United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 1999
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 require-
ments 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 - 12,122,749 shares outstanding as of
April 30, 1999
<PAGE>
<TABLE>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31, December 31,
<S> <C> <C>
1999 1998
------------------ --------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 124,759 $ 172,936
Receivables, net of allowance for doubtful accounts
(1999 - $1,416; 1998 - $1,163) 30,737 24,921
Inventories, net 23,885 19,567
Prepaid expenses and other current assets 33,218 25,604
------------------ -----------------
Total current assets 212,599 243,028
Property and equipment:
Flight equipment 644,825 557,302
Facilities and ground equipment 76,750 68,848
------------------ -----------------
721,575 626,150
Accumulated depreciation (314,234) (296,818)
------------------ -----------------
407,341 329,332
Assets held for sale 7,176 7,176
Goodwill 11,826 -
Deposits and other assets 19,246 15,013
------------------ -----------------
Total assets $ 658,188 $ 594,549
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,476 $ 1,476
Accounts payable 12,090 7,158
Air traffic liabilities 104,200 76,662
Accrued expenses 106,698 98,548
------------------ -----------------
Total current liabilities 224,464 183,844
Long-term debt, less current maturities 245,076 245,195
Deferred income taxes 58,540 52,620
Other deferred items 10,374 10,139
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 12,424,285 - 1999; 12,374,577 - 1998 48,462 47,632
Additional paid-in-capital 11,363 11,735
Deferred compensation - ESOP (1,066) (1,066)
Treasury stock; 194,052 shares - 1999; 193,506 shares - 1998 (1,896) (1,881)
Retained earnings 62,871 46,331
------------------ -----------------
119,734 102,751
------------------ -----------------
Total liabilities and shareholders' equity $ 658,188 $ 594,549
================== =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended March 31,
<S> <C> <C>
1999 1998
------------------------------------
(Unaudited) (Unaudited)
Operating revenues:
Scheduled service $ 144,269 $ 117,889
Charter 107,340 94,322
Ground package 15,558 6,437
Other 10,742 10,657
----------------- ----------------
Total operating revenues 277,909 229,305
----------------- ----------------
Operating expenses:
Salaries, wages and benefits 60,799 49,746
Fuel and oil 35,578 36,778
Handling, landing and navigation fees 22,399 17,505
Depreciation and amortization 21,658 18,158
Aircraft rentals 15,244 12,926
Aircraft maintenance, materials and repairs 13,741 12,815
Ground package cost 13,222 5,547
Crew and other employee travel 12,131 9,391
Commissions 9,670 7,213
Passenger service 9,572 8,203
Other selling expenses 6,195 5,607
Advertising 5,607 4,214
Facilities and other rentals 3,155 2,371
Other 19,979 15,422
----------------- ----------------
Total operating expenses 248,950 205,896
----------------- ----------------
Operating income 28,959 23,409
Other income (expense):
Interest income 1,763 1,042
Interest (expense) (5,074) (3,254)
Other 1,795 74
----------------- ----------------
Other expense (1,516) (2,138)
----------------- ----------------
Income before income taxes 27,443 21,271
Income tax expense 10,903 8,872
----------------- ----------------
Net income $ 16,540 $ 12,399
================= ================
Basic earnings per common share:
Average shares outstanding 12,183,785 11,565,419
Net income per share $ 1.36 $ 1.07
================= ================
Diluted earnings per common share:
Average shares outstanding 13,554,858 12,103,580
Net income per share $ 1.22 $ 1.02
================= ================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
<S> <C> <C>
1999 1998
-----------------------------------------
(Unaudited) (Unaudited)
Operating activities:
Net income $ 16,540 $ 12,399
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 21,658 18,158
Deferred income taxes 5,919 5,773
Other non-cash items (222) (165)
Changes in operating assets and liabilities:
Receivables (5,816) (374)
Inventories (4,740) 559
Prepaid expenses (7,614) 1,023
Accounts payable 4,932 (2,379)
Air traffic liabilities 27,538 10,879
Accrued expenses 10,275 (2,005)
----------------- ------------------
Net cash provided by operating activities 68,470 43,868
----------------- ------------------
Investing activities:
Proceeds from sales of property and equipment 51 1,030
Capital expenditures (100,564) (26,862)
Acquisition of businesses (10,472) -
Additions to other assets (5,959) (3,765)
----------------- ------------------
Net cash used in investing activities (116,944) (29,597)
----------------- ------------------
Financing activities:
Payments on short-term debt - (4,750)
Payments on long-term debt (144) (4,820)
Proceeds from exercise of stock options 456 -
Purchase of treasury stock (15) -
----------------- ------------------
Net cash provided by (used in) financing activities 297 (9,570)
----------------- ------------------
Increase (decrease) in cash and cash equivalents (48,177) 4,701
Cash and cash equivalents, beginning of period 172,936 104,196
----------------- ------------------
Cash and cash equivalents, end of period $ 124,759 $ 108,897
================= ==================
Supplemental disclosures:
Cash payments for:
Interest $ 5,610 $ 6,210
Income taxes (refunds) (2,310) (1,766)
See accompanying notes.
</TABLE>
<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 March 31,
1999 and 1998 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments, except for the changes
in accounting estimates described in footnote 3) necessary to present
fairly the financial position, results of operations and cash flows for
such periods. Results for the three months ended March 31, 1999, are not
necessarily indicative of results to be expected for the full fiscal year
ending December 31, 1999. 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, 1998.
2. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---------------------------------------
Numerator:
<S> <C> <C>
Net income $16,540,000 $12,399,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,183,785 11,565,419
Effect of dilutive securities:
Employee stock options 1,371,073 536,661
Restricted shares - 1,500
---------------- ----------------
Dilutive potential common shares 1,371,073 538,161
---------------- ----------------
Denominator for diluted earnings per
share - adjusted weighted average shares 13,554,858 12,103,580
================ ================
Basic earnings per share $ $
1.36 1.07
================ ================
Diluted earnings per share $ $
1.22 1.02
================ ================
</TABLE>
3. Change in Accounting Estimates
As is more fully described in footnote 13 from the Company's Annual
Report on Form 10K, due to the addition of five long-range Lockheed
L-1011-500 aircraft to its existing fleet of 13 Lockheed series 50 and
100 aircraft, in July 1998 the Company implemented a change in accounting
estimate. The estimated useful lives of the series 50 and series 100
aircraft were extended to the end of 2004, and related salvage values
were reduced as of this new common retirement date. This change in
accounting estimate resulted in a reduction of depreciation expense of
$896,000 in the first quarter of 1999, and resulted in an increase of
$540,000 in net income in the same period. Basic and fully diluted
earnings per share for the quarter ended March 31, 1999 were increased by
$0.04.
In the first quarter of 1999, the Company purchased eight Boeing 727-200
aircraft which had previously been financed through leases accounted for
as operating leases. As of the first quarter of 1999, the Company had
also completed the re-negotiation of certain contract terms on its
remaining 15 leased Boeing 727-200 aircraft which generally provided for
the purchase of these aircraft at the end of their initial lease terms,
extending from 1999 to 2003. The Company will complete the installation
of hushkits on its entire fleet of 24 Boeing 727-200 aircraft by the end
of 1999, which is necessary to comply with federal Stage III noise
regulations, and which will permit the Company to operate these aircraft
for their full economic lives, extending through approximately 2010.
In the first quarter of 1999, the Company implemented a change in
accounting estimate to extend the estimated lives of capitalized Boeing
727-200 airframes, engines, leasehold improvements and rotable parts from
the end of the initial lease terms of the related aircraft to
approximately 2010. This change in accounting estimate resulted in a
reduction of depreciation expense of $887,000 in the first quarter of
1999, and resulted in an increase of $535,000 in net income in the same
period. Basic and fully diluted earnings per share for the quarter ended
March 31, 1999 were increased by $0.04.
4. Acquisition of Businesses
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"). This Detroit-based independent
tour operator's primary package offerings are destinations in Mexico and
the Caribbean, including Aruba, Cancun and Puerto Vallarta. ATA has been
providing passenger airline services to TCI for over 14 years. TCI had
sales in 1998 of over $53.0 million. In the first quarter of 1999, TCI's
results for February and March were consolidated into the Company, which
generated additional operating revenue of approximately $14.8 million and
operating expense of approximately $13.6 million for the Company.
On January 26, 1999, the Company acquired all of the issued and
outstanding stock of T. G. Shown Associates, Inc., which owned 50% of the
partnership, Amber Air Freight. The Company had already owned the other
50% of this air cargo operation. The partnership earned before-tax income
for the first quarter of 1999 of approximately $1.2 million, of which
approximately $534,000 was incremental to the Company as a result of the
acquisition.
<PAGE>
PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Amtran, Inc. (the "Company") 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 26 years and is the eleventh largest U.S.
airline in terms of 1998 revenues. ATA provides scheduled service through
nonstop and connecting flights from the gateways of Chicago-Midway and
Indianapolis 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's LaGuardia and John F. Kennedy airports. ATA also
provides charter service throughout the world to independent tour operators,
specialty charter customers and the U.S. military.
In the first quarter of 1999 the Company generated record operating earnings and
net income as compared to any quarter in the Company's 26-year history. Although
all business units performed well during this period, scheduled service
continued to generate the strongest overall growth in pricing and traffic of the
Company's major business units. Scheduled service revenue per available seat
mile ("RASM") increased 6.0% in the first quarter of 1999, as compared to the
first quarter of 1998, while scheduled service available seat miles ("ASMs")
increased 15.5% between quarters, and load factor increased to 76.4% in the 1999
first quarter, as compared to 74.9% in the same period of 1998.
Results of Operations
For the quarter ended March 31, 1999, the Company earned $29.0 million in
operating income, an increase of 23.9% as compared to operating income of $23.4
million in the comparable period of 1998; and the Company earned $16.5 million
in net income in the first quarter of 1999, an increase of 33.1% as compared to
net income of $12.4 million in the first quarter of 1998.
Operating revenues increased 21.2% to $277.9 million in the first quarter of
1999, as compared to $229.3 million in the same period of 1998. Consolidated
RASM increased 9.4% to 7.46 cents in the 1999 first quarter, as compared to 6.82
cents in the first quarter of 1998.
Operating expenses increased 20.9% to $249.0 million in the first quarter of
1999, as compared to $205.9 million in the comparable period of 1998.
Consolidated operating cost per ASM ("CASM") increased 9.3% to 6.69 cents in the
first quarter of 1999, as compared to 6.12 cents in the first quarter of 1998.
Much of the change in RASM and CASM between periods was a result of the
additional revenues and expenses attributed to acquired businesses for which no
additional ASMs were generated. See further explanation under "Results of
Operations in Cents per ASM".
<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
Quarter Ended March 31,
------------------------------------
<S> <C> <C>
1999 1998
---- ----
Operating revenues: 7.46 6.82
Operating expenses:
Salaries, wages and benefits 1.63 1.48
Fuel and oil 0.96 1.09
Handling, landing and navigation fees 0.60 0.52
Depreciation and amortization 0.58 0.54
Aircraft rentals 0.41 0.38
Aircraft maintenance, materials and repairs 0.37 0.38
Ground package cost 0.35 0.17
Crew and other employee travel 0.33 0.28
Commissions 0.26 0.21
Passenger service 0.26 0.24
Other selling expenses 0.17 0.17
Advertising 0.15 0.13
Facilities and other rentals 0.08 0.07
Other operating expenses 0.54 0.46
---- ----
Total operating expenses 6.69 6.12
---- ----
Operating income 0.77 0.70
==== ====
ASMs (in thousands) 3,723,035 3,363,030
- ----------------------------------------------------------------------------------------------
</TABLE>
The Company's consolidated measures of RASM and CASM in 1999 are impacted by the
addition of TCI, because significant operating revenue and expense is added to
consolidated results, with no increase in ASMs. The following comparison
reflects actual consolidated RASM and CASM, adjusted to exclude TCI operating
revenue and expense:
<TABLE>
<CAPTION>
Consolidated Excluding
Actual TCI Inc(Dec) % Inc(Dec)
<S> <C> <C> <C> <C>
Operating revenue (in millions) $277.9 $263.1
RASM (in cents) 7.46 7.07 (.39) (5.2%)
Operating expense (in millions) $249.0 $235.4
CASM (in cents) 6.69 6.32 (.37) (5.5%)
</TABLE>
This financial information is presented for informational purposes only and is
not necessarily indicative of the operating results that would have occurred had
the acquisition of TCI not been consummated, nor are they necessarily indicative
of future operating results. Further, the information pertaining to TCI is based
upon unaudited internal financial information.
<PAGE>
Quarter Ended March 31, 1999, Versus Quarter Ended March 31, 1998
Consolidated Flight Operations and Financial Data
The following table sets 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 Airlines, Inc. ("Chicago Express") as the ATA Connection.
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Three Months Ended March 31,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 12,506 11,178 1,328 11.88
Departures J31(a) 4,080 3,714 366 9.85
--------------- --------------- ---------------- ---------------
Total Departures (b) 16,586 14,892 1,694 11.38
--------------- --------------- ---------------- ---------------
Block Hours Jet 39,002 35,606 3,396 9.54
Block Hours J31 4,166 3,550 616 17.35
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 43,168 39,156 4,012 10.25
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 2,679,029 2,388,383 290,646 12.17
RPMs J31 (000s) 8,001 6,112 1,889 30.91
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 2,687,030 2,394,495 292,535 12.22
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 3,710,088 3,351,090 358,998 10.71
ASMs J31 (000s) 12,947 11,940 1,007 8.43
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 3,723,035 3,363,030 360,005 10.70
--------------- --------------- ---------------- ---------------
Load Factor Jet 72.21 71.27 0.94 1.32
Load Factor J31 61.80 51.19 10.61 20.73
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 72.17 71.20 0.97 1.36
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,759,104 1,526,649 232,455 15.23
Passengers Enplaned J31 46,333 34,330 12,003 34.96
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 1,805,437 1,560,979 244,458 15.66
--------------- --------------- ---------------- ---------------
Revenue (000s) $277,909 $229,305 $48,604 21.20
RASM in cents (h) 7.46 6.82 0.64 9.38
CASM in cents (i) 6.69 6.12 0.57 9.31
Yield in cents (j) 10.34 9.58 0.76 7.93
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (f) through (j) on page 11.
(a) The Company provides service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison,
under a code sharing agreement with Chicago Express. Services were provided by
Chicago Express 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.
<PAGE>
Operating Revenues
Scheduled Service Revenues. The following table sets 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 on the Company's behalf by Chicago
Express as the ATA Connection.
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------------------------------
Three Months Ended March 31,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
Departures Jet 8,413 7,095 1,318 18.58
Departures J31(a) 4,080 3,714 366 9.85
--------------- --------------- ---------------- ---------------
Total Departures (b) 12,493 10,809 1,684 15.58
--------------- --------------- ---------------- ---------------
Block Hours Jet 24,266 21,085 3,181 15.09
Block Hours J31 4,166 3,550 616 17.35
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 28,432 24,635 3,797 15.41
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 1,520,152 1,290,761 229,391 17.77
RPMs J31 (000s) 8,001 6,112 1,889 30.91
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 1,528,153 1,296,873 231,280 17.83
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 1,986,298 1,719,042 267,256 15.55
ASMs J31 (000s) 12,947 11,940 1,007 8.43
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 1,999,245 1,730,982 268,263 15.50
--------------- --------------- ---------------- ---------------
Load Factor Jet 76.53 75.09 1.44 1.92
Load Factor J31 61.80 51.19 10.61 20.73
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 76.44 74.92 1.52 2.03
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,135,654 939,785 195,869 20.84
Passengers Enplaned J31 46,333 34,330 12,003 34.96
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 1,181,987 974,115 207,872 21.34
--------------- --------------- ---------------- ---------------
Revenues (000s) $144,269 $117,889 $26,380 22.38
RASM in cents (h) 7.22 6.81 0.41 6.02
Yield in cents (j) 9.44 9.09 0.35 3.85
Rev per segment (k) $ 122.06 $ 121.02 $ 1.04 0.86
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (a) through (j) on pages 10 and 11.
(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 first quarter of 1999 increased 22.4% to
$144.3 million from $117.9 million in the first quarter of 1998. Scheduled
service revenues comprised 51.9% of consolidated revenues in the 1999 first
quarter, as compared to 51.4% of consolidated revenues in the same period of
1998.
The Company's first quarter 1999 scheduled service at Chicago-Midway accounted
for approximately 58.0% of scheduled service ASMs and 76.4% of scheduled service
departures, as compared to 46.8% and 66.5%, respectively, in the first quarter
of 1998. In the summer of 1998, the Company began nonstop flights to Dallas-Ft.
Worth, Denver, New York's LaGuardia Airport, and San Juan, none of which
services were provided during the first quarter of 1998. In addition to these
new services, the Company served the following existing jet markets in both
quarters: Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New York's John F.
Kennedy Airport, Orlando, Phoenix, St. Petersburg, San Francisco and Sarasota.
The Company also 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. In February 1999, the Company entered into an
agreement in principle to acquire Chicago Express Airlines, Inc.
The Company anticipates that its Chicago-Midway operation will represent a focus
of growing significance for its scheduled service business in 1999 and beyond.
The Company operated 57 daily jet and commuter departures from Chicago-Midway
and served 21 destinations on a nonstop basis in the summer of 1998, as compared
to 15 nonstop destinations served in the summer of 1997. In 1998, the Company
completed a $1.3 million renovation of the existing terminal facilities at
Chicago-Midway to enhance their attractiveness and convenience for the Company's
customers. The Company also presently expects to occupy 13 jet gates and six
commuter aircraft gates at the new Chicago-Midway terminal which is presently
scheduled for completion in 2002, as compared to the six jet gates currently
occupied in the existing terminal.
The Company's Indianapolis service accounted for 16.9% of scheduled service ASMs
and 12.3% of scheduled service departures in the first quarter of 1999, as
compared to 20.9% and 16.7%, respectively, in the first quarter of 1998. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and Sarasota. The
Company has served Indianapolis for 26 years through the Ambassadair Travel Club
and in scheduled service since 1986.
The Company's Hawaii service accounted for 15.9% of scheduled service ASMs and
4.0% of scheduled service departures in the first quarter of 1999, as compared
to 18.8% and 4.8%, respectively, in the first quarter of 1998. The Company
provided nonstop services in both periods from Los Angeles, Phoenix and San
Francisco to both Honolulu and Maui, with connecting service between Honolulu
and Maui. The Company provides these services through a marketing alliance with
the largest independent tour operator serving leisure travelers to Hawaii from
the United States. 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.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its service from time to time. The Company
announced new service beginning in the second quarter of 1999 between
Chicago-Midway and Philadelphia, from New York to San Juan, and from Ft.
Lauderdale to San Juan.
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 revenues accounted for 26.4% of consolidated revenues
in the first quarter of 1999, as compared to 26.7% in the first quarter of 1998.
During the last several years, the Company has deployed some Boeing 727-200 and
Boeing 757-200 aircraft into its rapidly growing scheduled service markets,
reducing the availability of aircraft capacity for commercial and
military/government charter flying. The Company is addressing its seat capacity
limitations in the commercial and military/government charter business units
through the acquisition of long-range Lockheed L-1011 series 500 aircraft. In
July 1998, the Company committed to the purchase of five such aircraft for
delivery between the third quarter of 1998 and the second quarter of 1999.
Although Lockheed L-1011 series 500 maintenance procedures and cockpit design
are similar 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. The
Company placed two of these aircraft into revenue service in January and May
1999, and expects to place the three remaining aircraft into service in the last
two quarters of 1999 and the first quarter of 2000. The deployment of these five
aircraft into the Company's fleet will significantly increase the available seat
capacity for these charter business units beginning in the year 2000, in
addition to opening new long-range market opportunities to the Company which it
cannot serve with its existing fleet. These new aircraft will also supply much
of the additional seat capacity which the Company anticipates needing to operate
its expanded military/government business for the contract year ending September
30, 2000.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
<TABLE>
<CAPTION>
- ----------------------------------- ----------------------------------------------------------------
Three Months Ended March 31,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
Departures (b) 2,888 2,655 233 8.78
Block Hours (c) 10,133 9,073 1,060 11.68
RPMs (000s) (d) 918,286 827,715 90,571 10.94
ASMs (000s) (e) 1,117,331 1,030,760 86,571 8.40
Passengers Enplaned (g) 562,588 508,833 53,755 10.56
Revenue (000s) $73,334 $61,304 $12,030 19.62
RASM in cents (h) 6.56 5.95 0.61 10.25
- ----------------------------------- --------------- ---------------- --------------- ---------------
</TABLE>
See footnotes (b) through (h) on pages 10 and 11.
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. Track charter accounted for approximately
$54.9 million in revenues in the first quarter of 1999, as compared to $51.3
million in the first quarter of 1998.
Specialty charter (including incentive travel programs) 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 more than compensates for these increased costs.
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. Specialty charter accounted
for approximately $8.5 million in revenues in the first quarter of 1999, as
compared to $7.0 million in the first quarter of 1998.
MilitarylGovernment Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------------------------------------------
Three Months Ended March 31,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 1,181 1,219 (38) (3.12)
Block Hours (c) 4,530 4,563 (33) (0.72)
RPMs (000s) (d) 235,404 232,361 3,043 1.31
ASMs (000s) (e) 598,754 515,655 83,099 16.12
Passengers Enplaned (g) 58,324 58,637 (313) (0.53)
Revenue (000s) $34,006 $33,018 $988 2.99
RASM in cents (h) 5.68 6.40 (0.72) (11.25)
- -------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
See footnotes (b) through (h) on pages 10 and 11.
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, the Company has participated in a contractor teaming
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 are generally 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 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 April 1999, the Company announced that it had joined a new teaming
arrangement with several major passenger and cargo airlines. Under this new
teaming arrangement, the Company expects its military/government charter
revenues to increase to approximately $200.0 million for the contract year
beginning October 1999. This represents more than a 60% increase over the
Company's fiscal year 1998 military/government charter revenues of $121.9
million.
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 has traditionally marketed
these ground packages to its Ambassadair club members and through its ATA
Vacations subsidiary to its scheduled service passengers. In the first quarter
of 1999, ground package revenues increased 143.8% to $15.6 million, as compared
to $6.4 million in the first quarter of 1998.
Effective January 31, 1999, the Company completed the first of several expected
acquisitions of tour operators with the purchase of TCI in Detroit, Michigan
(see footnote 4). TCI provides tour packages, including ground arrangements,
primarily to Mexican, Caribbean and Central American destinations during the
winter season, and to Europe in the summer. The Company has had a relationship
with TCI as a major provider of passenger airline services for over 14 years.
Approximately $8.0 million of the increase in ground package revenues in the
first quarter of 1999 was attributable to the ground package revenues of TCI in
February and March, none of which revenues were included in the Company's
results of operations in the first quarter of 1998.
In April 1999, the Company completed the purchase of Key Tours, Inc, also a tour
operator in the Detroit area. This second acquisition is expected to further
increase future revenues derived from ground package sales, and is consistent
with the Company's strategy to vertically-integrate and grow its tour operator
businesses through acquisitions of tour operators in selected markets.
The Company's Ambassadair Travel Club offers hundreds of tour-guide-accompanied
vacation packages to its approximately 38,000 individual and family members
annually. ATA Vacations offers numerous ground accommodations to the general
public for use with the Company's scheduled service flights in many areas of the
United States. These packages are marketed through travel agents, as well as
directly by the Company
The number of ground packages sold and the average revenue earned by the Company
for a ground package sale are a function of the seasonal mix of vacation
destinations served, the quality and types of ground accommodations offered and
general competitive conditions 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 were unchanged at $10.7 million in the first quarters of 1999 and 1998.
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 local, state and federal taxes.
Salaries, wages and benefits expense in the first quarter of 1999 increased
22.3% to $60.8 million from $49.7 million in the first quarter of 1998.
The Company increased its average equivalent employees by approximately 14.1%
between the first quarters of 1999 and 1998 in order to appropriately staff the
10.7% growth in ASMs flown 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 quarter of 1999 was also provided to improve
customer service in targeted areas by increasing customer service staff, such as
at airport ticket counters, in reservations facilities, and in other staff
groups primarily involved in delivering services to the Company's customers.
The average rate of pay earned by the Company's employees (including all
categories of salaries, wages and benefits) increased by approximately 7.1%
between the first quarters of 1999 and 1998. In addition to the Company's annual
merit pay increases granted to employee groups between periods, the Company
granted several special pay increases to airport customer service agents and
reservations agents to maintain these pay scales at competitive market rates.
Approximately 1.7% of the dollar increase resulted from escalating costs of
health care benefits.
Fuel and Oil. Fuel and oil expense decreased 3.3% to $35.6 million in the first
quarter of 1999, as compared to $36.8 million in the same period of 1998. This
decrease occurred despite the Company consuming 12.4% more gallons of jet fuel
for flying operations between years, which resulted in an increase in fuel
expense of approximately $4.8 million. Jet fuel consumption increased primarily
due to the increased number of block hours of jet flying operations between
periods. The Company flew 39,002 jet block hours in the first quarter of 1999,
as compared to 35,606 jet block hours in the first quarter of 1998, an increase
of 9.5% between periods.
Fuel consumption growth between the first quarters of 1999 and 1998 was greater
than total block hour growth, since block hour growth in the first quarter of
1999 was in the wide-body Lockheed L-1011 fleet, which consumes approximately
twice the gallons of jet fuel per block hour as compared to the narrow-body
Boeing 727-200 and Boeing 757-200 aircraft.
During the first quarter of 1999, the Company's average cost per gallon of jet
fuel consumed decreased by 17.2% as compared to the first quarter of 1998,
resulting in a decrease in fuel and oil expense of approximately $6.9 million
between periods.
During the first quarters of 1999 and 1998, the Company entered into several
fuel price hedge contracts under which the Company sought to reduce the risk of
fuel price increases. The Company recorded approximately $0.7 million more in
fuel and oil expense under its first quarter 1999 hedge contracts than under its
first quarter 1998 hedge contracts, which added slightly more than one cent to
its average cost per gallon between quarters.
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, cargo 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 incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 28.0% to $22.4 million in the
first quarter of 1999, as compared to $17.5 million in the first quarter of
1998. The total number of system-wide jet departures between the first quarters
of 1999 and 1998 increased by 11.9% to 12,506 from 11,178, resulting in
approximately $3.0 million in volume-related handling and landing expense
increases between periods.
The Company also incurred approximately $0.9 million in higher deicing costs in
the first quarter of 1999 as compared to the same period of 1998, attributable
to more severe winter weather periods in 1999 than occurred in 1998.
Due to the acquisition of T.G. Shown Associates, Inc. in January 1999 (see
footnote 4), the Company also recorded approximately $0.4 million more in cargo
handling costs in the 1999 quarter as compared to the same period of 1998.
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 19.2% to
$21.7 million in the first quarter of 1999, as compared to $18.2 million in the
first quarter of 1998.
Depreciation expense attributable to owned airframes and leasehold improvements
increased $1.2 million in the first quarter of 1999, as compared to the same
period of 1998. The Company owned nine Boeing 727-200 aircraft in the first
quarter of 1999 which were financed through operating leases in the first
quarter of 1998, thereby increasing depreciation expense on airframes between
periods. (The Company recorded a reduction in aircraft rental expense between
periods for the termination of operating leases for these aircraft, which is
further described below under "Aircraft Rentals.") The Company also 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 $1.0 million in the first quarter of 1999, as compared
to the first quarter of 1998.
Amortization of capitalized engine and airframe overhauls increased $3.5 million
in the first quarter of 1999, as compared to the same period of 1998, after
including amortization of related manufacturers' credits. Changes to the cost of
overhaul amortization were partly due to the increase in total block hours and
cycles flown between comparable quarters 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, seven of which were
delivered new from the manufacturer between late 1995 and late 1998, 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.
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 decreased $0.4 million in
the first quarter of 1999, as compared to the first quarter of 1998. When these
early engine failures can be economically repaired, the related repairs are
charged to aircraft maintenance, materials and repairs expense.
As is more fully explained in footnote 3, certain changes in accounting
estimates for depreciation have been made by the Company. Effective July 1,
1998, the Company extended the estimated useful life of the 13 owned Lockheed
L-1011 series 50 and series 100 aircraft to a common retirement date of December
2004, and also reduced the estimated salvage value of the related airframes,
engines and rotables. The effect of this change in estimate was to reduce
depreciation expense in the first quarter of 1999 by $0.9 million, as compared
to the first quarter of 1998. In addition, effective January 1, 1999 the Company
extended the estimated useful life of nine owned Boeing 727-200 airframes,
engines and improvements, all leasehold improvements associated with its 15
leased Boeing 727-200 aircraft, and all rotable parts used by the Boeing 727-200
fleet, and reduced the associated estimated salvage values. The effect of this
change in estimate was to reduce depreciation expense in the first quarter of
1999 by $0.9 million, as compared to the same quarter of 1998.
Aircraft Rentals. Aircraft rentals expense for the first quarter of 1999
increased 17.8% to $15.2 million from $12.9 million in the first quarter of
1998. The Company financed three additional Boeing 757-200 aircraft in the first
quarter of 1999 as compared to the same quarter of 1998, adding $3.1 million in
aircraft rentals expense as compared to the prior year.
The Company also purchased eight Boeing 727-200 aircraft in the first quarter of
1999 which had been financed through operating leases in the first quarter of
1998, thereby reducing aircraft rentals expense by $0.7 million between
quarters.
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 C-checks 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 7.0% to $13.7
million in the first quarter of 1999, as compared to $12.8 million in the same
period of 1998.
The Company performed a total of 12 C-checks on its fleet during the first
quarters of 1999 and 1998. The cost of materials consumed and components
repaired in association with such checks and other maintenance activity
increased by $1.3 million between quarters offset by a decrease of third party
contract labor by $0.9 million.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATA Vacations customers, as well as to
customers of TCI, which was acquired by the Company in the first quarter of 1999
(see footnote 4). Ground package cost increased 140.0% to $13.2 million in the
first quarter of 1999, as compared to $5.5 million in the first quarter of 1998.
Approximately $6.9 million of this quarter-over-quarter increase was
attributable to the operations of TCI in the first quarter of 1999, which were
not included in the Company's results of operations in the first quarter of
1998.
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 crew and other employee travel increased 28.7% to $12.1 million in
the first quarter of 1999, as compared to $9.4 million in the first quarter of
1998.
The average hotel cost per full-time-equivalent crew member increased 19.9% in
the first quarter of 1999, as compared to the same period of 1998. Such hotel
costs increased due to both higher room rates paid in the 1999 period, and due
to aircraft flow changes implemented in mid-1998 which resulted in more crews
terminating their daily flying away from their home bases than in the 1998 first
quarter.
The average cost of crew positioning per full-time-equivalent crew member
increased 13.4% in the first quarter of 1999, as compared to the first quarter
of 1998. Crew positioning costs increased due to less availability of discounted
seats for the Company's crews on other carriers in the first quarter of 1999
than in the same period of 1998.
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 commissions to secure some commercial and military/government charter
business. Commissions expense increased 34.7% to $9.7 million in the first
quarter of 1999, as compared to $7.2 million in the first quarter of 1998.
Approximately $2.0 million of the increase in commissions in the first quarter
of 1999 was attributable to commissions paid to travel agents by TCI for
revenues earned in February and March (see footnote 4). Such commissions were
not included in the Company's results of operations in the first quarter of
1998.
Scheduled service commissions expense increased by $0.5 million between the
first quarters of 1999 and 1998, which was due to the corresponding increase in
commissionable revenues earned between periods.
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 first quarter of
1999 and 1998, catering represented 81.3% and 84.1%, respectively, of total
passenger service expense.
The total cost of passenger service increased 17.1% to $9.6 million in the first
quarter of 1999, as compared to $8.2 million in the first quarter of 1998. The
Company experienced a decrease of approximately 4.8% in the average unit cost of
catering each passenger between periods, primarily because in the first quarter
of 1999 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 $0.4 million
in catering expense in the first quarter of 1999, as compared to the same period
of 1998. Total jet passengers boarded, however, increased 15.2% between
quarters, resulting in approximately $1.2 million in higher volume-related
catering expenses between the same sets of comparative periods.
The Company also incurred approximately $0.4 million in higher interrupted trip
expenses in the first quarter of 1999, as compared to the first quarter of 1998,
due to greater delays and cancellations associated with the severe winter
weather in the first quarter of 1999, as compared to the same period of 1998.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling single seats and ground packages to customers
using credit cards for payment, and toll-free telephone services provided to
single-seat and vacation package customers who contact the Company directly to
book reservations. Other selling expenses increased 10.7% to $6.2 million in the
first quarter of 1999, as compared to $5.6 million in the same period of 1998.
All such selling expenses increased due to growth in the scheduled service
business unit between periods.
Advertising. Advertising expense increased 33.3% to $5.6 million in the first
quarter of 1999, as compared to $4.2 million in the first quarter of 1998. 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 business was increased in the first quarter of 1999, consistent
with the Company's overall strategy to enhance scheduled service RASM through
increases in load factor and yield.
Facilities and Other Rentals. Facilities and other rentals include 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 facilities and other
rentals increased 33.3% to $3.2 million in the first quarter of 1999, as
compared to $2.4 million in the first quarter of 1998. Growth in facilities
costs between periods was primarily attributable to the need to provide
facilities at airport locations to support new scheduled service destinations
and expanded services at existing destinations.
Other Operating Expenses. Other operating expenses increased 29.9% to $20.0
million in the first quarter of 1999, as compared to $15.4 million in the first
quarter of 1998. Approximately $3.8 million of this increase between quarters
was attributable to the cost of passenger air transportation purchased by TCI
from air carriers other than the Company during February and March, none of
which expense was included in the Company's results of operations in the first
quarter of 1998.
Interest Income and Expense. Interest expense in the first quarter of 1999
increased to $5.1 million as compared to $3.3 million in the same period of
1998. The increase in interest expense between periods was primarily due to
changes in the Company's capital structure resulting from the sale in December
1998 of $125.0 million in principal amount of 9.625% unsecured senior notes.
Interest expense of $3.0 million was recorded in the first quarter of 1999 for
these notes, which was not incurred in the first quarter of 1998.
Interest expense in the first quarter of 1999 was $0.7 million lower than in the
comparable period of 1998 due to more interest capitalized primarily on Boeing
757-200 and Lockheed L-1011-500 fleet acquisitions, and $0.5 million lower due
to the repayment of a note payable for a Boeing 757-200 aircraft which was
outstanding in the first quarter of 1998.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $1.8 million in interest income in the
first quarter of 1999, as compared to $1.0 million in the same period of 1998.
Other Income. The Company holds a membership interest in the SITA Foundation
("SITA"), an organization which provides data communication services to the
airline industry. SITA's primary asset is its ownership in Equant N.V.
("Equant"). In February 1999, SITA sold a portion of its interest in Equant in a
secondary public offering and distributed the pro rata proceeds to certain of
its members (including Amtran, Inc.) that elected to participate in the
offering. The Company recorded a gain of $1.7 million, or $1.0 million after
tax.
Income Tax Expense. In the first quarter of 1999 the Company recorded $10.9
million in income tax expense applicable to $27.4 million of pre-tax income for
that period, while in the first quarter of 1998 income tax expense was $8.9
million on pre-tax income of $21.3 million. The effective tax rate applicable to
the first quarter of 1999 was 39.7%, as compared to 41.7% in the first quarter
of 1998.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
amounts paid for crew per diem (45% in both 1999 and 1998). The effect of this
and other permanent differences on the effective income tax rate for financial
accounting purposes is to decrease the effective rate as amounts of pre-tax
income increase.
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
fourth quarter of 1998, the Company completed the issuance of $125.0 million in
unsecured notes, and in the first quarter of 1999 completed the renegotiation of
its revolving credit facility.
In the first quarters of 1999 and 1998, net cash provided by operating
activities was $68.5 million and $43.9 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 air traffic liabilities, higher accrued
expenses and other factors.
Net cash used in investing activities was $116.9 million and $29.6 million,
respectively, in the first quarters of 1999 and 1998. Such amounts primarily
included capital expenditures totaling $100.6 million and $26.9 million,
respectively, for engine and airframe overhauls, airframe improvements, hushkit
installations, the purchase of rotable parts, and for purchase deposits made on
Boeing 757-200 and Lockheed L-1011-500 aircraft scheduled for future delivery.
In addition, included in the first quarter 1999 capital expenditures were
approximately $34.3 million for the purchase of eight Boeing 727-200 aircraft,
and approximately $15.7 million for the purchase and modification of Lockheed
L-1011-500 aircraft. Also in the 1999 first quarter, the Company had
expenditures of $10.5 million associated with the acquisitions of TCI and T.G.
Shown Associates, Inc. (see footnote 4).
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 10 total aircraft to be delivered between 1995 and 2000. In
conjunction with the Boeing purchase agreement, the Company entered into a
separate agreement with Rolls-Royce Commercial Aero Engines Limited for 21
RB211-535E4 engines to power the ten 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. The Company accepted delivery of the first
seven aircraft under these agreements in September and December 1995, November
and December 1996, November 1997, July 1998 and December 1998, all of which were
financed under leases accounted for as operating leases. The aggregate purchase
price under these two agreements for the remaining three aircraft is
approximately $50.0 million per aircraft, subject to escalation. The final three
deliveries are scheduled for September 1999, October 1999 and June 2000.
Advanced payments totaling approximately $19.5 million ($6.5 million per
aircraft) are required prior to delivery of the three remaining aircraft, with
the remaining purchase price payable at delivery. As of March 31, 1999 and 1998,
the Company had recorded fixed asset additions for $16.3 million and $11.0
million, respectively, in advanced payments applicable to aircraft scheduled for
future delivery. The Company intends to finance the remaining three deliveries
under this agreement through sale/leaseback transactions accounted for as
operating leases.
In July 1998, the Company committed to the purchase of five Lockheed L-1011
series 500 aircraft, three spare engines and certain associated spare parts.
These aircraft are powered by Rolls-Royce RB211-524B4-02 engines. The Company
accepted delivery of the first two aircraft under this purchase agreement in
1998 and expects to accept delivery of the remaining three by the end of the
second quarter of 1999. Upon delivery of each aircraft, the Company intends to
complete certain modifications and improvements to the airframes and interiors
in order to qualify them to operate in a standard coach seating configuration of
307 seats. Such modifications are expected to require approximately 90 days from
date of delivery of the unmodified aircraft from the seller. Two of these
modified aircraft were placed into revenue service in January and May 1999,
operating primarily in the commercial and military/government charter
businesses. The remaining three aircraft are expected to enter revenue service
in the last two quarters of 1999 and the first quarter of 2000. The Company
expects that the total cost of the five modified aircraft, together with spare
engines and spare parts, will be approximately $100.0 million. The Company has
financed this purchase primarily through the issuance of unsecured notes in
December 1998.
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. The note required
monthly payments of $400,000 in principal and interest from October 15, 1997,
through September 1999, with the balance due at maturity. The Company
re-financed this aircraft through a sale/leaseback transaction in December 1998,
at which time the note was repaid in full. The new lease expires in December
1999, at which time the aircraft will be returned to the lessor, unless the
lessor exercises its right to leave the aircraft with the Company for up to two
additional years at a reduced rental amount.
In the second and third quarters of 1998, the Company purchased and improved one
Lockheed L-1011-100 aircraft, which was placed into revenue service in late July
1998.
Financings in 1997. On July 24, 1997, the Company sold $100.0 million principal
amount of unsecured seven-year notes in a private offering under Rule 144A. 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.
Financings in 1998 and 1999. In December 1998, the Company sold $125.0 million
principal amount of unsecured senior notes in a public offering. Interest is
payable on June 15 and December 15 of each year beginning June 15, 1999.
The net proceeds of the $125.0 million unsecured notes were approximately $121.0
million, after deducting costs and fees of issuance. The Company plans to use
the net proceeds for the purchase of Lockheed L-1011-500 aircraft, engines and
spare parts, and, together with available cash and bank facility borrowings, for
the purchase of Boeing 727-200 ADV aircraft, engines, engine hushkits and spare
parts.
In January 1999, the Company revised its revolving credit facility to provide a
maximum of $75.0 million, including up to $25.0 million for stand-by letters of
credit. The facility matures January 2, 2003, and borrowings under the facility
bear interest, at the option of ATA, at either LIBOR plus 1.25% to 2.50% or the
agent bank's prime rate. The 1999 facility is subject to certain restrictive
covenants.
As of March 31, 1999 the Company had no borrowings outstanding against this
credit facility. However, the Company did have outstanding letters of credit
secured by this facility aggregating $20.9 million. No amounts had been drawn
against letters of credit at March 31, 1999.
Aircraft and Hushkit Purchase Commitments. The Company has signed purchase
agreements to acquire eight Boeing 727-200ADV aircraft at agreed prices. Six of
these aircraft are currently leased by the Company. The other two aircraft,
currently on lease to another airline, may be purchased later in 1999, depending
upon the exercise of lease extension options available to the current lessee.
The Company intends to install engine hushkits on all of the Boeing 727-200
aircraft currently operated by the Company in order to meet federal Stage 3
noise regulations for its fleet by December 31, 1999. It currently plans to
install eight hushkits prior to the end of 1999, as well as hushkits on the two
aircraft on lease to another airline.
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."
State of Readiness. 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.
During the course of its inventory, the Company identified approximately 693
separate computer infrastructure components which are used to support various
aspects of its world-wide operations. Such components include software packages
(both purchased and internally developed), operating systems for computers,
computer hardware and peripheral devices, local and wide-area communications
networks, aircraft computers and components, and a variety of other items of
technology infrastructure including those associated with the operation of
properties and facilities. The Company then classified each of these components
using an internal scale to designate the seriousness and immediacy of impact to
the Company, should the component fail due to lack of compliance with Year 2000
standards.
The Company's Year 2000 Project involves the completion of five specific phases
of work. The first, or awareness phase (now 100% complete), includes the
creation of a Year 2000 Project team, development of written standards and
processes for the Year 2000 Project, communications to Company employees about
the Year 2000 Problem and the Company's approach to addressing it, creation of
Year 2000 compliance standards for newly acquired technology components, and
written standards and procedures for Year 2000 Project status reporting.
The second phase is inventory and assessment (now 100% complete), which includes
such activities as creating an inventory of all technology infrastructure
components used by the Company, developing standards for assessing and ranking
Year 2000 risk for such components, completing risk assessments for all
components, providing Year 2000 certification standards for such components,
development of a critical vendor database, development of renovation standards
and guidelines, development of testing standards and guidelines, creation of
testing environments, developing an inventory of tools needed to complete
assessment, conversion and testing of components, development of Year 2000
resource budgets, and completion of high-level contingency plans.
The third phase is renovation (now 74% complete), which includes the conversion,
replacement or elimination of selected hardware platforms and devices, operating
systems, databases, purchased software, utilities, and internal and external
interfaces. Renovation requires the completion and documentation of software and
hardware changes, development of replacement systems, and decommissioning
systems to be eliminated. Renovation also includes the completion and
documentation of unit testing, and the creation of a final test plan for system,
integration and stress testing of all changes. Contingency plans will also be
updated and completed, based upon completion of renovation efforts and unit test
results.
The fourth phase is validation (now 66% complete), which includes user
acceptance testing of all new or renovated components. Such testing is expected
to validate Year 2000 operational readiness of the individual components, up to
but not including testing of the integration of those components with other
components sharing common interfaces or other interdependencies.
The fifth phase is implementation (now 60% complete), which includes integration
testing of individual components as to interfaces and interdependencies with
other components or elements of the Company's technology infrastructure.
With respect to the 693 computer infrastructure components, the Company has
prepared approximately 136 individual project plans with tasks and milestones
which define the work to be done to complete the five phases of Year 2000
readiness. A total of 81 plans are now complete. A total of 40 plans are
currently in progress and are substantially on schedule for future completion.
The remaining 15 plans have not yet commenced, but the Company expects to
complete them prior to the end of 1999. Of the total hours of work included in
the Company's 136 project plans, approximately 69% of such work is now complete.
The Company is dependent upon a large number of third-party vendors and
suppliers who provide essential goods and services to the Company throughout the
world. In order to insure that essential goods and services are supplied to the
Company without interruptions caused by the Year 2000 Problem, the Company has
undertaken a "vendor Year 2000 readiness" project.
Some third-party vendor relationships are very significant to the Company. The
loss of access to some goods and services provided by some vendors, such as tour
operator and airline reservation systems, could have severe consequences on the
Company's business operations.
Under the Company's vendor readiness plan, significant Company vendors have been
grouped according to the expected safety, operations or financial impacts from a
loss of access to essential goods or services due to the vendor failing to
become Year 2000 compliant, and the expected time and effort which would be
required to replace the non-compliant vendor with a compliant vendor. Under this
classification system, the Company has identified 641 "tier 3" vendors whose
lack of Year 2000 compliance and the resulting loss of essential goods and
services could create immediate and severe safety, operations or financial
impact to the Company, with replacement of such vendors taking considerable time
and effort. The Company has further classified 395 vendors as "tier 2" vendors,
which could pose significant safety, operations or financial impacts to the
Company should they be non-Year-2000 compliant, but which impacts would not be
immediate and for which only moderate time and effort would be required to
locate compliant replacement vendors. All remaining significant vendors have
been classified as "tier 1" vendors (totaling over 2,000), none of which would
pose a significant safety, operations or financial impact in the event of
non-compliance with Year 2000 standards, and all of which could easily be
replaced with alternative vendors.
In addition to the third-party dependencies enumerated above, the Company is
also highly dependent upon the operation of airports and air traffic control
systems in the United States and in foreign countries. Each year the Company
flies to over 400 individual airports world-wide which are typically operated by
governmental or quasi-governmental agencies. Other governmental agencies use
computers to provide essential services at airports, such as customs and
immigration screening and weather reporting.
As a member of the Air Transport Association Year 2000 Committee, the Company is
participating with other member airlines to test and validate the Year 2000
readiness of the air transportation infrastructure such as airports and air
traffic control systems. As yet, no comprehensive inventory and risk assessment
of domestic and international airports has been completed, and therefore the
Company cannot determine to what degree, if any, domestic and international
airports are at risk of failing to meet Year 2000 readiness standards.
Under the direction of the Air Transport Association Year 2000 Committee, a
separate evaluation of aviation-related federal agencies is also in progress.
This evaluation includes the Year 2000 readiness of the Federal Aviation
Administration, particularly with respect to the operation of the domestic air
traffic control system; the Department of Transportation; the Immigration and
Naturalization Service; and the National Weather Service. Based upon
representations made by such federal agencies, they expect to be able to provide
uninterrupted services to the air transportation industry, including the
Company, during the year 2000. Efforts of the Air Transport Association Year
2000 Committee are directed toward completing an independent verification of
readiness of these agencies, which is still incomplete at this time.
Estimated Costs of Achieving Year 2000 Readiness. 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, vendor
readiness, aircraft and airports, will be approximately $7.0 million. Such
estimated cost includes approximately $2.5 million in capital expenditures to
acquire new software and hardware to replace non-compliant computer devices, as
well as approximately $4.5 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. Approximately $4.7 million of this estimated cost has been
incurred as of May 7, 1999, with the remaining $2.3 million to be incurred by
the end of 1999. 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.
Year 2000 Risks and Contingency Plans. The Company believes that its computer
infrastructure project plans and vendor readiness plan, together with its
participation on the Air Transport Association Year 2000 Committee, 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, however, 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. 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.
The Company has developed a number of high-level contingency plans addressing
how it would respond to specific Year 2000 issues arising from non-compliant
computer infrastructure components, vendors and government agencies. Such
contingency plans will be broadened and formalized as more advanced phases of
the Company's Year 2000 Project are completed and risks in individual areas are
more thoroughly assessed and alternative approaches to existing systems and
components are identified. Contingency plans include such strategies as securing
alternative vendors and adding staff to implement manual workarounds, where
feasible.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This accounting standard, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999,
requires that all derivatives be recognized as either assets or liabilities at
fair value. The Company is evaluating the new statement's provisions and has not
yet determined either the date on which it will adopt SFAS No. 133 or the impact
of adoption on the results of operations or financial position.
Forward-Looking Information
Information contained within and "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. 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. The Company can provide no assurance that
the statement of expectation or belief will result or will be achieved or
accomplished as there are many risks associated with business, the airline
industry and the Company specifically that could cause actual results to differ
materially from those expressed in any forward-looking statement made by the
Company.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amtran, Inc.
(Registrant)
Date May 14, 1999 John P. Tague
John P. Tague
President and Chief Executive Officer
Director
Date May 14, 1999 James W. Hlavacek
James W. Hlavacek
Executive Vice President, Chief Operating Officer
and President of ATA Training Corporation
Director
Date May 14, 1999 Kenneth K. Wolff
Kenneth K. Wolff
Executive Vice President and Chief Financial Officer
Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000898904
<NAME> AMTRAN INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 124,759
<SECURITIES> 0
<RECEIVABLES> 30,737
<ALLOWANCES> 0
<INVENTORY> 23,885
<CURRENT-ASSETS> 212,599
<PP&E> 721,575
<DEPRECIATION> 314,234
<TOTAL-ASSETS> 658,188
<CURRENT-LIABILITIES> 224,464
<BONDS> 0
0
0
<COMMON> 48,462
<OTHER-SE> 71,272
<TOTAL-LIABILITY-AND-EQUITY> 658,188
<SALES> 277,909
<TOTAL-REVENUES> 277,909
<CGS> 0
<TOTAL-COSTS> 248,950
<OTHER-EXPENSES> 1,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,074
<INCOME-PRETAX> 27,443
<INCOME-TAX> 10,903
<INCOME-CONTINUING> 16,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,540
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.22
</TABLE>
