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 June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to
Commission file number 000-21642
AMTRAN,INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317)247-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
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 - 11,715,003 shares outstanding as of
July 15, 1998
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1998 1997
------------------- --------------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 112,270 $ 104,196
Receivables, net of allowance for doubtful accounts
(1998 - $1,665; 1997 - $1,682) 26,853 23,266
Inventories, net 16,226 14,488
Prepaid expenses and other current assets 22,165 20,892
------------------- --------------------
Total current assets 177,514 162,842
Property and equipment:
Flight equipment 510,114 463,576
Facilities and ground equipment 59,347 54,933
------------------- --------------------
569,461 518,509
Accumulated depreciation (274,523) (250,828)
------------------- --------------------
294,938 267,681
Assets held for sale 7,176 8,691
Deposits and other assets 12,865 11,643
------------------- --------------------
Total assets $ 492,493 $ 450,857
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4,315 $ 8,975
Accounts payable 14,184 10,511
Air traffic liabilities 71,959 68,554
Accrued expenses 91,460 80,312
------------------- --------------------
Total current liabilities 181,918 168,352
Long-term debt, less current maturities 172,150 182,829
Deferred income taxes 43,168 31,460
Other deferred items 11,370 11,226
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 11,877,998 - 1998; 11,829,230 - 1997 39,671 38,760
Additional paid-in-capital 14,719 15,340
Deferred compensation - ESOP (1,066) (1,600)
Treasury stock: 193,506 shares 1998; 185,000 shares 1997 (1,881) (1,760)
Retained earnings 32,444 6,250
------------------- --------------------
83,887 56,990
------------------- --------------------
Total liabilities and shareholders' equity $ 492,493 $ 450,857
=================== ====================
</TABLE>
See accompanying notes.
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
------------------------------------- -------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C> <C> <C>
Scheduled service $ 131,594 $ 87,253 $ 249,483 $ 169,257
Charter 90,492 93,019 184,814 193,365
Ground package 5,100 5,171 11,537 11,025
Other 11,278 6,744 21,935 12,824
----------------- ----------------- ----------------- -----------------
Total operating revenues 238,464 192,187 467,769 386,471
----------------- ----------------- ----------------- -----------------
Operating expenses:
Salaries, wages and benefits 52,607 43,917 102,353 84,407
Fuel and oil 35,307 36,399 72,085 77,070
Depreciation and amortization 21,523 15,296 39,681 29,436
Handling, landing and navigation fees 17,772 17,214 35,277 34,462
Aircraft maintenance, materials and repairs 14,380 13,840 27,195 24,925
Aircraft rentals 12,923 14,137 25,849 28,284
Crew and other employee travel 10,497 9,386 19,888 17,306
Passenger service 8,509 7,588 16,712 15,774
Commissions 7,375 6,655 14,588 12,589
Other selling expenses 5,572 3,595 11,179 6,794
Advertising 4,815 3,144 9,029 6,658
Ground package cost 4,341 4,279 9,888 9,494
Facility and other rentals 2,238 2,232 4,609 4,351
Other 15,961 13,484 31,383 26,172
----------------- ----------------- ----------------- -----------------
Total operating expenses 213,820 191,166 419,716 377,722
----------------- ----------------- ----------------- -----------------
Operating income 24,644 1,021 48,053 8,749
Other income (expense):
Interest income 1,176 79 2,218 225
Interest (expense) (3,213) (1,708) (6,467) (3,320)
Other 42 128 116 183
----------------- ----------------- ----------------- -----------------
Other expenses (1,995) (1,501) (4,133) (2,912)
----------------- ----------------- ----------------- -----------------
Income (loss) before income taxes 22,649 (480) 43,920 5,837
Income taxes 8,854 269 17,726 3,364
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 13,795 $ (749) $ 26,194 $ 2,473
================= ================= ================= =================
Basic earnings per common share:
Average shares outstanding 11,624,356 11,575,653 11,595,050 11,573,761
Net income (loss) per share $ 1.19 $ (0.06) $ 2.26 $ 0.21
================= ================= ================= =================
Diluted earnings per common share:
Average shares outstanding 13,159,403 11,575,653 12,631,404 11,798,161
Net income (loss) per share $ 1.05 $ (0.06) $ 2.07 $ 0.21
================= ================= ================= =================
</TABLE>
See accompanying notes.
<PAGE>
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
1998 1997
-----------------------------------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income $ 26,194 $ 2,473
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 39,681 29,436
Deferred income taxes 11,708 5,323
Other non-cash items 593 2,312
Changes in operating assets and liabilities:
Receivables (3,587) (3,007)
Inventories (533) (1,627)
Assets held for sale - 273
Prepaid expenses (1,273) (3,695)
Accounts payable 3,673 (5,656)
Air traffic liabilities 3,405 7,889
Accrued expenses 11,419 4,328
------------------- -----------------
Net cash provided by operating activities 91,280 38,049
------------------- -----------------
Investing activities:
Proceeds from sales of property and equipment 1,039 391
Capital expenditures (67,025) (36,720)
Additions to other assets (1,709) (4,369)
------------------- -----------------
Net cash used in investing activities (67,695) (40,698)
------------------- -----------------
Financing activities:
Purchase of treasury stock (121) -
Payments on short-term debt (4,750) -
Payments on long-term debt (10,640) (5,337)
------------------- ---------------
Net cash used in financing activities (15,511) (5,337)
------------------- ---------------
Increase (decrease) in cash and cash equivalents 8,074 (7,986)
Cash and cash equivalents, beginning of period 104,196 73,382
------------------- ---------------
Cash and cash equivalents, end of period $ 112,270 $ 65,396
=================== ===============
Supplemental disclosures:
Cash payments for:
Interest $ 7,206 $ 3,656
Income taxes (refunds) 3,942 (320)
</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 June 30, 1998
and 1997 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 six months ended June 30, 1998, are not necessarily
indicative of results to be expected for the full fiscal year ending
December 31, 1998. 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, 1997.
2. Earnings per Share
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
-------------------------------------------
(Dollars in thousands, except
shares and per share data)
Numerator:
<S> <C> <C>
Net income (loss) $13,795 $(749)
Denominator:
Denominator for basic earnings per
share - weighted average shares 11,624,356 11,575,653
Effect of dilutive securities:
Employee stock options 1,534,045 -
Restricted shares 1,002 -
--------------------- ---------------------
Dilutive potential common shares 1,535,047 -
--------------------- ---------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 13,159,403 11,575,653
===================== =====================
Basic earnings per share
$1.19 $(0.06)
===================== =====================
Diluted earnings per share
$1.05 $(0.06)
===================== =====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------------------------------------------
(Dollars in thousands, except
shares and per share data)
Numerator:
<S> <C> <C>
Net income $26,194 $2,473
Denominator:
Denominator for basic earnings per
share - weighted average shares 11,595,050 11,573,761
Effect of dilutive securities:
Employee stock options 1,035,352 222,900
Restricted shares 1,002 1,500
--------------------- ---------------------
Dilutive potential common shares 1,036,354 224,400
--------------------- ---------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 12,631,404 11,798,161
===================== =====================
Basic earnings per share $2.26 $0.21
===================== =====================
Diluted earnings per share $2.07 $0.21
===================== =====================
</TABLE>
3. Shareholders' Equity
In the first quarter of 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's common stock. As of
June 30, 1998, the Company had repurchased 193,506 shares at a total cost
of $1.9 million.
The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorized the grant of options for up to 900,000 shares of the Company's
common stock. The Company's 1996 Incentive Stock Plan for Key Employees
(1996 Plan) authorizes the grant of options for up to 3,000,000 shares of
the Company's common stock. Options granted have 5 to 10-year terms and
generally vest and become fully exercisable over specified periods up to
three years of continued employment.
A summary of common stock option changes follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
(In dollars)
<S> <C> <C>
Outstanding at December 31, 1997 2,512,400 $ 9.06
Granted 412,200 $ 9.63
Exercised 48,768 $ 9.77
Canceled 20,400 $ 8.99
---------------
Outstanding at June 30, 1998 2,855,432 $ 9.18
===============
Options exercisable at December 31, 1997 390,232 $12.02
===============
Options exercisable at June 30, 1998 1,162,631 $ 9.60
===============
</TABLE>
<PAGE>
During 1996, the Company adopted FASB Statement No. 123 "Accounting for
Stock-Based Compensation" (FAS 123) with respect to its stock options. As
permitted by FAS 123, the Company has elected to continue to account for
employee stock options following Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
Options outstanding at June 30, 1998, expire from August 2003 to June
2008. A total of 1,044,568 shares are reserved for future grants as of
June 30, 1998, under the 1993 and 1996 Plans. The following table
summarizes information concerning outstanding and exercisable options at
June 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Range of Exercise Prices $7 - 11 $12 - 20
Options outstanding:
Weighted-Average Remaining Contractual Life 8.1 years 6.7 years
Weighted-Average Exercise Price $8.54 $14.63
Number 2,556,332 299,100
Options exercisable:
Weighted-Average Exercise Price $8.28 $14.69
Number 923,774 238,857
</TABLE>
<PAGE>
PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quarter and Six Months Ended June 30, 1998, Versus Quarter and Six Months Ended
June 30, 1997
Overview
Amtran is a leading provider of targeted scheduled airline services and charter
airline services to leisure and other value-oriented travelers. Amtran, through
its principal subsidiary, American Trans Air, Inc. ("ATA"), has been operating
for 25 years and is the eleventh largest U.S. airline in terms of 1997 revenues
and revenue passenger miles ("RPMs"). ATA provides scheduled service through
nonstop and connecting flights from the gateway cities of Chicago-Midway,
Indianapolis and Milwaukee to popular vacation destinations such as Hawaii, Las
Vegas, Florida, California, Mexico and the Caribbean, as well as to Denver,
Dallas-Ft. Worth and New York City. ATA also provides charter service throughout
the world to independent tour operators, specialty charter customers and the
U.S. military.
In the second quarter of 1998, the Company generated record operating earnings
and net income as compared to any quarter in the Company's 25-year history. In
combination with strong first quarter 1998 operating earnings and net income,
the Company also generated record operating earnings and net income in the first
six months of 1998, as compared to any six-month period in the Company's
history. These results were primarily due to the effects of record operating
revenues, lower operating expenses and greater utilization of aircraft.
The Company generated a consolidated 9.9% and 7.2% improvement, respectively, in
revenue per available seat mile ("RASM") during the second quarter of 1998 and
the six months ended June 30, 1998, as compared to the same periods of 1997.
Scheduled service RASM increased by 15.3% and 10.1%, respectively, in the second
quarter of 1998 and the six months ended June 30, 1998, as compared to the same
periods of the prior year due to strong customer demand, and the Company
increased its total capacity in this business unit by 30.7% between the second
quarters of 1998 and 1997, and by 34.0% between the six months ended June 30,
1998 and 1997. Commercial charter RASM increased by 7.3% between the second
quarter of 1998 and the second quarter of 1997, and by 4.9% between the six
month periods ended June 30, 1998 and 1997. Military RASM increased by 3.4% in
the second quarter of 1998 and 5.3% in the six months ended June 30, 1998, as
compared to the same periods of 1997, due primarily to rate increases obtained
for the current contract year ending September 30, 1998.
The Company at the same time reduced its operating cost per available seat mile
("CASM") by 1.0% between the second quarter of 1998 and the second quarter of
1997, and by 1.6% between the six-month periods ended June 30, 1998 and 1997.
Fuel price reductions were a significant contributor to lower operating costs
between both sets of periods. After adjusting for fuel, CASM for all other
operating expenses increased by 2.2% in the second quarter of 1998, as compared
to the second quarter of 1997, and by 2.4% in the six months ended June 30,
1998, as compared to the six months ended June 30, 1997, despite strong upward
cost pressures in such expense categories as salaries and benefits and
depreciation and amortization. The Company remains focused on controlling
operating costs in 1998 so as to retain most of the benefit of strengthened
revenues and lower fuel costs on results of operations.
In the second quarter of 1998, and for the six months ended June 30, 1998, the
Company also significantly increased average aircraft utilization as compared to
the same periods of 1997, as measured by average daily block hours flown per
aircraft in service, including spares. The Boeing 727-200 fleet flew an average
of 25.6% more block hours per day in the second quarter of 1998 as compared to
the second quarter of 1997, and 22.9% more block hours per day in the six months
ended June 30, 1998, as compared to the same period of the prior year. The
Boeing 757-200 fleet flew an average of 7.4% more block hours per day in the
second quarter of 1998, as compared to the second quarter of 1997, and 13.8%
more block hours per day in the six months ended June 30, 1998, as compared to
the same period of the prior year. The Lockheed L-1011 fleet flew an average of
13.3% more block hours per day in the second quarter of 1998, as compared to the
second quarter of 1997, and 10.3% more block hours per day in the six months
ended June 30, 1998, as compared to the same period of the prior year.
Results of Operations
For the quarter ended June 30, 1998, the Company earned $24.6 million in
operating income, as compared to an operating income of $1.0 million in the
comparable quarter of 1997; and the Company earned $48.1 million in operating
income in the six months ended June 30, 1998, as compared to an operating income
of $8.7 million in the six months ended June 30, 1997.
For the quarter ended June 30, 1998, the Company earned $13.8 million in net
income, as compared to a net loss of $0.7 million in the comparable quarter of
1997; and the Company earned $26.2 million in net income in the six months ended
June 30, 1998, as compared to net income of $2.5 million earned in the six
months ended June 30, 1997.
The Company's second quarter 1998 operating revenues increased 24.1% to $238.5
million, as compared to $192.2 million in the same period of 1997. Operating
revenues per ASM increased 9.9% to 6.80 cents in the second quarter of 1998, as
compared to 6.19 cents in the same period of the prior year. Available seat
miles ("ASMs") increased 13.0% to 3.508 billion from 3.105 billion, RPMs
increased 13.3% to 2.499 billion from 2.205 billion, and passenger load factor
increased 0.2 points to 71.2% as compared to 71.0%. Yield in the second quarter
of 1998 increased 9.5% to 9.54 cents per RPM, as compared to 8.71 cents per RPM
in 1997. Total passengers boarded increased 20.1% to 1,614,422 in the second
quarter of 1998, as compared to 1,343,698 in the second quarter of 1997, while
total departures increased 26.1% to 15,862 from 12,581 between the same
comparable periods, and block hours increased 17.4% to 40,738 in the 1998 second
quarter, as compared to 34,703 in the 1997 second quarter.
The Company's operating revenues for the six months ended June 30, 1998,
increased 21.0% to $467.8 million, as compared to $386.5 million in the same
period of 1997. Operating revenues per ASM increased 7.2% to 6.81 cents in the
six months ended June 30, 1998, as compared to 6.35 cents in the same period of
the prior year. ASMs increased 12.8% to 6.871 billion from 6.090 billion, RPMs
increased 10.8% to 4.894 billion from 4.415 billion, and passenger load factor
decreased 1.3 points to 71.2% as compared to 72.5%. Yield in the six months
ended June 30, 1998 increased 9.3% to 9.56 cents per RPM, as compared to 8.75
cents per RPM in 1997. Total passengers boarded increased 15.4% to 3,175,401 in
the six months ended June 30, 1998, as compared to 2,750,826 in the same period
of 1997, while total departures increased 38.5% to 30,754 from 22,210 between
the same comparable periods, and block hours increased 21.7% to 79,894 in the
six months ended June 30, 1998, as compared to 65,672 in the six months ended
June 30, 1997.
Operating expenses increased 11.8% to $213.8 million in the second quarter of
1998, as compared to $191.2 million in the second quarter of 1997, and operating
expenses increased 11.1% to $419.7 million in the six months ended June 30,
1998, as compared to $377.7 million in the same period of 1997. Operating
expense per ASM decreased 1.0% to 6.10 cents in the second quarter of 1998, as
compared to 6.16 cents in the second quarter of 1997, while operating expense
per ASM decreased 1.6% to 6.11 cents in the six months ended June 30, 1998, as
compared to 6.21 cents in the same period of 1997.
<PAGE>
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per ASM.
<TABLE>
<CAPTION>
Cents Per ASM Cents Per ASM
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Total operating revenues 6.80 6.19 6.81 6.35
Operating expenses:
Salaries, wages and benefits 1.50 1.41 1.49 1.39
Fuel and oil 1.01 1.17 1.05 1.27
Depreciation and amortization 0.61 0.49 0.58 0.48
Handling, landing and navigation fees 0.51 0.56 0.51 0.57
Aircraft maintenance, materials and repairs 0.41 0.45 0.40 0.41
Aircraft rentals 0.37 0.46 0.38 0.46
Crew and other employee travel 0.30 0.30 0.29 0.28
Passenger service 0.24 0.25 0.24 0.26
Commissions 0.21 0.21 0.21 0.21
Other selling expenses 0.16 0.12 0.16 0.11
Advertising 0.14 0.10 0.13 0.11
Ground package cost 0.12 0.14 0.14 0.16
Facility and other rentals 0.06 0.07 0.07 0.07
Other 0.46 0.43 0.46 0.43
Total operating expenses 6.10 6.16 6.11 6.21
Operating income 0.70 0.03 0.70 0.14
ASMs (in thousands) 3,507,906 3,105,148 6,870,936 6,090,142
</TABLE>
<PAGE>
Consolidated Flight Operations and Financial Data
The following tables set forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated on the Company's behalf by Chicago
Express as the ATA Connection.
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Three Months Ended June 30,
<S> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 11,696 9,644 2,052 21.28
Departures J31(a) 4,166 2,937 1,229 41.85
--------------- --------------- ---------------- ---------------
Total Departures (b) 15,862 12,581 3,281 26.08
--------------- --------------- ---------------- ---------------
Block Hours Jet 36,763 31,574 5,189 16.43
Block Hours J31 3,975 3,129 846 27.04
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 40,738 34,703 6,035 17.39
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 2,491,215 2,199,310 291,905 13.27
RPMs J31 (000s) 8,122 6,046 2,076 34.34
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 2,499,337 2,205,356 293,981 13.33
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 3,494,628 3,095,292 399,336 12.90
ASMs J31 (000s) 13,278 9,856 3,422 34.72
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 3,507,906 3,105,148 402,758 12.97
--------------- --------------- ---------------- ---------------
Load Factor Jet 71.29 71.05 0.24 0.34
Load Factor J31 61.17 61.34 (0.17) (0.28)
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 71.25 71.02 0.23 0.32
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,567,967 1,312,125 255,842 19.50
Passengers Enplaned J31 46,455 31,573 14,882 47.14
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 1,614,422 1,343,698 270,724 20.15
--------------- --------------- ---------------- ---------------
Revenue $(000s) 238,464 192,187 46,277 24.08
RASM in cents (h) 6.80 6.19 0.61 9.85
CASM in cents (i) 6.10 6.16 (0.06) (0.97)
Yield in cents (j) 9.54 8.71 0.83 9.53
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (a) through (j) on pages 13-14.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Six Months Ended June 30,
<S> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 22,874 19,273 3,601 18.68
Departures J31(a) 7,880 2,937 4,943 168.30
--------------- --------------- ---------------- ---------------
Total Departures (b) 30,754 22,210 8,544 38.47
--------------- --------------- ---------------- ---------------
Block Hours Jet 72,369 62,543 9,826 15.71
Block Hours J31 7,525 3,129 4,396 140.49
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 79,894 65,672 14,222 21.66
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 4,879,598 4,409,371 470,227 10.66
RPMs J31 (000s) 14,234 6,046 8,188 135.43
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 4,893,832 4,415,417 478,415 10.84
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 6,845,718 6,080,286 765,432 12.59
ASMs J31 (000s) 25,218 9,856 15,362 155.86
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 6,870,936 6,090,142 780,794 12.82
--------------- --------------- ---------------- ---------------
Load Factor Jet 71.28 72.52 (1.24) (1.71)
Load Factor J31 56.44 61.34 (4.90) (7.99)
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 71.23 72.50 (1.27) (1.75)
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 3,094,616 2,719,253 375,363 13.80
Passengers Enplaned J31 80,785 31,573 49,212 155.87
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 3,175,401 2,750,826 424,575 15.43
--------------- --------------- ---------------- ---------------
Revenue $(000s) 467,769 386,471 81,298 21.04
RASM in cents (h) 6.81 6.35 0.46 7.24
CASM in cents (i) 6.11 6.21 (0.10) (1.61)
Yield in cents (j) 9.56 8.75 0.81 9.26
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
(a) Effective April 1, 1997, the Company began ATA Connection service between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton and
Grand Rapids under an agreement with Chicago Express. Services were expanded to
include Lansing, Michigan and Madison, Wisconsin in October 1997. Services are
provided using Jetstream 31 ("J31") propeller aircraft.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because an entire
aircraft is sold by the Company instead of individual seats. Since both costs
and revenues are largely fixed for these types of charter flights, changes in
load factor have less impact on business unit profitability. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
Operating Revenues
Total operating revenues for the second quarter of 1998 increased 24.1% to
$238.5 million from $192.2 million in the second quarter of 1997. This increase
was due to a $44.4 million increase in scheduled service revenues, a $4.5
million increase in other revenues, and a $3.2 million increase in commercial
charter revenues, partially offset by a $5.7 million decrease in
military/government charter revenues and a $0.1 million decrease in ground
package revenues.
Total operating revenues for the six months ended June 30, 1998, increased 21.0%
to $467.8 million from $386.5 million in the six months ended June 30, 1997.
This increase was due to an $80.2 million increase in scheduled service
revenues, a $9.1 million increase in other revenues and a $0.5 million increase
in ground package revenues, partially offset by a $5.1 million decrease in
commercial charter revenues, and a $3.4 million decrease in military/government
charter revenues.
<PAGE>
Scheduled Service Revenues. The following tables set forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated as the ATA Connection.
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Three Months Ended June 30,
<S> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 7,736 5,463 2,273 41.61
Departures J31(a) 4,166 2,937 1,229 41.85
--------------- --------------- ---------------- ---------------
Total Departures (b) 11,902 8,400 3,502 41.69
--------------- --------------- ---------------- ---------------
Block Hours Jet 23,000 16,946 6,054 35.73
Block Hours J31 3,975 3,129 846 27.04
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 26,975 20,075 6,900 34.37
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 1,486,947 1,114,453 372,494 33.42
RPMs J31 (000s) 8,122 6,046 2,076 34.34
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 1,495,069 1,120,499 374,570 33.43
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 1,904,080 1,457,433 446,647 30.65
ASMs J31 (000s) 13,278 9,856 3,422 34.72
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 1,917,358 1,467,289 450,069 30.67
--------------- --------------- ---------------- ---------------
Load Factor Jet 78.09 76.47 1.62 2.12
Load Factor J31 61.17 61.34 (0.17) (0.28)
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 77.98 76.37 1.61 2.11
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,053,061 751,791 301,270 40.07
Passengers Enplaned J31 46,455 31,573 14,882 47.14
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 1,099,516 783,364 316,152 40.36
--------------- --------------- ---------------- ---------------
Revenues $(000s) 131,594 87,253 44,341 50.82
RASM in cents (h) 6.86 5.95 0.91 15.29
Yield in cents (j) 8.80 7.79 1.01 12.97
Rev per segment $ (k) 119.68 111.38 8.30 7.45
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (a) through (j) on pages 13-14.
See footnote (k) on page 16.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Six Months Ended June 30,
<S> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 14,831 10,454 4,377 41.87
Departures J31(a) 7,880 2,937 4,943 168.30
--------------- --------------- ---------------- ---------------
Total Departures (b) 22,711 13,391 9,320 69.60
--------------- --------------- ---------------- ---------------
Block Hours Jet 44,085 31,872 12,213 38.32
Block Hours J31 7,525 3,129 4,396 140.49
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 51,610 35,001 16,609 47.45
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 2,777,708 2,064,611 713,097 34.54
RPMs J31 (000s) 14,234 6,046 8,188 135.43
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 2,791,942 2,070,657 721,285 34.83
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 3,623,122 2,713,752 909,370 33.51
ASMs J31 (000s) 25,218 9,856 15,362 155.86
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 3,648,340 2,723,608 924,732 33.95
--------------- --------------- ---------------- ---------------
Load Factor Jet 76.67 76.08 0.59 0.78
Load Factor J31 56.44 61.34 (4.90) (7.99)
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 76.53 76.03 0.50 0.66
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,992,846 1,438,287 554,559 38.56
Passengers Enplaned J31 80,785 31,573 49,212 155.87
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 2,073,631 1,469,860 603,771 41.08
--------------- --------------- ---------------- ---------------
Revenues $(000s) 249,483 169,257 80,226 47.40
RASM in cents (h) 6.84 6.21 0.63 10.14
Yield in cents (j) 8.94 8.17 0.77 9.42
Rev per segment $ (k) 120.31 115.15 5.16 4.48
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (a) through (j) on pages 13-14.
(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in the second quarter of 1998 increased 50.7% to
$131.6 million from $87.3 million in the second quarter of 1997. Scheduled
service revenues comprised 55.2% of consolidated revenues in the 1998 second
quarter, as compared to 45.4% of consolidated revenues in the same period of
1997. Scheduled service RPMs increased 33.5% to 1.495 billion from 1.120
billion, while ASMs increased 30.7% to 1.917 billion from 1.467 billion,
resulting in an increase of 1.6 points in passenger load factor to 78.0% in the
second quarter of 1998, from 76.4% in the same period of 1997. Scheduled service
yield in the 1998 second quarter increased 13.0% to 8.80 cents from 7.79 cents
in the second quarter of 1997, while RASM increased 15.3% to 6.86 cents from
5.95 cents between the same periods.
Scheduled service revenues in the six months ended June 30, 1998, increased
47.4% to $249.5 million from $169.3 million in the six months ended June 30,
1997. Scheduled service revenues comprised 53.3% of consolidated revenues in the
six months ended June 30, 1998, as compared to 43.8% of consolidated revenues in
the same period of 1997. Scheduled service RPMs increased 34.8% to 2.792 billion
from 2.071 billion, while ASMs increased 33.9% to 3.648 billion from 2.724
billion, resulting in an increase of 0.5 points in passenger load factor to
76.5% in the six months ended June 30, 1998, from 76.0% in the same period of
1997. Scheduled service yield in the six months ended June 30, 1998, increased
9.4% to 8.94 cents from 8.17 cents in the six months ended June 30, 1997, while
RASM increased 10.1% to 6.84 cents from 6.21 cents between the same periods.
Scheduled service departures in the second quarter of 1998 increased 41.7% to
11,902 from 8,400 in the second quarter of 1997; block hours increased 34.4% to
26,975 in the second quarter of 1998, from 20,075 in the second quarter of 1997;
and passengers boarded increased 40.4% between periods to 1,099,516, as compared
to 783,364. Scheduled service departures in the six months ended June 30, 1998,
increased 69.6% to 22,711 from 13,391 in the six months ended June 30, 1997;
block hours increased 47.5% to 51,610 in the six months ended June 30, 1998,
from 35,001 in the six months ended June 30, 1997; and passengers boarded
increased 41.1% between periods to 2,073,631, as compared to 1,469,860.
Period-to-period percentage changes in departures, block hours and passengers
boarded were significantly impacted by the operation of ATA Connection Jetstream
31 commuter flights in the six months ended June 30, 1998, which operated only
during the three months ended June 30, 1997. Such operations generate
comparatively less impact to ASMs and RPMs due to the small seat capacity and
short stage length of ATA Connection propeller aircraft as compared to the
Company's jet operations. The Company currently has a code share agreement with
Chicago Express under which Chicago Express operates 19-seat Jetstream 31
propeller aircraft between Chicago-Midway and the cities of Indianapolis,
Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison.
The Company's second quarter 1998 scheduled service at Chicago-Midway accounted
for approximately 48.2% of scheduled service ASMs and 68.5% of scheduled service
departures, as compared to 42.4% and 63.1%, respectively, in the second quarter
of 1997. On May 1, 1998, the Company began three daily nonstop flights to
Dallas-Ft. Worth and two daily nonstop flights to Denver, and added three daily
nonstop flights to San Juan, Puerto Rico on May 26, none of which services were
provided during the second quarter of 1997. In addition to these new services,
the Company added frequencies in the second quarter of 1998 to most existing jet
markets, including Ft. Lauderdale, Orlando, St. Petersburg, Las Vegas, Phoenix,
Los Angeles, and San Francisco. Flight frequencies to Ft. Myers and Sarasota did
not change significantly between periods. ATA Connection Jetstream 31 flights in
the second quarters of 1998 and 1997 served Chicago-Midway from the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, and Grand Rapids; frequencies were
increased in all of these markets in the 1998 second quarter as compared to the
same period of 1997 except for Indianapolis, where frequencies did not change
significantly between periods. In addition, the Company operated ATA Connection
Jetstream 31 service between Chicago-Midway and the cities of Lansing and
Madison in the second quarter of 1998, while such service was not operated in
the same period of 1997. During the six months ended June 30, 1998, scheduled
service at Chicago-Midway accounted for approximately 46.3% of scheduled service
ASMs and 65.9% of scheduled service departures, as compared to 43.2% and 57.5%,
respectively, in the six months ended June 30, 1997.
The Company anticipates that its Chicago-Midway operation will represent a focus
of growing significance for its scheduled service business in 1998 and beyond.
In addition to the new markets and expanded service to many existing markets
described above, the Company began three daily nonstop flights to New York's La
Guardia airport on July 7, 1998 using slots newly awarded to the Company by the
Department of Transportation ("DOT"). The Company expects to operate 57 peak
daily jet and commuter departures from Chicago-Midway and serve 21 destinations
on a nonstop basis in the summer of 1998, as compared to 15 nonstop destinations
served in the summer of 1997. This capacity expansion is expected to require the
addition of five hundred new employees in the Chicago area by the end of 1998.
By the third quarter of 1998, the Company will also complete an estimated $1.5
million renovation of the existing terminal facilities at Chicago-Midway to
enhance their attractiveness and convenience for the Company's customers. The
Company has also announced that it will occupy 13 gates at the new
Chicago-Midway terminal which is presently scheduled for completion in 2002, an
increase of more than 100% over the six gates currently occupied in the existing
terminal.
The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low-cost, nonstop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company believes
that its high performance Boeing 757-200 and Boeing 727-200ADV aircraft
presently give it a competitive advantage at Chicago-Midway because, unlike many
aircraft flown by its competitors, these aircraft can fly larger passenger
capacities substantially longer distances while operating from the airport's
short runways. The Company also expects its growing concentration of connecting
flights at Chicago-Midway to provide both revenue premiums and operating cost
efficiencies, as compared to the Company's other gateway cities.
The Company's Hawaii service accounted for 21.8% of scheduled service ASMs and
5.4% of scheduled service departures in the second quarter of 1998, as compared
to 24.7% and 6.6%, respectively, in the second quarter of 1997. The Company
provided nonstop services in both quarters from the mainland cities of Los
Angeles, San Francisco and Phoenix to both Honolulu and Maui, with connecting
service between Honolulu and Maui. In addition, in the second quarter of 1998,
seasonal nonstop service (discontinued after May) was operated from Seattle to
Maui, which was not operated in the second quarter of 1997, and seasonal nonstop
service was begun in May 1998 from San Diego to Honolulu, which was also not
operated in 1997. The Company provides these services through a marketing
alliance with Pleasant Hawaiian Holidays, the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company uses
primarily wide-body Lockheed L-1011 aircraft, supplemented with some narrow-body
flights using Boeing 757-200 aircraft. Pleasant Hawaiian Holidays generally
purchases approximately 80% of the available seats on these flights and markets
them to their leisure customers, often in conjunction with ground arrangements.
The Company distributes the remaining seats on these flights through normal
scheduled service distribution channels. The Company believes it has superior
operating efficiencies in west coast-Hawaii markets due to the relatively low
ownership cost of the Lockheed L-1011 fleet and because of the high daily hours
of utilization obtained for both aircraft and crews. During the six months ended
June 30, 1998, Hawaii services accounted for approximately 20.4% of scheduled
service ASMs and 5.1% of scheduled service departures, as compared to 25.1% and
7.8%, respectively, in the six months ended June 30, 1997.
The Company's Indianapolis service accounted for 16.2% of scheduled service ASMs
and 12.4% of scheduled service departures in the second quarter of 1998, as
compared to 21.5% and 17.4%, respectively, in the same period of 1997. In the
second quarter of 1998, the Company operated seasonal nonstop service to Montego
Bay and Nassau (discontinued after April), and operated nonstop to Cancun, Ft.
Lauderdale, Las Vegas, Los Angeles, Orlando, St. Petersburg, Ft. Myers, San
Francisco and Sarasota. The Company has served Indianapolis for 25 years through
the Ambassadair Travel Club and in scheduled service since 1986. The Company
believes that as the Indianapolis "hometown airline," it has developed
significant brand recognition and customer loyalty in this market which provides
a competitive advantage. The ATA Connection commuter service between
Indianapolis and Chicago-Midway offers Indianapolis-originating customers a
large selection of additional jet connections west to Denver, Phoenix and
Hawaii, east to New York, and south to Dallas-Ft. Worth and San Juan which are
more economically served from Indianapolis through this connection than by
direct flights. During the six months ended June 30, 1998, scheduled service at
Indianapolis accounted for approximately 18.4% of scheduled service ASMs and
14.4% of scheduled service departures, as compared to 21.1% and 21.1%,
respectively, in the six months ended June 30, 1997. The Company's San Juan,
Puerto Rico service accounted for 6.2% of scheduled service ASMs and 4.5% of
scheduled service departures in the second quarter of 1998, as compared to 3.7%
and 3.1%, respectively, in the second quarter of 1997. The Company provided
nonstop service from San Juan to Orlando and St. Petersburg in both quarters,
although frequencies in both markets were significantly increased in the second
quarter of 1998 as compared to the second quarter of 1997, and nonstop service
between San Juan and St. Petersburg was operated only in June of 1997. The
Company also began serving San Juan on a nonstop basis from Chicago-Midway on
May 26, 1998, while such nonstop service was not operated in the second quarter
of 1997. During the six months ended June 30, 1998, scheduled service at San
Juan accounted for approximately 5.8% of scheduled service ASMs and 4.3% of
scheduled service departures, as compared to 2.8% and 2.8%, respectively, in the
six months ended June 30, 1997.
The Company's New York Kennedy service accounted for 4.3% of scheduled service
ASMs and 5.2% of scheduled service departures in the second quarter of 1998, as
compared to 2.0% and 2.5%, respectively, in the second quarter of 1997. The
Company began nonstop service to New York's John F. Kennedy International
Airport from Chicago-Midway, Indianapolis and St. Petersburg in June 1997;
services to Indianapolis were discontinued in the fall of 1997; and services to
St. Petersburg were discontinued in May 1998. In April 1998, the Company was
awarded landing slots at New York's La Guardia Airport, with which it began the
operation of three daily nonstops to Chicago-Midway on July 7. During the six
months ended June 30, 1998, scheduled service at New York Kennedy accounted for
approximately 4.3% of scheduled service ASMs and 5.1% of scheduled service
departures, as compared to 1.1% and 1.6%, respectively, in the six months ended
June 30, 1997.
The Company's Milwaukee service accounted for 3.0% of scheduled service ASMs and
2.5% of scheduled service departures in the second quarter of 1998, as compared
to 5.3% and 4.7%, respectively, in the second quarter of 1997. The Company
provided nonstop service to Orlando in both quarters. Seasonal nonstop service
was provided to Ft. Myers in both quarters through April, and seasonal nonstop
service was provided through April 1998 to St. Petersburg, which had been
provided through June of 1997. The Company also operated nonstop service to Los
Angeles in June 1997, which was not operated in the second quarter of 1998. The
Company believes that in the markets it chooses to serve, it is the only
low-cost choice in Milwaukee. During the six months ended June 30, 1998,
scheduled service at Milwaukee accounted for approximately 4.4% of scheduled
service ASMs and 3.7% of scheduled service departures, as compared to 5.9% and
6.2%, respectively, in the six months ended June 30, 1997.
The Company continues to evaluate the profitability of its scheduled service
business unit and may further expand scheduled service in targeted markets. The
Company believes that first and second quarter 1998 scheduled service yields and
load factors have benefited from strong customer demand for air transportation
in the United States during a period of constrained industry growth in seat
capacity relative to this demand. The ability of the Company to increase its
year-over-year scheduled service seat capacity by 30.7% in the second quarter of
1998, and 34.0% in the six months ended June 30, 1998, and to operate with a
slightly higher load factor in both comparative sets of periods, further
underscores the fundamental strength of current demand in its domestic scheduled
service.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Commercial charter revenue growth in the first six months of 1998 was
constrained by the reassignment of several narrow-body aircraft to scheduled
service expansion and by subservice contracts with other airlines, which the
Company believes are more profitable for these aircraft than the commercial
charter applications they replaced. The Company, however, continues to believe
that tour operator and specialty charter are businesses where the Company's
experience and size provide meaningful competitive advantage and are businesses
to which the Company remains fully committed. Commercial charter revenues
accounted for 22.8% of consolidated revenues in the second quarter of 1998, as
compared to 26.6% in the second quarter of 1997, and for 24.7% of consolidated
revenues in the six months ended June 30, 1998, as compared to 31.3% in the same
period of 1997.
The Company is addressing its seat capacity constraints in the commercial and
military charter business units through the planned acquisition of long-range
Lockheed L-1011 series 500 aircraft. The Company announced on April 27 that it
had signed a letter of intent to purchase up to five such aircraft from Royal
Jordanian Airlines, for delivery in late 1998 and throughout 1999. Although
these aircraft, in respect of maintenance and cockpit design, are comparable to
the Company's existing fleet of Lockheed L-1011 series 50 and series 100
aircraft, they differ operationally in that their ten-to-eleven-hour range
permits them to operate nonstop to parts of Asia, South America and Central and
Eastern Europe using an all-coach seating configuration preferred by the U.S.
military and most of the Company's commercial charter customers. If the terms of
the letter of intent are satisfied, the Company expects to place these aircraft
into service in commercial and military charter operations between December 1998
and the fourth quarter of 1999, which would provide a substantial increase in
available seat capacity for the military and commercial charter business units,
in addition to opening new long-range market opportunities to the Company which
it cannot serve with its existing fleet.
The following tables set forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
<TABLE>
<CAPTION>
- ----------------------------------- ----------------------------------------------------------------
Three Months Ended June 30,
<S> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
Departures (b) 2,397 2,624 (227) (8.65)
Block Hours (c) 7,977 8,602 (625) (7.27)
RPMs (000s) (d) 678,854 731,755 (52,901) (7.23)
ASMs (000s) (e) 903,487 912,404 (8,917) (0.98)
Passengers Enplaned (g) 406,622 466,695 (60,073) (12.87)
Revenue $(000s) 54,382 51,164 3,218 6.29
RASM in cents (h) 6.02 5.61 0.41 7.31
- ----------------------------------- --------------- ---------------- --------------- ---------------
- ----------------------------------- ----------------------------------------------------------------
Six Months Ended June 30,
1998 1997 Inc (Dec) % Inc (Dec)
Departures (b) 5,052 6,002 (950) (15.83)
Block Hours (c) 17,050 19,843 (2,793) (14.08)
RPMs (000s) (d) 1,506,569 1,740,466 (233,897) (13.44)
ASMs (000s) (e) 1,934,247 2,119,317 (185,070) (8.73)
Passengers Enplaned (g) 915,455 1,118,596 (203,141) (18.16)
Revenue $(000s) 115,686 120,805 (5,119) (4.24)
RASM in cents (h) 5.98 5.70 0.28 4.91
- ----------------------------------- --------------- ---------------- --------------- ---------------
</TABLE>
See footnotes (b) through (h) on pages 13-14.
Commercial charter revenues increased 6.3% to $54.4 million in the second
quarter of 1998, as compared to $51.2 million in the second quarter of 1997.
Commercial charter RPMs decreased 7.2% to 678.9 million in the second quarter of
1998 from 731.8 million in the second quarter of 1997, while ASMs decreased 1.0%
to 903.5 million from 912.4 million. Commercial charter RASM increased 7.3% to
6.02 cents from 5.61 cents between the same periods. Commercial charter
passengers boarded decreased 12.9% to 406,622 in the second quarter of 1998, as
compared to 466,695 in the second quarter of 1997; departures decreased 8.7% to
2,397, as compared to 2,624; and block hours decreased 7.3% to 7,977, as
compared to 8,602 between the same periods.
Commercial charter revenues decreased 4.2% to $115.7 million in the six months
ended June 30, 1998, as compared to $120.8 million in the six months ended June
30, 1997. Commercial charter RPMs decreased 13.4% to 1.507 billion in the six
months ended June 30, 1998 from 1.740 billion in the same period of 1997, while
ASMs decreased 8.7% to 1.934 billion from 2.119 billion. Commercial charter RASM
increased 4.9% to 5.98 cents from 5.70 cents between the same periods.
Commercial charter passengers boarded decreased 18.2% to 915,455 in the six
months ended June 30, 1998, as compared to 1,118,596 in the same period of 1997;
departures decreased 15.8% to 5,052, as compared to 6,002; and block hours
decreased 14.1% to 17,050, as compared to 19,843 between the same periods.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts.
Specialty charter is a product which is designed to meet the unique requirements
of the customer and is a business characterized by lower frequency of operation
and by greater variation in city pairs served than the track charter business.
Specialty charter includes such diverse contracts as flying university alumni to
football games, transporting political candidates on campaign trips and moving
NASA space shuttle ground crews to alternate landing sites. The Company also
operates an increasing number of trips in all-first-class configuration for
certain corporate and high-end leisure clients. Although lower utilization of
crews and aircraft and infrequent service to specialty destinations often result
in higher average operating costs, the Company has determined that the revenue
premium earned by meeting special customer requirements usually more than
compensates for these increased costs. In addition, specialty charter programs
sometimes permit the Company to increase overall aircraft utilization by
providing filler traffic during periods of low demand from other programs such
as track charter. The Company believes that it is competitively advantaged to
attract this type of business due to the size and geographic dispersion of its
fleet, which reduces costly ferry time for aircraft and crews and thus permits
more competitive pricing. The diversity of the Company's three fleet types also
permits the Company to meet a customer's particular needs by choosing the
aircraft type which provides the most economical solution for those
requirements.
The Company believes that although price is the principal competitive criterion
for its commercial charter programs, product quality, reputation for reliability
and delivery of services which are customized to specific needs have become
increasingly important to the buyer of this product. Accordingly, as the Company
continues to emphasize the growth and profitability of this business unit, it
will seek to maintain its low-cost pricing advantage, while differentiating
itself from competitors through the delivery of customized services and the
maintenance of consistent and dependable operations. In this manner, the Company
believes that it will produce significant value for its tour operator partners
by delivering an attractively priced product which meets or exceeds their
customers' expectations.
<PAGE>
MilitarylGovernment Charter Revenues. The following tables set forth, for the
periods indicated, certain key operating and financial data for the military
flight operations of the Company.
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------------------------------------------
Three Months Ended June 30,
<S> <C> <C> <C> <C>
1998 1997 Inc (Dec) % Inc (Dec)
Departures (b) 1,240 1,507 (267) (17.72)
Block Hours (c) 4,794 5,907 (1,113) (18.84)
RPMs (000s) (d) 254,940 348,813 (93,873) (26.91)
ASMs (000s) (e) 598,186 716,404 (118,218) (16.50)
Passengers Enplaned (g) 59,519 90,540 (31,021) (34.26)
Revenue $(000s) 36,110 41,855 (5,745) (13.73)
RASM in cents (h) 6.04 5.84 0.20 3.42
- -------------------------------- --------------- --------------- --------------- ---------------
- -------------------------------- ---------------------------------------------------------------
Six Months Ended June 30,
1998 1997 Inc (Dec) % Inc (Dec)
Departures (b) 2,459 2,727 (268) (9.83)
Block Hours (c) 9,357 10,596 (1,239) (11.69)
RPMs (000s) (d) 487,301 596,544 (109,243) (18.31)
ASMs (000s) (e) 1,113,841 1,230,652 (116,811) (9.49)
Passengers Enplaned (g) 118,156 156,843 (38,687) (24.67)
Revenue $(000s) 69,128 72,560 (3,432) (4.73)
RASM in cents (h) 6.21 5.90 0.31 5.25
- -------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
See footnotes (b) through (h) on pages 13-14.
Military/government charter revenues decreased 13.8% to $36.1 million in the
second quarter of 1998, as compared to $41.9 million in the second quarter of
1997. In the second quarter of 1998, the Company's U.S. military revenues
represented 15.1% of consolidated revenues, as compared to 21.8% in the second
quarter of 1997. U.S. military RPMs decreased 26.9% to 254.9 million in the
second quarter of 1998, from 348.8 million in the second quarter of 1997, while
ASMs decreased 16.5% to 598.2 million from 716.4 million. Military RASM
increased 3.4% to 6.04 cents from 5.84 cents between the same time periods. U.S.
military passengers boarded decreased 34.3% to 59,519 in the second quarter of
1998, as compared to 90,540 in the second quarter of 1997; departures decreased
17.7% to 1,240, as compared to 1,507; and block hours decreased 18.8% to 4,794,
as compared to 5,907 between the same periods.
Military/government charter revenues decreased 4.8% to $69.1 million in the six
months ended June 30, 1998, as compared to $72.6 million in the six months ended
June 30, 1997. In the six months ended June 30, 1998, the Company's U.S.
military revenues represented 14.8% of consolidated revenues, as compared to
18.8% in the six months ended June 30, 1997. U.S. military RPMs decreased 18.3%
to 487.3 million in the six months ended June 30, 1998, from 596.5 million in
the same period of 1997, while ASMs decreased 9.5% to 1.114 billion from 1.231
billion. Military RASM increased 5.3% to 6.21 cents from 5.90 cents between the
same time periods. U.S. military passengers boarded decreased 24.7% to 118,156
in the six months ended June 30, 1998, as compared to 156,843 in the same period
of 1997; departures decreased 9.8% to 2,459, as compared to 2,727; and block
hours decreased 11.7% to 9,357, as compared to 10,596 between the same periods.
The Company participates in two related military/government charter programs
known as "fixed award" and "short-term expansion." Pursuant to the U.S.
military's fixed award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, in 1992 the Company entered into a contractor teaming
arrangement with four other cargo airlines serving the U.S. military. Under this
arrangement, the team has a greater likelihood of receiving fixed award business
and, to the extent that the award includes passenger transport, the opportunity
for the Company to operate this flying is enhanced since the Company represents
all of the passenger transport capacity of the team. As part of its
participation in this teaming arrangement, the Company pays a commission to the
team, which passes that revenue on to all team members based upon their
mobilization points. All airlines participating in the fixed award business
contract annually with the U.S. military from October 1 to the following
September 30. For each contract year, reimbursement rates are determined for
aircraft types and mission categories based upon operating cost data submitted
by the participating airlines. These contracts generally are not subject to
renegotiation once they become effective.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The Company principally committed four Boeing 757-200 aircraft to the
military/government charter business in the first six months of 1998 and 1997,
although approximately 9.5% fewer ASMs were provided to this business unit in
the six months ended June 30, 1998, as compared to the same period of 1997, due
to the reassignment of some aircraft hours to scheduled service and substitute
service. As a result of more accurately documenting the actual costs associated
with military flying, the Company was able to obtain approval for some rate
increases for the U.S. military contract year ending September 30, 1998, which
resulted in higher RASM in the quarter and six months ended June 30, 1998, as
compared to the same periods of the prior year.
Because military flying is generally less seasonal than leisure travel programs,
the Company believes that the military/government charter business will tend to
have a stabilizing impact on seasonal earnings fluctuations. The Company is also
contractually protected from changes in fuel prices. The Company further
believes that its fleet of aircraft has a competitive advantage in serving the
transportation needs of the U.S. military. Although foreign bases have reduced
troop size, the Company believes that the U.S. military still desires to
maintain its service frequency to those bases and therefore often has a
preference for smaller-capacity, long-range aircraft such as the Company's
Boeing 757-200. Furthermore, in 1993, the Company became the first North
American carrier to receive Federal Aviation Administration ("FAA")
certification to operate Boeing 757-200 aircraft with 180-minute Extended Twin
Engine Operation ("ETOPS"), permitting these aircraft to operate missions over
water to airports up to three hours from the nearest alternate airport. The
Company believes that this certification, which applies to all of the Company's
Boeing 757-200 fleet, provides a competitive advantage in receiving awards of
certain military flying.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards. In 1997, there was an unusual amount of both fixed award
and expansion business available to the Company as compared to prior years. The
Company currently expects that it will operate approximately as much military
flying in 1998 as it did in 1997.
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
exclusively to its Ambassadair club members and through its ATA Vacations
subsidiary to the general public. In the second quarter of 1998, ground package
revenues decreased 1.9% to $5.1 million, as compared to $5.2 million in the
second quarter of 1997, and in the six months ended June 30, 1998, ground
package revenues increased 4.6% to $11.5 million, as compared to $11.0 million
in the same period of 1997.
The Company's Ambassadair Travel Club offers hundreds of tour-guide-accompanied
vacation packages to its approximately 35,000 individual and family members
annually. In the second quarter and the six months ended June 30, 1998, total
packages sold decreased 14.4% and 8.4%, respectively, as compared to the same
periods of 1997, while the average revenue earned for each ground package sold
increased 15.1% and 21.2%, respectively, between the same comparative periods.
ATA Vacations offers numerous ground package combinations to the general public
for use on the Company's scheduled service flights throughout the United States.
These packages are marketed through travel agents, as well as directly by the
Company. In the second quarter and the six months ended June 30, 1998, total
packages sold decreased 14.8% and 3.7%, respectively, as compared to the same
periods of 1997, while the average revenue earned for each ground package sold
decreased 7.4% and 7.9%, respectively, between the same comparative periods.
The average revenue earned by 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, all of which
factors can change from period to period.
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 68.7% to $11.3 million in the second quarter of 1998, as
compared to $6.7 million in the second quarter of 1997, and by 71.1% to $21.9
million in the six months ended June 30, 1998, as compared to $12.8 million on
the same period of 1997. These increases in other revenues were primarily due to
an increase of $3.1 million and $6.1 million, respectively, between the quarter
and six months ended June 30, 1998, and the comparable periods of 1997, in
revenues earned by providing substitute service to other airlines. A substitute
service agreement typically provides for the Company to operate aircraft with
its crews on routes designated by the customer airline to carry the passengers
of that airline for a limited period of time. The Company has seen increased
demand for this type of service in 1998 due to delays in new aircraft deliveries
being experienced by various airlines.
Operating Expenses
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 in the second quarter of 1998 increased 19.8% to
$52.6 million from $43.9 million in the second quarter of 1997, and increased
21.3% to $102.4 million in the six months ended June 30, 1998, as compared to
$84.4 million in the same period of 1997.
The Company increased its average equivalent employees by 18.0% and 16.8%,
respectively, between the three and six month periods ended June 30, 1998 and
1997 in order to appropriately staff the growth in available seats offered
between periods. Categories of employees where this growth was most significant
included cockpit and cabin crews, reservations agents, airport passenger and
ramp service agents, and aircraft maintenance personnel, all of which are
influenced directly by flight activity. Some employment growth in the first six
months of 1998 was also needed to correct for certain employee shortages in the
first six months of 1997, particularly in the areas of cockpit crews,
reservations agents and airframe and power plant mechanics. Between the second
quarter of 1998 and the second quarter of 1997, jet departures increased by
21.3%, jet block hours increased by 16.4% and jet passengers boarded increased
by 19.5%. Between the six months ended June 30, 1998 and 1997, jet departures
increased by 18.7%, jet block hours increased by 15.7% and jet passengers
boarded increased by 13.8%.
The average rate of pay earned by the Company's employees (including all
categories of salaries, wages and benefits, except for variable compensation)
increased 1.1% between the second quarters of 1998 and 1997, and increased by
1.0% between the six month periods ended June 30, 1998 and 1997. More senior
employee groups generally received wage rate increases between years which
exceeded these percentages of wage rate growth. However, since new employees are
generally hired at lower average starting rates of pay than those rates in
effect for more senior employee groups, the increase in new employees between
periods largely offset the wage rate increases applicable to more senior
employees.
In the three and six months ended June 30, 1998, the Company recorded $2.6
million and $5.1 million, respectively, in variable compensation as a result of
the significant improvement in earnings as compared to the same periods of 1997,
when no such compensation was incurred. In the second quarter of 1997, however,
a one-time charge of $2.0 million was recorded for variable compensation expense
associated with the resignation of the Company's former President and Chief
Executive Officer.
Salaries, wages and benefits cost per ASM increased 6.4% in the second quarter
of 1998 to 1.50 cents, as compared to 1.41 cents in the second quarter of 1997,
and the cost per ASM increased 7.2% in the six months ended June 30, 1998, to
1.49 cents, as compared to 1.39 cents in the same period of 1997. The majority
of this unit-cost increase was attributable to the faster rate of growth in
average equivalent employees between years, as compared to the 13.0% and 12.8%
growth in ASMs, respectively, between the three and six month periods ended June
30, 1998 and 1997.
Fuel and Oil. Fuel and oil expense decreased 3.0% to $35.3 million in the second
quarter of 1998, as compared to $36.4 million in the second quarter of 1997, and
decreased 6.5% to $72.1 million in the six months ended June 30, 1998, as
compared to $77.1 million in the same period of 1997. These decreases occurred
despite the Company consuming 13.7% and 12.1%, respectively, more gallons of jet
fuel for flying operations in the second quarter and six months ended June 30,
1998, as compared to the same periods of 1997, which resulted in an increase in
fuel expense of approximately $4.8 million and $9.7 million, respectively,
between comparable periods. Jet fuel consumption increased due to the increased
number of block hours of jet flying operations between periods. The Company flew
36,763 jet block hours in the second quarter of 1998, as compared to 31,574 jet
block hours in the same period of 1997, an increase of 16.4% between quarters,
and flew 72,369 jet block hours in the six months ended June 30, 1998, as
compared to 62,543 jet block hours in the same period of 1997, an increase of
15.7% between periods.
The slower rate of growth in gallons consumed as compared to block hours flown
was due to a change in the mix of block hours flown by fleet type between
periods. Most of the Company's growth in block hours between years occurred in
the narrow-body Boeing 727-200 and Boeing 757-200 fleets, which burn fuel at
less than half the rate per block hour as the larger wide-body Lockheed L-1011
aircraft. In the second quarter of 1998, the percentage of jet block hours flown
by the Boeing 727-200 and Boeing 757-200 fleets was 76.9%, as compared to 74.5%
in the second quarter of 1997, and the percentage of narrow-body jet block hours
flown in the six months ended June 30, 1998 was 77.3%, as compared to 74.3% in
the same period of 1997.
During the second quarter and six months ended June 30, 1998, the Company's
average cost per gallon of jet fuel consumed decreased by 16.4% and 19.5%,
respectively, as compared to the same periods of 1997, resulting in a decrease
in fuel and oil expense of approximately $6.8 million and $17.4 million,
respectively, between comparable periods. This reduction in fuel price was
experienced generally in the airline industry in the first six months of 1998 as
a result of significant reductions in average crude oil and distillate product
prices as compared to the same period of 1997.
During the first quarter of 1998, the Company entered into two fuel price hedge
contracts under which the Company sought to reduce the risk of fuel price
increases during February and March. The Company hedged approximately 27.3% of
first quarter 1998 gallon consumption under a swap agreement which established a
specific swap price for February and March, and hedged an additional 27.3% of
first quarter 1998 gallon consumption under a fuel cap agreement which
guaranteed a maximum price per gallon for February and March. The Company
recorded $1.1 million in fuel and oil expense under the swap agreement in the
first quarter of 1998, since the actual price of jet fuel was lower than the
agreed swap price, and recorded fuel and oil expense of $0.3 million in the
first quarter of 1998 for the premiums paid under the fuel cap agreement.
During the second quarter of 1998, the Company entered into a fuel price hedge
agreement, providing a fuel price minimum and maximum guarantee for
approximately 39.8% of second quarter 1998 gallon consumption. The Company
recorded $0.7 million in fuel and oil expense under the agreement in the second
quarter of 1998, since the actual price of fuel was below the collar minimum for
some gallons.
Had such fuel hedge agreements not been in place in the second quarter and six
months ended June 30, 1998, fuel and oil expense would have been approximately
$0.7 million and $2.1 million lower, respectively. At present, all fuel price
hedge agreements described above have expired, and the Company has not entered
into any new fuel price hedge agreements, although it may elect to do so from
time to time.
Also during the second quarter and six months ended June 30, 1998, the Company
incurred approximately $0.1 million and $0.5 million, respectively, more fuel
and oil expense than was incurred in the same periods of 1997 to operate the ATA
Connection Jetstream 31 aircraft pursuant to its agreement with Chicago Express.
Fuel and oil expense decreased 13.7% to 1.01 cents per ASM in the second quarter
of 1998, as compared to 1.17 cents per ASM in the second quarter of 1997, and
decreased 17.3% to 1.05 cents per ASM in the six months ended June 30, 1998, as
compared to 1.27 cents per ASM in same period of 1997. This unit cost reduction
was substantially due to the period-to-period decrease in the average price of
fuel consumed.
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily 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 increased 40.5% to
$21.5 million in the second quarter of 1998, as compared to $15.3 million in the
second quarter of 1997, and increased 35.0% to $39.7 million in the six months
ended June 30, 1998, as compared to $29.4 million in the same period of 1997.
Depreciation expense attributable to owned airframes, leasehold improvements and
engines increased $0.6 million and $1.0 million, respectively, in the three and
six months ended June 30, 1998, as compared to the same periods of 1997. The
Company purchased one Boeing 757-200 and one Boeing 727-200 aircraft in late
1997 which had been previously financed through operating leases, thereby
increasing depreciation expense on airframes and engines between those periods.
(The Company recorded a reduction in aircraft rental expense between quarters
for the termination of operating leases for these aircraft, which is further
described below under "Aircraft Rentals.") The Company also incurred increased
debt issue costs between years relating to debt facility and senior unsecured
notes issued in July 1997; recorded additional inventory obsolescence expense
for certain aircraft parts held for sale which were sold during the first
quarter of 1998; and increased its investment in rotable parts and computer
hardware and software, among other items of property and equipment. These
changes resulted in an increase in depreciation expense of $0.4 million in the
second quarter of 1998, as compared to the same period of 1997, and by $0.9
million in the six months ended June 30, 1998, as compared to the six months
ended June 30, 1997.
Amortization of capitalized engine and airframe overhauls increased $3.4 million
and $6.2 million, respectively, in the three and six months ended June 30, 1998,
as compared to the same periods of 1997, after including the offsetting
amortization associated with manufacturers' credits. Changes to the cost of
overhaul amortization were partly due to the increase in total block hours and
cycles flown between comparable periods for the Boeing 727-200 and Lockheed
L-1011 fleets, since such expense varies with that activity, and partly due to
the completion of more engine and airframe overhauls between periods for these
fleet types. Rolls-Royce-powered Boeing 757-200 aircraft, five of which were
delivered new from the manufacturer between late 1995 and late 1997, are not
presently generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under the Company's
maintenance programs.
Boeing 727-200 block hours increased 25.7% and 23.0%, respectively, and cycles
increased 29.8% and 25.7%, respectively, in the three and six months ended June
30, 1998, as compared to the same periods of 1997. Engine and airframe
amortization for the Company's fleet of Boeing 727-200 aircraft increased by
approximately $2.2 million and $3.9 million, respectively, between the same
comparable periods, partly due to increases in flight activity as noted above,
and partly due to the completion of new overhauls for Pratt & Whitney JT8D
engines that power the Boeing 727-200 fleet, as well as additional airframe
overhauls. The number of such overhauls in service has increased as some Boeing
727-200 aircraft added to the Company's fleet in 1995 and 1996 are now
undergoing their first overhauls under the Company's maintenance program.
The increases between the second quarter and six months ended June 30, 1998, and
the same periods of 1997 in engine and airframe amortization expense for the
Company's Lockheed L-1011 fleet were approximately $1.0 million and $2.0
million, respectively. Approximately $0.7 million and $1.3 million,
respectively, of these increases were due to increases in total engine and
airframe overhauls in service between those periods and were also due to more
flight activity for this fleet type. Lockheed L-1011 block hours increased 5.2%
and 2.4%, respectively, and cycles increased 3.5% and 0.9%, respectively, in the
three and six months ended June 30, 1998, as compared to the same periods of
1997. The remaining $0.3 million and $0.7 million, respectively, of the
increases in the second quarter and six months ended June 30, 1998, as compared
to the same periods of 1997, were due to a period-to-period reduction in
manufacturers' credits applied to overhaul costs, since fewer such credits are
being earned currently than in prior years.
The cost of engine overhauls that 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 $2.0 million and
$2.1 million, respectively, in the three and six months ended June 30, 1998, as
compared to the same periods of 1997. When these engine failures can be
economically repaired, the related repairs are charged to aircraft maintenance,
materials and repairs expense.
Depreciation and amortization expense per ASM increased 24.5% to 0.61 cents in
the second quarter of 1998, as compared to 0.49 cents in the second quarter of
1997, and increased 20.8% to 0.58 cents in the six months ended June 30, 1998,
as compared to 0.48 cents in the same period of 1997. These increases were
partly due to the increased amount of overhaul cost incurred to maintain the
Company's Boeing 727-200 and Lockheed L-1011 airframes and engines, and partly
due to the period-to-period increase in early engine failures. Airframes and
engines which originally enter the Company's fleet from time to time often do
not require such overhauls until several years later. Therefore, units added to
the Company's fleet over the last several years are currently scheduled for or
are undergoing overhaul. Such overhaul expense incurred and to be incurred is
incremental in comparison to prior periods. Although the Company's fleet of new
Boeing 757-200 aircraft has not yet begun this initial overhaul cycle, the
Company anticipates that it will do so beginning in late 1998 and 1999, at which
time increased overhaul amortization expense per ASM will be incurred for this
fleet type as well.
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. Where the
Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are assessed when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 3.5% to $17.8 million in the
second quarter of 1998, as compared to $17.2 million in the second quarter of
1997, and increased 2.3% to $35.3 million in the six months ended June 30, 1998,
as compared to $34.5 million in the same period of 1997. During the three and
six months ended June 30, 1998, the average cost per system jet departure for
third-party aircraft handling decreased 11.7% and 7.5%, respectively, as
compared to the same periods of 1997; and the average cost of landing fees per
system jet departure decreased 4.0% and 6.4%, respectively, between the same
periods. The total number of system-wide jet departures between the second
quarters of 1998 and 1997 increased by 21.3% to 11,696 from 9,644, resulting in
approximately $2.8 million in volume-related handling and landing expense
increases between periods, and the total number of system-wide jet departures
between the six month periods ended June 30, 1998 and 1997 increased by 18.7% to
22,874 from 19,273, resulting in approximately $4.9 million in volume-related
handling and landing expense increases between years.
These volume-related increases were partially offset, however, by decreases of
approximately $1.7 million and $2.2 million, respectively, in
price-and-mix-related handling and landing expenses for the three and six month
periods ending June 30, 1998, as compared to the same periods of 1997,
attributable primarily to a change in jet departure mix. 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 and the fleet composition of departing
aircraft. On average, handling and landing fee costs for Lockheed L-1011
wide-body aircraft are higher than for narrow-body aircraft, and average costs
at foreign airports are higher than at many U.S. domestic airports. As a result
of the shift of revenue production towards scheduled service operations in the
three and six month periods ended June 30, 1998, as compared to the same periods
of 1997, the Company's jet departures in the 1998 periods included
proportionately more domestic and narrow-body operations than in the 1997
periods. In the three and six months ended June 30, 1998, approximately 81.2%
and 81.0%, respectively, of the Company's jet departures were operated with
narrow-body aircraft, as compared to 78.0% and 77.6%, respectively in the same
periods of 1997; and 83.7% and 82.7%, respectively, of the Company's jet
departures in the three and six months ended June 30, 1998 were from domestic
locations, as compared to 77.0% and 76.1%, respectively, in the same periods of
1997.
The cost per ASM for handling, landing and navigation fees decreased 8.9% to
0.51 cents in the second quarter of 1998, from 0.56 cents in the second quarter
of 1997, and decreased 10.5% to 0.51 cents in the six months ended June 30,
1998, as compared to 0.57 cents in the same period of 1997. This decrease in
unit cost was primarily due to the change in mix of departures to more
narrow-body and domestic operations characteristic of scheduled service.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for heavy check 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 increased 4.3% to $14.4
million in the second quarter of 1998, as compared to $13.8 million in the
second quarter of 1997, while it increased 9.2% to $27.2 million in the six
months ended June 30, 1998, from $24.9 million in the same period of 1997.
The Company performed a total of 16 airframe checks on its fleet during the
second quarter of 1998, as compared to 12 such checks performed in the second
quarter of 1997, an increase of 33.3% between quarters; while for the six months
ended June 30, 1998, the Company performed 28 airframe checks, as compared to 23
for the same period in 1997, a 21.7% increase between periods. The cost of
materials consumed and components repaired in association with such checks and
other maintenance activity increased by $0.7 million between the second quarters
of 1998 and 1997, while for the six months ended June 30, 1998, these expenses
increased $1.6 million as compared to the same period of 1997.
Contract labor for the six months ended June 30, 1998 increased $1.0 million as
compared to the same period in 1997. This increase was due to nine airframe
checks being performed at third-party vendor locations in the six months ended
June 30, 1998, as compared to four in the same period of 1997. Contract labor is
incurred when heavy maintenance checks on the Company's airframes are performed
by outside vendors using their own personnel under maintenance programs approved
and supervised by the Company.
Many of the Company's aircraft under operating leases have certain return
conditions applicable to the maintenance status of airframes and engines as of
the termination of the lease. The Company accrues estimated return condition
costs as a component of maintenance, materials and repairs expense. The accrual
is based upon the actual condition of the aircraft as each lease termination
date approaches, and the Company's ability to estimate the expected cost of
conforming to these conditions. Return condition expenses accrued in the second
quarter of 1998 were $0.3 million lower than in the second quarter of 1997,
while for the six months ended June 30, 1998, return condition expenses were
$0.4 million lower than in the same period of 1997, primarily due to the
negotiation of purchase options on some of the leased aircraft during the first
quarter of 1998, eliminating return condition obligations existing prior to
those negotiations.
The cost per ASM of aircraft maintenance, materials and repairs decreased 8.9%
to 0.41 cents in the second quarter of 1998, as compared to 0.45 cents in the
second quarter of 1997, while the cost per ASM decreased 2.4% to 0.40 cents in
the six months ended June 30, 1998, as compared to 0.41 cents for the same
period of 1997.
Aircraft Rentals. Aircraft rentals expense for the second quarter of 1998
decreased 8.5% to $12.9 million from $14.1 million in the second quarter of
1997, and decreased 8.8% to $25.8 million in the six months ended June 30, 1998,
as compared to $28.3 million in the same period of 1997. Approximately $1.4
million and $2.8 million, respectively, of these decreases in the three and six
months ended June 30, 1998, as compared to the same periods of 1997, were
attributable to the purchase of one Boeing 757-200 aircraft and one Boeing
727-200 aircraft in September and December 1997, respectively, which had been
previously financed under operating leases. (The Company incurred additional
depreciation expense for these two aircraft in the first two quarters of 1998,
as compared to the first two quarters of 1997, as is described above under
"Depreciation and Amortization.")
Other transactions which affected aircraft rentals expense between quarters
included: (i) the return of one Boeing 757-200 to the lessor during 1997, and
the delivery of one new Boeing 757-200 aircraft from the manufacturer in the
fourth quarter of 1997, which had approximately equal and offsetting impacts to
rental expense between all comparable periods; and (ii) the sale/leaseback of
one Boeing 727-200 in September 1997, which increased aircraft rentals expense
by $0.3 million and $0.5 million, respectively, between the three and six month
periods ended June 30, 1998 and 1997.
Aircraft rentals cost per ASM for the second quarter of 1998 was 0.37 cents, a
decrease of 19.6% from 0.46 cents per ASM in the same period of 1997, and was
0.38 cents in the six months ended June 30, 1998, a decrease of 17.4% as
compared to 0.46 cents in the same period of 1997. The cancellation of the
operating lease and purchase of the Boeing 757-200 aircraft during 1997 was the
primary cause for this unit cost reduction, although a related unit cost
increase was incurred for depreciation and amortization as a result of that
purchase.
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 incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of air transportation is
generally more significant for the commercial and military/government charter
business units 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 scheduled, commercial and
military/government charter services, although higher per diem and hotel rates
generally apply to international assignments.
The cost of crew and other employee travel increased 11.7% to $10.5 million in
the second quarter of 1998, as compared to $9.4 million in the second quarter of
1997, and increased 15.0% to $19.9 million in the six months ended June 30,
1998, as compared to $17.3 million in the same period of 1997. During the three
and six months ended June 30, 1998, the Company's average full-time-equivalent
cockpit and cabin crew employment was 14.7% and 15.9% higher, respectively, than
in the same periods of 1997, while jet block hours flown increased by 16.4% and
15.7%, respectively, between the same periods. Although the Company experienced
some limited crew shortages in the first quarter of 1998 associated with higher
aircraft utilization, such shortages had been substantially eliminated by the
second quarter of 1998, thereby reducing the related travel costs of moving some
crews away from their bases. Shortages of both cockpit and cabin crews were more
significant in the first two quarters of 1997, following the crew furlough which
occurred in the fourth quarter of 1996, when crews were more frequently moved
out of base to operate the Company's worldwide schedule.
The shift in capacity from commercial and military/government charter to
scheduled service in the second quarter of 1998, as compared to the second
quarter of 1997, contributed to a 6.2% and 4.3% reduction, respectively, in the
unit cost per crew member of hotels and positioning. Positioning unit cost in
the six months ended June 30, 1998, was 10.5% lower than in the same period of
1997. However, the unit cost per crew member of hotels in the six months ended
June 30, 1998, was 5.8% higher as compared to the same period of 1997, since
strong domestic hotel occupancy rates in the first quarter of 1998 resulted in
crew room unit costs which were 22.4% higher than in the first quarter of 1997.
Per diem unit costs per crew member were 1.1% and 3.7% higher, respectively, in
the three and six month periods ended June 30, 1998, as compared to the same
periods of 1997, due primarily to an increase in some per diem rates between
periods.
The cost per ASM for crew and other employee travel was unchanged at 0.30 cents
in the second quarters of 1998 and 1997, and increased by 3.6% to 0.29 cents in
the six months ended June 30, 1998, as compared to 0.28 cents in the same period
of 1997.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie 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 second quarters of
1998 and 1997, catering represented 85.5% and 87.4%, respectively, of total
passenger service expense, and for the six month periods ended June 30, 1998 and
1997, catering represented 84.8% and 82.4%, respectively, of total passenger
service expense.
The total cost of passenger service increased 11.8% to $8.5 million in the
second quarter of 1998, as compared to $7.6 million in the second quarter of
1997, and increased 5.7% to $16.7 million in the six months ended June 30, 1998,
as compared to $15.8 million in the same period of 1997. The Company experienced
a decrease of approximately 9.2% and 5.1%, respectively, in the average unit
cost of catering each passenger in the three and six month periods ended June
30, 1998, as compared to the same periods of 1997, primarily because in the 1998
periods there were relatively more scheduled service passengers in the Company's
business mix, who are provided a less expensive catering product than the
Company's longer-stage-length commercial and military/government charter
passengers. This resulted in a price-and-business-mix reduction of $0.9 million
and $1.0 million, respectively, of catering expense in the three and six months
ended June 30, 1998, as compared to the same periods of 1997. Total jet
passengers boarded, however, increased 19.5% and 13.8%, respectively, between
the same comparative periods, resulting in approximately $1.4 million and $1.8
million, respectively, in higher volume-related catering expenses between the
same sets of comparative periods.
The cost of handling passengers inconvenienced by flight delays and
cancellations increased by $0.3 million between the second quarters of 1998 and
1997 due to an 11.8% increase in the number of delayed flights per system-wide
departure in the 1998 quarter as compared to the prior year. In the six months
ended June 30, 1998, such costs were $0.3 million lower than in the same period
of 1997, since delays per system-wide departure had decreased by 11.4% between
periods.
The cost per ASM of passenger service decreased 4.0% to 0.24 cents in the second
quarter of 1998, as compared to 0.25 cents in the second quarter of 1997, and
decreased 7.7% to 0.24 cents in the six months ended June 30, 1998, as compared
to 0.26 cents in the same period of 1997.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs less significant commissions to secure some commercial and
military/government charter business. Commissions expense increased 10.4% to
$7.4 million in the second quarter of 1998, as compared to $6.7 million in the
second quarter of 1997, and increased 15.9% to $14.6 million in the six months
ended June 30, 1998, as compared to $12.6 million in the same period of 1997.
Scheduled service commissions expense increased by $0.7 million and $1.9
million, respectively, between the three and six month periods ended June 30,
1998 and 1997. These increases were lower than the related increases of 50.8%
and 47.4%, respectively, in scheduled service revenues for the same periods,
partially because of an industry-wide reduction in the standard travel agency
commission rate from 10% to 8% which became effective in October 1997, and
partially due to relatively more non-commissionable bulk seat scheduled service
sales being made in the three and six month periods ended June 30, 1998, as
compared to the same periods of 1997. Neither commercial charter nor
military/government charter commissions expense changed significantly between
the three and six month periods ended June 30, 1998 and 1997.
The cost per ASM of commissions expense was unchanged at 0.21 cents for the
three and six month periods ended June 30, 1998 and 1997.
Other Selling Expenses. Other selling expenses are comprised of (i) booking fees
paid to computer reservation systems ("CRS") to reserve single-seat sales for
scheduled service; (ii) credit card discount expenses incurred when selling
single seats and ground packages to customers using credit cards for payment;
(iii) costs of providing toll-free telephone service, primarily to single-seat
and vacation package customers who contact the Company directly to book
reservations; and (iv) miscellaneous other selling expenses primarily associated
with single-seat sales. Other selling expenses increased 55.6% to $5.6 million
in the second quarter of 1998, as compared to $3.6 million in the second quarter
of 1997, and increased 64.7% to $11.2 million in the six months ended June 30,
1998, as compared to $6.8 million in the same period of 1997. Scheduled service
ASMs increased 30.7% and 34.0%, respectively, in the three and six months ended
June 30, 1998, as compared to the same periods of 1997.
CRS fees increased $0.7 million and $1.9 million, respectively, in the three and
six month periods ended June 30, 1998, as compared to the same periods of 1997,
due to both a 38.3% and 52.1% increase, respectively, in total CRS bookings made
for the expanded scheduled service business unit between comparative periods,
and due to a 1.4% and 8.7% increase, respectively, in the average cost of each
CRS booking. Bookings for the Company's scheduled service seats are often
confirmed several weeks or more in advance of the customer's actual date of
travel, and such booking expenses are therefore frequently recognized one or
more accounting periods in advance of the recognition of the related revenues.
Toll-free telephone costs increased $0.3 million and $0.7 million, respectively,
between the three and six month periods ended June 30, 1998 and 1997, primarily
due to higher toll-free usage related to higher scheduled service reservations
activity. Credit card discount expense increased $0.9 million and $1.7 million,
respectively, in the same comparative time periods due to higher 1998 earned
revenues in scheduled service which were sold using credit cards as payment.
Other selling cost per ASM increased 33.3% to 0.16 cents in the second quarter
of 1998, as compared to 0.12 cents in the same quarter of the previous year, and
increased 45.5% to 0.16 cents in the six months ended June 30, 1998, as compared
to 0.11 cents in the same period of 1997, primarily due to the significant
growth in scheduled service ASMs between years where such selling expenses are
incurred.
Advertising. Advertising expense increased 54.8% to $4.8 million in the second
quarter of 1998, as compared to $3.1 million in the comparable period of 1997,
and increased 34.3% to $9.0 million in the six months ended June 30, 1998, as
compared to $6.7 million in the same period of 1997. The Company incurs
advertising costs primarily to support single-seat scheduled service sales and
the sale of air-and-ground packages. Advertising support for these lines of
businesses was increased in the three and six month periods ended June 30, 1998,
consistent with the Company's overall strategy to enhance scheduled service RASM
through increases in load factor and yield.
The 34.3% increase in total advertising expense in the six months ended June 30,
1998, was smaller than the 47.4% increase in scheduled service revenues in the
same period of 1998, since the majority of the Company's growth in the first six
months of 1998 was from increased frequencies at existing gateway cities such as
Chicago-Midway, thus providing market concentration advertising efficiencies in
the 1998 period, as compared to the prior year. Such market-related efficiency
was not achieved in the second quarter of 1998, however, during which
advertising costs increased 54.8%, and scheduled service revenues grew by 50.8%,
as compared to the prior year. This lower efficiency was due to temporarily
higher advertising support required in the second quarter of 1998 for the
introduction of the Company's new services in May 1998 to Dallas-Ft. Worth,
Denver and San Juan, and in July 1998 to New York's La Guardia airport.
The cost per ASM of advertising increased 40.0% to 0.14 cents in the second
quarter of 1998, as compared to 0.10 cents in the second quarter of 1997, and
increased by 18.2% to 0.13 cents in the six months ended June 30, 1998, as
compared to 0.11 cents in the same period of 1997.
Ground Package Cost. Ground package cost is incurred by the Company to reimburse
hotels, car rental companies, cruise lines and similar vendors who provide
ground and cruise accommodations to Ambassadair and ATA Vacations customers.
Ground package cost was unchanged at $4.3 million in the second quarters of 1998
and 1997, and increased 4.2% to $9.9 million in the six months ended June 30,
1998, as compared to $9.5 million in the same period of 1997. The number of
Ambassadair ground packages sold in the three and six-month periods ended June
30, 1998, decreased 14.4% and 8.4%, respectively, as compared to the same
periods of 1997, while the average cost of ground packages sold increased by
45.7% and 34.5%, respectively. The number of ATA Vacations ground packages sold
in the three and six-month periods ended June 30, 1998, decreased 14.8% and
3.7%, respectively, as compared to the same periods of 1997, while the average
cost of ground packages sold decreased by 7.3% and 13.4%, respectively.
The cost per ASM of ground packages decreased 14.3% to 0.12 cents in the second
quarter of 1998, as compared to 0.14 cents in the second quarter of 1997, and
decreased by l2.5% to 0.14 cents in the six months ended June 30, 1998, as
compared to 0.16 cents in the same period of 1997. Reductions in unit costs in
all comparative periods reflected a slower rate of growth in ground package
sales than the overall rate of growth in consolidated ASMs.
Facility and Other Rentals. Facility and other rentals includes the cost of all
ground facilities that are leased by the Company such as airport space, regional
sales offices and general offices. The cost of facility and other rentals was
unchanged at $2.2 million in the second quarters of 1998 and 1997, and increased
4.5% to $4.6 million in the six months ended June 30, 1998, as compared to $4.4
million in the same period of 1997. The rate of growth in facilities costs
between periods was lower than the 13.0% and 12.8% rates of ASM growth,
respectively, in the three and six-month periods ended June 30, 1998 and 1997,
from to the more efficient use of airport facilities by the Company between
periods. This efficiency resulted, for example, due to the increased
concentration of aircraft departures in 1998 at Chicago-Midway, which allowed
the terminal, ramp and gate facilities at the Company's largest airport location
to be more effectively utilized.
The cost per ASM for facility and other rentals declined by 14.3% to 0.06 cents
in the second quarter of 1998, as compared to 0.07 cents in the second quarter
of 1997, and was unchanged at 0.07 cents in both of the six-month periods ended
June 30, 1998 and 1997.
Other Operating Expenses. Other operating expenses increased 18.5% to $16.0
million in the second quarter of 1998, as compared to $13.5 million in the
second quarter of 1997, and increased 19.8% to $31.4 million in the six months
ended June 30, 1998, as compared to $26.2 million in the same period of 1997.
Other operating expenses which experienced significant changes between the
second quarters and six months ended June 30, 1998 and 1997 included (i) $0.7
million and $2.2 million, respectively, of additional costs for the Chicago
Express Jetstream 31 code share agreement, which agreement was not in effect in
the 1997 first quarter, and because such code share was expanded to include
Lansing and Madison in the first two quarters of 1998, which were not served in
1997; and (ii) $1.6 million and $1.9 million, respectively, in higher costs
associated with the short-term leasing of substitute aircraft, and the
reprotection of some of the Company's passengers on other airlines, due to
higher-than-normal delayed and irregular flight operations primarily in the
second quarter of 1998.
Other operating cost per ASM increased 7.0% to 0.46 cents in the second quarter
and six months ended June 30, 1998, as compared to 0.43 cents in the comparable
periods of 1997.
Interest Income and Expense. Interest expense in the second quarter and six
months ended June 30, 1998, increased to $3.2 million and $6.5 million,
respectively, as compared to $1.7 million and $3.3 million in the same periods
of 1997. The increase in interest expense between periods was primarily due to
changes in the Company's capital structure resulting from the two financings
completed on July 24, 1997, at which time the Company (i) sold $100.0 million
principal amount of 10.5% unsecured seven-year notes, and (ii) entered into a
new $50.0 million secured revolving credit facility, thereby replacing the
former secured revolving credit facility of $122.0 million as of June 30, 1997.
The capital structure of the Company, prior to completing these new financings,
provided for borrowings under the former credit facility to be constantly
adjusted to meet the expected cash flow requirements of the Company, thereby
minimizing the level of borrowings on which interest would be paid. Under the
new capital structure of the Company, the borrowings under the 10.5% notes
remain fixed at $100.0 million. During the second quarter and six months ended
June 30, 1998, the Company's weighted average borrowings were approximately
$152.5 million and $152.8 million, respectively, as compared to $92.4 million
and $89.0 million in the comparable periods of 1997.
The weighted average effective interest rates applicable to the Company's
borrowings in the second quarter and six months ended June 30, 1998, were 8.43%
and 8.47%, respectively, as compared to 7.40% and 7.47% in the comparable
periods of 1997. The increase in the weighted average effective interest rates
between years was primarily due to the 10.5% interest rate applicable to the
$100.0 million in unsecured notes issued on July 24, 1997, which was higher than
the average interest rate which was applicable to borrowings under the former
credit facility.
In order to reduce the interest expense impact of the $100.0 million of 10.5%
unsecured notes, the Company invested excess cash balances in short-term
government securities and commercial paper and thereby earned $1.2 million and
$2.2 million, respectively, in interest income in the three and six months ended
June 30, 1998, as compared to $0.1 million and $0.2 million earned in the same
periods of 1997.
Income Tax Expense
In the second quarter of 1998, the Company recorded $8.9 million in income tax
expense applicable to $22.6 million of pre-tax income for that period, while in
the second quarter of 1997 income tax expense of $0.3 million was recognized
pertaining to a pre-tax loss of $0.5 million. In the six months ended June 30,
1998, income tax expense of $17.7 million was recorded, as compared to $3.4
million in the same period of 1997. The effective tax rates applicable to the
three and six months ended June 30, 1998, were 39.1%, and 40.4%, respectively,
as compared to 156.0% and 57.6% in the same periods of 1997.
Income tax expense in both sets of comparative periods was significantly
affected by the permanent non-deductibility for federal income tax purposes of a
percentage of amounts paid for crew per diem (45% in 1998 and 50% in 1997). The
effect of this permanent difference on the effective income tax rate for
financial accounting purposes becomes more pronounced in cases where before-tax
income approaches zero, which was a significant reason for the higher effective
tax rate in the quarter and six months ended June 30, 1997.
Income tax expense for the second quarter of 1997 was also significantly
affected by the one-time $2.0 million charge to salaries, wages and benefits for
the prepaid executive compensation package provided to the Company's former
President and Chief Executive Officer. Of the total compensation paid to this
former executive of the Company in 1997, approximately $1.7 million was
non-deductible against the Company's federal income taxes and thus constitutes a
permanent difference between income for federal tax purposes and financial
accounting income.
Liquidity and Capital Resources
Cash Flows. 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. As described further below, in the
third quarter of 1997, the Company completed two separate financings designed to
lengthen the maturity of its long-term debt and diversify its credit sources,
including the issuance of unsecured notes and a revolving credit facility that
had an extended maturity, lower interest rate and less restrictive covenants
than the former credit facility.
In the six months ended June 30, 1998 and 1997, net cash provided by operating
activities was $91.3 million and $38.0 million, respectively. The increase in
cash provided by operating activities between periods was attributable to such
factors as increased earnings and related deferred income taxes, higher
depreciation and amortization, growth in scheduled service air traffic liability
associated with advanced ticket sales, higher accrued expenses and other
factors.
Net cash used in investing activities was $67.7 million and $40.7 million,
respectively, for the six month periods ended June 30, 1998 and 1997. Such
amounts primarily included capital expenditures totaling $67.0 million and $36.7
million, respectively, for engine and airframe overhauls, airframe improvements,
hushkit installations and the purchase of rotable parts. In addition, during the
three months ended June 30, 1998, the Company spent approximately $3.7 million
towards the purchase and refurbishment of an additional Lockheed L-1011-100
aircraft, which is expected to cost a total of approximately $7.0 million by the
end of the third quarter of 1998.
Net cash used in financing activities was $15.5 million and $5.3 million,
respectively, for the six months ended June 30, 1998 and 1997. Debt repayments
in the 1998 period included $4.8 million to repay a short-term note issued in
connection with the purchase of a Boeing 727-200 aircraft in December 1997, plus
$10.6 million in other debt repayments.
Aircraft and Fleet Transactions. In November 1994, the Company signed a purchase
agreement for six new Boeing 757-200s which, as subsequently amended, now
provides for seven total aircraft to be delivered between late 1995 and late
1998. In conjunction with the Boeing purchase agreement, the Company entered
into a separate agreement with Rolls-Royce Commercial Aero Engines Limited for
15 RB211-535E4 engines to power the seven 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, a prorated amount of the credits 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 five aircraft under these
agreements in September and December 1995, November and December 1996, and
November 1997, all of which were financed under leases accounted for as
operating leases. The final two deliveries under this agreement are scheduled
for July 1998 and December 1998. Advanced payments totaling approximately $12.6
million ($6.3 million per aircraft) are required prior to delivery of the two
remaining aircraft, with the remaining purchase price payable at delivery. As of
June 30, 1998 and 1997 the Company had recorded $12.6 million and $7.5 million,
respectively, in advanced payments applicable to aircraft scheduled for future
delivery. The Company intends to finance the remaining two deliveries under this
agreement through sale/leaseback transactions accounted for as operating leases.
The Company purchased an additional Rolls-Royce-powered Boeing 757-200 aircraft
from an aircraft lessor in September 1997, financing this purchase through a
payment of cash and the issuance of a $30.7 million note which, as amended,
matures on July 15, 1999. The note requires monthly payments of $400,000 in
principal and interest from October 15, 1997, through June 15, 1999, with the
balance due at maturity.
In the fourth quarter of 1997, the Company purchased a Boeing 727-200 aircraft
which had been previously financed by the Company through a lease accounted for
as an operating lease, financing this purchase through the issuance of a
short-term note and a payment of cash. The Company currently expects to finance
this aircraft through a sale/leaseback transaction accounted for as an operating
lease in 1998.
In the second quarter of 1998, the Company paid $3.7 million toward the purchase
and refurbishment of one Lockheed L-1011-100 aircraft, which is expected to cost
a total of approximately $7.0 million before being placed into service in the
third quarter of 1998.
Issuance of Unsecured Notes. On July 24, 1997, the Company completed two
separate financings designed to lengthen the maturity of the Company's long-term
debt and diversify its credit sources. On that date, the Company (i) sold $100.0
million principal amount of unsecured seven-year notes in a private offering
under Rule 144A, and (ii) entered into a new secured revolving credit facility.
The Company subsequently completed an exchange offer to holders of the unsecured
seven-year notes in January 1998, under which offer those notes issued in the
original private offering could be tendered in exchange for fully registered
notes of equal value.
The unsecured senior notes mature on August 1, 2004. Each note bears interest at
the annual rate of 10.5%, payable on February 1 and August 1 of each year
beginning February 1, 1998. The notes rank pari passu with all unsecured,
unsubordinated indebtedness of the Company existing now or created in the
future, are effectively subordinated to the Company's obligations under secured
indebtedness to the extent of such security, and will be senior to any
subordinated indebtedness of the Company created in the future. All payments of
interest and principal are unconditionally guaranteed on an unsecured,
unsubordinated basis, jointly and severally, by each of the active subsidiaries
of the Company. The Company may redeem the notes, in whole or in part, at any
time on or after August 1, 2002, initially at 105.25% of their principal amount
plus accrued interest, declining ratably to 100.0% of their principal amount
plus accrued interest at maturity. At any time prior to August 1, 2000, the
Company may redeem up to 35.0% of the original aggregate principal amount of the
notes with the proceeds of sales of common stock, at a redemption price of
110.5% of their principal amount (plus accrued interest), provided that at least
$65.0 million in aggregate principal amount of the notes remains outstanding
after such redemption. The notes are subject to covenants for the benefit of the
note holders, including, among other things, limitations on: (i) the incurrence
of additional indebtedness; (ii) the making of certain restricted payments;
(iii) the creation of consensual restrictions on the payment of dividends and
other payments by certain subsidiaries; (iv) the issuance and sale of capital
stock by certain subsidiaries; (v) the issuance of guarantees by certain
subsidiaries; (vi) certain transactions with shareholders and affiliates; (vii)
the creation of liens on certain assets or properties; (viii) certain types of
sale/leaseback transactions; and (ix) certain sales, transfers or other
dispositions of assets.
The net proceeds of the unsecured notes were approximately $96.9 million, after
application of costs and fees of issuance. The Company used a portion of the net
proceeds to repay in full the Company's prior bank facility and will use the
balance of the proceeds for general corporate purposes, which may include the
purchase of additional aircraft and/or the refinancing of existing leased
aircraft, among other things.
Credit Facilities. Concurrently with the issuance of the unsecured notes, on
July 24, 1997, the Company entered into a new $50.0 million revolving credit
facility that includes up to $25.0 million for stand-by letters of credit. ATA
is the borrower under the new credit facility, which is guaranteed by the
Company and each of the Company's other active subsidiaries. The principal
amount of the new facility matures on April 1, 2001, and borrowings are secured
by certain Lockheed L-1011 aircraft and engines. The loan-to-value ratio for
collateral securing the new facility may not exceed 75% at any time. Borrowings
under the new facility bear interest, at the option of ATA, at either (i) LIBOR
plus 1.50% to 2.50% (depending upon certain financial ratios); or (ii) the agent
bank's prime rate plus 0.0% to 0.5% (depending upon certain financial ratios).
The facility contains various covenants including, among other things: (i)
limitations on incurrence of debt and liens on assets; (ii) limitations on
capital expenditures; (iii) restrictions on payment of dividends and other
distributions to stockholders; (iv) limitations on mergers and the sale of
assets; (v) restrictions on the prepayment or redemption of certain
indebtedness, including the 10.5% notes; and (vi) maintenance of certain
financial ratios such as minimum tangible net worth, cash-flow-to-interest
expense and aircraft rentals and total adjusted liabilities to tangible net
worth.
As of June 30, 1998, the Company had borrowed $25.0 million against its existing
credit facility, all of which was repaid on July 1, 1998. As of June 30, 1997,
the Company had borrowed $112.0 million against its existing credit facility, of
which $57.0 million was repaid on July 1, 1997.
The Company also maintains a $5.0 million revolving credit facility for its
short-term borrowing needs and for securing the issuance of letters of credit.
Borrowings against this credit facility bear interest at the lender's prime rate
plus 0.25% per annum. There were no borrowings against this facility as of June
30, 1998 and 1997; however, the Company did have outstanding letters of credit
secured by this facility aggregating $3.3 million and $3.6 million,
respectively. No amounts had been drawn against letters of credit at June 30,
1998 or 1997.
Assets Held For Sale. At June 30, 1998 the Company had classified $7.2 million
in net book value of two spare Pratt & Whitney engines as Assets Held for Sale
in the accompanying balance sheet. In July 1997, the Company sold two similar
spare Pratt & Whitney engines and, during the first quarter of 1998, also sold
related Pratt & Whitney parts and materials, neither of which sale resulted in a
material gain or loss. The net book value of the two remaining spare engines
approximates fair market value, and the Company continues to market these
engines to users of the Pratt & Whitney power plants.
Stock Repurchase Program. In February 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's common stock. Between 1994
and 1996, the Company repurchased 185,000 shares of common stock under this
program. No shares were repurchased during 1997 or the first quarter of 1998. In
the second quarter of 1998, the Company repurchased 8,506 shares for the purpose
of allowing individuals with restricted stock to pay required taxes.
Aircraft Purchase Commitments and Options. The Company has signed purchase
agreements to acquire 15 Boeing 727-200ADV aircraft at agreed prices. Thirteen
of these aircraft are currently leased by the Company. The other two aircraft,
currently on lease to another airline, may be purchased in either February,
August or October 1999, depending upon the exercise of lease extension options
available to the current lessee. The Company currently intends to install engine
hushkits on these Boeing 727-200 aircraft in order to meet federal stage three
noise regulations for its fleet by December 31, 1999.
The Company has entered into a letter of intent to acquire up to five Lockheed
L-1011-500 aircraft for delivery between late 1998 and late 1999. If the terms
of the letter of intent are satisfied, these additional wide-body aircraft may
be used in both commercial and military/government charter business units to
serve market opportunities in Asia, South America and Europe, among other
locations.
Year 2000
Until recently many computer programs were written to store only two digits of
year-related date information in order to make the storage and manipulation of
such data more efficient. Programs which use two digit date fields, however, may
not be able to distinguish between such years as 1900 and 2000. In some
circumstances this date limitation could result in system failures or
miscalculations, potentially causing disruptions of business processes or system
operations. The date field limitation is frequently referred to as the "Year
2000 Problem."
In the fourth quarter of 1997 the Company initiated a year 2000 project to
address this issue. During the first quarter of 1998 the Company inventoried its
internal computer systems, facilities infrastructure, aircraft components and
other hardware, and completed a year 2000 risk assessment for these items. Year
2000 projects have been created and prioritized, and plans in high-risk areas
are currently in the process of being completed. The Company is also
participating on the Year 2000 Committee of the Air Transport Association, an
airline industry trade association. This committee represents most major U.S.
airlines and is evaluating the year 2000 readiness of federal, state and local
governments to provide reliable operations for airports and air traffic control
systems beyond December 1999.
Renovation, testing and implementation of systems for year 2000 readiness is now
in progress and will be ongoing through the end of 1999, although all
mission-critical systems and interfaces are targeted for completion by July
1999. Renovation of systems will include several different strategies such as
the conversion, replacement, upgrade or elimination of selected hardware
platforms, applications, operating systems, databases, purchased packages,
utilities and internal and external interfaces. The Company plans to use both
internal and external consulting resources to complete these modifications.
The Company has also initiated a vendor and customer certification program,
which includes completing an inventory of all of the Company's suppliers and
major customers, ranking each vendor and customer as to its importance to the
Company, and taking appropriate action to insure that such vendors and customers
are year 2000 compliant with respect to essential business transactions with the
Company after 1999.
Based upon all data currently available to the Company, it presently estimates
that the total cost of meeting year 2000 standards, including computer and
facilities infrastructure, aircraft and airports, will range between $6.0 and
$8.0 million. Such estimated cost includes approximately $4.0 million in
expenditures to acquire new software and hardware to replace non-compliant
computer devices, as well as from $2.0 to $4.0 million in labor and related
expenses to perform all year-2000 project work to insure the readiness of
remaining computer devices for operation after 1999. The range of labor cost
estimates between $2.0 and $4.0 million is due to the different costs of
internal and external labor needed to perform this work, as well as the
potential increase in all technology labor costs due to year-2000-related skills
shortages which may occur before the end of 1999. Approximately 40% of the
aforementioned costs are related to already budgeted 1998 systems upgrade or
replacement projects which are being pursued for reasons other than year 2000
compliance; however, year 2000 compliance will be one of the by-products. It is
possible that the Company will determine that additional costs beyond those
estimated above will be required to complete all year 2000 activities as testing
and implementation proceeds through the end of 1999. The Company expects to
incur most of these costs during 1998 and 1999, with no significant portion of
these costs having been incurred in 1997.
Forward-Looking Information
Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking information which
can be identified by forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "anticipates," or the negative thereof, or other
variations in comparable terminology. Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences between expected outcomes and actual results can be material,
depending upon the circumstances. Therefore, where the Company expresses an
expectation or belief as to future results in any forward-looking information,
such expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but the Company can provide no assurance that the statement of
expectation or belief will result or will be achieved or accomplished.
The Company has identified the following important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statement made by the Company.
1. The Company's capital structure is subject to significant financial leverage,
which could impair the Company's ability to obtain new or additional financing
for working capital and capital expenditures, could increase the Company's
vulnerability to a sustained economic downturn and could restrict the Company's
ability to take advantage of new business opportunities or limit the Company's
flexibility to respond to changing business conditions.
2. Under the terms of certain financing agreements, the Company is required to
maintain compliance with certain specified covenants, restrictions, financial
ratios and other financial and operating tests. The Company's ability to comply
with any of the foregoing restrictions and with loan repayment provisions will
depend upon its future profit and loss performance and financial position, which
will be subject to prevailing economic conditions and other factors, including
some factors entirely beyond the control of the Company. A failure to comply
with any of these obligations could result in an event of default under one or
more such financing agreements, which could result in the acceleration of the
repayment of certain of the Company's debt, as well as the possible termination
of aircraft operating leases. Such an event could result in a materially adverse
effect on the Company's financial position.
3. As previously disclosed by the Company, possible business combinations with
other entities have been considered. The Company intends to continue to evaluate
such potential combinations. It is possible that the Company will enter into a
transaction in the future that would result in a merger or other change in
control of the Company. The Company's current credit facility and certain
unsecured term debt may be accelerated upon such a merger or consolidation. In
some circumstances, this acceleration could limit potential business
combinations.
4. The Company has significant net operating loss carryforwards and investment
and other tax credit carryforwards which may, depending upon the circumstances,
be available to reduce future federal income taxes payable. If the Company
undergoes an ownership change within the meaning of Section 382 of the Internal
Revenue Code, the Company's potential future utilization of its net operating
loss carryforwards and investment tax credit carryforwards could be impaired.
The actual effect of this impairment on the Company would depend upon a number
of factors, including the profitability of the Company and the timing of the
sale of certain assets, some of which factors may be beyond the control of the
Company. The impact on the Company of such a limitation could be materially
adverse under certain circumstances.
5. The vast majority of the Company's scheduled service and commercial charter
business, other than military/government charter, is leisure travel. Since
leisure travel is largely discretionary spending on the part of the Company's
customers, the Company's results of operations can be adversely affected by
economic conditions which reduce discretionary purchases.
6. The Company is subject to the risk that one or more customers who have
contracted with the Company will cancel or default on such contracts and that
the Company might be unable in such circumstances to obtain other business to
replace the resulting loss in revenues. The Company's largest single customer is
the U.S. military, which accounted for approximately 15.1% and 21.8%,
respectively, of consolidated revenues in the second quarters of 1998 and 1997,
and 14.8% and 18.8%, respectively, of consolidated revenues for the six-month
periods ended June 30, 1998 and 1997. No other single customer of the Company
accounts for more than 10% of operating revenues.
7. More than two-thirds of the Company's operating revenues are sold by travel
agents and tour operators who generally have a choice of airlines when booking a
customer's travel. Although the Company intends to offer attractive and
competitive products to travel agents and tour operators and further intends to
maintain favorable relationships with them, any significant actions by large
numbers of travel agencies or tour operators to favor other airlines, or to
disfavor the Company, could have a material adverse effect on the Company.
8. The Company's airline businesses are significantly affected by seasonal
factors. Historically, the Company has experienced reduced demand for leisure
travel during the second and fourth quarters of each year, although during the
second quarter of 1998 the Company experienced unusually strong demand as
compared to any prior second quarter in the Company's history. The Company's
results of operations for any single quarter are not necessarily indicative of
the Company's annual results of operations.
9. The airline industry as a whole, and scheduled service in particular, is
characterized by high fixed costs of operation. The high fixed cost of operating
a scheduled service flight does not vary significantly with the number of
passengers carried, and therefore the revenue impact of a small increase or
decrease in average scheduled service passenger load factor could, in the
aggregate, have a significant effect on the profitability of those flights.
Accordingly, a relatively minor shortfall in scheduled service load factor and
associated revenue could have a material adverse effect on the Company.
10. The Company faces intense competition from other airlines in many of its
scheduled service markets, including other low-fare airlines. The future actions
of existing and potential competitors in all of the Company's scheduled service
markets, including changes in prices and seat capacity offered, could have a
material effect on the profit performance of this business unit.
11. Jet fuel comprises a significant percentage of the total operating expenses
of the Company, accounting for 16.5% and 19.0%, respectively, of operating
expenses in the second quarters of 1998 and 1997, and 17.2% and 20.4%,
respectively, of operating expenses in the six-month periods ended June 30, 1998
and 1997. Fuel prices are subject to factors which are beyond the control of the
Company, such as market supply and demand conditions, and political or economic
factors. Although the Company is able to contractually pass through some fuel
price increases to the U.S. military and tour operators, and although the
Company has engaged in some fuel price hedging activity in the first six months
of 1998, a significant increase in fuel prices could have a material adverse
effect on the demand for the Company's services at profitable prices.
12. In June 1991, the Company's flight attendants elected the Association of
Flight Attendants as their representative and ratified a four-year collective
bargaining agreement in December 1994. In June 1993, the Company's cockpit crews
elected the International Brotherhood of Teamsters as their representative and
ratified a four-year collective bargaining agreement in September 1996. The
Company believes that its relations with employee groups are good. However, the
existence of a significant labor dispute with any sizable group of employees
could have a material adverse effect on the Company's operations.
13. The Company is subject to regulation under the jurisdictions of the DOT and
the FAA and by certain other governmental agencies, such as the Federal
Communications Commission, the Commerce Department, the Customs Service, the
Immigration and Naturalization Service, the Animal and Plant Inspection Service
of the Department of Agriculture, and the Environmental Protection Agency. These
agencies propose and issue regulations from time to time which can significantly
increase the cost of airline operations. For example, the FAA in recent years
has issued a number of aircraft maintenance directives and other regulations
requiring action by the Company on such matters as collision avoidance systems,
airborne wind shear avoidance systems, noise abatement, airworthiness of aging
aircraft and increased inspection requirements. Other laws and regulations have
been considered from time to time that would prohibit or restrict the ownership
and/or transfer of airline routes and takeoff or landing slots at certain
airports. The Company cannot predict the nature of future changes in laws or
regulations to which it may become subject, and such laws and regulations could
have a material adverse effect on the financial condition of the Company.
14. In 1981, the Company was granted a Certificate of Public Convenience and
Necessity by the DOT pursuant to Section 401 of the Federal Aviation Act
authorizing it to engage in air transportation. The FAA further requires the
Company to obtain an operating certificate and operations specifications
authorizing the Company to fly to specific airports using specific equipment.
All of the Company's aircraft must also maintain certificates of airworthiness
issued by the FAA. The Company holds an FAA air operating certificate under Part
121 of the Federal Aviation Regulations. The Company believes that it is in
compliance with all requirements necessary to maintain in good standing its
operating authority granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of any of the
Company's DOT or FAA authorizations or certificates could have a material
adverse effect on the Company.
15. Under current DOT regulations with respect to charter transportation
originating in the United States, all charter airline tickets must generally be
paid for in cash, and all funds received from the sale of charter seats (and in
some cases ground arrangements) must be placed into escrow by the tour operator
or be protected by a surety bond meeting prescribed standards. The Company
currently provides an unlimited third-party bond in order to meet these
regulations. The issuer of the bond has the right to terminate the bond on 30
days' notice. If this bond were to be materially limited or canceled, the
Company would be required to escrow funds to comply with DOT regulations, which
could materially reduce the Company's liquidity and require it to fund higher
levels of working capital.
16. The Company is currently preparing its software systems and hardware
components for operational compliance with year 2000 standards. The Company
believes, based upon its assessment of year 2000 readiness, that it has
developed a year 2000 project plan which, if successfully completed, will
mitigate all significant risks of business and operational disruption arising
from non-compliant computer components. Successful completion of this plan is
dependent upon the availability to the Company of a wide range of technical
skills from both internal and external sources, and is also dependent upon the
availability of purchased software and hardware components. The Company cannot
be assured that such resources and components can be acquired in the quantities
needed, or by the times needed, to successfully complete the year 2000 project
plan, in which case it is possible that the Company could suffer serious
disruptions to business processes and operations as a consequence of system
failures attributable to the year 2000 problem. Such disruptions could impair
the Company's ability to operate its flight schedule and could impose
significant economic penalties on the Company by increasing the cost of
operations through the temporary loss of efficiencies provided by computer
software and hardware.
In addition, the Company cannot be assured that domestic and foreign air
transportation infrastructure, such as airports and air traffic control systems,
will be fully compliant with year 2000 requirements by the end of 1999. A
significant lack of readiness of the air transportation infrastructure to meet
year 2000 standards could result in a material adverse effect on the Company's
results of operations and financial condition by imposing serious limitations on
the Company's ability to operate its flight schedule.
17. The Company is subject to potential financial losses which may be incurred
in the event of an aircraft accident, including the repair or replacement of a
damaged aircraft and its subsequent loss from service, and the potential claims
of injured passengers and others. Under DOT regulations, the Company maintains
liability insurance on all aircraft. Although the Company currently believes
that its insurance coverage is adequate, there can be no assurance that the
amount of such coverage will be sufficient or that the Company will not be
required to bear substantial financial losses from an accident. Substantial
claims from such an accident could result in a material adverse change in the
Company's financial position and could seriously inhibit customer acceptance of
the Company's services.
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
On May 12, 1998, the Company held its Annual Meeting of Shareholders, during
which the following matters were submitted to a vote of shareholders.
(1) The following individuals were elected as Directors of the Company.
Director Name Votes For Votes Withheld
J. George Mikelsons 10,827,833 568,579
John P. Tague 10,824,845 571,567
Kenneth K. Wolff 10,826,806 569,606
James W. Hlavacek 10,824,748 571,664
William P. Rogers, Jr. 10,826,558 569,854
Robert A. Abel 10,826,300 570,112
Andrejs P. Stipnieks 10,827,558 568,854
Dalen D. Thomas 10,824,897 571,515
(2) The accounting firm of Ernst & Young LLP was retained as independent
auditors of the Company for the 1998 fiscal year; 11,391,036 votes were cast
for; 3,322 votes were cast against; and 2,054 votes were withheld.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports of Form 8-K
(a) None.
(b) On June 18, 1998, the Company filed a Form 8-K which contained two exhibits.
Exhibit 99(a) included the Company's regular monthly press release for May 1998
traffic, dated June 10, 1998; and Exhibit 99(b) included a press release by the
Company dated June 17, 1998 discussing the Company's anticipated second quarter
earnings.
<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 July 27, 1998 John P. Tague
President and Chief Executive Officer
Director
Date July 27, 1998 James W. Hlavacek
Executive Vice President, Chief Operating Officer
and President of ATA Training Corporation
Director
Date July 27, 1998 Kenneth K. Wolff
Executive Vice President and Chief Financial Officer
Director
Date July 27, 1998 Dalen D. Thomas
Senior Vice President, Sales, Marketing
and Strategic Planning
Director
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