the six month periods ended June 30, 2000 and 1999, in thousands, except as
otherwise indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Operating Passenger ------------------------------------ Increase
Revenues and Statistics 2000 1999 (Decrease) %
------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Scheduled:
Passenger revenues..............$ 226,441 $ 192,067 $ 34,374 17.9
Revenue passengers flown........ 2,933 2,631 302 11.5
RPM............................. 2,176,152 1,931,428 244,724 12.7
ASM............................. 2,885,385 2,627,109 258,276 9.8
Passenger load factor........... 75.4% 73.5% 1.9% 2.6
Yield........................... 10.4CENTS 9.9CENTS 0.5CENTS 5.1
Overseas Charter:
Charter revenues................$ 40,307 $ 19,850 $ 20,457 103.1
Revenue passengers flown........ 191 132 59 44.7
RPM............................. 592,093 368,022 224,071 60.9
ASM............................. 638,532 385,690 252,842 65.6
Total Operations:
Scheduled passenger and
overseas charter revenues....$ 266,748 $ 211,917 $ 54,831 25.9
Revenue passengers flown........ 3,124 2,763 361 13.1
RPM............................. 2,768,245 2,299,450 468,795 20.4
ASM............................. 3,523,917 3,012,799 511,118 17.0
</TABLE>
Significant period to period variances were as follows:
Scheduled passenger revenues totaled $226.4 million during the six month
period ended June 30, 2000, an increase of $34.4 million or 17.9% over
passenger revenues of $192.1 million for the six month period ended June 30,
1999. The Company experienced period over period increases of $20.8 million
and $13.0 million in its Transpac and Interisland passenger revenues,
respectively. The Company experienced, on
12
<PAGE>
average, increased Transpac and Interisland revenue passengers flown and yields
of 12% and 6%, respectively.
Charter revenues totaled $40.3 million in the six month period ended June 30,
2000, an increase of $20.5 million or 103.1% from the six month period ended
June 30, 1999. Again, the increase is principally due to the Renaissance Cruise
charter flights between Los Angeles and Papeete, Tahiti.
The following table compares operating expenses per ASM by major category for
the six month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------- Increase
Operating Expenses Per ASM 2000 1999 (Decrease) %
------------------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Wages and benefits...................................... 2.22CENTS 2.24CENTS (0.02)CENTS (0.9)
Aircraft fuel, including taxes and oil.................. 1.61 1.04 0.57 54.8
Maintenance materials and repairs....................... 1.67 1.60 0.07 4.4
Rentals and landing fees................................ 0.53 0.49 0.04 8.2
Sales commissions....................................... 0.16 0.23 (0.07) (30.4)
Depreciation and amortization........................... 0.23 0.26 (0.03) (11.5)
Other................................................... 1.74 1.66 0.08 4.8
---------- ---------- ---------- -----------
Total........................................ 8.16CENTS 7.52CENTS 0.64CENTS 8.5
========== ========== ========== ===========
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 17.0% period over period. Significant period to
period variances were as follows:
Wages and benefits totaled $78.3 million versus $67.5 million for the respective
six month periods in 2000 and 1999. Again, much of the increase is attributable
to (1) a 3% wage increase effective January 1, 2000 and (2) additional employee
headcount period over period of approximately 16% due to increased flying and
implementation of the Company's 2000 growth strategies.
Aircraft Fuel Cost per ASM increased by 0.57CENTS or 54.8%. Approximately
$25.6 million or 82.0% more Aircraft Fuel Cost was incurred by the Company in
the six month period ended June 30, 2000 compared to the six month period
ended June 30, 1999. The average cost of aircraft fuel per gallon of
82.9CENTS, including taxes and the effects of the Company's fuel hedging
program, increased by 28.3CENTS or 51.8% period over period. The Company also
consumed 11.5 million or 20.1% more gallons period over period.
Maintenance materials and repairs per ASM increased by 0.07CENTS or 4.4%. For
the six months ended June 30, 2000, the Company incurred approximately $10.4
million or 21.5% in additional maintenance expense as compared to the same
period in 1999 due to (1) $7.7 million more in DC-10 maintenance expense, the
result of increases in maintenance rates and the number and hours of DC-10
aircraft flown and (2) $2.4 million more in DC-9 airframe and engine repairs.
Other operating expenses per ASM increased 0.08CENTS or 4.8% period over
period. The increase is due to a combination of additional expenses incurred
including (1) $3.7 million or 23.2% of aircraft service related expenses; (2)
$2.4 million or 38.1% in passenger food and beverage; and (3) $5.3 million or
19.0% in general and administrative expenses.
13
<PAGE>
AIRCRAFT
On December 31, 1999, the Company signed, subject to approval by the Company's
Board of Directors, a definitive purchase agreement with The Boeing Company
("Boeing") to acquire 13 new Boeing 717-200 aircraft, with rights to purchase an
additional seven aircraft. On March 2, 2000, the Company announced that the
Company's Board of Directors had approved the definitive purchase agreement with
Boeing. The firm order is valued at approximately $430 million at Boeing's list
price for the 717-200. The agreement provides for monthly deliveries of the
thirteen 717-200 aircraft between February and December 2001, with two units to
be delivered in each of June and September 2001.
The agreement also requires the Company to fund through June 2001, in the
aggregate, approximately $43 million toward the acquisition of the aircraft. The
$43 million will be funded through a combination of internally generated funds
and use of a revolving $22.5 million secured term loan facility with Rolls Royce
Deutchland GmbH ("Rolls-Royce"), the engine manufacturer for the 717-200. As of
June 30, 2000, the Company had made approximately $29.8 million of the required
$43 million in progress payments, with $22.6 million of these payments having
been made in 2000.
The Company intends to use leveraged lease financing provided through Boeing
to finance the acquisition of the aircraft. Each aircraft will be permanently
financed upon delivery and the outstanding balance due Rolls-Royce under the
revolving $22.5 million facility will be reduced with the permanent financing
of each aircraft.
The Boeing 717s (a) have the same Federal Aviation Administration Type
Certificate as the DC-9, allowing easier maintenance and crew training
transitioning; (b) seat eight passengers in first class and 115 in coach; (c)
utilize twin BMW Rolls-Royce BR715 engines that generate emissions below
existing federal standards; and (d) meet, as currently defined, federal Stage 3
and proposed Stage 4 noise requirements. The 717s are reported to be more
fuel-efficient and will be less costly to maintain than the Company's aging
DC-9-50 fleet.
The Company currently utilizes 15 DC-9-50 aircraft to service its interisland
routes. Discussions and strategies regarding disposition of the DC9s are
ongoing. The Company may incur restructuring charges as it proceeds with its
narrow-body fleet transition plan, particularly related to the disposition of
five DC-9 aircraft under operating leases. Four of the aircraft are leased to
the Company by GE Capital Aviation Services ("GECAS"), with a fifth aircraft
leased to the Company by Mellon U.S. Leasing ("Mellon"). The leases on the
four GECAS aircraft expire during 2001 and although the Mellon aircraft will
retire from the Company's fleet in 2001, the lease expires in 2004. In
conjunction with the return of the GECAS aircraft and the early termination
of the Mellon aircraft lease, the Company is contractually obligated to
perform certain maintenance checks on all five aircraft. In addition, in the
case of the Mellon aircraft, the Company is subject to early termination
provisions. The cost to comply with the return condition provisions and the
early termination of the Mellon lease cannot be estimated at this time. The
Company is currently in discussions with the lessors regarding these issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has various options available to meet its capital,
debt and operating commitments, including cash and liquid short-term investment
securities on hand at June 30, 2000 of $92.3 million and internally generated
funds. The Company will continue to consider various borrowing or leasing
options to supplement its cash requirements.
Cash and cash equivalents for the six-month period ended June 30, 2000 increased
by $28.6 million. Operating activities provided $48.5 million in cash and cash
equivalents, primarily due to a $41.0 million increase in air traffic liability.
The Company experienced an improvement in the mix of its advance
14
<PAGE>
bookings and increased sales from all of its major internal, wholesale and
retail distribution channels. During the six-month period ended June 30, 2000,
$22.6 million in required progress payments were made for the Boeing 717
aircraft acquisition. Approximately $6.9 million of these payments were made
through use of internally generated funds. The remaining $15.7 million of
payments were funded through the secured revolving term loan facility with
Rolls-Royce described above. The Company also expended $3.9 million for capital
expenditures for the six-month period ended June 30, 2000 and plans for
approximately $27.9 million in capital expenditures for 2000.
FUEL PRICE RISK MANAGEMENT
The Company utilizes heating oil forward contracts to manage its aircraft fuel
costs. When fully implemented, the Company plans to employ a strategy whereby
heating oil contracts are used to cover approximately 50% of the Company's
anticipated aircraft fuel needs on a rolling six-month basis. At June 30, 2000,
the Company held petroleum forward contracts to purchase 709,000 barrels of
heating oil in the aggregate amount of $19.7 million through October 2001. These
forward contracts represented approximately 40% of the Company's anticipated
aircraft fuel needs for the next six months. A realized net gain on liquidated
contracts amounting to $4.3 million is included as a component of Aircraft Fuel
Cost for the six months ended June 30, 2000.
STOCK AND WARRANT REPURCHASES
In March 2000, the Company announced that its Board of Directors approved a
stock repurchase program authorizing the Company to buy up to 5 million shares
of its Common Stock. Under the approved stock repurchase plan, the Company may
repurchase Common Stock from time to time in the open market and in private
transactions. The amount and timing of any repurchases is subject to a number of
factors, including the "trading practices rules" promulgated under the
Securities Exchange Act of 1934, the price and availability of the Company's
stock and general market conditions. As of June 30, 2000, 1,004,800 shares of
Common Stock had been repurchased by the Company for approximately $ 2.5
million.
On June 20, 2000, the Company repurchased from AMR Corporation, the parent
company of American Airlines, Inc., warrants which subject to certain
conditions, entitled AMR to purchase 1,949,338 shares of the Company's Common
Stock at $1.07 per share. The warrants were repurchased for approximately $2.6
million. The 1,949,338 shares associated with the warrants shall be counted
toward the 5 million shares of Common Stock that the Company is authorized to
repurchase under the stock repurchase program.
STRATEGIC ALTERNATIVES
On May 3, 2000, the Company announced that it had received inquiries from
time to time about a possible acquisition of, or investment in, the Company
and that it had retained a financial advisor to help the Company explore
strategic alternatives. The Company noted then that no decision had been made
as to what action might be taken and that no further announcements would be
made unless definitive decisions as to the Company's strategic direction had
been reached. In an investor conference call held on August 9, 2000,
following release of the Company's second quarter financial results, the
President and Chief Executive Officer of the Company noted that this process
of exploring strategic alternatives is not presently being pursued.
EMPLOYEES
As of June 30, 2000, the Company had 3,349 employees, of which 2,769 were
employed on a full-time basis. The majority of Hawaiian Airlines' employees are
covered by labor agreements with the International Association of Machinists and
Aerospace Workers (AFL-CIO) ("IAM"), the Air Line Pilots Association
International ("ALPA"), the Association of Flight Attendants ("AFA"), the
Transport Workers Union and the Communications Section Employees Union, with the
amendable date of all five contracts being February 28, 2000. As of the date of
this report, the Company had commenced discussions with the IAM, ALPA and AFA.
On August 3, 2000, the Company filed an application with the National Mediation
Board for mediation assistance to help expedite the negotiations with ALPA.
Management cannot currently estimate the timeframe or results of the ensuing
discussions. There can be no assurance that the discussions will result in
favorable agreements and ratification between the Company and each labor group.
Should the Company and the labor groups reach an impasse, the Company could be
adversely affected.
15
<PAGE>
DEFERRED TAX ASSETS
As of June 30, 2000, the Company had net deferred tax assets aggregating $20.3
million based on gross deferred tax assets of $49.9 million less a valuation
allowance of $16.0 million and deferred tax liabilities of $13.6 million.
Utilization of these deferred tax assets is predicated on the Company being
profitable in future years. The Company will continually assess the adequacy of
its financial performance in determining its valuation allowance which, should
there be an adjustment required, may result in an adverse effect on the
Company's income tax provision.
INFORMATION TECHNOLOGY SYSTEMS AND IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its efforts to
be Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed in 1999 approximately $1 million in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the Year 2000 to ensure that any latent year 2000 matters that may arise are
addressed promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to certain market risks related to its aircraft fuel.
Refer to FUEL PRICE RISK MANAGEMENT as described above for further discussion on
aircraft fuel and related financial instruments.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material developments in matters previously reported or
reportable events arising in the three or six months ended June 30,
2000.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the June 30, 2000 Annual Meeting of Shareholders of Hawaiian
Airlines, Inc., the following matter was voted upon:
<TABLE>
<CAPTION>
Election of Board of Directors Votes
------------------------------ -----
<S> <C>
John W. Adams 34,380,893 For
77,063 Withheld
Paul J. Casey 34,381,535 For
76,421 Withheld
Todd G. Cole 34,344,451 For
113,505 Withheld
Robert C. Coo 34,341,118 For
116,838 Withheld
Joseph P. Hoar 34,373,051 For
84,905 Withheld
Reno F. Morella 34,385,428 For
72,528 Withheld
Arthur J. Pasmas 34,370,226 For
87,730 Withheld
Samson Poomaihealani 34,359,372 For
98,584 Withheld
Edward Z. Safady 34,376,476 For
81,480 Withheld
Sharon L. Soper 34,001,381 For
456,575 Withheld
Thomas J. Trzanowski 34,373,776 For
84,180 Withheld
</TABLE>
17
<PAGE>
ITEM 5. OTHER INFORMATION.
To be considered for inclusion in the Company's 2001 proxy material,
shareholder proposals to be considered for presentation at the 2001
Annual Meeting of Shareholders must be received by the Corporate
Secretary of the Company at its principal offices at 3375 Koapaka
Street, Suite G-350, Honolulu, Hawaii 96819 on or before December 15,
2000.
On May 19, 2000, the Company invested $3.0 million in certificates of
deposit with Liberty Bank, SSB, of Austin, Texas. Liberty Bank is
majority owned by John W. Adams and another individual. John W. Adams
is the sole shareholder of AIP General Partner, Inc., the general
partner of Airline Investors Partnership, L.P., which is the majority
owner of the Company. Current directors of the Company include Mr.
Adams, as well as Edward Z. Safady and Thomas J. Trzanowski, both of
whom are also employees and/or directors of Liberty Bank, SSB.
A majority of the Company's ticket sales for the six month period ended
June 30, 2000 are made by travel agents, including approximately 39% by
five large wholesalers. In the six month period ended June 30, 2000,
two particular wholesalers, Panda Travel, Inc. and All About Travel,
Inc., constituted approximately 20% and 11% of the Company's total
ticket sales.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
Exhibit 99-1 Loan Agreement dated as of May 26, 2000 between
Hawaiian as Borrower and Kreditanstalt fur
Wiedaraufbau as Lender and the related Secured
Reimbursement Agreement dated as of May 26, 2000
between Hawaiian as Borrower and Rolls-Royce
Deutschland GmbH as Guarantor, in redacted form
since confidential treatment has been requested
pursuant to Rule 24.6.2 for certain portions
thereof;
Exhibit 99-2 Commercial Cooperation Agreement between Northwest
Airlines, Inc. (NW) and Hawaiian, the Partner
Agreement between NW and Hawaiian, and the
Multilateral Prorate Agreement among Hawaiian, NW,
and KLM Royal Dutch Airways, all dated May 17,
2000, in redacted form since confidential
treatment has been requested pursuant to Rule
24.6.2 for certain portions thereof;
Exhibit 99-3 Employment Agreement for Robert W. Zoller, Jr. as
Executive Vice President-Operations and Service,
effective as of December 1, 1999;
Exhibit 99-4 "Deferred Advance Payments" letter agreement
(0255), relating to that Purchase Agreement Number
2252 filed as Exhibit 10(11) with the Company's
Form 10-K for the year ending December 31, 1999,
in redacted form since confidential treatment has
been requested pursuant to Rule 24.6.2 for certain
portions thereof.
(b) Reports on Form 8-K.
None.
18
<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.
HAWAIIAN AIRLINES, INC.
August 10, 2000 By /S/ WILLIAM F. LOFTUS
----------------------------
William F. Loftus
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
