<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 September 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 November 1, 2000, 35,595,669 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)
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 81,973 $ 63,631
Accounts receivable, net .............................................. 31,660 24,921
Inventories, net ...................................................... 7,035 13,965
Deferred tax assets, net .............................................. 9,625 9,625
Prepaid expenses and other ............................................ 6,719 7,671
--------- ---------
TOTAL CURRENT ASSETS .............................................. 137,012 119,813
--------- ---------
Property and equipment, less accumulated depreciation and
amortization of $22,351 and $12,541 in 2000 and 1999, respectively .... 93,060 65,272
Deferred tax assets, net ................................................... 9,085 12,375
Other assets ............................................................... 4,792 7,780
Reorganization value in excess of amounts
allocable to identifiable assets, net ("Excess Reorganization Value") . 32,165 33,897
--------- ---------
TOTAL ASSETS ...................................................... $ 276,114 $ 239,137
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ..................................... $ 3,898 $ 3,853
Current portion of capital lease obligations .......................... 739 3,379
Accounts payable ...................................................... 47,182 41,864
Accrued liabilities ................................................... 33,849 20,920
Air traffic liability ................................................. 83,291 50,426
--------- ---------
TOTAL CURRENT LIABILITIES ......................................... 168,959 120,442
--------- ---------
Long-Term Debt ............................................................. 33,596 23,858
Capital Lease Obligations .................................................. 2,232 2,790
Other Liabilities and Deferred Credits ..................................... 18,782 25,921
SHAREHOLDERS' EQUITY:
Common and Special Preferred Stock .................................... 410 410
Capital in excess of par value ........................................ 87,194 99,418
Warrants .............................................................. -- 3,153
Notes receivable from Common Stock sales .............................. (1,584) (1,581)
Accumulated deficit ................................................... (33,475) (35,274)
--------- ---------
SHAREHOLDERS' EQUITY .............................................. 52,545 66,126
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $ 276,114 $ 239,137
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger ..................................... $ 136,672 $ 111,987 $ 363,113 $ 304,054
Charter ....................................... 20,495 10,891 60,802 30,741
Cargo ......................................... 7,321 5,829 20,792 16,877
Other ......................................... 5,413 6,119 15,783 14,802
--------- --------- --------- ---------
TOTAL ..................................... 169,901 134,826 460,490 366,474
--------- --------- --------- ---------
OPERATING EXPENSES:
Wages and benefits ............................ 42,753 36,276 121,035 103,752
Aircraft fuel, including taxes and oil ........ 32,866 20,451 89,772 51,732
Maintenance materials and repairs ............. 27,370 26,774 86,079 75,076
Rentals and landing fees ...................... 10,431 7,806 29,192 22,454
Depreciation and amortization ................. 4,115 4,723 12,104 12,528
Sales commissions ............................. 3,411 3,572 8,965 10,611
Restructuring charge .......................... 12,847 -- 12,847 --
Other ......................................... 35,088 28,299 96,425 78,249
--------- --------- --------- ---------
TOTAL ..................................... 168,881 127,901 456,419 354,402
--------- --------- --------- ---------
OPERATING INCOME ................................... 1,020 6,925 4,071 12,072
--------- --------- --------- ---------
NONOPERATING INCOME (EXPENSE):
Interest expense, net ......................... 333 (252) 784 (910)
Loss on disposition of equipment .............. (17) (59) (196) (841)
Other, net .................................... 84 (196) 430 424
--------- --------- --------- ---------
TOTAL ..................................... 400 (507) 1,018 (1,327)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ......................... 1,420 6,418 5,089 10,745
INCOME TAX PROVISION ............................... (1,638) (3,036) (3,290) (5,052)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE ............ (218) 3,382 1,799 5,693
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES ........................... -- -- -- (772)
--------- --------- --------- ---------
NET INCOME (LOSS) .................................. (218) 3,382 1,799 4,921
OTHER COMPREHENSIVE INCOME (LOSS) .................. -- -- -- --
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) ........................ $ (218) $ 3,382 $ 1,799 $ 4,921
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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 $ (0.01) $ 0.08 $ 0.05 $ 0.14
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes ................................... -- -- -- (0.02)
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.01) $ 0.08 $ 0.05 $ 0.12
======== ======== ======== ========
DILUTED
Before Cumulative Effect of Change in Accounting Principle $ (0.01) $ 0.08 $ 0.04 $ 0.14
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes ................................... -- -- -- (0.02)
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.01) $ 0.08 $ 0.04 $ 0.12
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
SHARES OUTSTANDING:
Basic ........................................................ 37,752 40,997 39,760 40,997
======== ======== ======== ========
Diluted ...................................................... 37,752 42,144 40,504 42,195
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................. $ 1,799 $ 4,921
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ................................................................................ 7,894 10,217
Amortization ................................................................................ 4,210 2,311
Net periodic postretirement benefit cost .................................................... 838 1,030
Restructuring charge ........................................................................ 12,847 --
Loss on disposition of equipment ............................................................ 196 841
Increase in accounts receivable ............................................................. (6,739) (1,858)
Decrease (increase) in inventories .......................................................... 930 (3,176)
Increase in prepaid expenses and other ...................................................... (198) (317)
Decrease in deferred taxes, net ............................................................. 3,290 --
Increase in accounts payable ................................................................ 5,318 5,223
Increase in accrued liabilities ............................................................. 6,082 2,914
Increase in air traffic liability ........................................................... 32,865 19,947
Other, net .................................................................................. (3,842) (12,382)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................................ 65,490 29,671
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Progress payments on flight equipment ....................................................... (29,096) --
Purchase of property and equipment .......................................................... (9,362) (32,168)
Net proceeds from disposition of equipment .................................................. 102 306
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .................................................... (38,356) (31,862)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .................................................................. 18,116 12,449
Repurchase of Common Stock .................................................................. (12,746) --
Repurchase of warrants ...................................................................... (2,631) --
Repayment of long-term debt ................................................................. (8,333) (2,236)
Repayment of capital lease obligations ...................................................... (3,198) (3,436)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................................ (8,792) 6,777
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................................ 18,342 4,586
Cash and cash equivalents - Beginning of Period ................................................. 63,631 31,011
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD ....................................................... $ 81,973 $ 35,597
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
HAWAIIAN AIRLINES, INC.
STATISTICAL DATA
(IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers flown ..................... 1,566 1,461 4,499 4,092
Revenue passenger miles ("RPM") .............. 1,248,652 1,123,450 3,424,804 3,054,878
Available seat miles ("ASM") ................. 1,573,664 1,437,071 4,459,049 4,064,180
Passenger load factor ........................ 79.3% 78.2% 76.8% 75.2%
Passenger revenue per passenger mile ("Yield") 10.9(cents) 10.0(cents) 10.6(cents) 10.0(cents)
OVERSEAS CHARTER OPERATIONS:
Revenue passengers flown ..................... 94 70 285 202
RPM .......................................... 282,688 195,261 874,781 563,283
ASM .......................................... 320,451 205,339 958,983 591,029
TOTAL OPERATIONS:
Revenue passengers flown ..................... 1,660 1,531 4,784 4,294
RPM .......................................... 1,531,340 1,318,711 4,299,585 3,618,161
ASM .......................................... 1,894,115 1,642,410 5,418,032 4,655,209
Revenue per ASM .............................. 8.97(cents) 8.21(cents) 8.50(cents) 7.87(cents)
Cost per ASM ................................. 8.93(cents) 7.80(cents) 8.43(cents) 7.61(cents)
</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 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. as of September 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 corporate statutory rate of 35.0%.
As of September 30, 2000, the Company had net deferred tax assets aggregating
$18.7 million. The Company recorded an adjustment to the deferred tax assets
of $1.0 million during the third quarter which reduced the deferred tax asset
and increased the income tax provision. 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 and net income.
3. FREQUENT FLYER PROGRAM
The Company sells mileage credits to participating partners including hotels,
car rental agencies and credit card companies. During 1999, as promulgated by
the Securities and Exchange Commission's 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 nine months ended September 30,
1999 by $485,000. 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 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.
6. RESTRUCTURING CHARGE
The restructuring of the Company's DC-9 fleet will be completed by the end of
fiscal year 2001. The restructuring of the DC-9 fleet will result in surplus
inventory, costs related to the return of the aircraft under operating leases
and other costs related to the transition to the Boeing 717s. In the third
quarter of fiscal year 2000, the Company recorded a restructuring charge of
$12.8 million. $6.0 million of the charge is to reduce the net value of the
DC-9 surplus parts inventory to the estimated fair market value. The
remaining $6.8 million is to provide for the return of the leased DC-9
aircraft.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements contained herein 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," "could,"
"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 given 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 results are 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,
some of which are 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 of 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.
RESULTS OF OPERATIONS
In third quarter 2000, the Company incurred operating income and net loss of
$1.0 million and $218,000, respectively. For the nine month period ended
September 30, 2000, the Company earned operating and net incomes of $4.1 and
$1.8 million, respectively. The Company continues to experience favorable growth
in its operating revenues as a result of the implementation of certain fare and
capacity strategies. However, both third quarter 2000 and the nine month period
ended September 30, 2000 were affected by $12.8 million in restructuring charges
related to the Company's narrow-body fleet transition.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000
The Company generated $169.9 million in operating revenues in third quarter
2000, representing an increase over second quarter 2000 of $35.1 million or 26%.
A majority of the increase is associated with increased passenger revenues. The
following table compares third quarter 2000 operating passenger revenues and
statistics to those in third quarter 1999, in thousands, except as otherwise
indicated:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
Operating Passenger -----------------------------
Revenues and Statistics 2000 1999 Increase %
----------------------------------------------- ---------- ---------- ---------- ----
<S> <C> <C> <C> <C>
Scheduled:
Passenger revenues............................. $ 136,672 $ 111,987 $ 24,685 22.0
Revenue passengers flown....................... 1,566 1,461 105 7.2
RPM............................................ 1,248,652 1,123,450 125,202 11.1
ASM............................................ 1,573,664 1,437,071 136,593 9.5
Passenger load factor.......................... 79.3% 78.2% 1.1 1.4
Yield.......................................... 10.9(cents) 10.0(cents) 0.9(cents) 9.0
Overseas Charter:
Charter revenues............................... $ 20,495 $ 10,891 $ 9,604 88.2
Revenue passengers flown....................... 94 70 24 34.3
RPM............................................ 282,688 195,261 87,427 44.8
ASM............................................ 320,451 205,339 115,112 56.1
Total Operations:
Scheduled passenger and
overseas charter revenues...................... $ 157,167 $ 122,878 $ 34,289 27.9
Revenue passengers flown....................... 1,660 1,531 129 8.4
RPM............................................ 1,531,340 1,318,711 212,629 16.1
ASM............................................ 1,894,115 1,642,410 251,705 15.3
</TABLE>
Significant quarter to quarter variances were as follows:
Scheduled passenger revenues totaled $136.7 million in third quarter 2000, an
increase of $24.7 million or 22.0% over third quarter 1999. The Company
experienced increases in all aspects of its scheduled passenger revenues. As
discussed above, due to higher fares and increased capacity, the Company
9
<PAGE>
experienced increases in its Transpac and Interisland passenger revenues of
$19.3 million and $4.2 million, respectively. The Transpac increase was
primarily driven by 10% and 15% increases in revenue passengers flown and yield,
respectively. Interisland revenue passengers flown and yield also experienced
favorable increases of 6% and 5%, respectively. Southpac passenger revenues also
increased $1.2 million quarter over quarter based on a 14% increase in revenue
passengers flown and a 3% increase in yield.
Charter revenues increased $9.6 million or 88.2% as third quarter 2000
included three months of revenue for the Renaissance Cruise charter flights
between Los Angeles and Papeete, Tahiti. Third quarter 1999 included, on
average, two months of such revenue as the Renaissance Charters commenced in
August 1999.
The following table compares operating expenses per ASM for third quarter 2000
with third quarter 1999 by major category:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------- INCREASE
OPERATING EXPENSES PER ASM 2000 1999 (DECREASE) %
--------------------------------------------------------------- ----- ---- --------- ----
<S> <C> <C> <C> <C>
Wages and benefits............................................. 2.26(cents) 2.21(cents) 0.05(cents) 2.3
Aircraft fuel, including taxes and oil......................... 1.74 1.25 0.49 39.2
Maintenance materials and repairs.............................. 1.45 1.63 (0.18) 11.0
Rentals and landing fees....................................... 0.55 0.48 0.07 14.6
Sales commissions.............................................. 0.18 0.22 (0.04) (18.2)
Depreciation and amortization.................................. 0.22 0.29 (0.07) (24.1)
Other.......................................................... 1.85 1.72 0.13 7.6
----- ---- -------
8.25 7.80 0.45 5.8
Restructuring charge........................................... 0.68 -- 0.68 100.0
----- ---- -------
Total...................................................... 8.93(cents) 7.80(cents) 1.13(cents) 14.5
===== ==== =======
</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 $42.8 million in third quarter 2000 versus $36.3
million in third quarter 1999, an increase of $6.5 million or 17.9%. 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 11% due to increased flying.
Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") increased
quarter over quarter by $12.4 million or 60.7%. The Company incurred
approximately $10.2 million more Aircraft Fuel Cost due to the increased
price of fuel. The average cost of aircraft fuel per gallon of 87.9(cents),
including taxes and the effects of the Company's fuel hedging program,
increased by 23.3(cents) or 36.0% in third quarter 2000. In addition, the
Company also consumed 5.8 million or 18.2% more gallons in third quarter 2000
versus third quarter 1999.
10
<PAGE>
Third quarter 2000 rentals and landing fees increased by $2.6 million or 33.6%
when compared to third quarter 1999. The increase is principally due to (1) $1.6
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
and (2) $851,000 in additional aircraft rents as two more DC-10s were flown in
third quarter 2000 versus third quarter 1999.
Other operating expenses increased quarter over quarter by $6.8 million or
24.0%. The increase is due to a combination of additional expenses incurred in
third quarter 2000 including (1) $3.2 million or 35.4% of aircraft service
related expenses such as ground handling, security and catering services and (2)
$3.0 million or 41.4% in general and administrative expenses.
Pursuant to its narrow-body fleet transition plan, the Company recorded
approximately $12.8 million of restructuring charges related to excess or
obsolete DC-9 inventory parts and the disposition of five DC-9 aircraft under
operating leases.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
The Company generated $460.5 million in operating revenues for the nine month
period ended September 30, 2000. This represents an increase of $94.0 million or
25.7% of which $89.1 million is associated with increased passenger revenues.
The following table compares operating passenger revenues and statistics for the
nine month periods ended September 30, 2000 and 1999, in thousands, except as
otherwise indicated:
11
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
OPERATING PASSENGER --------------------------------
REVENUES AND STATISTICS 2000 1999 INCREASE %
------------------------------------------------- ----------- ------------ ----------- ----
<S> <C> <C> <C> <C>
Scheduled:
Passenger revenues............................. $ 363,113 $ 304,054 $ 59,059 19.4
Revenue passengers flown....................... 4,499 4,092 407 9.9
RPM............................................ 3,424,804 3,054,878 369,926 12.1
ASM............................................ 4,459,049 4,064,180 394,869 9.7
Passenger load factor.......................... 76.8% 75.2% 1.6% 2.1
Yield.......................................... 10.6(cents) 10.0(cents) 0.6(cents) 6.0
Overseas Charter:
Charter revenues............................... $ 60,802 $ 30,741 $ 30,061 97.8
Revenue passengers flown....................... 285 202 83 41.1
RPM............................................ 874,781 563,283 311,498 55.3
ASM............................................ 958,983 591,029 367,954 62.3
Total Operations:
Scheduled passenger and
overseas charter revenues...................... $ 423,915 $ 334,795 $ 89,120 26.6
Revenue passengers flown....................... 4,784 4,294 490 11.4
RPM............................................ 4,299,585 3,618,161 681,424 18.8
ASM............................................ 5,418,032 4,655,209 762,823 16.4
</TABLE>
Significant period to period variances were as follows:
Scheduled passenger revenues totaled $363.1 million during the nine month period
ended September 30, 2000, an increase of $59.1 million or 19.4% over passenger
revenues of $304.1 million for the nine month period ended September 30, 1999.
The Company experienced period over period increases of $40.0 million and $17.2
million in its Transpac and Interisland passenger revenues, respectively. The
Company experienced, on average, increased (1) Transpac revenue passengers flown
and yields of 12% and 10%, respectively, and (2) Interisland revenue passengers
flown and yields of 9% and 6%, respectively.
Charter revenues totaled $60.8 million in the nine month period ended September
30, 2000, an increase of $30.1 million or 97.8% from the nine month period ended
September 30, 1999. The increase is principally due to the Renaissance Cruise
charter flights between Los Angeles and Papeete, Tahiti not being flown until
August 1999.
The following table compares operating expenses per ASM by major category for
the nine month periods ended September 30, 2000 and 1999:
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------- INCREASE
OPERATING EXPENSES PER ASM 2000 1999 (DECREASE) %
--------------------------------------------------- ----------- ------------ ----------- ------
<S> <C> <C> <C> <C>
Wages and benefits................................. 2.23(cents) 2.23(cents) --(cents) --
Aircraft fuel, including taxes and oil............. 1.66 1.11 0.55 49.5
Maintenance materials and repairs.................. 1.59 1.61 (0.02) (1.2)
Rentals and landing fees........................... 0.54 0.48 0.06 12.5
Sales commissions.................................. 0.17 0.23 (0.06) (26.1)
Depreciation and amortization...................... 0.22 0.27 (0.05) (18.5)
Other.............................................. 1.78 1.68 0.10 6.0
----------- ------------ -----------
8.19 7.61 0.58 7.6
Restructuring charge............................... 0.24 - 0.24 100.0
----------- ------------ -----------
Total.................................. 8.43(cents) 7.61(cents) 0.82(cents) 10.8
=========== ============ ===========
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 16.4% period over period. Significant period to
period variances were as follows:
Wages and benefits totaled $121.0 million for the nine month period ended
September 30, 2000 versus $103.8 million for same period in 1999, an increase of
$17.3 million or 16.7%. A majority of the increase is attributable to (1) a 3%
wage increase effective January 1, 2000 and (2) on average, additional employee
headcount period over period of approximately 14%.
Aircraft Fuel Cost increased period over period by $38.1 million or 73.6%.
The Company incurred approximately $29.9 million more Aircraft Fuel Cost due
to the increased price of fuel. The average cost of aircraft fuel per gallon
of 84.6(cents), including taxes and the effects of the Company's fuel hedging
program, increased by 26.5(cents) or 45.5%. The Company also consumed 17.2
million or 19.4% more gallons for the nine month period ended September 30,
2000.
Maintenance materials and repairs for the nine months ended September 30, 2000
increased by $11.0 million or 14.7%. The additional maintenance expense resulted
from the net of (1) $13.1 million more in DC-10 maintenance expense, the result
of increases in maintenance rates and the number and hours of DC-10 aircraft
used and flown and (2) $2.2 million less DC-9 airframe and engine repairs.
Rentals and landing fees through September 30, 2000 increased by $6.7 million or
30.0% when compared to 1999. The increase is principally due to (1) $4.3 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 and (2)
$1.9 million in additional aircraft rents as, on average, two more DC-10s have
been flown during 2000.
Sales commissions through September 30, 2000 decreased by $1.6 million or 15.5%
compared to the same period last year. The decrease is primarily due to a
reduction in the travel agency commission rate from 8% to 5% initiated in
October 1999.
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Other operating expenses increased period over period by $18.2 million or 23.2%.
The increase is due to a combination of additional expenses throughout 2000
including (1) $7.3 million or 25.5% of aircraft service related expenses such as
into-plane fueling, ground handling, security and catering services and
interrupted trip expense and (2) $7.4 million or 34.5% in general and
administrative expenses.
Refer to the discussion above for a description of restructuring charges
incurred by the Company.
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
September 30, 2000, the Company had made approximately $36.3 million of the
required $43 million in progress payments, with $29.1 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 Company currently utilizes 15 DC-9 aircraft for interisland service. The
Company will retire one of these aircraft on November 30, 2000 in order to
forego costly routine heavy maintenance required for continued use.
LIQUIDITY AND CAPITAL RESOURCES
Cash and liquid short-term investment securities on hand at September 30, 2000
totaled $82.0 million. The Company continues to consider various borrowing,
leasing and vendor service agreement options to supplement its cash
requirements.
Cash and cash equivalents for the nine month period ended September 30, 2000
increased by $18.3 million. Operating activities provided $65.5 million in
cash and cash equivalents, including a $32.9 million increase in air traffic
liability. During the nine month period ended September 30, 2000, $29.1
million in required progress payments were made for the Boeing 717-200
aircraft acquisition. Approximately $11.7 million of these payments were made
through use of internally generated funds. The remaining $17.4 million of
payments were funded through the secured revolving term loan facility with
Rolls-Royce described above. The Company also expended $9.4 million for
capital expenditures for the nine month period ended September 30, 2000.
FUEL PRICE RISK MANAGEMENT
The Company utilizes heating oil forward contracts to manage its aircraft fuel
costs. The Company employs a strategy whereby heating oil contracts are used to
purchase approximately 40% of the Company's anticipated aircraft fuel needs on a
rolling six month basis. At September 30, 2000, the Company held petroleum
forward contracts to purchase 724,000 barrels of heating oil in the aggregate
amount of $21.9 million through January 2002. These forward contracts represent
approximately 40% of
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the Company's anticipated aircraft fuel needs for the next six months. A
realized net gain on liquidated contracts amounting to $7.8 million is included
as a component of Aircraft Fuel Cost for the nine months ended September 30,
2000.
STOCK AND WARRANT REPURCHASES
In March 2000, the Company announced that its Board of Directors had approved
a stock repurchase program authorizing the Company to buy up to 5 million
shares of its Common Stock. In August 2000, the Board of Directors increased
the authorization to 10 million shares. 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
are 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. Including
the effect of the repurchase of certain warrants, as of September 30, 2000,
7,354,738 shares of Common Stock had been repurchased by the Company for
approximately $15.2 million.
EMPLOYEES
As of September 30, 2000, the Company had 3,322 employees, of which 2,770 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 ("NMB") for mediation assistance to expedite the negotiations
with ALPA. Since August, negotiations with ALPA have been guided by NMB
facilitators but an agreement has not been reached. 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.
DEFERRED TAX ASSETS
As of September 30, 2000, the Company had net deferred tax assets aggregating
$18.7 million based on gross deferred tax assets of $53.6 million less a
valuation allowance of $23.1 million and deferred tax liabilities of $11.8
million. Utilization of these deferred tax assets is predicated on the Company
being profitable in future years. In consideration of the restructuring charge
discussed above, the Company reduced the carrying value of its deferred tax
asset as of September 30, 2000 by $1.0 million. 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 and net income.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to certain market risks related to aircraft fuel. Refer
to FUEL PRICE RISK MANAGEMENT as described above for further discussion on
aircraft fuel and related financial instruments.
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 nine
months ended September 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.
None.
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.
A majority of the Company's ticket sales for the nine month
period ended September 30, 2000 are made by travel agents,
including approximately 31% by five large wholesalers. In the
nine month period ended September 30, 2000, one particular
wholesaler, Panda Travel, Inc., constituted approximately 16%
of the Company's total ticket sales.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated July 14, 2000 reporting
Item 5, "Other Events"
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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.
November 14, 2000 By /s/ WILLIAM F. LOFTUS
----------------------------------------
William F. Loftus
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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