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 September 30, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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 - 11,793,852 shares as of October 31, 1996
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30, December 31,
1996 1995
---------------------- ---------------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................................. $ 72,802 $ 92,741
Receivables, net of allowance for doubtful accounts
(1996 - $1,182; 1995 - $1,303) ................................. 27,340 24,158
Inventories, net ..................................................... 14,457 13,959
Assets held for sale .................................................. 13,883 --
Prepaid expenses and other current assets ............................. 17,020 25,239
---------------------- ---------------------
Total current assets ........................................................ 145,502 156,097
Property and equipment:
Flight equipment ...................................................... 394,172 384,476
Facilities and ground equipment ....................................... 49,803 40,290
---------------------- ---------------------
443,975 424,766
Accumulated depreciation .............................................. 197,934 183,998
---------------------- ---------------------
246,041 240,768
Deposits and other assets ................................................. 12,082 16,272
---------------------- ---------------------
Total assets ............................................................... $ 403,625 $ 413,137
====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .................................. $ 29,133 $ 3,606
Accounts payable ...................................................... 9,640 11,152
Air traffic liabilities ............................................... 49,192 56,531
Accrued expenses ...................................................... 72,843 76,312
---------------------- ---------------------
Total current liabilities .................................................. 160,808 147,601
Long-term debt, less current maturities .................................... 129,908 134,641
Deferred income taxes ...................................................... 29,438 37,949
Other deferred items ....................................................... 14,005 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 11,793,852-1996; 11,790,752-1995 38,309 38,259
Treasury stock: 185,000 shares - 1996; 169,000 shares - 1995 ........ (1,760) (1,581)
Additional paid-in-capital ........................................... 17,397 15,821
Deferred compensation ................................................ (1,134) --
Deferred compensation - ESOP ......................................... (2,133) (2,666)
Retained earnings .................................................... 18,787 31,352
---------------------- ---------------------
69,466 81,185
---------------------- ---------------------
Total liabilities and shareholders' equity .................................. $ 403,625 $ 413,137
====================== =====================
</TABLE>
See accompanying notes.
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------------------------------------- --------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C> <C> <C>
Scheduled service ........................... $ 102,669 $ 93,849 $ 318,788 $ 274,740
Charter ..................................... 84,213 90,310 240,443 241,021
Ground package .............................. 4,744 4,595 17,606 15,314
Other ....................................... 8,072 5,673 25,391 19,308
--------------------------------------- --------------------------------------
Total operating revenues ....................... 199,698 194,427 602,228 550,383
Operating expenses:
Fuel and oil ................................ 45,437 34,681 126,108 97,760
Salaries, wages and benefits ................ 44,896 36,589 126,802 104,408
Handling, landing and navigation fees ....... 21,006 23,998 57,353 58,627
Aircraft rentals ............................ 17,506 13,255 51,902 39,750
Depreciation and amortization ............... 16,468 14,865 47,173 41,142
Aircraft maintenance, materials and repairs . 14,508 14,981 42,391 44,006
Crew and other employee travel .............. 10,442 7,711 27,685 22,083
Passenger service ........................... 9,450 10,982 26,364 27,729
Commissions ................................. 6,724 6,371 21,688 18,460
Other selling expenses ...................... 4,294 3,706 14,449 11,375
Ground package cost ......................... 4,074 3,746 14,165 11,879
Facility and other rentals .................. 2,786 1,870 7,214 5,291
Advertising ................................. 2,339 1,575 8,161 6,710
Disposal of assets .......................... 4,744 -- 4,744 --
Other operating expenses .................... 14,102 12,453 42,602 36,706
--------------------------------------- --------------------------------------
Total operating expenses ....................... 218,776 186,783 618,801 525,926
--------------------------------------- --------------------------------------
Operating income (loss) ........................ (19,078) 7,644 (16,573) 24,457
Other income (expense):
Interest income ............................. 208 99 476 323
Interest expense ............................ (626) (952) (2,803) (2,796)
Other ....................................... 63 95 255 293
--------------------------------------- --------------------------------------
Other expenses ................................. (355) (758) (2,072) (2,180)
--------------------------------------- --------------------------------------
Income (loss) before income taxes .............. (19,433) 6,886 (18,645) 22,277
Income taxes (credits) ......................... (6,800) 3,295 (6,080) 9,958
--------------------------------------- --------------------------------------
Net income (loss) .............................. $ (12,633) $ 3,591 $ (12,565) $ 12,319
======================================= ======================================
Net income (loss) per share .................... $ (1.09) $ 0.31 $ (1.08) $ 1.06
======================================= ======================================
Average shares outstanding ..................... 11,592,583 11,617,301 11,526,398 11,632,663
======================================= ======================================
</TABLE>
See accompanying notes.
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Nine Months Ended September 30,
1996 1995
--------------------------------------------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income (loss) ........................................................... $ (12,565) $ 12,319
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ........................................... 47,173 41,142
Deferred income taxes ................................................... (6,036) 8,916
Other non-cash items .................................................... 24,064 8,256
Changes in operating assets and liabilities:
Receivables ............................................................. (3,182) (6,032)
Inventories ............................................................. (1,134) 697
Assets held for sale .................................................... (13,883) --
Prepaid expenses ........................................................ 5,745 (3,113)
Accounts payable ........................................................ (1,512) (6,191)
Air traffic liabilities ................................................. (7,339) 8,572
Accrued expenses ........................................................ (3,988) 2,494
----------------------- -----------------------
Net cash provided by operating activities ................................... 27,343 67,060
----------------------- -----------------------
Investing activities:
Proceeds from sale of assets ............................................ 30,222 432
Capital expenditures .................................................... (87,597) (44,271)
Reduction of (additions to) other assets ................................ 3,664 (4,136)
----------------------- -----------------------
Net cash used in investing activities ................................... (53,711) (47,975)
----------------------- -----------------------
Financing activities:
Proceeds from long-term debt ............................................ 19,250 10,000
Payments on long-term debt .............................................. (12,642) (18,019)
Repurchase of common stock .............................................. (179) (442)
----------------------- -----------------------
Net cash provided by (used in) financing activities ..................... 6,429 (8,461)
----------------------- -----------------------
Increase (decrease) in cash and cash equivalents ............................ (19,939) 10,624
Cash and cash equivalents, beginning of period .............................. 92,741 61,752
----------------------- -----------------------
Cash and cash equivalents, end of period .................................... $ 72,802 $ 72,376
======================= =======================
Supplemental disclosures:
Cash payments for:
Interest ................................................................ 2,679 2,926
Income taxes ............................................................ 501 2,000
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital expenditures ............ 14,186 12,883
</TABLE>
See accompanying notes.
<PAGE>
Part I - Financial Information
Item I - Financial Statements
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 September 30,
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 nine months ended September 30, 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>
Part I -- Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quarter and Nine Months Ended September 30, 1996, Versus Quarter and Nine Months
Ended September 30, 1995
Overview
For the three months ended September 30, 1996, the Company incurred operating
and net losses of $19.1 million and $12.6 million, as compared to operating and
net income of $7.6 million and $3.6 million during the same period of 1995. As
discussed in more detail below, the losses in the 1996 period reflected a number
of factors, including (i) a significant increase in competition from larger
carriers in the scheduled service markets served by the Company, (ii) the
effects of the ValuJet accident in Florida that occurred in May 1996, and a
subsequent decompression incident on one of the Company's flights, (iii) a
significant increase in fuel costs, (iv) a Federal excise tax on jet fuel that
became effective on October 1, 1995, and (v) certain non-recurring charges. The
Company believes that competition will remain intense for the foreseeable future
on many of the routes where the Company has provided scheduled service. As a
result, as described below, beginning in August 1996, the Company has
significantly reduced its scheduled service operations and has taken steps to
reduce its overall fleet size in order to concentrate on its charter operations,
which were profitable for the three months ended September 30, 1996. The Company
expects that as a result of the continuing effects of the factors summarized
above, as well as certain non-recurring charges associated with the reduction of
its operations, it will incur significant operating and net losses for the
fourth quarter of 1996, and for 1996 as a whole.
Restructuring of Scheduled Service Operations and Fleet Types
Beginning May 1996, and continuing into the third quarter, the Company undertook
a detailed study of the profitability of its scheduled service, military and
tour operator business segments. This analysis covered the six quarters ended
June 30, 1996, and disclosed that a significant number of scheduled service
markets being served by the Company had become increasingly unprofitable.
Although some markets had been unprofitable during 1995, a more significant
deterioration in profitability in Boston, intra-Florida and certain other
markets occurred during late 1995 and the first half of 1996. This analysis also
showed that the Company's charter and military operations were generally
profitable during the same periods, although results from these operations were
also adversely affected by many of the factors that affected scheduled service.
The Company believes that several key factors have contributed to the
deteriorating profitability of scheduled service over this time period.
Beginning in January 1996, a growing amount of low-fare competition entered
Boston-Florida and midwest-Florida markets, which increased total capacity in
these markets and decreased the average fares earned by the Company. Operating
revenues in all scheduled service markets were further adversely affected by the
ValuJet accident in Florida on May 11, which was followed on May 12 by a
decompression incident on one of the Company's own flights. These events focused
significant negative media attention on airline safety, and on low-fare carriers
in particular. In spite of the Company's excellent safety record over 23 years
of operation, during which no serious injuries or fatalities had ever occurred,
the Company estimates that it lost significant scheduled service revenues in the
second and third quarters of 1996 from canceled reservations and reservations
which were never received. Additionally, effective October 1, 1995, the Company
became subject to a Federal excise tax on jet fuel consumed in domestic use,
which added approximately 3.5 cents to the average cost of each gallon of jet
fuel purchased. During 1996, the market price of jet fuel also increased
significantly as compared to prices paid in comparable 1995 periods, largely due
to tight jet fuel inventories relative to demand throughout this period. The
Company estimates that jet fuel price and tax increases added approximately
$19.0 million to operating expenses in the first nine months of 1996, as
compared to the first nine months of 1995. These trends have continued and, as
discussed below, have intensified in certain respects in the fourth quarter of
1996. Moreover, the Company believes that intense competitive pressures from
larger carriers will continue for the foreseeable future on many of the routes
served by the Company's scheduled service operations.
On August 26, the Company announced a significant reduction in scheduled service
operations. More than one- third of scheduled service departures and ASMs were
included in this schedule reduction. Boston operations and intra-Florida flights
were completely eliminated. Other selected markets from Chicago-Midway,
Indianapolis and Milwaukee were also exited completely or were reduced in
frequency. Exited operations were targeted to end primarily on September 4,
September 30 and October 27, with several other markets to be exited by December
2. The Company is continuing to evaluate its scheduled service operations and
may further restructure such operations.
In association with its schedule reduction, the Company announced a reduction in
force of 15% of its employees. A significant portion of this reduction in force
was accomplished through furloughs of cockpit and cabin crews, with the
remainder consisting of reductions in base station and administrative staff.
Maintenance staff reductions were accomplished primarily through the reduction
of base and line maintenance contract labor. This reduction commenced during
September and resulted in the recognition of $135,000 in severance expense for
the third quarter of 1996.
A separate aspect of the Company's 1996 study of business segment profitability
was directed toward the relative economics of the Company's three aircraft fleet
types as they were being used in scheduled service, charter and military flying.
Although all fleet types were being used profitably in some operations, the
Company determined that in many scheduled service markets the Boeing 727-200 was
a more profitable alternative aircraft than the Boeing 757-200. As a result, on
July 29, 1996, the Company entered into a Letter of Intent with a major lessor
to reduce the Company's Boeing 757-200 fleet from a previously planned thirteen
units to nine units by the end of 1996. In September 1996, the Company began
discussions with a major lessor to further reduce the number of Boeing 757-200
aircraft to seven units by December 31, 1996. If these transactions are
completed, all of the Boeing 757-200 aircraft remaining in the Company's fleet
will be powered by Rolls-Royce engines, and all Pratt & Whitney-powered Boeing
757-200 aircraft will have been eliminated.
In addition to the adjustments to the Company's Boeing 757-200 fleet, the
reduction in existing scheduled service operations will result in the
reallocation of five Boeing 727-200 aircraft to alternative uses in the fourth
quarter of 1996. These aircraft are planned to be used to meet additional
charter demand, and to increase scheduled service flights in several markets
which the Company continues to serve. Two Lockheed L-1011 aircraft which were
used for seasonal scheduled service to Ireland during the summer of 1996 have
been returned to charter operations in the fourth quarter of 1996.
In the third quarter of 1996, the Company recorded a $4.7 million loss on
disposal of assets associated with Boeing 757-200 aircraft (see Disposal of
Assets on page 19).
As noted above, the Company's charter and military operations were profitable
for the three and nine-month periods ending September 30, 1996, and the Company
has allocated additional aircraft to these operations. As a result, the Company
has been able to contract for significantly more charter and military flights
than it had at the same time last year. Additionally, after adjusting for the
reduction in scheduled service capacity, bookings for the remaining scheduled
service are ahead of where they were at the same time last year. However, as
also noted above, the Company expects to incur operating and net losses in the
fourth quarter of 1996 and for the year as a whole.
Results of Operations
The Company's operating revenues increased 2.7% to $199.7 million in the third
quarter of 1996 as compared to $194.4 million in the third quarter of 1995.
Third quarter 1996 operating revenues were 5.31 cents per available seat mile
(ASM), a reduction of 5.2% from the third quarter 1995 of 5.60 cents per ASM.
Between these same periods,ASMs increased 8.3% to 3.764 billion from 3.475
billion, revenue passenger miles (RPMs) increased 2.0%to 2.687 billion from
2.634 billion, and passenger load factor declined to 71.4% as compared to 75.8%.
The yield on air revenues in the third quarter of 1996 decreased 0.4% to 6.96
cents per RPM, as compared to 6.99 cents per RPM in the third quarter of 1995.
Total passengers boarded increased 6.0% to 1,459,897 in the third quarter of
1996 as compared to 1,376,779 in the third quarter of 1995, and total
departures increased 12.2% to 12,475 from 11,121 in the same comparable periods.
<PAGE>
The Company's operating revenues increased 9.4% to $602.2 million in the nine
months ended September 30, 1996, as compared to $550.4 million in the nine
months ended September 30, 1995. Operating revenues per ASM decreased 1.4% to
5.62 cents in the nine months ended September 30, 1996, as compared to 5.70
cents in the same period of 1995. ASMs increased 10.8% to 10.707 billion from
9.663 billion, RPMs increased 6.9% to 7.480 billion from 6.996 billion, and
passenger load factor declined to 69.9% as compared to 72.4%. The yield on air
revenues in the nine months ended September 30, 1996, increased 1.5% to 7.48
cents per RPM, as compared to 7.37 cents per RPM in the same period of 1995.
Total passengers boarded increased 12.2% to 4,659,399 in the nine months ended
September 30, 1996, as compared to 4,152,675 in the same period of 1995, while
total departures increased 17.0% to 37,809 from 32,311 in the same comparable
periods.
Operating expenses increased 17.1% to $218.8 million in the third quarter of
1996 as compared to $186.8 million in the third quarter of 1995, and operating
expenses increased 17.7% to $618.8 million in the nine months ended September
30, 1996, as compared to $525.9 million in the same period in 1995. Operating
expenses per ASM increased 8.0% to 5.81 cents in the third quarter of 1996 as
compared to 5.38 cents in the third quarter of 1995, while operating expenses
per ASM increased 6.1% to 5.78 cents in the nine months ended September 30,
1996, as compared to 5.45 cents in the same period of 1995.
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per ASM.
<TABLE>
Cents Per ASM Cents Per ASM
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total operating revenues 5.31 5.60 5.62 5.70
Operating expenses:
Fuel and oil ............................................ 1.21 1.00 1.18 1.01
Salaries, wages and benefits ............................ 1.19 1.05 1.18 1.08
Handling, landing and navigation fees ................... 0.56 0.69 0.54 0.61
Aircraft rentals ........................................ 0.47 0.38 0.48 0.41
Depreciation and amortization ........................... 0.44 0.43 0.44 0.43
Aircraft maintenance, materials and repairs ............. 0.38 0.43 0.40 0.46
Crew and other employee travel .......................... 0.28 0.22 0.26 0.23
Passenger service ....................................... 0.25 0.32 0.25 0.29
Commissions ............................................. 0.18 0.18 0.20 0.19
Other selling expenses .................................. 0.11 0.11 0.13 0.12
Ground package cost ..................................... 0.11 0.11 0.13 0.12
Facility and other rentals .............................. 0.07 0.05 0.07 0.05
Advertising ............................................. 0.06 0.05 0.08 0.07
Disposal of assets ...................................... 0.13 -- 0.04 --
Other operating expenses ................................ 0.37 0.36 0.40 0.38
Total operating expenses .................................... 5.81 5.38 5.78 5.45
Operating income (loss) ..................................... (0.50) 0.22 (0.16) 0.25
ASMs (in thousands) 3,764,278 3,474,940 10,706,622 9,662,829
</TABLE>
<PAGE>
Operating Revenues
Total operating revenues for the third quarter of 1996 increased 2.7% to $199.7
million from $194.4 million in the third quarter of 1995. This increase was due
to an $8.9 million increase in scheduled service revenues, a $0.1 million
increase in ground package revenues and a $2.4 million increase in other
revenues, partially offset by a $6.1 million decrease in charter revenues.
Total operating revenues for the nine months ended September 30, 1996, increased
9.4% to $602.2 million from $550.4 million in the nine months ended September
30, 1995. This increase was due to a $44.0 million increase in scheduled service
revenues, a $2.3 million increase in ground package revenues and a $6.1 million
increase in other revenues, partially offset by a $0.6 million decrease in
charter revenues.
Operating revenues for the third quarter of 1996 were 5.31 cents per ASM, a
reduction of 5.2% from the third quarter of 1995 of 5.60 cents per ASM.
Operating revenues for the nine months ended September 30, 1996, were 5.62 cents
per ASM, a decrease of 1.4% from the nine months ended September 30, 1995, of
5.70 cents per ASM.
Scheduled Service Revenues. Scheduled service revenues for the third quarter of
1996 increased 9.5% to $102.7 million from $93.8 million in the third quarter of
1995. Scheduled service RPMs increased 10.4% to 1.422 billion from 1.288
billion, while ASMs increased 22.4% to 2.085 billion from 1.703 billion,
resulting in a reduction in load factor to 68.2% in the third quarter of 1996
from 75.6% in the third quarter of 1995. Yield on scheduled service in the third
quarter of 1996 decreased 1.0% to 7.22 cents per RPM from 7.29 cents per RPM in
the third quarter of 1995. Scheduled service departures in the third quarter of
1996 increased 24.1% to 8,779 from 7,075 in the third quarter of 1995.
Passengers boarded increased 12.3% to 958,127 in the third quarter of 1996, as
compared to 853,339 in the third quarter of 1995.
Scheduled service revenues for the nine months ended September 30, 1996,
increased 16.0% to $318.8 million from $274.8 million in the nine months ended
September 30, 1995. Scheduled service RPMs increased 12.3% to 4.038 billion in
the nine months ended September 30, 1996, as compared to 3.597 billion in the
same period of 1995, while ASMs increased 18.8% to 5.968 billion from 5.023
billion, resulting in a reduction in load factor to 67.6% in the nine months
ended September 30, 1996, as compared to 71.6% in the same period of 1995.
Scheduled service yield increased 3.4% to 7.90 cents per RPM in the nine months
ended September 30, 1996, as compared to 7.64 cents per RPM in the nine months
ended September 30, 1995. Departures increased 27.9% to 26,052 as compared to
20,377 between the nine months ended September 30, 1996, and the nine months
ended September 30, 1995. Passengers boarded increased by 16.5% to 2,926,260 in
the nine months ended September 30, 1996, as compared to 2,511,942 in the nine
months ended September 30, 1995.
During the early part of the third quarter of 1996, the Company added direct or
connecting frequencies through the Company's four major domestic cities of
Chicago-Midway, Indianapolis, Milwaukee and Boston to west-coast and Florida
markets already being served. New seasonal scheduled service was also operated
in the third quarter of 1996 from New York to Shannon and Dublin, Ireland, and
Belfast, Northern Ireland, and from the midwest to Seattle. New year-round
service was also added to San Diego, California, in the second quarter of 1996.
Second quarter 1995 scheduled service in St. Louis had no comparable service in
the second quarter of 1996.
In association with the restructuring of the Company's scheduled service
operations, a significant reduction in scheduled service was announced on August
26. Between September 4 and December 2, more than one-third of the scheduled
service capacity operating during the 1996 summer months will be eliminated from
the future operations of the Company. All scheduled service frequencies to and
from Boston will be eliminated by December 2, including service to West Palm
Beach, San Juan, Montego Bay, St. Petersburg, Las Vegas, Orlando and Ft.
Lauderdale. Intra-Florida services connecting the cities of Ft. Lauderdale,
Orlando, Miami, Sarasota, St. Petersburg, and Ft. Myers will also be eliminated
as of October 27. Other selected services from Milwaukee, Indianapolis and
Chicago-Midway to Florida and to west-coast destinations will also be reduced or
eliminated by October 27. The Company's scheduled service between Chicago-Midway
and the cities of Milwaukee and Indianapolis will be replaced with a code share
agreement with Chicago Express on October 27. In association with this service
reduction, all scheduled service will cease at Seattle, Grand Cayman, West Palm
Beach, Montego Bay, Miami and San Diego.
After this scheduled service reduction, the Company's core scheduled service
flying will include flights between Chicago-Midway and five Florida cities, Las
Vegas, Phoenix, Los Angeles and San Francisco; Indianapolis to four Florida
cities, Las Vegas and Cancun; Milwaukee to three Florida cities; Hawaii service
to San Francisco, Los Angeles and Phoenix; and service between Orlando and San
Juan and Nassau.
The Company's strategy for restructuring scheduled service operations in the
manner described above is to eliminate service in unprofitable scheduled service
markets, to enhance the profit potential of remaining scheduled service markets,
to reallocate aircraft to alternative operations and to dispose of surplus
aircraft. Through this process, the Company intends to strengthen its
competitive position and to improve both load factors and yields in remaining
scheduled service operations.
Although the Company believes that this strategy is sound, its successful
execution remains subject to significant uncertainties which will continue to be
evaluated. Effective October 1, significant additional low-fare competition
began operating in certain key scheduled service markets which the Company
continues to serve, further reducing already low average fares. Fuel prices have
continued to increase in the fourth quarter above levels experienced in the
first three quarters of 1996. Although the negative impact of media attention to
airline safety appears to have lessened with time, the Company believes that
some revenue losses continue to result from negative public perceptions of
low-fare airline safety. For all of these reasons, the Company expects to incur
a significant operating loss in scheduled service in the fourth quarter of 1996
and for the year as a whole.
Charter Revenues. The Company's charter revenues are derived principally from
independent tour operators and from the United States military. Total charter
revenues decreased 6.8% to $84.2 million in the third quarter of 1996 from $90.3
million in the third quarter of 1995. Total charter revenues decreased 0.2% to
$240.4 million in the nine months ended September 30, 1996, as compared to
$241.0 million in the comparable 1995 period. Charter revenue growth in the
first three quarters of 1996 was constrained by the dedication of a significant
portion of the Company's fleet to scheduled service, including the utilization
of two Lockheed L-1011 aircraft for scheduled services to Ireland and Northern
Ireland between May and September, 1996.
The analysis of business segment profitability which was performed by the
Company for the six quarters ended June 30, 1996, disclosed that both military
and tour operator operations had produced consistent profits over the period
studied. The Company's Lockheed L-1011 fleet performed well in a charter
environment based upon relatively low frequency of operation and high passenger
load factors, and the Boeing 757-200 and 727-200 aircraft performed well in
certain mission-specific uses in both tour operator and military business
segments. The Company began to implement strategies to improve the financial
performance of charter operations in the third quarter of 1996, and both tour
operator and military flying are expected to play a continuing and significant
role in the Company's future business operations.
Charter revenues derived from independent tour operators decreased 14.0% to
$64.9 million in the third quarter of 1996 as compared to $75.5 million in the
third quarter of 1995. Tour operator RPMs decreased 10.3% to 1.092 billion in
the third quarter of 1996 from 1.218 billion in the comparable 1995 period,
while ASMs decreased 12.5% to 1.322 billion from 1.510 billion, resulting in a
load factor increase to 82.6% in the third quarter of 1996 as compared to 80.7%
in the third quarter of 1995. The revenue per ASM (RASM) on tour operator
revenues in the third quarter of 1996 decreased 1.8% to 4.91 cents as compared
to 5.00 cents in the third quarter of 1995. Tour operator passengers boarded
decreased 10.7% to 434,506 in the third quarter of 1996 as compared to 486,804
in the comparable quarter of 1995, and tour operator departures decreased 18.8%
to 2,726 in the third quarter of 1996 as compared to 3,359 in the third quarter
of 1995.
Charter revenues derived from independent tour operators decreased 0.7% to
$184.2 million in the nine months ended September 30, 1996, as compared to
$185.5 million in the nine months ended September 30, 1995. Tour operator RPMs
decreased 0.2% to 2.888 billion in the nine months ended September 30, 1996,
from 2.893 billion in the comparable 1995 period, while ASMs increased 0.4% to
3.573 billion from 3.558 billion, resulting in a load factor reduction to 80.8%
in the nine months ended September 30, 1996, as compared to 81.3% in the nine
months ended September 30, 1995. The RASM on tour operator revenues in the nine
months ended September 30, 1996, decreased 1.2% to 5.15 cents as compared to
5.21 cents in the nine months ended September 30, 1995. Tour operator passengers
boarded increased 4.0% to 1,517,405 in the nine months ended September 30, 1996,
as compared to 1,459,364 in the comparable period of 1995, and tour operator
departures increased 0.8% to 8,970 in the nine months ended September 30, 1996,
as compared to 8,895 in the nine months ended September 30, 1995.
Charter revenues derived from the U.S. military increased 30.4% to $19.3 million
in the third quarter of 1996 as compared to $14.8 million in the third quarter
of 1995. U.S. military RPMs increased 15.8% to 147.7 million in the third
quarter of 1996 from 127.6 million in the comparable 1995 period, while ASMs
increased 23.1% to 322.3 million from 261.9 million, resulting in a load factor
reduction to 45.8% in the third quarter of 1996 as compared to 48.7% in the
third quarter of 1995. The RASM on U.S. military revenues in the third quarter
of 1996 increased 6.0% to 5.99 cents as compared to 5.65 cents in the third
quarter of 1995. U.S. military passengers boarded increased 27.4% to 46,609 in
the third quarter of 1996 as compared to 36,592 in the comparable quarter of
1995, and U.S. military departures increased 22.6% to 840 in the third quarter
of 1996 as compared to 685 in the third quarter of 1995.
Charter revenues derived from the U.S. military increased 1.3% to $56.2 million
in the nine months ended September 30, 1996, as compared to $55.5 million in the
nine months ended September 30, 1995. U.S. military RPMs decreased 4.4% to 440.5
million in the nine months ended September 30, 1996, from 460.9 million in the
comparable 1995 period, while ASMs decreased 0.9% to 988.5 million from 997.3
million, resulting in a load factor reduction to 44.6% in the nine months ended
September 30, 1996, as compared to 46.2% in the nine months ended September 30,
1995. The RASM on U.S. military revenues in the nine months ended September 30,
1996, increased 2.0% to 5.68 cents as compared to 5.57 cents in the nine months
ended September 30, 1995. U.S. military passengers boarded decreased 17.1% to
129,121 in the nine months ended September 30, 1996, as compared to 155,664 in
the comparable period of 1995, and U.S. military departures decreased 21.7% to
2,218 in the nine months ended September 30, 1996, as compared to 2,834 in the
nine months ended September 30, 1995.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its Ambassadair Travel Club subsidiary exclusively to club members and
through its ATA Vacations subsidiary to the general public. Ground package
revenues increased 2.2% to $4.7 million in the third quarter of 1996 as compared
to $4.6 million in the third quarter of 1995. For the nine months ended
September 30, 1996, ground package revenues increased 15.0% to $17.6 million
from $15.3 million in the similar 1995 period.
The Company's 23-year-old Ambassadair Travel Club offers hundreds of
tour-guide-accompanied vacation packages to its approximately 39,000 individual
and family members annually. In the third quarter of 1996, total packages sold
decreased 0.5% as compared to the third quarter of 1995, although for the nine
months ended September 30, 1996, the Club recorded a 10.1% increase in packages
sold over the same 1995 period. During the third quarter of 1996, the average
price of each ground package sold increased 6.6% as compared to the third
quarter of 1995, while for the nine months ended September 30, 1996, average
package price increased 14.3% as compared to the same period in 1995.
ATA Vacations offers numerous ground package combinations to the general public
for use on the Company's scheduled service flights throughout the United States
and to selected Mexico and Caribbean destinations. These packages are marketed
through travel agents, as well as directly by the Company's own reservation
centers. During the third quarter of 1996, the number of ground packages sold
increased 35.5% as compared to the third quarter of 1995, while for the nine
months ended September 30, 1996, the number of ground packages sold increased
26.4% as compared to the same 1995 period. During the third quarter of 1996, the
average price of each ground package sold decreased 25.5% as compared to the
third quarter of 1995, and for the nine months ended September 30, 1996, the
average package price decreased by 14.4% as compared to the same 1995 period.
The average price paid to the Company for a ground package sale is a function of
the mix of vacation destinations served, the quality and types of ground
accommodations offered and general competitive conditions with other air
carriers offering similar products in the Company's markets. Some ATA Vacations
markets have experienced price reductions in 1996 due to intense price
competition. The average gross margin on ground packages sold in the third
quarter of 1996 declined to 14.1% as compared to 18.5% in the third quarter of
1995, and the average gross margin in the nine months ended September 30, 1996,
declined to 19.5% as compared to 22.4% in the same period in 1995.
Other Revenues. 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 the Company. Other
revenues increased 42.1% to $8.1 million in the third quarter of 1996 as
compared to $5.7 million in the third quarter of 1995. Other revenues increased
31.6% to $25.4 million in the nine months ended September 30, 1996, as compared
to $19.3 million in the comparable 1995 period. Approximately $1.5 million and
$3.6 million, respectively, of the revenue increases in the third quarter of
1996 and the nine months ended September 30, 1996, were attributable to an
increase in the number of block hours of substitute service provided by the
Company to other airlines. A substitute service agreement typically provides for
the Company to operate an aircraft with its own crews on routes designated by
the customer airline to carry the passengers of that airline for a limited
period of time. The remaining increases in other revenues for both respective
1996 periods were primarily due to revenue growth in several of the Company's
affiliated businesses.
Operating Expenses
Fuel and Oil. Fuel and oil expense for the third quarter of 1996 increased 30.8%
to $45.4 million from $34.7 million in the third quarter of 1995. Fuel and oil
expense for the nine months ended September 30, 1996, increased 28.9% to $126.1
million from $97.8 million in the nine months ended September 30, 1995. In both
comparative sets of periods, fuel and oil expense increased due to an increase
in fuel consumed to operate the Company's expanded block hours of flying due to
an increase in the average price paid per gallon of fuel consumed and due to the
imposition of a 4.3-cent-per-gallon excise tax on jet fuel consumed for domestic
use effective October 1, 1995.
During the third quarter of 1996, as compared to the same quarter in 1995, the
Company consumed 9.1% more gallons of jet fuel for flying operations and flew
14.2% more block hours. During the nine months ended September 30, 1996, as
compared to the same period in 1995, the Company consumed 12.0% more gallons of
jet fuel and flew 15.3% more block hours. The growth in gallons of fuel consumed
was lower than the growth in block hours flown between both comparative periods
due to a change in the mix of block hours flown by fleet type. Of greatest
significance was the reduction of total block hours flown by the Lockheed L-1011
fleet of 9.0% and 2.4%, respectively, for the third quarter of 1996 and the nine
months ended September 30, 1996, as compared to the same periods of 1995, since
the fuel burn per block hour for this aircraft is significantly higher than for
the Company's other fleet types.
During the third quarter of 1996, the Company's average cost per gallon of fuel
consumed (excluding the excise tax described in the following paragraph)
increased by 15.0% as compared to the same quarter in 1995. During the nine
months ended September 30, 1996, as compared to the same period in 1995, the
Company's average cost per gallon of fuel increased by 11.5%. Fuel price
increases paid by the Company reflected generally tighter supply conditions for
aviation fuel which persisted throughout the first three quarters of 1996 as
compared to the prior year.
On October 1, 1995, the Company 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 third quarter of 1996 and in the nine months ended September
30, 1996, was to increase the Company's cost of jet fuel by approximately $2.2
million and $6.4 million, respectively, as compared to the same periods in 1995.
Certain legislation has recently been considered in Congress to reinstate
commercial air carriers' exemption from this fuel tax. The outcome of these
legislative actions cannot be predicted by the Company, and, under existing tax
law, the Company remains indefinitely subject to the fuel tax.
Fuel and oil expense for the third quarter of 1996 was 1.21 cents per ASM, an
increase of 21.0% from the third quarter of 1995 of 1.00 cent per ASM. Fuel and
oil expense for the nine months ended September 30, 1996, was 1.18 cents per
ASM, an increase of 16.8% from 1.01 cents per ASM in the comparable period of
1995. The increase in the cost per ASM of fuel and oil expense for both
comparative periods was primarily a result of higher prices and the new excise
tax, partially offset by the expanded use of the more fuel efficient twin-engine
Boeing 757-200 aircraft in the Company's fleet. During the third quarter of
1996, the Company's Boeing 757-200 aircraft accounted for 28.5% of total block
hours flown, as compared to 25.9% in the third quarter of 1995. For the nine
months ended September 30, 1996, the Boeing 757-200 accounted for 30.4% of total
block hours flown, as compared to 26.2% in the nine months ended September 30,
1995.
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.
Salaries, wages and benefits expense for the third quarter of 1996 increased
22.7% to $44.9 million from $36.6 million in the third quarter of 1995.
Salaries, wages and benefits expense for the nine months ended September 30,
1996, increased 21.5% to $126.8 million from $104.4 million for the nine months
ended September 30, 1995. Approximately $6.2 million of the increase in the
third quarter of 1996 and $21.0 million of the increase in the nine months ended
September 30, 1996, were attributable to the addition of cockpit and cabin
crews, reservations agents, base station staff and maintenance staff to support
the Company's growth in seat capacity and fleet size between periods. Also,
during the third quarter of 1996 the company recognized $1.2 million of
executive compensation. Average Company full-time-equivalent employees
increased by 13.9% in the third quarter of 1996 as compared to the third
quarter of 1995, while average Company full-time-equivalent employees
increased 18.1% in the nine months ended September 30, 1996, as compared
to the same period in 1995. Third quarter 1996
full-time-equivalent employee growth was partially slowed by the 15%
reduction in force which commenced in September; September 1996 average
full-time-equivalent employees was therefore only 7.5% higher than September
1995. The Company expects to complete this reduction in force in the fourth
quarter of 1996 and has recorded $135,000 in related severance costs in the
third quarter of 1996.
Salaries, wages and benefits expense for the third quarter of 1996 was 1.19
cents per ASM, an increase of 13.3% from the third quarter of 1995 of 1.05 cents
per ASM. Salaries, wages and benefits expense for the nine months ended
September 30, 1996, was 1.18 cents per ASM, an increase of 9.3% from the nine
months ended September 30, 1995, of 1.08 cents per ASM. The cost per ASM
increased partially as a result of an increase in the average rate of pay of
4.0% and 3.2%, respectively, for the third quarter of 1996 and the nine months
ended September 30, 1996, as compared to the same periods in 1995. In addition,
the Company has increased employment in several maintenance and base station
locations in lieu of continuing the use of third-party contractors. The Company
believes it can provide more reliable operations and better customer service at
a lower total cost by using its own employees in these selected locations. The
Company has experienced related savings in the expense lines of handling,
landing and navigation fees, and in aircraft maintenance, materials and repairs,
as further described in those sections following.
In December 1994, the Company implemented a four-year collective bargaining
agreement with flight attendants, which was the first of the Company's labor
groups to elect union representation. A new tentative four-year collective
bargaining agreement was reached with cockpit crews on August 6, 1996,
which was subsequently ratified by the International Brotherhood of Teamsters
membership on September 23, 1996. The pay-related terms of this new agreement
were implemented retroactively to August 6, including, among other things, a
rate increase of approximately 7.5% to cockpit crew pay scales for the first
year of the new contract.
Handling,Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security and baggage where the Company elects to
use third-party contract services in lieu of its own employees. Air navigation
fees are assessed when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees decreased by 12.5% to $21.0 million for
the third quarter of 1996, as compared to $24.0 million in the third quarter of
1995, while they decreased 2.0% to $57.4 million in the nine months ended
September 30, 1996, as compared to $58.6 million in the nine months ended
September 30, 1995. During the third quarter of 1996, the average cost per
system departure for third-party aircraft handling declined 20.1% as compared to
the third quarter of 1995, and the average cost of landing fees per system
departure decreased 16.9% between the same periods. During the nine months ended
September 30, 1996, the average cost per system departure for aircraft handling
decreased 17.6% as compared to the nine months ended September 30, 1995, and the
average cost of landing fees per system departure decreased 14.0% between the
same periods.
Because each airport served by the Company has a different
schedule of fees, including variable prices for different aircraft types,
average handling and landing fee costs are a function of the mix of airports
served as well as the fleet composition of departing aircraft. On average, these
costs for narrow-body aircraft are less than for wide-body aircraft, and the
average costs at domestic U.S. airports are less than the average costs at most
foreign airports. In the third quarter of 1996, 81.7% of the Company's
departures were operated with narrow-body aircraft, as compared to 75.5% in the
third quarter of 1995, and 78.5% of the Company's departures were from U.S.
domestic locations, as compared to 77.1% in the third quarter of 1995. During
the nine months ended September 30, 1996, 80.7% of the Company's departures were
operated with narrow-body aircraft, as compared to 76.5% in the nine months
ended September 30, 1995, and 81.6% of the Company's departures were from U.S.
domestic locations, as compared to 78.5% in the nine months ended September 30,
1995.
Handling costs also vary from period to period according to decisions made
by the Company to use third-party handling services at some airports in lieu of
using the Company's own employees. Effective in the first three quarters of
1996, the Company implemented a policy of "self-handling" at four domestic U.S.
airports with significant operations, which had been substantially handled using
third-party contractors in the first three quarters of 1995. This change
resulted in lower absolute third-party handling costs for these locations and
contributed to lower system average contract handling costs per departure for
the third quarter of 1996 and the nine months ended September 30, 1996, as
compared to the same periods of 1995. The Company incurred higher salaries,
wages and benefits expense as a result of this policy change, as noted in a
preceding section.
The cost per ASM for handling, landing and navigation fees
decreased 18.8% to 0.56 cents in the third quarter of 1996 from 0.69 cents in
the third quarter of 1995. The cost per ASM for handling, landing and navigation
fees decreased 11.5% to 0.54 cents in the nine months ended September 30, 1996,
as compared to 0.61 cents in the nine months ended September 30, 1995.
Aircraft Rentals. Aircraft rentals expense for the third quarter of 1996
increased 31.6% to $17.5 million from $13.3 million in the third quarter of
1995. Aircraft rentals expense for the nine months ended September 30, 1996,
increased 30.4% to $51.9 million from $39.8 million in the nine months ended
September 30, 1995. These increases in both comparative periods were
attributable to continued growth in the size of the Company's leased aircraft
fleet. The addition of three leased Boeing 757-200 aircraft resulted in $3.4
million and $10.6 million, respectively, of increased aircraft rentals for the
third quarter of 1996 and the nine months ended September 30, 1996, as compared
to the prior year, while several additional leased Boeing 727-200 and Lockheed
L-1011 aircraft contributed $0.8 million and $2.2 million in additional aircraft
rentals between the same respective periods. Aircraft rentals expense was
reduced by $0.7 million for the nine months ended September 30, 1996, as
compared to the prior year due to the purchase of four Pratt & Whitney engines
in May 1995 which had been previously leased.
Aircraft rentals expense for the third quarter of 1996 was 0.47 cents per ASM,
an increase of 23.7% over the third quarter of 1995 of 0.38 cents per ASM.
Aircraft rentals expense for the nine months ended September 30, 1996 was
0.48 cents per ASM, an increase of 17.1% over the nine months ended
September 30, 1995, of 0.41 cents per ASM. The period-to-period increase of
three Boeing 757-200 aircraft was a significant factor in these changes
since the rental cost of ASMs produced by this fleet type is significantly
higher than for the Company's other aircraft. Aircraft utilization and
associated rental expense per ASM were also unfavorably affected by the impact
of the reduction in scheduled service operations in September 1996.
As discussed further under Disposal of Assets on page 19, the Company
intends to reduce its leased fleet of Boeing 757-200 aircraft by four to six
units by the end of 1996.
Depreciation and Amortization. Depreciation reflects the periodic expensing
of the recorded cost of owned Lockheed L-1011 airframes and
engines,Pratt & Whitney engines, and rotable parts for all fleet types,
together with other property and equipment owned by the Company. Amortization is
the periodic expensing of capitalized airframe and engine 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
for the third quarter of 1996 increased 10.7% to $16.5 million from $14.9
million in the third quarter of 1995.
Depreciation and amortization expense for the nine months ended
September 30, 1996, increased 14.8% to $47.2 million from $41.1 million in
the nine months ended September 30, 1995. Depreciation expense attributable
to owned airframes and engines, and other property and equipment owned by
the Company, increased $0.9 million in the third quarter of 1996 as
compared to the third quarter of 1995 and increased $3.0 million for the nine
months ended September 30, 1996, as compared to the same period in 1995.
Amortization of capitalized engine and airframe overhauls increased $0.1 million
in the third quarter of 1996 as compared to the third quarter of 1995, and
increased $1.5 million for the nine months ended September 30, 1996, as compared
to the same period in 1995. The increasing cost of overhaul amortization
reflects the increase in the number of aircraft added to the Company's fleet and
the increase in cycles and block hours flown between years. New aircraft
introduced into the Company's fleet generally do not require airframe or engine
overhauls until one or more years after first entering service. Therefore, the
resulting amortization of these overhauls generally occurs on a delayed basis
from the date the aircraft is placed into service.
The cost of engine overhauls which become worthless due to early engine
failures, and which cannot be economically repaired, is charged to depreciation
and amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs increased $0.8 million and
$1.6 million, respectively, for the third quarter of 1996 and the nine months
ended September 30, 1996, as compared to the same periods in 1995. In cases
where these engine failures can be economically repaired, the cost of engine
repair is charged to aircraft maintenance, materials and repairs expense.
Depreciation and amortization cost per ASM for the third quarters of 1996 and
1995, and for the nine months ended September 30, 1996 and 1995, increased 2.3%
to 0.44 cents from 0.43 cents.
Aircraft Maintenance, Materials and Repairs. This expense line 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 costs. Aircraft maintenance, materials and repairs expense
decreased 3.3% to $14.5 million in the third quarter of 1996 as compared to
$15.0 million in the third quarter of 1995. Although the cost of repairs for
repairable and rotable components increased $0.8 million between periods, the
cost of expendable parts consumed decreased $0.5 million, the cost of parts
loans and exchanges decreased $0.2 million, and the cost of shipping components
to and from repair locations decreased $0.3 million. Aircraft maintenance,
materials and repairs cost was also reduced by $0.3 million in the third quarter
of 1996 as compared to the third quarter of 1995 due to a planned reduction in
the use of third-party maintenance staff in favor of using more Company
maintenance employees for both base and line maintenance activities. The Company
incurred higher salaries, wages and benefits expense as a result of this policy
change, as noted in a preceding section.
The cost of aircraft maintenance, materials and repairs decreased
3.6% to $42.4 million in the nine months ended September 30, 1996, as
compared to $44.0 million in the nine months ended September 30, 1995.
The Company incurred $1.1 million less in engine repair costs in the nine
months ended September 30, 1996, as compared to the same period in 1995.
In addition, a $1.8 million period-over-period reduction in the
use of third-party maintenance staff was achieved, although higher salaries,
wages and benefits expense was incurred in the nine months ended September 30,
1996, as a result of this policy change. These cost savings were partially
offset by higher costs for repairable and rotable repairs and parts loans and
exchanges between periods.
The cost per ASM of aircraft maintenance, materials
and repairs decreased by 11.6% to 0.38 cents in the third quarter of 1996 as
compared to 0.43 cents in the third quarter of 1995. The cost per ASM of
aircraft maintenance, materials and repairs decreased by 13.0% to 0.40 cents in
the nine months ended September 30, 1996, as compared to 0.46 cents in the nine
months ended September 30, 1995.
Crew and Other Employee Travel. Crew and other employee 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 their
bases 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 international
positioning of crews. Hotel and per diem expenses are incurred for both
scheduled and charter services, although higher per diem and hotel rates
generally apply to international assignments.
The cost of crew and other employee travel increased 35.1% to $10.4 million in
the third quarter of 1996 from $7.7 million in the third quarter of 1995. During
the third quarter of 1996, the Company increased average crew member head count
by 5.7% as compared to the third quarter of 1995. This increase in crew member
head count was insufficient to efficiently operate the third quarter 1996 flying
schedule, which included 12.2% more departures and 14.2% more block hours than
the third quarter of 1995. As a result, crew members were required to spend more
time traveling away from base to accommodate the increased flying schedule.
During the third quarter of 1996, as compared to the same period in 1995, the
average cost of positioning, hotel rooms and per diem per crew member increased
by 3.1%, 36.8%, and 11.5%, respectively.
The cost of crew and other employee travel increased by 25.3% to $27.7 million
in the nine months ended September 30, 1996, as compared to $22.1 million in the
nine months ended September 30, 1995. During the nine months ended September 30,
1996, the Company increased average crew member head count by 10.2% as compared
to the nine months ended September 30, 1995, while over the same comparable time
periods departures increased 17.0% and block hours increased 15.3%. The average
cost of positioning, hotel room and per diem expense per crew member increased
6.6%, 11.7% and 9.8%, respectively, between the nine months ended September 30,
1996, and the same period of 1995. The Company had experienced crew shortages
during earlier periods of 1996, which were worsened in the first quarter by
severe winter weather which created significant flight delays, diversions and
cancellations.
The cost per ASM for crew and other employee travel increased 27.3% to 0.28
cents in the third quarter of 1996 from 0.22 cents in the third quarter of 1995,
while this cost per ASM increased by 13.0% to 0.26 cents for the nine months
ended September 30, 1996, as compared to 0.23 cents for the nine months ended
September 30, 1995.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
headsets sold, and the cost of onboard entertainment programs, together with
certain costs incurred for mishandled baggage and passengers inconvenienced due
to flight delays or cancellations. For the third quarters of 1996 and 1995,
catering represented 83.8% and 83.5%, respectively, of total passenger service
expense, while for the nine months ended September 30, 1996 and 1995, catering
represented 80.3% and 85.5%, respectively, of total passenger service expense.
The cost of passenger service decreased 13.6% in the third quarter of 1996 to
$9.5 million as compared to $11.0 million in the third quarter of 1995. Although
total passengers boarded increased by 6.0% to 1,459,897 in the third quarter of
1996 as compared to 1,376,779 in the same 1995 period, the average cost to cater
each passenger declined 10.1% between quarters due to a planned reduction in
catering service levels in select charter and scheduled service markets
beginning late in the third quarter of 1995. This cost reduction was partially
offset by a 27.4% increase in military passengers boarded between quarters,
which is the most expensive passenger to cater in the Company's business mix.
The cost of passenger service decreased 4.7% in the nine months ended September
30, 1996, to $26.4 million as compared to $27.7 million in the nine months ended
September 30, 1995. Total passengers boarded increased 12.2% to 4,659,399 in the
nine months ended September 30, 1996, as compared to 4,152,675 in the same
period in 1995, although the average cost to cater each passenger declined by
20.5% between the same comparative periods. Passenger service costs were
negatively impacted in the first quarter of 1996 by severe winter weather in
Boston and Chicago-Midway, which generated additional costs to handle
inconvenienced passengers and mishandled baggage due to canceled and
significantly delayed flights.
The cost per ASM of passenger service decreased 21.9% to 0.25 cents in the third
quarter of 1996 as compared to 0.32 cents in the third quarter of 1995. The cost
per ASM of passenger service decreased 13.8% to 0.25 cents in the nine months
ended September 30, 1996, as compared to 0.29 cents in the nine months ended
September 30, 1995. The lower cost per ASM in both comparative sets of periods
was primarily due to lower cost of catering per passenger boarded.
Commissions. The Company incurs significant commissions expense in association
with the sale by travel agents of single seats on scheduled service. In
addition, the Company pays commissions to secure some tour operator and military
business. Commissions expense increased 4.7% to $6.7 million in the third
quarter of 1996 as compared to $6.4 million in the third quarter of 1995.
Between the third quarters of 1995 and 1996, total passengers boarded increased
6.0%. Commissions expense grew more slowly than passengers boarded due to a
quarter-over-quarter reduction in commissions paid for tour operator and
military passengers, together with a reduction in the percentage of scheduled
passengers boarded sold by travel agents in September 1996. These reductions
were partially offset by a $0.2 million increase in commissions expense which
was not recalled from travel agents on the refund of agency-issued tickets for
flights canceled due to the scheduled service restructuring in September, 1996.
Commissions expense increased 17.3% to $21.7 million in the nine months ended
September 30, 1996, as compared to $18.5 million in the same 1995 period, while
total passengers boarded increased 12.2% between periods. Through the first
eight months of 1996, and prior to the restructuring of scheduled service in
September 1996, the percentage of passenger tickets sold through travel agencies
increased due to the Company's implementation of full participation in several
CRS systems in the third quarter of 1994 and due to the introduction of
connecting fares in the third quarter of 1995 which expanded choices for travel
agents to sell the Company's scheduled service product.
The cost per ASM of commissions expense was unchanged at 0.18 cents for the
third quarters of 1996 and 1995. The cost per ASM increased 5.3% to 0.20 cents
for the nine months ended September 30, 1996, as compared to 0.19 cents for the
comparable 1995 period.
Other Selling Expenses. Other selling expenses are comprised of (i) booking fees
paid to Computer Reservations Systems (CRS) to reserve single-seat sales for
scheduled service; (ii) credit card discount expense incurred when selling
single seats and ground packages to customers using credit card forms of
payment; (iii) costs of providing toll-free telephone services, primarily to
single-seat and vacation package customers contacting the Company directly to
book reservations; and (iv) miscellaneous other selling expenses which are
primarily associated with single-seat sales. Other selling expenses increased
16.2% to $4.3 million in the third quarter of 1996 as compared to $3.7 million
in the third quarter of 1995. Other selling expenses increased 26.3% to $14.4
million in the nine months ended September 30, 1996, as compared to $11.4
million in the same period of 1995.
In the third quarter of 1996, as compared to the third quarter of 1995, the cost
of toll-free telephone service increased $0.4 million and the cost of credit
card discount increased by $0.2 million. Toll-free telephone usage increased
between periods as a result of the Company's efforts to assist passengers and
travel agents to obtain reaccommodation as a result of the reduction in the
Company's scheduled service operations. Credit card discount expense increased
due to the increased scheduled service revenue earned between periods.
In the nine months ended September 30, 1996, as compared to the nine months
ended September 30, 1995, the cost of toll-free telephone service increased by
$1.1 million, while the cost of credit card discount expense increased by $1.6
million. These cost increases were consistent with the increase in required
support services for scheduled service growth between the comparative periods.
Other selling cost per ASM was unchanged at 0.11 cents in the third quarters of
1996 and 1995. Other selling cost per ASM increased 8.3% to 0.13 cents in the
nine months ended September 30, 1996, as compared to 0.12 cents in the same
period of 1995.
Ground Package Cost. Ground package cost includes the expenses incurred by the
Company for hotels, car rental companies, cruise lines and similar vendors to
provide ground arrangements to Ambassadair and ATA Vacations customers. Ground
package cost increased 10.8% to $4.1 million in the third quarter of 1996 as
compared to $3.7 million in the third quarter of 1995. Ground package cost
increased 19.3% to $14.2 million for the nine months ended September 30, 1996,
as compared to $11.9 million for the same period in 1995. This increase in cost
is primarily due to the increase in ground packages sold in both sets of
comparative periods. In the third quarter of 1996, Ambassadair sold 0.5% fewer
packages and ATA Vacations sold 35.5% more ground packages than in the third
quarter of 1995; in the nine months ended September 30, 1996, Ambassadair sold
10.1% more ground packages and ATA Vacations sold 26.4% more ground packages
than in the same period of 1995.
Ground package cost per ASM was unchanged at 0.11 cents in the third quarters of
1996 and 1995. Ground package cost per ASM increased 8.3% to 0.13 cents in the
nine months ended September 30, 1996, as compared to 0.12 cents in the same
period of 1995.
Facility and Other Rentals. Facility and other rentals includes the costs of all
ground facilities which are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 47.4% to $2.8 million in the third quarter of 1996 as compared
to $1.9 million in the third quarter of 1995, while this cost increased 35.8% to
$7.2 million in the nine months ended September 30, 1996, as compared to $5.3
million in the same period of 1995.
The cost per ASM of facility and other rentals in the third quarter of 1996 and
for the nine months ended September 30, 1996, was 0.07 cents per ASM, as
compared to 0.05 cents in the comparable periods of 1995. The increase in
expense noted for 1996 was attributable to higher facility costs resulting from
the Company becoming a signatory carrier at Orlando International Airport,
together with a rent increase attributable to Chicago-Midway facilities. The
increased facility costs at Orlando International Airport have associated
savings in lower handling and landing fees for the Company's flights at Orlando
International Airport.
Advertising. Advertising expense increased 43.8% to $2.3 million in the third
quarter of 1996 as compared to the $1.6 million in the third quarter of 1995,
and advertising expense increased 22.4% to $8.2 million in the nine months ended
September 30, 1996, as compared to $6.7 million in the same period of 1995. The
Company incurs advertising costs primarily to support single-seat scheduled
service sales and the sale of ground packages. Advertising support for this line
of business was increased consistent with the growth in associated revenues and
due to the need to meet competitive actions in the Company's markets.
The cost per ASM of advertising increased 20.0% to 0.06 cents in the third
quarter of 1996 as compared to 0.05 cents in the third quarter of 1995, while
the cost per ASM of advertising increased 14.3% to 0.08 cents per ASM for the
nine months ended September 30, 1996, as compared to 0.07 cents in the
comparable period of 1995.
Disposal of Assets. During the third quarter of 1996, the Company committed to a
plan to dispose of up to seven Boeing 757-200 aircraft. A Letter of Intent was
signed with a major lessor on July 29, which included the cancellation of
operating leases on five aircraft and the return of those aircraft to the lessor
before the end of 1996. Negotiations also commenced with a major lessor during
the third quarter for the cancellation of operating leases on two additional
aircraft in 1996.
During the third quarter, the Company recorded a loss on disposal of the initial
five aircraft according to the terms and conditions negotiated and agreed in the
Letter of Intent. An estimate of the expected loss on disposal of the additional
two aircraft was also recorded in the third quarter, although a specific Letter
of Intent had not yet been signed. The total loss on disposal recorded was $4.7
million for all aircraft.
The source of the loss on the termination of these aircraft leases was primarily
from the write-off of the unused net book value of the associated airframe and
engine overhauls. For several aircraft, the Company was required to meet
additional maintenance return conditions associated with airframes and engines,
the cost of which was charged to the loss on disposal. These costs were
partially offset by cash proceeds received from the lessor and by the write-off
of associated deferred aircraft rent credits.
In addition to these costs, the Company owns several spare Pratt & Whitney
engines and consumables, repairables and rotable components which are specific
to the Pratt & Whitney powered Boeing 757-200s. The net book value of these
engines and parts, which approximates estimated market value, is $13.9 million
as of September 30, 1996. The Company is actively seeking to sell these assets
and has therefore reclassified their cost as Assets Held For Sale under current
assets in the accompanying balance sheet.
Other Operating Expenses. Other operating expenses increased 12.8% to $14.1
million in the third quarter of 1996 as compared to $12.5 million in the third
quarter of 1995. Other operating expenses increased 16.1% to $42.6 million in
the nine months ended September 30, 1996, as compared to $36.7 million in the
same period of 1995. Significant components of the year-over-year variances
include increases in substitute service and passenger reprotection costs,
professional fees, data communications costs,insurance costs and consulting fees
in connection with the detailed route profitability study.
Other operating cost per ASM increased 2.8% to 0.37 cents in the third quarter
of 1996 as compared to 0.36 cents in the third quarter of 1995. Other operating
cost per ASM increased 5.3% to 0.40 cents in the nine months ended September 30,
1996, as compared to 0.38 cents in the same period of 1995.
Income Tax Expense
In the third quarter of 1996, the Company recorded ($6.8) million in tax credits
applicable to the loss before income taxes for that period, while income tax
expense of $3.3 million was recognized pertaining to income before taxes for the
third quarter of 1995. For the nine months ended September 30, 1996, income tax
credits of ($6.1) million were recorded, as compared to income tax expense of
$10.0 million in the same period of 1995.
The effective tax rate applicable to tax credits in the third quarter of 1996
was 35.0%, and the effective tax rate for income earned in the third quarter of
1995 was 47.9%. The effective tax rates for the nine months ended September 30,
1996 and 1995 were 32.6% and 44.7%, respectively. The Company's effective income
tax rates are unfavorably affected by the permanent non-deductibility from
taxable income of 50% of crew per diem expenses incurred in both years. The
impact of these permanent differences on effective tax rates becomes more
pronounced as taxable income or loss declines.
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. For the nine months ended September 30, 1996 and
1995, net cash provided by operating activities was $27.3 million and $67.1
million, respectively.
Net cash used in investing activities was $53.7 million and $48.0 million,
respectively, for the nine months ended September 30, 1996 and 1995. Such
amounts primarily reflected cash capital expenditures totaling $87.6 million in
1996 and $44.3 million in 1995 for engine overhauls, airframe improvements and
the purchase of airframes, engines and rotable parts. These capital expenditures
were supplemented with other capital expenditures financed directly with debt
totaling $14.2 million in the nine months ended September 30, 1996, and $12.9
million in the comparable 1995 period. In the nine months ended September 30,
1996, the Company generated $30.2 million in cash from the sale and leaseback of
four owned Boeing 727-200 aircraft. There were no similar sale and leaseback
transactions in the nine months ended September 30, 1995.
Net cash provided by (used in) financing activities was $6.4 million and ($8.5)
million, respectively, for the nine months ended September 30, 1996 and 1995.
In November 1994, the Company signed a purchase agreement for six new Boeing
757-200s with deliveries of two aircraft each scheduled for 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 delivery of the first aircraft under this
agreement in September 1995 and the second aircraft in December 1995. Both
deliveries were financed under leases accounted for as operating leases. Advance
payments and interest totaling approximately $44.0 million ($11.0 million per
aircraft) are required prior to delivery of the four remaining aircraft, with
the remaining purchase price payable at delivery. As of September 30, 1996, the
Company had made $20.8 million in advance payments and interest applicable to
aircraft scheduled for future delivery. The Company intends to finance future
deliveries under this agreement through sale/leaseback transactions accounted
for as operating leases.
In the fourth quarter of 1995, the Company purchased one Boeing 727-200 and
financed that aircraft through a sale/leaseback accounted for as an operating
lease. In the first quarter of 1996, the Company purchased four additional
Boeing 727-200 aircraft, financing all of these through sale/leasebacks
accounted for as operating leases by the end of the third quarter of 1996. In
the second quarter of 1996, the Company purchased a sixth Boeing 727-200
aircraft which had been previously financed by the Company through a lease
accounted for as an operating lease. This aircraft was financed through a
separate bridge debt facility as of September 30, 1996, but is expected to be
financed long-term through a sale/leaseback transaction.
In October 1995, the Company entered into an agreement with a supplier to
provide for the purchase of hushkits for installation on Boeing 727-200
aircraft. All five Boeing 727-200 aircraft acquired during the fourth quarter of
1995 and the first two quarters of 1996 had hushkits installed prior to being
placed into revenue service, and the Company plans to install additional
hushkits on three other existing Boeing 727-200 aircraft in the Company's fleet
by the end of the fourth quarter of 1996. These narrow-body hushkitted aircraft
will maintain the Company's compliance with Federal Stage 3 noise requirements
as of December 31, 1996. Hushkits purchased by the Company and not yet installed
on aircraft, together with deposits made against future hushkit deliveries, are
financed through a separate bridge debt facility as of September 30, 1996. The
cost of these hushkits is included in the basis of each modified Boeing 727-200
as these hushkitted aircraft are financed long-term through sale/leaseback
transactions, and the bridge facility is paid down by corresponding amounts.
On July 29, 1996, the Company entered into a Letter of Intent with a major
lessor to cancel several Boeing 757-200 and Lockheed L-1011 operating aircraft
leases then in effect. Under the terms of the Letter of Intent, the Company will
cancel leases on five Boeing 757-200 aircraft powered by Pratt & Whitney engines
and will return these aircraft to the lessor on specific dates between September
and December 1996. The Company is required to meet certain return conditions
associated with several aircraft, such as providing maintenance checks to
airframes. The lessor will reimburse the Company for certain leasehold
improvements made to some aircraft and will credit the Company for certain
prepayments made in earlier years to satisfy qualified maintenance expenditures
for several aircraft over their original lease terms. The cancellation of these
leases is expected to reduce the Company's fleet of Pratt & Whitney powered
Boeing 757-200 aircraft from seven to two units as of the end of 1996. The
Company will also terminate existing operating leases on three Lockheed L-1011
aircraft, will purchase the airframes pertaining to these aircraft and will sign
new operating leases covering only the nine related engines. In association with
this transaction, the lessor has agreed to provide the Company with
approximately $6.4 million in additional unsecured financing for a term of seven
years. This transaction accounts for $2.3 million of the $4.7 million loss on
disposal of assets recorded in the third quarter of 1996.
The Company is also negotiating to purchase one Rolls-Royce-powered Boeing
757-200 aircraft from the same lessor in the fourth quarter of 1996. The Company
expects to finance this aircraft under a sale/leaseback transaction accounted
for as an operating lease. The acquisition of this aircraft, together with the
delivery of two new Rolls-Royce-powered Boeing 757-200 aircraft from the
manufacturer in the fourth quarter of 1996, and the return of the last two Pratt
& Whitney powered Boeing 757-200 aircraft discussed in the next paragraph, is
expected to bring the Company's Rolls-Royce-powered Boeing 757-200 fleet to
seven units as of the end of 1996.
In September 1996, the Company began negotiations with a major lessor to cancel
existing operating leases on the Company's remaining two Pratt & Whitney powered
Boeing 757-200 aircraft. Although a Letter of Intent has not been signed, this
transaction accounts for $2.4 million of the $4.7 million loss on disposal of
assets provided for in the third quarter of 1996.
The Company's existing bank credit facility provides a maximum of $125.0
million, including a $25.0 million letter of credit facility, subject to the
maintenance of certain collateral value. The collateral for the facility
consists of certain owned Lockheed L-1011 aircraft, certain receivables, and
certain rotables and spare parts. At September 30, 1996 and 1995, the Company
had borrowed the maximum amount then available under the bank credit facility,
of which $60.0 million was repaid on October 1, 1996, and $76.0 million was
repaid on October 2, 1995.
As a result of the Company's need to restructure its scheduled service business,
the Company renegotiated certain terms of the bank credit facility effective
September 29, 1996. The new agreement provides a maximum of $125.0 million, $5.0
million of which is subject to approval of the bank as to underlying collateral.
The agreement also modifies certain loan covenants to take into account the
expected losses in the third and fourth quarters of 1996. In return for this
covenant relief, the Company has agreed to implement changes to the underlying
collateral for the facility and to change the interest rates applicable to
borrowings under the facility. The Company has pledged additional owned engines
and equipment as collateral for the facility as of the implementation date of
the new agreement. The Company has further agreed to begin reducing the maximum
borrowing availability of $63.0 million secured by the owned Lockheed L-1011
fleet by $1.0 million per month from April 1997 through September 1997, and by
$1.5 million per month from October 1997 through November 2000, at which time no
borrowing availability would be attributable to the owned Lockheed L-1011 fleet.
Loans outstanding under the renegotiated facility bear interest, at the
Company's option, at either (i) prime to prime plus 0.75%, or (ii) the
Eurodollar Rate plus 1.50% to 2.75%. The 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.
At September 30, 1996, the Company has reclassified $15.4 million of bank credit
facility borrowings from long-term debt to current maturities of long-term debt.
Of this amount, $6.0 million is attributable to the scheduled reduction of
availability secured by the owned Lockheed L-1011 fleet over the next twelve
months. The remaining $9.4 million represents the amount of the spare Pratt &
Whitney engines which are pledged to the bank facility and which will be repaid
from the anticipated sale. The estimated market value of these spare engines is
classified under current assets.
The Company also maintains a $5.0 million revolving credit facility available
for its short-term borrowing needs and for securing the issuance of letters of
credit. Borrowings against this credit facility bear interest at the bank's
prime rate plus 0.25%. There were no borrowings against this facility as of
September 30, 1996 or 1995; however, the Company did have outstanding letters of
credit secured by this facility aggregating $3.6 million and $3.2 million,
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 nine months of
1996, the Company repurchased 16,000 shares, bringing the total number of shares
it has repurchased under the program to 185,000 shares. The Company does not
currently expect to complete this stock repurchase program.
<PAGE>
PART II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports of Form 8-K
(a) Renegotiated bank credit agreement.
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of November 12, 1996 (this "Third Amendment") is by and
among AMERICAN TRANS AIR, INC., an Indiana corporation (the "Borrower"), AMTRAN,
INC., an Indiana corporation ("Amtran"), the Banks set forth on the signature
pages of the Credit Agreement referred to below (collectively, the "Banks" and
individually, a "Bank"), NBD Bank, N.A. ("NBD"), a national banking association,
as co-agent for the Banks, and as assignee of NBD Bank, a Michigan banking
corporation (in such capacity, the "Agent") and the BANK OF MONTREAL, a Canadian
chartered bank, as co-agent for the Banks (the "Co-Agent").
RECITALS
A. The Borrower, Amtran, the Banks, the Co-Agent and the Agent
have executed a Second Amended and Restated Credit Agreement dated as of
December 7, 1994, as amended by a First Amendment to Second Amended and Restated
Credit Agreement dated as of March 28, 1995 and a Second Amendment to Second
Amended and Restated Credit Agreement dated as of March 28, 1996 (the "Credit
Agreement").
B. The Borrower and Amtran have requested certain
modifications to the Credit Agreement and the Agent, the Co-Agent and the Banks
are willing to do so strictly in accordance with the terms hereof, and provided
the Credit Agreement is amended as set forth herein, and the Borrower has agreed
to such amendments.
AGREEMENT
Based upon these recitals, the parties agree as follows:
1. Upon satisfaction by the Borrower of the conditions set
forth in paragraph 4 hereof, the Credit Agreement shall hereby be amended as of
the effective date hereof as follows:
(A) New definitions of "Guaranty" (which replaces
the definition contained in Section 3.03) and "Leverage Ratio" are hereby
added to Section 1.1 in appropriate alphabetical order to read as follows:
"Guaranty" shall mean any guaranty of any of the Obligations
executed by Amtran and its Affiliates, or any of them, at any time, as amended
or modified from time to time.
"Leverage Ratio" means, as of any date as of which the amount
thereof is to be determined, the ratio of Total Adjusted Liabilities to Tangible
Net Worth.
(b) The definition of "Borrowing Base" in Section 1.1 is
restated in its entirety to read as follows:
"Borrowing Base" means, as of any date as of which
the amount thereof is to be determined, the sum of (a) an
amount equal to 100% of the value of the L-1011 Aircraft and
the L-1011 Engines constituting Aviation Property subject to
the Security Agreement, provided that the amount calculated
pursuant to this clause (a) shall be reduced by $1,000,000 on
April 1, 1997 and on the first day of each month thereafter to
and including September 1, 1997 and shall be reduced on
October 1, 1997 and on the first day of each month thereafter
by $1,500,000, and such reductions shall be in addition to any
reductions in the amount calculated pursuant to this clause
(a) due to any appraisals or otherwise required under this
Agreement, plus (b) an amount equal to 100% of the net book
value of Rotable Parts Inventory for the Borrower's L-1011
Aircraft, the Borrower's Boeing 757 aircraft, the Borrower's
Boeing 727 aircraft and other Rotable Parts Inventory of the
Borrower acceptable to the Agent and the Co-Agent and in which
the Banks and the Agent have a first priority, enforceable and
perfected security interest, plus (c) an amount equal to 100%
of the value of Eligible Accounts Receivable; provided,
however, notwithstanding anything in this Agreement to the
contrary, in calculating the Borrowing Base no value shall be
given to the four Pratt & Whitney JT8 aircraft engines in
which the Banks and the Agent are being granted a security
interest in connection with the Third Amendment to Second
Amended and Restated Credit Agreement dated as of November 12,
1996 among the parties hereto.
(c) The definition of "Margin" in Section
1.1 is restated in its entirety to read as follows:
"Margin" shall mean the applicable percentage per annum,
based on the Cash Flow Coverage Ratio and Leverage Ratio
of the Borrower, as determined by reference to the
following table:
<PAGE>
<TABLE>
Margin
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Letter of Non-Use
Tranche A Tranche B Credit Fee Fee Payable
Tranche A Tranche B Eurodollar Eurodollar Payable Under
Financial Prime Rate Prime Rate Rate Rate Under Section
Ratios Advances Advances Advances Advances Section 2.06(b)
------ -------- -------- -------- -------- 2.06(d) ------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the (a) Cash Flow Coverage 0% 0.25% 1.50% 2.00% 1.125% 0.25%
Ratio is greater than or equal
to 2.05 to 1.00 and (b)
Leverage Ratio is less than 4.0
to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the (a) Cash Flow Coverage 0% 0.25% 1.75% 2.25% 1.25% 0.375%
Ratio is less than 2.05 to 1.00
and greater than or equal to
1.80 to 1.00 and (b) Leverage
Ratio is less than 4.0 to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the (a) Cash Flow Coverage 0% 0.25% 2.00% 2.50% 1.375% 0.50%
Ratio is less than 1.80 to 1.00
and greater than or equal to
1.65 to 1.00 and (b) Leverage
Ratio is less than 4.0 to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the Leverage Ratio is equal 0.25% 0.50% 2.25% 2.75% 1.50% 0.50%
to or greater than 4.0 to 1.0
but less than or equal to 4.5
to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the Leverage Ratio is 0.50% 0.75% 2.50% 3.00% 1.625% 0.50%
greater than 4.5 to 1.0 but
less than 5.0 to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
If the Leverage Ratio is equal 0.75% 1.00% 2.75% 3.25% 1.75% 0.50%
to or greater than 5.0 to 1.0
- --------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
For purposes of determining the Margin, the Cash Flow
Coverage Ratio and Leverage Ratio shall be determined on the
last day of each fiscal quarter, for the fiscal quarter then
ending, and the Margin shall be adjusted on the first day of
the second fiscal quarter following each such fiscal quarter
based on the Cash Flow Coverage Ratio and Leverage Ratio for
such fiscal quarter, which Margin shall remain in effect until
the first day of the following fiscal quarter. Notwithstanding
the above, upon and during the continuance of any Event of
Default the Margin for each category shall be based upon the
highest margin possible in each category, regardless of the
Cash Flow Coverage Ratio or Leverage Ratio, upon and during
the continuance of any Event of Default.
(d) Effective as of September 30, 1996, the
definition "Total Adjusted Liabilities" set forth in Section 1.1 shall be
restated in its entirety to read as follows:
"Total Adjusted Liabilities" shall mean, without duplication,
(A) the sum of (i) Funded Indebtedness of Amtran and its
Affiliates,(ii) any payment in respect of Funded indebtedness
of Amtran and its Affiliates due within one year from any date
of determination, (iii) the total accrued Interest Expenses,
and (iv) three and one-half (3 1/2) times Amtran's and its
Affiliates' projected capital and operating lease rental
expenses for the immediately succeeding twelve month period
less (B) the total amount of all Cash Equivalents.
(e) Section 2.01(c) is amended by adding the
following after the second sentence thereof: "If required by the Majority
Banks, 90 days after each Adjustment Date the Majority Banks may request an
appraisal of the Aviation Property by an independent third party appraiser
acceptable to the Majority Banks and at the expense of the Borrower and the
value of the Aviation Property shall also be adjusted based on the results of
such appraisals."
(f) A new Section 2.01(e)is hereby added as follows:
(e) the Borrower will use its best efforts to sell four Pratt
& Whitney 2037 aircraft engines as soon as possible, and the
proceeds of each such sale shall be immediately applied as a
mandatory prepayment of the Loans and shall simultaneously
reduce the Borrowing Base by the book value thereof (which
book value is currently $9,200,000).
(g) Section 6.03(f) is hereby redesignated as
Section 6.03(h), and new Sections 6.03(f) and 6.03(g) are is hereby added as
follows:
(f) as soon as available but not later than fifteen (15) days
after the end of each month, the quarterly cash forecast, as most recently
updated and in form and substance satisfactory to the Agent, of Amtran and its
Affiliates;
(g) as soon as available but not later than forty-five (45)
days after the close of each fiscal quarter of Amtran, a quarterly line of
business report, profit and loss report, including a comparison of plan vs.
actual results for Amtran and its Affiliates in form and substance satisfactory
to the Agent; and (h) Effective as September 30, 1996, Sections 6.09, 6.10 and
6.11 are restated in their entirety to read as follows:
6.09 Tangible Net Worth Maintain Tangible Net Worth,
determined in accordance with GAAP, of not less than the sum
of (a) $52,500,000 plus (b) fifty percent (50%) of the Net
Profits, such fifty percent (50%) of Net Profits to be added
effective as of the end of each fiscal quarter of Amtran in an
amount equal to such fifty percent (50%) of Net Profit for
such fiscal quarter, commencing with the fiscal quarter of
Amtran ending March 31, 1997; provided, however, that if Net
Profit is negative for any fiscal quarter, such negative Net
profit may be subtracted only from the amount of such fifty
percent (50%) of net Profit that has been added, if any,
pursuant to clause (b) above for a fiscal quarter occurring in
the same fiscal year as such fiscal quarter for which Net
Profit was negative, and shall not be subtracted from any
other amount required to be maintained by this Section 6.09:
provided, further, that the amount of such negative Net Profit
subtracted shall be in an amount equal to fifty percent (50%)
of such negative Net Profit.
6.10 Cash Flow Coverage Ratio Maintain a Cash Flow Coverage
Ratio as of the last day of each fiscal quarter of Amtran, as
calculated for the fiscal quarter then ended plus the three
immediately preceding fiscal quarters, of not less than 1.65
to 1.0 at any time after the date hereof; provided, however,
notwithstanding the actual Adjusted Net Profit for the fiscal
quarters ending September 30, 1996 and December 31, 1996, the
Cash Flow Coverage Ratio for such two quarters shall be
calculated as if the Adjusted Net Profit for such two quarters
was $0.
6.11 Total Adjusted Liabilities/Tangible Net Worth Ratio
Maintain a ratio of the Total Adjusted Liabilities to Tangible
Net Worth of not more than (a) 6.0 to 1.0 as of the last day
of each fiscal quarter ending on or before September 30, 1997,
(b) 5.25 to 1.0 as of the last day of each fiscal quarter
ending after September 30, 1997 but on or before September 30,
1998 and (c) 4.5 to 1.0 as of the last day of each fiscal
quarter thereafter.
(i) A new Section 6.14 is added to the Credit
Agreement to read as follows:
6.14 Adjusted Net Profit. Maintain Adjusted Net Profit
for the fiscal quarter ending March 31, 1997 of not less
than $0.
(j) The following is hereby added to Section 8.06 by
adding the following after the words "when due": "or the failure of the
Borrower or any of its Affiliates to perform or observe any other term,
covenant or agreement with respect to any such Indebtedness".
(k) Section 10.03 is restated in its entirety to
read as follows:
10.03 Participations and Assignments. (a) This Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that the
Borrower may not, without the prior consent of the Banks, assign
its rights or obligations hereunder or under any other Loan
Document and the Banks shall not be obligated to make any Loan
hereunder to any entity other than the Borrower.
(b) Any Bank may sell to any financial
institution or institutions, and such financial institution or
institutions may further sell, a participation interest
(undivided or divided) in, the Loans and such Bank's rights and
benefits under this Agreement, the Notes and the Guaranties, and
to the extent of that participation interest such participant or
participants shall have the same rights and benefits against the
Borrower under Section 2.15 and 2.17 as it or they would have
had if such participant or participants were the Bank making the
Loans to the Borrower hereunder, provided, however, that (i)
such Bank's obligations under this Agreement shall remain
unmodified and fully effective and enforceable against such
Bank, (ii) such Bank shall remain solely responsible to the
other parties hereto for the performance of such obligations,
(iii) such Bank shall remain the holder of its Notes for all
purposes of this Agreement, (iv) the Borrower, the Agent and the
other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under
this Agreement, and (v) such Bank shall not grant to its
participant any rights to consent or withhold consent to any
action taken by such Bank or the Agent under this Agreement
other than action requiring the consent of all of the Banks
hereunder.
(c) Each Bank may, with the prior consent of
the Agent, assign to one or more banks or other entities all or
a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its
Commitment, the Loans owing to it and the Note or Notes held by
it); provided, however, that (i) each such assignment shall be
of a uniform, and not a varying, percentage of all rights and
obligations, (ii) except in the case of an assignment of all of
a Bank's rights and obligations under this Agreement, (A) the
amount of the Commitment of the assigning Bank being assigned
pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5,000,000, and in integral
multiples of $1,000,000 thereafter, or such lesser amount as the
Agent may consent to and (B) after giving effect to each such
assignment, the amount of the Commitment of the assigning Bank
shall in no event be less than $5,000,000, (iii) the parties to
each such assignment shall execute and deliver to the Agent, for
its acceptance and recording in the Register, an Assignment and
Acceptance in the form of Exhibit C hereto (an "Assignment and
Acceptance"), together with any Note or Notes subject to such
assignment and, a processing and recordation fee of $3,000, and
(iv) any Bank may without the consent of the Borrower or the
Agent, assign to any Affiliate of such Bank that is a bank or
financial institution all of its rights and obligations under
this Agreement. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such
Assignment and Acceptance, (x) the assignee thereunder shall be
a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all
of the remaining portion of an assigning Bank's rights and
obligations under this Agreement, such Bank shall cease to be a
party hereto).
(d) The Agent shall maintain at its address
designated on the signature pages hereof a copy of each
Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the
Banks and the Commitment of, and principal amount of the Loans
owing to, each Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and
the Banks may treat each Person whose name is recorded in the
Register as a Bank hereunder for all purposes of this Agreement.
The Register shall be available for inspection by the Borrower
or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and
Acceptance executed by an assigning Bank and an assignee,
together with any Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within ten
Business Days after its receipt of such notice, the Company, at
its own expense, shall execute and deliver to the Agent in
exchange for the surrendered Note or Notes a new Note to the
order of such assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained a Commitment hereunder, a new
Note to the order of the assigning Bank in an amount equal to
the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be
dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit C
hereto.
(f) The Banks may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this Section 10.03, disclose to the
assignee or participant or proposed assignee or participant any
public information relating to the Borrower and, provided that
such proposed assignee or participant executes a confidentiality
letter, any other information relating to the Borrower.
(l) Exhibit C attached to the Credit Agreement
is hereby replaced with Exhibit C attached hereto.
(m) The Borrower has agreed to promptly execute
such security agreements, financing statements and other documents in form
and substance satisfactory to the Agent to grant a first priority lien and
security interest on all of its unencumbered equipment at the Indianapolis
International Airport and on four unencumbered Pratt and Whitney JT8 aircraft
engines.
2. From and after the effective date of this Third Amendment,
references in the Credit Agreement and all other documents executed pursuant to
the Credit Agreement to (i) the Credit Agreement shall be deemed references to
the Credit Agreement as amended hereby, (ii) any Security Agreement shall be
deemed references to such Security Agreement as amended by amendments executed
pursuant hereto and (iii) the Notes shall mean references to the New Notes
issued pursuant hereto.
3. The Borrower represents and warrants to the Agent and the
Banks that:
(A)(i) The execution, delivery and performance
of this Third Amendment by the Borrower and Amtran and all agreements and
documents delivered pursuant hereto by the Borrower and Amtran have been duly
authorized by all necessary corporate action and does not and will not require
any consent or approval of its stockholders, violate any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to it or
of its articles of incorporation or bylaws, or result in a breach of
or constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Borrower or Amtran is a
party or by which it or its properties may be bound or affected;
(ii) no authorization, consent, approval, license, exemption of or filing a
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by the Borrower
or Amtran of this Third Amendment and all agreements and documents delivered
pursuant hereto and (iii) this Third Amendment and all agreements and documents
delivered pursuant hereto by the Borrower and Amtran are the legal, valid and
binding obligations of the Borrower and Amtran enforceable against each of
them in accordance with the terms thereof.
(B) After giving effect to the amendments contained
herein and effected pursuant hereto, the representations and warranties
contained in Article V of the Credit Agreement are true and correct on and as
of the effective date hereof with the same force and effect as if made on and
as of such effective date.
(C) No Event of Default and no Default shall have
occurred and be continuing or will exist under the Credit Agreement as of the
effective date hereof.
4. This Third Amendment shall not become effective until:
(a) The Agent shall have received the favorable
written opinion of counsel (which may be in house counsel) for the Borrower,
Amtran and each Affiliate of Amtran executing a Guaranty in form and substance
satisfactory to the Agent and the Banks;
(b) The Borrower shall have paid to the Agent,
for the benefit of the Banks, a fee equal to 0.15% of the amount of the
existing Commitment of each Bank;
(c) The Borrower and Amtran shall have delivered
such certified resolutions and incumbency certificates as requested by the
Agent;
(d) Each Subsidiary (other than the Borrower)
of Amtran shall execute a Guaranty in form and substance satisfactory to
the Agent and deliver such resolutions and incumbency certificates as requested
by the Agent; and
(e) The Borrower and Amtran shall have delivered to
the Agent such other documents and instruments as the Agent may reasonably
request in connection herewith.
5. The Borrower agrees to pay and save the Agent harmless from
liability for the payment of all costs and expenses arising in connection with
this Third Amendment, including the reasonable fees and expenses of Dickinson,
Wright, Moon, Van Dusen & Freeman, counsel to the Agent, in connection with the
preparation and review of this Third Amendment and any related documents.
6. The terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement. Except as
expressly contemplated hereby, the Credit Agreement, and all related notes,
guaranties, certificates, instruments and other documents, are hereby ratified
and confirmed and shall remain in full force and effect, and the Borrower and
Amtran acknowledge that they have no defense, offset, counterclaim or other
claim or dispute thereunder.
7. This Third Amendment shall be governed by and
construed in accordance with the laws of the State of Michigan.
8. This Third Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Third Amendment by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered as of the day and year first above
written.
AMERICAN TRANS AIR, INC.
By:_______________________________________
Its:
Executive Vice President
and Chief Financial Officer
AMTRAN, INC.
By:_______________________________________
Its:
Executive Vice President
and Chief Financial Officer
NBD BANK, N.A.,
Individually as a Bank
and as Agent
By:_______________________________________
Its:____________________________________
BANK OF MONTREAL,
Individually as a Bank
and as Co-Agent
By:_______________________________________
Its:___________________________________
FORT WAYNE NATIONAL BANK
By:____________________________________
Its:___________________________________
NATIONAL CITY BANK, INDIANA
By:___________________________________
Its:____________________________________
NATIONAL BANK OF CANADA
By:_____________________________________
Its:____________________________________
FIRST OF AMERICA BANK - INDIANA
By:_______________________________________
Its:____________________________________
FIRST OF AMERICA BANK - MICHIGAN, N.A.
By:_______________________________________
Its:______________________________________
BANK ONE, INDIANAPOLIS, NA
By:_______________________________________
Its:______________________________________
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By:______________________________________
Its:_____________________________________
(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 11/13/96
J. George Mikelsons
Chairman
Date 11/13/96
Stanley L. Pace
President and Chief Executive Officer
Director
Date 11/13/96
James W. Hlavacek
Executive Vice President, Chief Operating Officer
and President of ATA Training Corporation
Director
Date 11/13/96
Kenneth K. Wolff
Executive Vice President and Chief Financial Officer
Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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