<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 March 31, 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
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. (X) Yes ( ) No
As of May 1, 2000, 40,859,635 shares of Common Stock were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HAWAIIAN AIRLINES, INC.
CONDENSED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 81,958 $ 63,631
Accounts receivable, net ......................................... 23,330 24,921
Inventories, net ................................................. 13,376 13,965
Deferred tax assets, net ......................................... 9,625 9,625
Prepaid expenses and other ....................................... 7,805 6,521
--------- ---------
TOTAL CURRENT ASSETS ......................................... 136,094 118,663
--------- ---------
Property and equipment, less accumulated depreciation and
amortization of $15,653 and $12,541 in 2000 and 1999, respectively 66,021 65,272
Deferred tax assets, net ............................................. 14,500 12,375
Other assets ......................................................... 9,313 8,930
Reorganization value in excess of amounts
allocable to identifiable assets, net ............................ 33,320 33,897
--------- ---------
TOTAL ASSETS ................................................. $ 259,248 $ 239,137
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ................................ $ 3,561 $ 3,853
Current portion of capital lease obligations ..................... 1,462 3,379
Accounts payable ................................................. 40,295 41,864
Air traffic liability ............................................ 76,815 50,426
Accrued liabilities .............................................. 22,468 20,920
--------- ---------
TOTAL CURRENT LIABILITIES .................................... 144,601 120,442
--------- ---------
Long-Term Debt ....................................................... 23,621 23,858
Capital Lease Obligations ............................................ 2,603 2,790
Other Liabilities and Deferred Credits ............................... 24,895 25,921
SHAREHOLDERS' EQUITY:
Common and Special Preferred Stock ............................... 410 410
Capital in excess of par value ................................... 99,418 99,418
Warrants ......................................................... 3,153 3,153
Notes receivable from Common Stock sales ......................... (1,581) (1,581)
Accumulated deficit .............................................. (37,872) (35,274)
--------- ---------
SHAREHOLDERS' EQUITY ......................................... 63,528 66,126
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 259,248 $ 239,137
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
2
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HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES:
Passenger .............................................. $ 104,430 $ 90,486
Charter ................................................ 20,171 10,187
Cargo .................................................. 6,446 5,135
Other .................................................. 4,986 3,867
--------- ---------
TOTAL .............................................. 136,033 109,675
--------- ---------
OPERATING EXPENSES:
Wages and benefits ..................................... 38,910 32,989
Aircraft fuel, including taxes and oil ................. 28,146 13,819
Maintenance materials and repairs ...................... 28,294 23,760
Rentals and landing fees ............................... 8,923 7,420
Sales commissions ...................................... 2,358 3,414
Depreciation and amortization .......................... 3,932 3,596
Other .................................................. 29,925 23,538
--------- ---------
TOTAL .............................................. 140,488 108,536
--------- ---------
OPERATING INCOME (LOSS) .................................... (4,455) 1,139
--------- ---------
NONOPERATING INCOME (EXPENSE):
Interest expense, net .................................. 72 (229)
Loss on disposition of equipment ....................... (153) (420)
Other, net ............................................. (187) 648
--------- ---------
TOTAL .............................................. (268) (1)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (4,723) 1,138
INCOME TAX (PROVISION) BENEFIT ............................. 2,125 (535)
--------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE ..................... (2,598) 603
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES .................................... - (772)
--------- ---------
NET INCOME (LOSS) .......................................... (2,598) (169)
OTHER COMPREHENSIVE INCOME (LOSS) .......................... - -
--------- ---------
COMPREHENSIVE INCOME (LOSS) ................................ $ (2,598) $ (169)
========= =========
</TABLE>
3
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HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) PER COMMON STOCK SHARE:
BASIC
Before Cumulative Effect of Change in Accounting Principle $ (0.06) $ 0.01
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes ................................... - (0.02)
------- ----------
NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.06) $ (0.01)
======== ==========
DILUTED
Before Cumulative Effect of Change in Accounting Principle $ (0.06) $ 0.01
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes ................................... - (0.02)
-------- ----------
NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.06) $ (0.01)
======== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING:
BASIC AND DILUTED ............................................ 40,997 40,997
======== ==========
</TABLE>
4
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HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ (2,598) $ (169)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation ............................................ 2,515 2,436
Amortization ............................................ 1,417 1,160
Net periodic postretirement benefit cost ................ 280 188
Loss on disposition of equipment ........................ 153 420
Decrease (increase) in accounts receivable .............. 1,591 (2,980)
Decrease (increase) in inventories ...................... 589 (1,298)
Decrease (increase) in prepaid expenses.................. (1,284) 416
Increase in deferred tax assets ......................... (2,125) -
Increase (decrease) in accounts payable ................. (1,569) 5,347
Increase air traffic liability .......................... 26,389 3,860
Increase in accrued liabilities ......................... 1,548 3,517
Other, net .............................................. (2,124) (605)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 24,782 12,292
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... (1,514) (14,636)
Progress payments on flight equipment ....................... (2,313) -
Net proceeds from disposition of equipment .................. 5 190
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ............... (3,822) (14,446)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .................................. 232 8,531
Repayment of long-term debt ................................. (761) (573)
Repayment of capital lease obligations ...................... (2,104) (1,121)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . (2,633) 6,837
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ..................................... 18,327 4,683
Cash and cash equivalents - Beginning of Period .................. 63,631 31,011
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD ........................ $ 81,958 $ 35,694
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
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HAWAIIAN AIRLINES, INC.
STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers flown ..................... 1,407 1,295
Revenue passenger miles ("RPM") .............. 978,872 898,305
Available seat miles ("ASM") ................. 1,407,308 1,255,333
Passenger load factor ........................ 69.6% 71.6%
Passenger revenue per passenger mile ("Yield") 10.7 CENTS 10.1 CENTS
OVERSEAS CHARTER OPERATIONS:
Revenue passengers flown ..................... 96 69
RPM .......................................... 298,724 192,457
ASM .......................................... 319,025 198,787
TOTAL OPERATIONS:
Revenue passengers flown ..................... 1,503 1,364
RPM .......................................... 1,277,596 1,090,762
ASM .......................................... 1,726,333 1,454,120
Revenue per ASM .............................. 7.88 CENTS 7.54 CENTS
Cost per ASM ................................. 8.14 CENTS 7.46 CENTS
</TABLE>
6
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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 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 March 31, 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 different
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 three months ended March 31,
1999 by $177,000. 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements, including certain statements contained in this
report 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. Forward-looking statements
involve risks and uncertainties that may impact the actual results of
operations. 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. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed under Part I, Item I, Business of the Company's Form 10-K Annual
Report for the year ended December 31, 1999 and heretofore, as well as those
discussed elsewhere in this Form 10-Q. All forward-looking statements contained
in this Form 10-Q are qualified in their entirety by this cautionary statement.
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.
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 chief operating decision-maker on both the Company's
geographic components and the Company's product and service components,
resulting in the components based on products and services constituting the
operating segment. As the Company offers only one service (i.e., air
transportation), management has concluded that it has only one segment.
RESULTS OF OPERATIONS
In first quarter 2000, the Company incurred operating and net losses of $4.5
million and $2.6 million, respectively. Quarter over quarter, operating revenues
increased by $26.4 million, primarily due to a $23.9 million increase in
scheduled and chartered passenger revenues. First quarter 2000 operating
revenues were impacted favorably as (1) the Company continued to experience the
effects of particular pricing and growth strategies implemented in 1999 which
principally introduced higher fares and additional capacity and services into
the Company's Transpac, Interisland and Overseas Charter products and (2)
preliminary statistics from the Hawaii Visitors & Convention Bureau ("HVCB")
revealed that
8
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quarter over quarter, visitor arrivals to the State of Hawaii increased by 1.7%.
Quarter over quarter, a 4.8% increase in domestic arrivals, or those visitors
arriving aboard flights from the continental U.S., was offset by a 2.4% decrease
in international arrivals, or visitors arriving aboard flights from foreign
countries. Operating expenses also increased by $32.0 million quarter over
quarter, however as the cost of aircraft fuel, consistent with that of all oil
derivative products, trended upward throughout first quarter 2000 and labor,
maintenance and general administrative expenses were influenced by the
aforementioned growth strategies initiated in 1999.
The following table compares first quarter 2000 operating passenger revenues and
statistics to those in first quarter 1999, in thousands, except as otherwise
indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Operating Passenger Revenues ----------------------------- Increase
and Statistics 2000 1999 (Decrease) %
- ------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C>
Scheduled:
Passenger revenues ............ $ 104,430 $ 90,486 $ 13,944 15.4
Revenue passengers flown ...... 1,407 1,295 112 8.7
RPM ........................... 978,872 898,305 80,567 9.0
ASM ........................... 1,407,308 1,255,333 151,975 12.1
Passenger load factor ......... 69.6% 71.6% (2.0) (2.8)
Yield ......................... 10.7 CENTS 10.1 CENTS 0.6 CENTS 5.9
Overseas Charter:
Passenger revenues ............ $ 20,171 $ 10,187 $ 9,984 98.0
Revenue passengers flown ...... 96 69 27 39.1
RPM ........................... 298,724 192,457 106,267 55.2
ASM ........................... 319,025 198,787 120,238 60.5
Total Operations:
Passenger revenues ............ $ 124,601 $ 100,673 $ 23,928 23.8
Revenue passengers flown ...... 1,503 1,364 139 10.1
RPM ........................... 1,277,596 1,090,762 186,834 17.1
ASM ........................... 1,726,333 1,454,120 272,213 18.7
</TABLE>
Passenger revenues totaled $104.4 million during first quarter 2000, an increase
of $13.9 million or 15.4% over first quarter 1999. Significant period to period
variances were as follows:
As mentioned above, due to higher fares and increased capacity, the Company
experienced increases in its Transpac and Interisland passenger revenues of $8.5
million and $5.5 million, respectively. Transpac revenue passengers flown and
yield increased by 9% and 6%, respectively. Similarly, Interisland revenue
passengers flown and yield increased by 9% and 6%, respectively.
Overseas charter revenues increased by $10.0 million or 98.0% as first quarter
2000 included a full quarter's revenue for the Renaissance Cruise charter
flights between Los Angeles and Papeete, Tahiti which commenced in August 1999.
9
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The following table compares operating expenses per ASM for first quarter 2000
with first quarter 1999 by major category:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------- Increase
Operating Expenses Per ASM 2000 1999 (Decrease) %
- ------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
Wages and benefits .......................... 2.25 CENTS 2.27 CENTS (0.02) CENTS (0.9)
Aircraft fuel, including taxes and oil ...... 1.63 0.95 0.68 71.6
Maintenance materials and repairs ........... 1.64 1.63 0.01 0.6
Rentals and landing fees .................... 0.52 0.51 0.01 2.0
Sales commissions ........................... 0.14 0.23 (0.09) (39.1)
Depreciation and amortization ............... 0.23 0.25 (0.02) (8.0)
Other ....................................... 1.73 1.62 0.11 6.8
---- ---- ---- ----
Total ............................ 8.14 CENTS 7.46 CENTS 0.68 CENTS 9.1
==== ==== ==== ====
</TABLE>
All fluctuations in operating expenses were affected by an overall increase in
ASM of approximately 18.7% quarter over quarter. Significant period to period
variances were as follows:
Wages and benefits decreased by 0.02 CENTS as the dilutive effect of increased
ASMs quarter over quarter offset the increase in wages and benefits of $5.9
million or 17.9%. A majority of the increase is attributable to (1) a 3% wage
increase effective January 1, 2000 and (2) increased flying in first quarter
2000 compared to first quarter 1999. Additional labor costs, taxes and benefits
related to increased flight activity approximated $5.6 million.
Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") increased in
first quarter 2000 over first quarter 1999 by $14.3 million or 103.7%. The
average cost of aircraft fuel per gallon of 84.1 CENTS, including taxes and the
effects of the Company's fuel hedging derivative program, increased by
34.2 CENTS or 68.4% in first quarter 2000. The Company also consumed 5.9 million
or 21.4% more gallons in first quarter 2000. The Company anticipates high
aircraft fuel prices for the foreseeable future. For the month ended March 31,
2000, the Company's average cost per gallon was 89.6 CENTS. 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). Significant
changes in fuel costs or continuation of high current fuel prices will
materially affect the Company's operating results.
Maintenance materials and repairs increased by approximately $4.5 million or
19.1% quarter over quarter, primarily due to $3.9 million more in DC-10
maintenance expense, the result of increases in the number of DC-10 aircraft
used and hours flown.
Rentals and landing fees in first quarter 2000 increased by $1.5 million or
20.3% when compared to first quarter 1999. The increase is principally due to
$1.1 million of additional landing fees 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 by $6.4 million or 27.0% in first quarter
2000 versus first quarter 1999. The increase is due to a combination of
additional expenses incurred in first quarter 2000 including (1) $1.4 million or
18.1% of aircraft service related expenses; (2) $1.3 million or 44.7% in
passenger
10
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food and beverage; (3) $1.0 million or 20.6% in advertising, promotion and
reservation costs; and (4) $2.6 million or 33.6% in general and administrative
expenses, including professional and legal fees.
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, a total of $20 million toward the acquisition
of the aircraft. As of March 31, 2000, the Company had made approximately $9.5
million of these progress payments. The Company intends to use lease financing
provided through Boeing upon delivery of each aircraft.
The Company currently utilizes 15 DC-9-50 aircraft to service its Interisland
routes. The 717s (a) have the same Type Rating 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 60% below existing federal standards; and (d) meet federal
Stage 3 and proposed Stage 4, as currently defined, requirements. The 717s are
reported to be 25% more fuel-efficient and less costly to maintain than the
Company's current DC-9-50 fleet.
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 March 31, 2000 of $82.0 million, internally generated
funds and a credit facility with total availability of $9.0 million as of March
31, 2000 with aggregate term loans and letters of credit outstanding in the
amounts of $5.8 million and $3.2 million, respectively. The Company will
continue to consider various borrowing or leasing options to supplement its cash
requirements.
Cash and cash equivalents for the three-month period ending March 31, 2000
increased by $18.3 million. Operating activities for first quarter 2000 provided
$24.8 million in cash and cash equivalents, primarily due to a $26.4 million
increase in air traffic liability. The Company experienced an improvement in the
mix of its advance bookings and increased sales from all of its major internal,
wholesale and retail distribution channels. In addition to $2.3 million in
required progress payments made to Boeing as discussed above, the Company
expended $1.5 million for capital expenditures in first quarter 2000. The
Company plans for approximately $27.7 million in capital expenditures for 2000.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes heating oil forward contracts to manage market risks and
hedge its financial exposure resulting from fluctuations in 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 March 31, 2000,
the Company held petroleum forward contracts to purchase 669,000 barrels of
heating oil in the aggregate amount of $17.4 million through July 2000. 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 $1.8 million is included as a component of Aircraft Fuel
Cost for the quarter ended March 31, 2000.
11
<PAGE>
STOCK 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.
While no repurchases were made in first quarter 2000, in April 2000, 137,700
shares of Common Stock had been repurchased by the Company for approximately
$316,000.
EMPLOYEES
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. Management
cannot currently estimate the timeframe or results of the ensuing
discussions. There can be no assurance that the discussions will result in
favorable agreement 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.
DEFERRED TAX ASSETS
As of March 31, 2000, the Company had net deferred tax assets aggregating $24.1
million based on gross deferred tax assets of $54.7 million less a valuation
allowance of $18 million and deferred tax liabilities of $12.6 million.
Utilization of these deferred tax assets are predicated on the Company being
profitable in future years. The Company will continually assess the adequacy of
its financial performance in determination of 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 DERIVATIVE FINANCIAL INSTRUMENTS as described above for further
discussion on aircraft fuel and related financial instruments.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No material developments in matters previously reported or reportable
events arising in the three months ended March 31, 2000 were noted.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 10.1 Further Letter Agreements relating to Purchase
Agreement Number 2252 filed as exhibit 10(11) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999:
(a) Supplemental Agreement No.1;
(b) Other Matters.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
13
<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.
MAY 4, 2000 By /s/ JOHN L. GARIBALDI
----------------------
John L. Garibaldi
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
<PAGE>
SUPPLEMENTAL AGREEMENT NO. 1
to
PURCHASE AGREEMENT NO. 2252
between
MCDONNELL DOUGLAS CORPORATION
and
HAWAIIAN AIRLINES, INC.
Relating to Boeing Model 717-22A Aircraft
----------------
THIS SUPPLEMENTAL AGREEMENT, entered into as of March 1, 2000, by
and between MCDONNELL DOUGLAS CORPORATION, a wholly-owned subsidiary of The
Boeing Company (Boeing), and HAWAIIAN AIRLINES, INC., a corporation doing
business in the State of Hawaii, with its principal office in Honolulu, Hawaii
(Customer);
W I T N E S S E T H:
WHEREAS, the parties hereto entered into an agreement dated as of
December 31, 1999, relating to Boeing Model 717-22A aircraft, which agreement,
as amended, and supplemented together with all exhibits and specifications
attached thereto and made a part thereof which is hereinafter called the
"Purchase Agreement," and;
WHEREAS, the parties desire to amend the Agreement to revise the
delivery stream to reschedule one of the October 2001 aircraft to September
2001.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree to supplement the Purchase Agreement as
follows:
SA1-1
<PAGE>
1. The Table of Contents of the Agreement is deleted in its entirety
and a new Table of Contents (attached) is substituted in lieu
thereof (to reflect the changes listed below).
2. Table 1., "AIRCRAFT DELIVERIES AND DESCRIPTIONS", is deleted in its
entirety and a new Table 1., "AIRCRAFT DELIVERIES AND
DESCRIPTIONS", (attached) is substituted in lieu thereof (to
reflect the revised delivery stream).
3. Letter Agreement 6-1166-EMM-0299, "Other Matters" is deleted in its
entirety and a revision, Letter Agreement 6-1166-EMM-0299R1, "Other
Matters" (attached) is substituted in lieu thereof (to add further
schedule definition to the second September 2001 aircraft
delivery).
The Purchase Agreement shall be deemed to be supplemented to the extent herein
provided and as so supplemented will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
MCDONNELL DOUGLAS CORPORATION
a wholly-owned subsidiary of
THE BOEING COMPANY HAWAIIAN AIRLINES, INC.
By: /S/ By: /S/
------------------------ -----------------------
Its: Attorney-In-Fact Its:
----------------------- ----------------------
By: /S/
-----------------------
Its:
----------------------
SA1-2
<PAGE>
TABLE 1 TO
PURCHASE AGREEMENT NO. 2252
AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS
REDACTED IN ITS ENTIRETY
Page 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
REVISED BY
SA
ARTICLES NUMBER
- -------- ------
<S> <C>
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
- -----
1. Aircraft Information Table SA-1
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
i
<PAGE>
REVISED BY
SA NUMBER
LETTER AGREEMENTS
- -----------------
STANDARD:
- ---------
2252-1 Customer Support Matters
2252-2 Spares Initial Provisioning
CONFIDENTIAL:
- -------------
6-1166-EMM-0251 Aircraft Performance Guarantees
6-1166-EMM-0252 Promotional Support
6-1166-EMM-0253 Business Matters
6-1166-EMM-0254 Purchase Rights Aircraft
and Aircraft Model Substitution
6-1166-EMM-0255 Deferred Advance Payments
6-1166-EMM-0272 Liquidated Damages for
Non-Excusable Delay
canceled and superseded by:
6-1166-EMM-0299R1 Other Matters SA-1
6-1166-EMM-0300 Financing Matters
6-1166-EMM-0301 Spares Commitments
</TABLE>
ii
<PAGE>
6-1166-EMM-299R1
Hawaiian Airlines, Inc.
Honolulu International Airport
P.O. Box 30008
Honolulu, HI 96820-0008
Subject: Other Matters
Reference: Purchase Agreement No. 2252 (the Purchase Agreement) between
McDonnell Douglas Corporation (MDC) and Hawaiian Airlines,
Inc. (Customer) relating to Model 717-22A aircraft (the
Aircraft)
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.
1. DELIVERY SCHEDULE.
-----------------------------------------------------------
The provisions of Letter Agreement 6-1166-EMM-0272 would not be
applicable in the event Customer requests a further delay in delivery beyond the
revised delivery date.
2. SEPTEMBER 2001 AIRCRAFT
-----------------------------------------------------------
3. CONFIDENTIAL TREATMENT
Customer understands that certain commercial and financial information
contained in this Letter Agreement are considered by MDC as confidential.
Customer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written consent
of MDC, disclose this Letter Agreement or any information contained herein to
any other person or entity, except to the extent that such disclosure is
required by law
<PAGE>
or by any Government Entity (as such term is defined below), provided that
Customer gives reasonable notice to MDC so as to enable MDC to seek appropriate
protective orders or, if possible, challenge the requirement of such disclosure.
As used herein, "Government Entity" means (i) any national government, political
subdivision thereof, or local jurisdiction therein, (ii) any instrumentality,
board, commission, court, or agency of any of the above, however constituted,
and (iii) any association, organization, or institution of which any of the
above is a member or to whose jurisdiction any therof is subject or in whose
activities any of the above is a participant.
Very truly yours,
MCDONNELL DOUGLAS CORPORATION
a wholly-owned subsidiary of
THE BOEING COMPANY
By /s/
-------------------------------
Its Attorney-In-Fact
------------------------------
ACCEPTED AND AGREED TO this
Date: March 1, 2000
HAWAIIAN AIRLINES, INC.
By /s/
-------------------------------
Its
------------------------------
By /s/
-------------------------------
Its
------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 81,958
<SECURITIES> 0
<RECEIVABLES> 23,830
<ALLOWANCES> 500
<INVENTORY> 13,376
<CURRENT-ASSETS> 136,094
<PP&E> 81,674
<DEPRECIATION> 15,653
<TOTAL-ASSETS> 259,248
<CURRENT-LIABILITIES> 144,601
<BONDS> 26,224
0
0
<COMMON> 410
<OTHER-SE> 63,118
<TOTAL-LIABILITY-AND-EQUITY> 259,248
<SALES> 136,033
<TOTAL-REVENUES> 136,033
<CGS> 140,488
<TOTAL-COSTS> 140,488
<OTHER-EXPENSES> 340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 4,723
<INCOME-TAX> 2,125
<INCOME-CONTINUING> 2,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,598
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
