United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 1996
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From __________ to _________
Commission file number 000-21642
AMTRAN,INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
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 periods that the
registrantwas required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ______
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,793,052 shares as of April 30, 1996
<PAGE>
PART I - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ........................................... $ 94,060 $ 92,741
Receivables, net of allowance for doubtful accounts
(1996 - $1,175; 1995 - $1,303) ................................ 25,663 24,158
Inventories, net ................................................... 14,622 13,959
Prepaid expenses and other current assets ........................... 25,363 25,239
--------- ---------
Total current assets ...................................................... 159,708 156,097
Property and equipment:
Flight equipment .................................................... 417,592 384,476
Facilities and ground equipment ..................................... 42,119 40,290
--------- ---------
459,711 424,766
Accumulated depreciation ............................................ 190,012 183,998
--------- ---------
269,699 240,768
Deposits and other assets ................................................. 15,439 16,272
--------- ---------
Total assets .............................................................. $ 444,846 $ 413,137
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................................. $ 2,597 $ 3,606
Accounts payable ..................................................... 6,884 11,152
Air traffic liabilities .............................................. 64,441 56,531
Accrued expenses ..................................................... 76,376 76,312
--------- ---------
Total current liabilities ................................................. 150,298 147,601
Long-term debt, less current maturities ................................... 157,808 134,641
Deferred income taxes ..................................................... 37,785 37,949
Other deferred items ...................................................... 15,113 11,761
Commitments and contingencies
Shareholders' equity:
Preferred stock: authorized 10,000,000 shares,
none issued .......................................................... -- --
Common stock, without par value: authorized 30,000,000
shares; issued 11,793,052-1996; 11,790,752-1995 ...................... 38,296 38,259
Additional paid-in capital ........................................... 15,631 15,821
Deferred compensation - ESOP ......................................... (2,133) (2,666)
Treasury stock: 175,000 shares - 1996; 169,000 shares - 1995......... (1,657) (1,581)
Retained earnings .................................................... 33,705 31,352
--------- --------
83,842 81,185
--------- ---------
Total liabilities and shareholders' equity ................................ $ 444,846 $ 413,137
========= =========
See accompanying notes.
</TABLE>
<PAGE>
PART I - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended March 31,
1996 1995
-----------------------------------
(Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C>
Scheduled service ....................................................... $ 110,453 $ 89,538
Charter ................................................................. 83,205 81,328
Ground package .......................................................... 7,248 5,796
Other ................................................................... 6,229 5,956
--------- ---------
Total operating revenues ................................................... 207,135 182,618
--------- ---------
Operating expenses:
Fuel and oil ............................................................ 41,149 32,914
Salaries, wages and benefits ............................................ 40,346 33,804
Handling, landing and navigation fees ................................... 19,771 18,063
Aircraft rentals ........................................................ 17,125 13,354
Depreciation and amortization ........................................... 15,561 13,487
Aircraft maintenance, materials and repairs ............................. 13,624 15,106
Passenger service ....................................................... 9,215 8,587
Crew and other employee travel .......................................... 7,788 6,198
Commissions ............................................................. 7,378 5,921
Other selling expenses .................................................. 5,578 4,070
Ground package cost ..................................................... 5,428 4,407
Advertising ............................................................. 2,527 2,830
Facility and other rents ................................................ 2,045 1,799
Other operating expenses ................................................ 14,383 11,459
--------- ---------
Total operating expenses ................................................... 201,918 171,999
--------- ---------
Operating income ........................................................... 5,217 10,619
Other income (expenses):
Gain on sale of property ................................................ 214 188
Interest income ......................................................... 203 114
Interest expense ........................................................ (1,358) (1,041)
Other ................................................................... 86 102
--------- ---------
Other expenses ............................................................. (855) (637)
--------- ---------
Income before income taxes ................................................. 4,362 9,982
Income taxes ............................................................... 2,009 4,578
--------- ---------
Net income ................................................................. $ 2,353 $ 5,404
========= =========
Net income per share ....................................................... $ 0.21 $ 0.46
========= =========
Average shares outstanding ................................................. 11,492,125 11,656,361
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
PART I - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three Months Ended March 31,
1996 1995
----------------------------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income ................................................................. $ 2,353 $ 5,404
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .......................................... 15,561 13,487
Deferred income taxes .................................................. (164) 3,136
Other non-cash items ................................................... 2,237 3,684
Changes in current assets and liabilities:
Receivables ........................................................... (1,505) (6,415)
Inventories ........................................................... (909) 888
Prepaid expenses ...................................................... (124) (456)
Accounts payable ...................................................... (4,267) (5,863)
Air traffic liabilities ............................................... 7,910 13,778
Accrued expenses ...................................................... 928 6,909
-------- --------
Net cash provided by operating activities .................................. 22,020 34,552
-------- --------
Investing activities:
Proceeds from sales of equipment ....................................... 7,334 19
Capital expenditures ................................................... (40,027) (20,865)
(Additions to)/reductions of other assets .............................. 697 (1,059)
-------- --------
Net cash used in investing activities ...................................... (31,996) (21,905)
-------- --------
Financing activities:
Proceeds from long-term debt ........................................... 15,000 -
Payments on long-term debt ............................................. (3,629) (5,338)
Repurchase of common stock ............................................. (76) (91)
-------- --------
Net cash provided by (used in) financing activities ........................ 11,295 (5,429)
-------- --------
Increase in cash and cash equivalents 1,319 7,218
Cash and cash equivalents, beginning of period ............................. 92,741 61,752
-------- --------
Cash and cash equivalents, end of period ................................... $ 94,060 $ 68,970
======== ========
Supplemental disclosures:
Cash payments/(refunds) for:
Interest ............................................................... $ 1,265 $ 1,056
Income taxes ........................................................... 38 (1,228)
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital
expenditures ........................................................... $ 10,736 -
See accompanying notes.
</TABLE>
<PAGE>
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of Amtran, Inc. and
subsidiaries (the "Company") have been prepared in accordance with
instructions for reporting interim financial information on Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
The consolidated financial statements for the quarters ended March 31,
1996 and 1995 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows for
such periods. Results for the three months ended March 31, 1996 are not
necessarily indicative of results to be expected for the full fiscal year
ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company's operating revenues increased 13.4% from $182.6 million in the
first quarter of 1995 to $207.1 million in the first quarter of 1996. Between
these same quarters, available seat miles (ASMs) increased 7.8% from 3.20
billion to 3.45 billion, and revenue passenger miles (RPMs) increased 12.1% from
2.23 billion to 2.50 billion. The Company's passenger load factor improved 3.0
points from 69.6% in the first quarter of 1995 to 72.6% in the first quarter of
1996. Total revenue per ASM increased 5.3% from 5.71 cents in the 1995 quarter
to 6.01 cents in the 1996 quarter.
The increase in both the Company's capacity and traffic during the first quarter
of 1996 was derived primarily from increased scheduled service, which produced
$110.5 million, or 53.4%, of first quarter 1996 operating revenues as compared
to $89.5 million, or 49.0%, of first quarter 1995 operating revenues. Scheduled
service ASMs increased 9.2% from 1.73 billion in the first quarter of 1995 to
1.89 billion in the first quarter of 1996; RPMs increased 17.0% from 1.12
billion in the 1995 first quarter to 1.31 billion in the 1996 first quarter; and
the passenger load factor improved 4.3 points from 64.9% in the first quarter of
1995 to 69.2% in the first quarter of 1996.
Charter operations provided the second most significant source of revenue for
the Company in the first quarter of 1996. Charter revenues produced $83.2
million, or 40.2%, of total operating revenues in the first quarter of 1996, as
compared to $81.3 million, or 44.5%, of total operating revenues in the first
quarter of 1995. Charter ASMs increased 6.2% from 1.46 billion in the first
quarter of 1995 to 1.55 billion in the first quarter of 1996; RPMs increased
8.2% from 1.10 billion in the 1995 first quarter to 1.19 billion in the 1996
first quarter; and the passenger load factor improved 1.4 points from 75.4% in
the first quarter of 1995 to 76.8% in the first quarter of 1996.
Other revenues, including ground package sales, liquor and headset sales,
administrative ticketing fees and the consolidated revenues of non-airline
subsidiary companies represented $13.4 million, or 6.5%, of operating revenues
in the first quarter of 1996, as compared to $11.8 million, or 6.5%, of
operating revenues in the first quarter of 1995.
The Company's operating expenses increased 17.4% from $172.0 million in the
first quarter of 1995 to $201.9 million in the first quarter of 1996. Total
operating cost per ASM increased 8.9% from 5.38 cents in the first quarter of
1995 to 5.86 cents in the first quarter of 1996. The most significant factor in
the Company's increased operating cost per ASM between the first quarter of 1995
and 1996 was the increased cost of jet fuel. The Company incurred approximately
$4.7 million in additional price-related jet fuel expense between quarters.
Approximately $2.6 million was due to an increase in the average market price of
jet fuel consumed, and approximately $2.1 million was due to the continued
imposition of the 4.3 cent-per-gallon Federal excise tax on jet fuel purchased
for domestic flying, which became applicable to the Company on October 1, 1995.
In addition to the unfavorable impact of fuel costs, the severe winter weather
in the first quarter of 1996 significantly impacted the Company's flight
operations in Boston and Chicago-Midway and caused the Company to incur higher
costs in 1996 for such items as de-icing of aircraft and interrupted trip
expenses associated with canceled and delayed flights.
Operating income as a percent of operating revenue decreased to 2.5% in the
first quarter of 1996, as compared to 5.8% in the first quarter of 1995.
<PAGE>
<TABLE>
Results of Operations in Cents per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per ASM.
Cents Per ASM
<CAPTION>
Quarter Ended March 31,
1996 1995
---- ----
<S> <C> <C>
Operating revenues ................................................ 6.01 5.71
Operating expenses:
Fuel and oil .................................................. 1.19 1.03
Salaries, wages and benefits .................................. 1.17 1.06
Handling, landing and navigation fees ......................... 0.57 0.56
Aircraft rentals .............................................. 0.50 0.42
Depreciation and amortization ................................. 0.45 0.42
Aircraft maintenance, materials and repairs ................... 0.40 0.47
Passenger service ............................................. 0.27 0.27
Crew and other employee travel ................................ 0.23 0.19
Commissions ................................................... 0.21 0.18
Other selling expense ......................................... 0.16 0.13
Ground package cost ........................................... 0.16 0.14
Advertising ................................................... 0.07 0.09
Facility and other rents ..................................... 0.06 0.06
Other operating expenses ...................................... 0.42 0.36
---- ----
Total operating expenses .................................. 5.86 5.38
---- ----
Operating income .............................................. 0.15 0.33
==== ====
ASMs (in thousands) ........................................... 3,445,847 3,197,804
</TABLE>
Quarter Ended March 31, 1996, Versus Quarter Ended March 31, 1995
Operating Revenues
Total operating revenues for the first quarter of 1996 increased $24.5 million,
or 13.4%, to $207.1 million. This increase from the first quarter of 1995 was
due to a $21.0 million increase in scheduled service revenues, a $1.9 million
increase in charter revenues, a $1.4 million increase in ground package sales
and a $0.2 million increase in other revenues. Operating revenue per ASM for the
first quarter of 1996 was 6.01 cents, an increase of 5.3% from 5.71 cents in the
first quarter of 1995.
Scheduled Service Revenues. Scheduled service revenues increased 23.5% from
$89.5 million in the first quarter of 1995 to $110.5 million in the first
quarter of 1996 as a result of an improved load factor and a somewhat higher
scheduled service yield.
Scheduled service RPMs increased 17.0% from the first quarter of 1995 to the
first quarter of 1996. Capacity increased 9.2% as measured by ASMs between
quarters, resulting in an improved passenger load factor of 69.2% as compared to
64.9%. Passengers boarded increased 23.2% from 0.82 million in the first quarter
of 1995 to 1.01 million in the first quarter of 1996. Scheduled service
departures increased 27.3% from 6,600 in the first quarter of 1995 to 8,400 in
the first quarter of 1996. In the first quarter of 1996, Boston traffic grew
through the addition of new service to San Juan, West Palm Beach, St. Petersburg
and Las Vegas; Chicago-Midway frequencies were increased to Las Vegas, San
Francisco, Los Angeles, Orlando and St. Petersburg; and Indianapolis capacity
was expanded through the addition of L-1011 wide-body service to Las Vegas,
Orlando and Ft. Myers. First quarter 1995 scheduled service in St. Louis and the
Virgin Islands had no comparable service during the first quarter of 1996.
The Company's scheduled service yield management process is based upon dividing
the total seats on each flight into separate groups or inventories, each of
which is offered for sale at a fare which is based upon the Company's
expectation of customer demand for those groups of seats. The Company
continually monitors seat inventories sold and unsold on all flights as the
departure dates approach, and inventories offered for sale are continually
adjusted to the latest seat supply and demand expectations. In this manner, the
Company is able to better optimize prices paid (and therefore yield earned) for
its product. Under this approach to yield management, the Company generally
sells more high-end fares in periods of increased customer demand, and more
low-end fares in periods of lower customer demand.
Scheduled service yield in the first quarter of 1996 was 8.46 cents per RPM, an
increase of 6.3% over the first quarter 1995 scheduled service yield of 7.96
cents per RPM. In the early half of the first quarter of 1996, the Company
experienced downward pressure on yields in many of the lowest fare categories
sold due to the introduction of lower fares by some of the Company's
competitors. In the month of March, however, which is traditionally a very
strong leisure demand period in the Company's major markets, the Company's yield
was 17.4% higher than in March of 1995.
The Company believes that the expiration of the Federal excise tax on tickets
sold by all carriers (effective January 1, 1996) further reinforced these yield
impacts in the first quarter of 1996. In general, the industry response to the
expiration of the 10% ticket tax was to maintain lower-fare categories at their
previous net-of-tax levels, while at many higher fare classifications the tax
tended to be "internalized" by carriers, by maintaining or increasing previous
tax-inclusive fare levels. As a result of these wide-spread industry changes in
market fares in early January 1996, yields on lower fare categories could not be
sustained at prior year levels in the face of intense price competition, while
yields on higher fare categories benefited from the expiration of the tax.
The Company believes that this industry pricing reaction to the excise tax
expiration will continue to exercise effects on the Company's future yields
similar to those noted in the first quarter of 1996.
Charter Revenues. Charter revenues increased 2.3% from $ 81.3 million in the
first quarter of 1995 to $83.2 million in the first quarter of 1996. The
Company's charter revenues are derived primarily from independent tour operators
and from the United States military. The Company's charter product provides
passenger air transportation to hundreds of customer-designated destinations
throughout the world.
Charter revenues derived from independent tour operators increased 10.5% from
$62.1 million in the first quarter of 1995 to $68.6 million in the first quarter
of 1996. Most of this revenue increase was derived from stronger tour operator
traffic between years, while tour operator yield declined 3.2% from 6.58 cents
per RPM in the first quarter of 1995 to 6.37 cents per RPM in the first quarter
of 1996. Tour operator RPMs increased 14.9% from 0.94 billion in the first
quarter of 1995 to 1.08 billion in the first quarter of 1996, while ASMs
increased 15.2% from 1.12 billion in 1995 to 1.29 billion in 1996, resulting in
a slightly lower passenger load factor of 83.8% in the first quarter of 1996 as
compared to 84.5% in the prior year. Passengers boarded increased 17.9% from
0.56 million in the first quarter of 1995 to 0.66 million in the first quarter
of 1996, while departures increased 19.4% from 3,100 in the first quarter of
1995 to 3,700 in the first quarter of 1996.
Charter revenues derived from the U.S. military decreased 24.0% from $19.2
million in the first quarter of 1995 to $14.6 million in the first quarter of
1996. Military revenues were unfavorably impacted by declines in traffic,
although military yield improved 1.4% from 12.51 cents per RPM in the first
quarter of 1995 to 12.69 cents in the first quarter of 1996. Military RPMs
declined 20.0% from 0.15 billion in the first quarter of 1995 to 0.12 billion in
the first quarter of 1996, while ASMs decreased 20.6% from 0.34 billion to 0.27
billion between quarters, resulting in a lower passenger load factor of 43.0% in
the first quarter of 1996 as compared to 45.4% in the prior year. Passengers
boarded decreased 40.7% from 54,000 in the first quarter of 1995 to 32,000 in
the first quarter of 1996, while departures declined 50.0% from 1,000 in the
first quarter of 1995 to 500 in the first quarter of 1996.
The Company and other competing air carriers are compensated for U.S. military
flying based upon reimbursement rates set by the United States government. These
reimbursement rates have generally declined over the last several contract
years. Although the Company's military yields are comparatively higher than for
tour operators and scheduled service business segments, much of this yield is a
result of being paid for a fixed number of seats while actually flying with low
load factors. The Company can also incur substantial non-recurring costs to
accommodate military flying which often becomes available on short notice. The
reduction of military ASMs in 1996 was largely the result of decisions to deploy
the Company's aircraft into selected scheduled service and tour operator
markets, where the Company believes that more repetitive frequencies and more
predictable revenues and costs can be achieved in the long-term.
Ground Package Revenues. Ground package revenues increased 24.1% from $5.8
million in the first quarter of 1995 to $7.2 million in the first quarter of
1996. Ground packages, such as hotel and car rentals, are sold in conjunction
with the Company's air transportation product to Ambassadair Travel Club members
and to the general public through ATA Vacations, Inc., its tour operator
subsidiary. The total number of ground packages sold increased 22.7% and 12.5%
between quarters for Ambassadair members and ATA Vacations purchasers,
respectively. The average price per package sold also increased for both
distribution channels between the first quarter of 1995 and the first quarter of
1996. The Company is placing greater emphasis on the sale of air and ground
combination packages as another means of appealing to its value-conscious
leisure passengers. In the first quarter of 1996, the revenue per ASM for ground
packages increased by 16.1% as compared to the first quarter of 1995.
Other Revenues. Other revenues increased 3.3% from $6.0 million in the first
quarter of 1995 to $6.2 million in the first quarter of 1996. Other revenues are
comprised of the consolidated revenues of affiliated companies, together with
miscellaneous categories of revenue associated with the scheduled and charter
operations of ATA.
Operating Expenses
Total operating expenses increased 17.4% from $172.0 million in the first
quarter of 1995 to $201.9 million in the first quarter of 1996. In addition to
the significant increase in fuel prices and taxes, operating expense increases
were primarily due to greater scheduled service capacity and more passengers
boarded in 1996 which affected most expense categories.
Operating cost per ASM increased 8.9% from 5.38 cents in the first quarter of
1995 to 5.86 cents in the first quarter of 1996. This increase in the cost per
ASM reflects growth in the cost per ASM of all individual expense categories
except passenger service and facility and other rents, which remained unchanged
between quarters, and advertising and aircraft maintenance, materials and
repairs, which declined between quarters.
Fuel and Oil. The cost of fuel and oil increased 24.9% from $32.9 million in the
first quarter of 1995 to $41.1 million in the first quarter of 1996. The cost
per ASM of fuel and oil increased 15.5% from 1.03 cents to 1.19 cents between
quarters.
The average price paid for jet fuel consumed in the first quarter of 1996
increased by 7.2% as compared to the first quarter of 1995, adding approximately
$2.6 million to fuel and oil expense in the 1996 first quarter. Effective
October 1, 1995, the Company also became subject to a 4.3 cent-per-gallon excise
tax on jet fuel consumed for domestic use by commercial air carriers. The effect
of this tax in the first quarter of 1996 was to increase the Company's cost of
fuel subject to this tax by approximately 6%, which added approximately $2.1
million to total fuel and oil expense.
A portion of the expense increase for fuel and oil was also attributable to a
12.0% increase in the number of block hours flown from 32,500 hours in the first
quarter of 1995 to 36,400 hours in the first quarter of 1996. The Company's
Boeing 757-200 fleet accounted for 31.2% of block hours in the 1996 quarter, as
compared to 26.2% in the comparable 1995 period. The less fuel-efficient
Lockheed L-1011 fleet accounted for 25.1% of first quarter 1996 block hours, as
compared to 28.5% in the first quarter of 1995. Block hours for the Boeing
727-200 fleet accounted for 45.3% of block hours in the 1996 first quarter, as
compared to 43.7% in the comparable 1995 period.
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related state and Federal taxes. This
expense increased 19.2% from $33.8 million in the first quarter of 1995 to $40.3
million in the first quarter of 1996. The cost per ASM of salaries, wages and
benefits increased 10.4% from 1.06 cents in the first quarter of 1995 to 1.17
cents in the first quarter of 1996.
A portion of this increase was due to the addition of new employees (primarily
cockpit and cabin crew, base station, maintenance and reservations staff) to
support the growth in scheduled service and the addition of new aircraft to the
Company's fleet. Headcount was further increased in the first quarter of 1996 by
the conversion of four of the Company's scheduled service stations from
third-party handling to self-handling and by the replacement of third-party
contract maintenance staff with full-time maintenance employees. The Company
believes that these changes from third-party contract services to full-time
employees will result in better customer service and fleet reliability at a
lower cost.
First quarter 1996 salaries, wages and benefits expense was also affected by an
increased cost of employee health care claims, which are substantially
self-insured by the Company. This additional cost was approximately offset,
however, by the reduction of variable compensation accruals due to lower
earnings quarter over quarter and by a favorable reduction of vacation accrual
costs, which were higher in the first quarter of 1995 due to the implementation
of an expanded vacation entitlement for employees in that period.
<PAGE>
In December 1994, the Company implemented a four-year collective bargaining
agreement with flight attendants. In December 1995, the Company reached a
tentative agreement with cockpit crews on a collective bargaining agreement
covering that group of employees. In February of 1996, the Company was notified
that the cockpit crews had failed to ratify the tentative agreement. The Company
and the International Brotherhood of Teamsters are currently holding discussions
with a Federal mediator to determine the future course of these negotiations.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs assessed to the Company by airports to land and service its aircraft and
to handle passenger check-in, security and baggage. Air navigation fees are
assessed when the Company's aircraft overfly certain airspace between U.S. and
foreign destinations. Handling, landing and navigation fees increased 9.4% from
$18.1 million in the first quarter of 1995 to $19.8 million in the first quarter
of 1996. Much of this increase was attributable to a 17.8% increase in the total
number of departures between years, from 10,700 in the first quarter of 1995 to
12,600 in the first quarter of 1996. The cost of aircraft handling increased
more slowly than the increase in the number of departures due to the replacement
of contract ground handling with salaried employees at four of the Company's
scheduled service base stations in the first quarter of 1996, and due to a
decline in the Company's average cost of handling, landing and air navigation
per departure between quarters.
The average cost per departure declined 6.8% from the first quarter of 1995 to
the first quarter of 1996. The elimination of contract handling at four base
stations contributed to this reduction. In addition, average departure costs are
a function of the mix of airports served and the fleet composition. On average,
operations to domestic U.S. airports are less expensive per departure than for
international airports. In the first quarter of 1996, the share of the Company's
departures which operated from international airports declined to 16.2%, as
compared to 22.0% in the first quarter of 1995, because the Company's growth in
the first quarter of 1996 was concentrated mostly in domestic scheduled service
markets.
The severe winter weather in the first quarter of 1996 significantly impacted
the Company's operations in Boston and Chicago-Midway. As a result, the Company
incurred approximately $0.5 million in additional aircraft de-icing expenses in
the first quarter of 1996 as compared to the prior year. De-icing costs are
included in handling, landing and air navigation expense, and are not normally
significant in amount.
The cost per ASM for handling, landing and air navigation fees increased 1.8%
from 0.56 cents in the first quarter of 1995 to 0.57 cents in the first quarter
of 1996. This increase resulted from a small decline in the average number of
ASMs per departure between years and is indicative of the growing proportion of
departures which employ the Company's smaller-capacity Boeing 727-200 and Boeing
757-200 aircraft rather than the larger Lockheed L-1011 wide-body. In the first
quarter of 1996, the percentage of departures made with narrow-body aircraft
increased to 78.9%, as compared to 75.8% in the first quarter of 1995.
Aircraft Rentals. Aircraft rentals expense increased 27.6% from $13.4 million in
the first quarter of 1995 to $17.1 million in the first quarter of 1996. This
increase in expense was due to the addition of two leased Lockheed L-1011s,
three leased Boeing 757-200s and two leased Boeing 727-200s into the Company's
fleet during the 1996 first quarter as compared to the same period of 1995,
offset partially by the purchase in May 1995 of four previously leased Pratt and
Whitney engines.
Aircraft rentals cost per ASM increased 19.0% from 0.42 cents in the first
quarter of 1995 to 0.50 cents in the first quarter of 1996. The
quarter-to-quarter increase of three Boeing 757-200 aircraft was a significant
component of this increase since the rental cost of ASMs produced by this fleet
type is significantly greater than for the Company's other aircraft.
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of certain owned Lockheed L-1011 aircraft and engines, and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of major
engine and airframe overhauls for all fleet types on a units-of-production
basis, using aircraft flight hours and cycles (landings) as the units of
measure. Depreciation and amortization expense increased 15.6% from $13.5
million in the first quarter of 1995 to $15.6 million in the first quarter of
1996. The cost per ASM increased 7.1% from 0.42 cents in the 1995 quarter to
0.45 cents in the 1996 quarter.
Depreciation expense increased approximately $1.2 million in the first quarter
of 1996 as compared to the first quarter of 1995 due to the purchase of one
Lockheed L-1011 and four Pratt and Whitney engines, together with the purchase
of other property, furniture and equipment to support the Company's growth in
operations.
Amortization of airframe and engine overhauls increased $0.9 million in the
first quarter of 1996 as compared to the first quarter of 1995. There was no
significant change between quarters in the offsetting value of overhaul credits
earned by the Company under an engine purchase agreement with Rolls-Royce
Commercial Aero Engines Limited. The increasing cost of amortization expense
reflects the recent increase in the number of aircraft added to the Company's
fleet. New aircraft introduced into the fleet generally do not require airframe
or engine overhauls until twelve or more months after first entering service.
Therefore, resulting amortization of these overhauls generally occurs on a
delayed basis from the date the aircraft is placed into service.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for base and line maintenance activities, and other
non-capitalized direct costs related to fleet maintenance, including spare
engine leases, parts loan and exchange fees, and related shipping charges. The
cost of maintenance, materials and repairs decreased 9.9% from $15.1 million in
the first quarter of 1995 to $13.6 million in the first quarter of 1996. The
cost per ASM declined 14.9% from 0.47 cents in the first quarter of 1995 to 0.40
cents in the first quarter of 1996.
In the first quarter of 1996, the Company replaced approximately $0.6 million in
maintenance contract staff with salaried employees, thereby reducing this
expense in 1996. Also in the first quarter of 1996, the maintenance reliability
of the Company's engines was improved over the first quarter of 1995, when the
Company incurred approximately $1.5 million in engine repair expenses for early
removal of failed engine modules.
All of the Company's aircraft under operating leases have certain return
conditions applicable to the maintenance status of airframes and engines as of
the termination of the lease. The Company accrues estimated return condition
costs as a component of maintenance, materials and repairs expense based upon
the actual condition of the aircraft as each lease termination date approaches.
There was no significant difference in the amounts of return condition expenses
accrued in the first quarters of 1995 and 1996.
Passenger Service. Passenger service expense includes the onboard costs of meal
and beverage catering, the cost of liquor and headset sales, and the cost of
onboard entertainment programs, together with certain costs incurred for
mishandled baggage and passengers inconvenienced due to flight delays or
cancellations. The most significant portion of this cost is catering, which
represented 77.0% and 88.2%, respectively, of total passenger service expense in
the first quarters of 1996 and 1995.
The cost of passenger service increased 7.0% from $8.6 million in the first
quarter of 1995 to $9.2 million in the first quarter of 1996. This increase was
partly due to the 18.9% increase in the total number of passengers boarded, from
1.43 million in the first quarter of 1995 to 1.70 million in the first quarter
of 1996. The cost of passenger service increased less rapidly than the increase
in passengers boarded due to a reduction in catering service levels in select
charter and scheduled service markets beginning late in the second quarter of
1995. In addition to this planned reduction in catering, the 40.7% reduction in
military passengers boarded between quarters also reduced the average cost of
catering, since military catering is one of the most expensive per passenger in
the Company's business mix. The average cost to cater each passenger boarded
declined between quarters by approximately 31.4%.
The severe winter weather in the first quarter of 1996 significantly impacted
the Company's operations in Boston and Chicago-Midway. As a result, the Company
incurred approximately $0.7 million in additional interrupted trip expenses in
the first quarter of 1996 to handle passengers inconvenienced by canceled and
significantly delayed flights.
The cost per ASM of passenger service remained unchanged at 0.27 cents for both
first quarters of 1995 and 1996.
Crew and Other Employee Travel. Crew travel is primarily the cost of air
transportation, hotels and per diem reimbursements to cockpit and cabin crew
members that is incurred to position crews away from base to operate all Company
flights throughout the world. The cost of air transportation is generally more
significant for the charter business segment since these flights often operate
between cities in which Company crews are not normally based and may involve
extensive positioning of crews to distant international cities. Hotel and per
diem expenses are incurred for both scheduled and charter services, and higher
per diem rates apply to international assignments.
The cost of crew and other employee travel increased 25.8% from $6.2 million in
the first quarter of 1995 to $7.8 million in the first quarter of 1996. The cost
per ASM increased 21.1% from 0.19 cents in the 1995 quarter to 0.23 cents in the
1996 quarter. These increases were reflected in both volume and average price
increases for positioning and crew hotel accommodations between quarters. Higher
costs were primarily due to weather-related flight delays, diversions and
cancellations in the first quarter of 1996, which placed extraordinary demands
on the Company's crew resources and caused greater travel costs to reposition
crew members.
Commissions. The Company incurs commission expenses in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
pays commissions on some tour operator and military flights. Commissions expense
increased 25.4% from $5.9 million in the first quarter of 1995 to $7.4 million
in the first quarter of 1996. The cost of commissions per ASM increased 16.7%
from 0.18 cents to 0.21 cents between quarters.
Scheduled service commissions expense accounted for most of the increase in this
cost in the first quarter of 1996, which was consistent with the continued
growth in commissionable scheduled service sold by travel agencies. The average
rate of commission paid to travel agencies increased by approximately 1.3%
between years due to the higher use of selected sales incentives in some markets
in the first quarter of 1996. The average percentage of revenues sold by travel
agencies increased between years due to the Company's implementation of full
participation in several CRS systems in the third quarter of 1994, and because
the Company introduced connecting fares in the second quarter of 1995 which made
available to travel agents a significantly increased schedule.
Commissions paid for military flying were lower in the first quarter of 1996 due
to the corresponding reduction in military traffic between years. Commissions
paid for tour operator departures also declined slightly between years.
Other Selling Expenses. Other selling expenses are comprised primarily of fees
paid to computer reservations systems (CRS), the costs of inbound reservations
lines provided for the use of the Company's customers and credit card discount
expense incurred for the sale of single seats. These costs increased 36.6% from
$4.1 million in the first quarter of 1995 to $5.6 million in the first quarter
of 1996 and were generally incurred to support the sale of scheduled services.
Other selling cost per ASM increased 23.1% from 0.13 cents in the 1995 first
quarter to 0.16 cents in the 1996 first quarter. Scheduled service passengers
boarded increased 23.2% from 0.82 million in the first quarter of 1995 to 1.01
million in the first quarter of 1996.
The Company is displayed in Sabre, Galileo, Worldspan and System One. These CRS
systems, which display competitive schedules and fares for all participating
airlines, offer different levels of services at different transaction costs. In
order to expand the Company's visibility of schedules and fares with travel
agencies, the Company's CRS service levels were increased in all of these
systems effective July 1994, resulting in a significant increase in chargeable
transactions and higher transaction rates. The Company processed 41.9% more net
bookings for all CRS systems combined in the first quarter of 1996 as compared
to the first quarter of 1995. Since 1995, the Company has implemented a series
of CRS transaction audits to control CRS abuse by travel agencies and to
identify charges for which the Company should be credited. These audits have
resulted in a 3.2% reduction in the average cost of each chargeable transaction
across all CRS systems used between the first quarters of 1996 and 1995.
The cost of toll free phone service for the use of the Company's customers to
call for reservations and flight information increased by $0.7 million in the
first quarter of 1996 as compared to the same period in 1995. These costs
resulted from a significant increase in customers who contacted the Company
directly, and many of whom ultimately booked seats on the Company's scheduled
service flights for the high-demand March time period when the Company's
scheduled service operated at a 72.5% load factor. The Company's reservations
facilities are also used to sell and ticket all Ambassadair and ATA Vacations
ground packages; the number of ground packages sold increased 16.6% between the
first quarters of 1995 and 1996.
The cost of credit card discount expense increased by $0.5 million between the
first quarter of 1995 and the comparable quarter of 1996. In the second quarter
of 1995, the Company began accepting American Express for the sale of single
seats. Between the first quarters of 1995 and 1996, both the volume of tickets
sold using credit card forms of payment and the average rate of credit card
discount paid have increased.
Ground Package Cost. Ground package cost increased 22.7% from $4.4 million in
the first quarter of 1995 to $5.4 million in the first quarter of 1996. The cost
per ASM increased 14.3% from 0.14 cents in the first quarter of 1995 to 0.16
cents in the first quarter of 1996. The primary reason for this cost increase
was the 16.6% increase in the number of Ambassadair and ATA Vacations ground
packages sold in the first quarter of 1996 as compared to the prior year. In
addition, the average cost of Ambassadair ground packages sold increased by
19.8%, which reflects the difference in product mix offered to Ambassadair
members between quarters. The average cost of ATA Vacations ground packages sold
decreased by 3.9% between quarters.
Advertising. Advertising expense decreased 10.7% from $2.8 million in the first
quarter of 1995 to $2.5 million in the first quarter of 1996. The cost per ASM
declined from 0.09 cents in the 1995 quarter to 0.07 cents in the 1996 quarter.
The Company incurs advertising costs primarily to support scheduled service
sales. Scheduled service ASMs increased 9.2% in the first quarter of 1996 as
compared to the first quarter of 1995, and the cost of advertising per scheduled
service ASM declined 18.8% from 0.16 cents in the first quarter of 1995 to 0.13
cents in the first quarter of 1996. In the 1995 first quarter, the Company
incurred advertising costs to support the development of scheduled service in
St. Louis, which were not incurred in the first quarter of 1996.
Facilities and Other Rents. Facilities and other rent expense includes the
rental costs of all of the ground facilities which are leased by the Company
such as airport space, regional sales offices and general offices. The cost of
facilities and other rents increased 11.1% from $1.8 million in the first
quarter of 1995 to $2.0 million in the first quarter of 1996. The cost per ASM
remained unchanged at 0.06 cents for both quarters. The significant portion of
growth in facilities leasing has originated from the expansion of scheduled
services, which has required the Company to add new leased facilities at airport
locations to accommodate the space needs of airport passenger service and
maintenance staff. In addition, the Company is incurring additional facility
rent in the first quarter of 1996 for the Chicago reservations facility
expansion completed in the third quarter of 1995, and for the lease of Hangar
No. 2 at Chicago's Midway Airport in late 1995.
Other Expenses. Other expenses increased 25.2% from $11.5 million in the first
quarter of 1995 to $14.4 million in the first quarter of 1996. The cost per ASM
for other expenses increased 16.7% from 0.36 cents in the 1995 quarter to 0.42
cents in the 1996 quarter. Significant components of the increase of $2.9
million in other expenses between quarters include: $1.2 million in costs to
obtain substitute service from other air carriers to assist in the operation of
the Company's schedule due to the late delivery of two Boeing 727-200 aircraft
in the first quarter of 1996; $0.6 million in additional hull and liability
insurance expense associated with the Company's expanded size and flying
activity; $0.5 million in additional communications costs related to the
Company's data network infrastructure for worldwide airport operations; and $0.5
million in reduced foreign exchange gains recognized in the first quarter of
1996 due to the greater stability of the Mexican Peso as compared to the first
quarter of 1995.
Income Tax Expense
Income tax expense decreased 56.5% from $4.6 million in the first quarter of
1995 to $2.0 million in the first quarter of 1996. The effective income tax
rates were 46.1% and 45.9%, respectively, for the 1996 and 1995 quarters. Income
tax expense decreased in close proportion to the 56.3% decrease in taxable
income between years.
Liquidity and Capital Resources
The Company has historically financed its working capital and capital
expenditure requirements from cash flow from operations and long-term borrowings
from banks and other lenders. Net cash provided by operating activities was
$34.6 million in the first quarter of 1995 and $22.0 million in the first
quarter of 1996.
Net cash used in investing activities was $21.9 million in the first quarter of
1995 and $32.0 million in the first quarter of 1996. Such amounts primarily
reflected cash capital expenditures totaling $20.9 million and $40.0 million for
the first quarters of 1995 and 1996, respectively, for engine overhauls,
airframe improvements and the purchase of aircraft, engines and rotable parts.
These cash capital expenditures were supplemented by other capital expenditures
of $10.7 million in the first quarter of 1996 which were financed directly with
debt.
Net cash provided by (used in) financing activities was $(5.4) million in
the first quarter of 1995 and $11.3 million in the first quarter of 1996.
In November 1994, the Company signed a purchase agreement for six new Boeing
757-200s with deliveries of two aircraft scheduled for each of the fourth
quarters of 1995, 1996 and 1997. In conjunction with the Boeing purchase
agreement, the Company entered into a separate agreement with Rolls-Royce
Commercial Aero Engines Limited for thirteen RB211-535E4 engines to power the
six Boeing 757-200 aircraft and to provide one spare engine. Under the
Rolls-Royce agreement, which became effective January 1, 1995, Rolls-Royce has
provided the Company various spare parts, credits and engine overhaul cost
guarantees. If the Company does not take delivery of the engines, the credits
and cost guarantees that have been used are required to be refunded to
Rolls-Royce. The aggregate purchase price under these two agreements is
approximately $50.0 million per aircraft, subject to escalation. The Company
accepted early delivery of the first aircraft under this agreement in September
1995, and the second delivery occurred in December 1995. Both deliveries were
financed under operating leases. Advance payments totaling approximately $40.0
million ($10.0 million per aircraft) are required prior to delivery of the
remaining four aircraft, with the remaining purchase price payable at delivery.
As of March 31, 1996 and 1995, the Company had made $14.7 million and $16.6
million, respectively, in advance payments applicable to aircraft scheduled for
future delivery. The Company intends to continue to finance deliveries through
sale/leaseback transactions structured as operating leases.
In the third quarter of 1995, the Company completed the lease of Hangar No. 2 at
Chicago's Midway Airport for an initial lease term of ten years, subject to two
five-year renewal options. Under this lease, the Company has acquired the use of
both the west and east bays of the hangar and associated ramp and parking areas.
The Company is obligated to perform certain lease-mandated improvements to the
west bay and may, at its option, perform additional improvements to the east
bay. In the fourth quarter of 1995, the Company financed these improvements,
together with separate passenger terminal improvements at Midway, through the
issuance of $6 million in tax-exempt bonds. Initial construction activities in
the west bay area began in the fourth quarter of 1995 and continued through the
first quarter of 1996, with completion of the west bay renovation expected in
May 1996. The Company anticipates that it will perform some of the maintenance
of its expanding Boeing 727-200 and Boeing 757-200 narrow-body fleets at this
facility over the term of the lease.
The Company purchased four Boeing 727-200 aircraft during the first quarter of
1996. One Boeing 727-200 was subsequently financed through a sale/leaseback
transaction by the end of the first quarter, while the remaining three Boeing
727-200s were financed through a separate bridge debt facility. The Company
expects to finance these remaining three Boeing 727-200 aircraft through
operating leases by the end of the second quarter of 1996. No further
acquisitions of Boeing 727-200 aircraft are planned for the remainder of 1996.
The Company had also entered into a separate agreement in October 1995 with a
supplier to provide for the purchase of hushkits for installation on Boeing
727-200 aircraft. All four Boeing 727-200 aircraft acquired in the first quarter
will have hushkits installed prior to being introduced into revenue service, and
the Company also plans to install additional hushkits on other existing Boeing
727-200 aircraft in the Company's fleet. These narrow-body hushkitted aircraft
are expected to provide additional capacity in the Company's existing markets
while maintaining the Company's fleet compliance with Federal Stage 3 noise
requirements as of December 31, 1996.
The Company's existing bank credit facility was renegotiated during the first
quarter of 1996 to increase the available credit from $110.0 million to a
maximum of $125.0 million, including a $25.0 million letter of credit facility,
subject to the maintenance of certain collateral values. The collateral for the
facility consists of owned Lockheed L-1011 aircraft, certain receivables, and
related rotables and parts.
At March 31, 1996 and 1995, the Company had borrowed the maximum amount then
available under the bank credit facility, of which $89.0 million was repaid on
April 1, 1996, and $62.0 million was repaid on April 3, 1995. Loans outstanding
under the facility bear interest, at the Company's option, at either (i) prime,
or (ii) the Eurodollar Rate plus 1.50% to 2.00%. The renegotiated facility
matures on April 1, 1999, and contains various covenants and events of default,
including maintenance of a specified debt-to-equity ratio and a minimum level of
net worth; achievement of a minimum level of cash flow; and restrictions on
aircraft acquisitions, liens, loans to officers, change of control,
indebtedness, lease commitments and payment of dividends.
The Company also has available a separate $5.0 million secured line of credit,
of which $2.1 million and $1.5 million was available at March 31, 1996, and
March 31, 1995, respectively.
In February 1994, the Board of Directors approved the repurchase of up to
250,000 shares of the Company's common stock. During the first quarter of 1996,
the Company repurchased 6,000 shares, bringing the total number of shares it has
repurchased under the program to 175,000 shares.
<PAGE>
Part II. Other Financial Information
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) None
<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.
Amtran, Inc.
(Registrant)
Date May 14,1996
J. George Mikelsons
Chairman and Chief Executive Officer
Date May 14,1996
James W. Hlavacek
Executive Vice President and
Chief Operating Officer
President of ATA Training Corporation
Director
Date May 14,1996
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer
Director
