United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended September 30, 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
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 - 12,297,769 shares outstanding as of
November 1, 1999
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1999 1998
------------------- --------------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 109,151 $ 172,936
Receivables, net of allowance for doubtful accounts
(1999 - $1,568; 1998 - $1,163) 36,743 24,921
Inventories, net 33,101 19,567
Prepaid expenses and other current assets 29,278 25,604
------------------- ---------------------
Total current assets 208,273 243,028
Property and equipment:
Flight equipment 735,616 557,302
Facilities and ground equipment 89,190 68,848
------------------- ---------------------
824,806 626,150
Accumulated depreciation (348,568) (296,818)
------------------- ---------------------
476,238 329,332
Assets held for sale 7,176 7,176
Goodwill 23,009 -
Deposits and other assets 32,086 15,013
------------------- ---------------------
Total assets $ 746,782 $ 594,549
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,476 $ 1,476
Accounts payable 15,625 7,158
Air traffic liabilities 91,418 76,662
Accrued expenses 124,336 98,548
------------------- ---------------------
Total current liabilities 232,855 183,844
Long-term debt, less current maturities 282,894 245,195
Deferred income taxes 68,986 52,620
Other deferred items 13,215 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 12,699,983 - 1999; 12,374,577 - 1998 55,348 47,632
Additional paid-in-capital 9,245 11,735
Deferred compensation - ESOP (533) (1,066)
Treasury stock: 344,052 shares - 1999; 193,506 shares (8,504) (1,881)
1998
Retained earnings 93,276 46,331
------------------- ---------------------
148,832 102,751
------------------- ---------------------
Total liabilities and shareholders' equity $ 746,782 $ 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 September 30, Nine Months Ended September 30,
1999 1998 1999 1998
-------------------------------------- ------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C> <C> <C>
Scheduled service $ 172,598 $ 134,973 $ 480,877 $ 384,456
Charter 103,031 92,949 302,731 277,763
Ground package 14,876 6,092 46,565 17,629
Other 12,416 8,400 35,371 30,335
----------------- ------------------ ---------------- -----------------
Total operating revenues 302,921 242,414 865,544 710,183
----------------- ------------------ ---------------- -----------------
Operating expenses:
Salaries, wages and benefits 64,732 53,442 187,309 155,795
Fuel and oil 50,571 35,554 124,233 107,639
Depreciation and amortization 26,609 18,612 72,467 58,293
Handling, landing and navigation fees 25,618 22,226 70,929 57,503
Aircraft maintenance, materials and 14,301 14,446 42,432 41,641
repairs
Aircraft rentals 14,020 13,400 43,402 39,249
Crew and other employee travel 13,396 11,330 37,664 31,218
Ground package cost 12,007 5,097 37,642 14,985
Passenger service 11,822 10,159 30,283 26,871
Commissions 10,121 6,933 30,071 21,521
Other selling expenses 7,677 5,272 21,025 16,451
Facility and other rentals 3,441 2,382 10,103 6,991
Advertising 3,340 4,392 13,587 13,421
Other 18,196 16,272 57,938 47,655
----------------- ------------------ ---------------- -----------------
Total operating expenses 275,851 219,517 779,085 639,233
----------------- ------------------ ---------------- -----------------
Operating income 27,070 22,897 86,459 70,950
Other income (expense):
Interest income 1,363 1,106 4,526 3,324
Interest (expense) (5,295) (3,204) (15,413) (9,671)
Other 46 49 1,882 165
----------------- ------------------ ---------------- -----------------
Other expenses (3,886) (2,049) (9,005) (6,182)
----------------- ------------------ ---------------- -----------------
Income before income taxes 23,184 20,848 77,454 64,768
Income taxes 9,484 8,415 30,509 26,141
----------------- ------------------ ---------------- -----------------
Net income $ 13,700 $ 12,433 $ 46,945 $ 38,627
================= ================== ================ =================
Basic earnings per common share:
Average shares outstanding 12,409,820 11,766,933 12,260,175 11,654,875
Net income per share $ 1.10 $ 1.06 $ 3.83 $ 3.31
================= ================== ================ =================
Diluted earnings per common share:
Average shares outstanding 13,566,468 13,496,911 13,537,288 12,922,105
Net income per share $ 1.01 $ 0.92 $ 3.47 $ 2.99
================= ================== ================ =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30,
1999 1998
--------------------------------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income $ 46,945 $ 38,627
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 72,467 58,293
Deferred income taxes 16,366 18,121
Other non-cash items 3,083 295
Changes in operating assets and liabilities, net
of
effects from business acquisitions:
Receivables (5,841) (3,167)
Inventories (14,638) (2,183)
Prepaid expenses 1,151 (1,641)
Accounts payable 6,075 5,133
Air traffic liabilities (4,554) 117
Accrued expenses 20,439 18,275
------------------- --------------
Net cash provided by operating activities 141,493 131,870
------------------- --------------
Investing activities:
Proceeds from sales of property and equipment 234 1,061
Capital expenditures (217,680) (115,636)
Acquisition of businesses, net of cash acquired 16,673 -
Additions to other assets (38,886) (1,065)
------------------- --------------
Net cash used in investing activities (239,659) (115,640)
------------------- --------------
Financing activities:
Proceeds from sale of common stock 3,439 1,624
Purchase of treasury stock (6,623) (121)
Payments on short-term debt - (4,750)
Proceeds from long-term debt 38,942 6,000
Payments on long-term debt (1,377) (12,372)
------------------- --------------
Net cash provided by (used in) financing 34,381 (9,619)
activities
------------------- --------------
Increase (decrease) in cash and cash equivalents (63,785) 6,611
Cash and cash equivalents, beginning of period 172,936 104,196
------------------- --------------
Cash and cash equivalents, end of period $ 109,151 $ 110,807
=================== ==============
Supplemental disclosures:
Cash payments for:
Interest $ 17,790 $ 13,311
Income taxes 10,636 6,412
Financing and investing activities not affecting cash:
Issuance of common stock associated with
business acquisitions 1,735 -
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 September 30,
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 2) necessary to present
fairly the financial position, results of operations and cash flows for
such periods. Results for the nine months ended September 30, 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. Changes in Accounting Estimates
As is more fully described in footnote 13 to the Company's 1998 Annual
Report on Form 10K, due to the addition of five long-range Lockheed
L-1011-500 aircraft to its existing fleet of 13 owned 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
$1,374,000 and $3,261,000, respectively, in the third quarter and nine
months ended September 30, 1999, and resulted in increases in net income
of $812,000 and $1,976,000 in the same periods. Basic and diluted
earnings per share for the quarter ended September 30, 1999, were
increased by $0.07 and $0.06, respectively, while basic and diluted
earnings per share for the nine months ended September 30, 1999, were
increased by $0.16 and $0.15.
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
after that date.
In the first quarter of 1999, the Company implemented a change in
accounting estimate to extend the estimated useful 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 $783,000 and $2,558,000,
respectively, in the third quarter and nine months ended September 30,
1999, and resulted in an increase in net income of $462,000 and
$1,550,000 in the same respective periods. Basic and diluted earnings per
share for the quarter ended September 30, 1999, were increased by $0.04
and $0.03, respectively, while basic and diluted earnings per share for
the nine months ended September 30, 1999, were increased by $0.13 and
$0.11.
<PAGE>
3. Earnings per Share
The following tables set forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
------------------------------------------
Numerator:
<S> <C> <C>
Net income $13,700,000 $12,433,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,409,820 11,766,933
Effect of dilutive securities:
Employee stock options 1,156,648 1,729,978
--------------------- ----------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 13,566,468 13,496,911
===================== ======================
Basic earnings per share $1.10 $1.06
===================== ======================
Diluted earnings per share $1.01 $0.92
===================== ======================
Nine Months Ended September 30,
1999 1998
------------------------------------------
Numerator:
Net income $46,945,000 $38,627,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,260,175 11,654,875
Effect of dilutive securities:
Employee stock options 1,277,113 1,267,230
--------------------- ----------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 13,537,288 12,922,105
===================== ======================
Basic earnings per share $3.83 $3.31
===================== ======================
Diluted earnings per share $3.47 $2.99
===================== ======================
</TABLE>
4. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and
outstanding stock of T. G. Shown Associates, Inc., which owns 50% of the
Amber Air Freight partnership. The other 50% of the partnership was
already owned by the Company. The partnership earned operating income for
the third quarter and nine months ended September 30, 1999, of
approximately $1.3 million and $3.6 million, respectively, of which
approximately $0.7 million and $1.8 million, respectively, was
incremental to the Company as a result of the acquisition.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"). This Detroit-based independent
tour operator primarily offers package tours to 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. TCI's results of operations,
beginning February 1999, were consolidated into the Company, which
generated additional operating revenues in the quarter and nine months
ended September 30, 1999, of approximately $3.3 million and $26.5
million, respectively, and additional operating expenses of approximately
$4.1 million and $26.0 million, respectively, as compared to the same
periods of 1998.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area using the brand name of Key
Tours, serving such leisure travel destinations as Las Vegas and Florida.
ATA has been providing passenger airline services to Key Tours for over
15 years. Key Tours had consolidated operating revenues of approximately
$73.0 million in 1998. The results of operations, beginning May 1999, of
the newly acquired Key Tours brand were consolidated into the Company,
which generated additional operating revenues in the quarter and nine
months ended September 30, 1999, of approximately $9.9 million and $17.8
million, respectively, and operating expenses of approximately $9.3
million and $17.6 million, respectively, as compared to the same periods
of 1998.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). Beginning in
April 1997 the Company had entered into a code-share agreement with
Chicago Express to operate passenger airline services between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines,
Dayton and Grand Rapids using Jetstream 31 propeller aircraft. The
agreement was expanded to include Lansing and Madison in October 1997.
Under the code-share agreement, the Company paid Chicago Express a fixed
fee per flight for providing aircraft, crews, insurance and maintenance,
while the Company provided all other services, including marketing,
reservations, fuel and ground handling. Chicago Express' results of
operations, beginning May 1999, were consolidated into the Company,
replacing the fixed fee per flight previously recorded by the Company,
which generated no material change to operating expenses. The operating
revenues associated with these operations were already reflected in the
Company's results of operations.
<PAGE>
PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quarter and Nine Months Ended September 30, 1999, Versus Quarter and Nine Months
Ended September 30, 1998
Overview
Amtran, Inc. and subsidiaries (the "Company") is a leading provider of scheduled
airline services in certain targeted markets 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 Chicago-Midway and
Indianapolis to destinations such as Hawaii, California, Las Vegas, Florida,
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 quarter and nine months ended September 30, 1999, the Company generated
record operating earnings and net income. Although all business units performed
well during these periods, 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 9.9% and
8.2%, respectively, in the quarter and nine months ended September 30, 1999, as
compared to the same periods of 1998. Scheduled service available seat miles
("ASMs") increased 16.4% and 15.7%, respectively, between the quarter and nine
months ended September 30, 1999, as compared to the same periods of 1998, and
load factor increased to 78.1% in the 1999 third quarter, as compared to 73.7%
in the third quarter of 1998.
Results of Operations
For the quarter ended September 30, 1999, the Company earned $27.1 million in
operating income, an increase of 18.3% as compared to operating income of $22.9
million in the third quarter of 1998; and the Company earned $13.7 million in
net income in the third quarter of 1999, an increase of 10.5% as compared to net
income of $12.4 million in the third quarter of 1998. Operating revenues
increased 25.0% to $302.9 million in the third quarter of 1999, as compared to
$242.4 million in the same period of 1998. Consolidated RASM increased 12.2% to
7.15 cents in the 1999 third quarter, as compared to 6.37 cents in the third
quarter of 1998. Operating expenses increased 25.7% to $275.9 million in the
third quarter of 1999, as compared to $219.5 million in the comparable period of
1998. Consolidated operating cost per ASM ("CASM") increased 12.8% to 6.51 cents
in the third quarter of 1999, as compared to 5.77 cents in the third quarter of
1998.
For the nine months ended September 30, 1999, the Company earned $86.5 million
in operating income, an increase of 21.8% as compared to operating income of
$71.0 million in the comparable period of 1998; and the Company earned $46.9
million in net income in the nine months ended September 30, 1999, an increase
of 21.5% as compared to net income of $38.6 million in the same period of 1998.
Operating revenues increased 21.9% to $865.5 million in the nine months ended
September 30, 1999, as compared to $710.2 million in the same period of 1998.
Consolidated RASM increased 12.2% to 7.46 cents in the nine months ended
September 30, 1999, as compared to 6.65 cents in the same period of 1998.
Operating expenses increased 21.9% to $779.1 million in the nine months ended
September 30, 1999, as compared to $639.2 million in the comparable period of
1998. Consolidated operating cost per ASM ("CASM") increased 12.2% to 6.72 cents
in the nine months ended September 30, 1999, as compared to 5.99 cents in the
same period of 1998.
Much of the change in RASM and CASM between periods was a result of the
additional revenues and expenses derived from acquired businesses for which no
additional ASMs were generated. See further explanation under "Results of
Operations in Cents per ASM."
<PAGE>
<TABLE>
<CAPTION>
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per ASM.
Cents Per ASM Cents Per ASM
Three Months Ended September 30, Nine Months Ended September 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
Total operating revenues 7.15 6.37 7.46 6.65
Operating expenses:
Salaries, wages and benefits 1.53 1.41 1.62 1.46
Fuel and oil 1.19 0.93 1.07 1.01
Depreciation and amortization 0.63 0.49 0.63 0.55
Handling, landing and navigation fees 0.60 0.58 0.61 0.54
Aircraft maintenance, materials and repairs 0.34 0.38 0.37 0.39
Aircraft rentals 0.33 0.35 0.37 0.37
Crew and other employee travel 0.32 0.30 0.32 0.29
Ground package cost 0.28 0.13 0.32 0.14
Passenger service 0.28 0.27 0.26 0.25
Commissions 0.24 0.18 0.26 0.20
Other selling expenses 0.18 0.14 0.18 0.15
Facility and other rentals 0.08 0.06 0.09 0.07
Advertising 0.08 0.12 0.12 0.12
Other 0.43 0.43 0.50 0.45
---- ---- ---- ----
Total operating expenses 6.51 5.77 6.72 5.99
---- ---- ---- ----
Operating income 0.64 0.60 0.74 0.66
---- ---- ---- ----
ASMs (in thousands) 4,234,403 3,805,993 11,599,119 10,676,929
</TABLE>
The Company's consolidated measures of RASM and CASM in 1999 are impacted by the
addition of Travel Charter and Key Tours, because these companies contribute
significant operating revenue and expense to consolidated results, without
increasing ASMs. The following tables show (i) actual consolidated RASM and
CASM, and (ii) RASM and CASM adjusted to exclude acquired tour operator revenues
and expenses:
<TABLE>
<CAPTION>
1999 ACTUAL VS. 1999 ADJUSTED* Three Months Ended September 30,1999 Nine Months Ended September 30, 1999
------------------------------------ -------------------------------------
Actual Adjusted* Difference Actual Adjusted* Difference
Operating revenue (in millions) $302.9 $289.7 $(13.2) $865.5 $821.2 $(44.3)
<S> <C> <C> <C> <C> <C> <C>
RASM (in cents) 7.15 6.84 (0.31) 7.46 7.08 (0.38)
Operating expense (in millions) $275.9 $262.5 $(13.4) $779.1 $735.5 $(43.6)
CASM (in cents) 6.51 6.20 (0.31) 6.72 6.34 (0.38)
<PAGE>
1999 ADJUSTED* VS. 1998 ACTUAL Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 Adjusted* 1998 1999 Adjusted* 1998
Actual Change Actual Change
Operating revenue (in millions) $289.7 $242.4 19.5% $821.2 $710.2 15.6%
RASM (in cents) 6.84 6.37 7.4% 7.08 6.65 6.5%
Operating expense (in millions) $262.5 $219.5 19.6% $735.5 $639.2 15.1%
CASM (in cents) 6.20 5.77 7.5% 6.34 5.99 5.8%
ASMs (in millions) 4,234.4 3,806.0 11.3% 11,599.1 10,676.9 8.6%
</TABLE>
*Adjusted to exclude Travel Charter and Key Tours, which were acquired during
the first half of 1999.
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 Travel Charter and Key Tours not been consummated, nor are
they necessarily indicative of future operating results. Furthermore, the
information pertaining to Travel Charter and Key Tours is based upon unaudited
interim financial information.
<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" include the operations of Jetstream 31
propeller aircraft by Chicago Express Airlines, Inc. as the ATA Connection. The
Company acquired Chicago Express on April 30, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended September 30,
----------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
<S> <C> <C> <C> <C>
Departures Jet 13,189 11,875 1,314 11.07
Departures J31 (a) 4,611 4,258 353 8.29
----------------------------------------------------------
Total Departures (b) 17,800 16,133 1,667 10.33
----------------------------------------------------------
Block Hours Jet 42,391 38,003 4,388 11.55
Block Hours J31 4,660 4,322 338 7.82
----------------------------------------------------------
Total Block Hours (c) 47,051 42,325 4,726 11.17
----------------------------------------------------------
RPMs Jet (000s) 3,153,974 2,760,708 393,266 14.25
RPMs J31 (000s) 9,223 8,574 649 7.57
----------------------------------------------------------
Total RPMs (000s) (d) 3,163,197 2,769,282 393,915 14.22
----------------------------------------------------------
ASMs Jet (000s) 4,219,310 3,792,501 426,809 11.25
ASMs J31 (000s) 15,093 13,492 1,601 11.87
----------------------------------------------------------
Total ASMs (000s) (e) 4,234,403 3,805,993 428,410 11.26
----------------------------------------------------------
Load Factor Jet 74.75 72.79 1.96 2.69
Load Factor J31 61.11 63.55 (2.44) (3.84)
----------------------------------------------------------
Total Load Factor (f) 74.70 72.76 1.94 2.67
----------------------------------------------------------
Passengers Enplaned Jet 1,787,108 1,507,928 279,180 18.51
Passengers Enplaned J31 53,647 49,364 4,283 8.68
----------------------------------------------------------
Total Passengers Enplaned (g) 1,840,755 1,557,292 283,463 18.20
----------------------------------------------------------
Revenue $(000s) 302,921 242,414 60,507 24.96
RASM in cents (h) 7.15 6.37 0.78 12.24
CASM in cents (i) 6.51 5.77 0.74 12.82
Yield in cents (j) 9.58 8.75 0.83 9.49
- ------------------------------------------------------------------------------------------------
See footnotes (a) through (j) on pages 13-14.
<PAGE>
- ------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures Jet 38,081 34,749 3,332 9.59
Departures J31 (a) 13,104 12,138 966 7.96
----------------------------------------------------------
Total Departures (b) 51,185 46,887 4,298 9.17
----------------------------------------------------------
Block Hours Jet 120,306 110,372 9,934 9.00
Block Hours J31 13,310 11,847 1,463 12.35
----------------------------------------------------------
Total Block Hours (c) 133,616 122,219 11,397 9.33
----------------------------------------------------------
RPMs Jet (000s) 8,524,224 7,640,306 883,918 11.57
RPMs J31 (000s) 26,499 22,808 3,691 16.18
----------------------------------------------------------
Total RPMs (000s) (d) 8,550,723 7,663,114 887,609 11.58
----------------------------------------------------------
ASMs Jet (000s) 11,556,648 10,638,219 918,429 8.63
ASMs J31 (000s) 42,471 38,710 3,761 9.72
----------------------------------------------------------
Total ASMs (000s) (e) 11,599,119 10,676,929 922,190 8.64
----------------------------------------------------------
Load Factor Jet 73.76 71.82 1.94 2.70
Load Factor J31 62.39 58.92 3.47 5.89
----------------------------------------------------------
Total Load Factor (f) 73.72 71.77 1.95 2.72
----------------------------------------------------------
Passengers Enplaned Jet 5,314,396 4,602,544 711,852 15.47
Passengers Enplaned J31 152,567 130,149 22,418 17.22
----------------------------------------------------------
Total Passengers Enplaned (g) 5,466,963 4,732,693 734,270 15.51
----------------------------------------------------------
Revenue $(000s) 865,544 710,183 155,361 21.88
RASM in cents (h) 7.46 6.65 0.81 12.18
CASM in cents (i) 6.72 5.99 0.73 12.19
Yield in cents (j) 10.12 9.27 0.85 9.17
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Chicago Express Airlines, Inc. ("Chicago Express") provides service between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison as the ATA Connection, using Jetstream 31
("J31") propeller aircraft. Prior to becoming a wholly owned subsidiary of the
Company on April 30, 1999, Chicago Express had provided these services under a
code share agreement.
(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
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" include the operations of Jetstream 31
propeller aircraft by Chicago Express Airlines, Inc. as the ATA Connection. The
Company acquired Chicago Express on April 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended September 30,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures Jet 9,411 8,195 1,216 14.84
Departures J31 (a) 4,611 4,258 353 8.29
----------------------------------------------------------
Total Departures (b) 14,022 12,453 1,569 12.60
----------------------------------------------------------
Block Hours Jet 28,391 24,307 4,084 16.80
Block Hours J31 4,660 4,322 338 7.82
----------------------------------------------------------
Total Block Hours (c) 33,051 28,629 4,422 15.45
----------------------------------------------------------
RPMs Jet (000s) 1,952,291 1,581,758 370,533 23.43
RPMs J31 (000s) 9,223 8,574 649 7.57
----------------------------------------------------------
Total RPMs (000s) (d) 1,961,514 1,590,332 371,182 23.34
----------------------------------------------------------
ASMs Jet (000s) 2,497,643 2,144,651 352,992 16.46
ASMs J31 (000s) 15,093 13,492 1,601 11.87
----------------------------------------------------------
Total ASMs (000s) (e) 2,512,736 2,158,143 354,593 16.43
----------------------------------------------------------
Load Factor Jet 78.17 73.75 4.42 5.99
Load Factor J31 61.11 63.55 (2.44) (3.84)
----------------------------------------------------------
Total Load Factor (f) 78.06 73.69 4.37 5.93
----------------------------------------------------------
Passengers Enplaned Jet 1,295,266 1,062,699 232,567 21.88
Passengers Enplaned J31 53,647 49,364 4,283 8.68
----------------------------------------------------------
Total Passengers Enplaned (g) 1,348,913 1,112,063 236,850 21.30
----------------------------------------------------------
Revenue $(000s) 172,598 134,973 37,625 27.88
RASM in cents (h) 6.87 6.25 0.62 9.92
Yield in cents (j) 8.80 8.49 0.31 3.65
Rev per segment $ (k) 127.95 121.37 6.58 5.42
- ------------------------------------------------------------------------------------------------
</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.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures Jet 26,749 23,026 3,723 16.17
Departures J31 (a) 13,104 12,138 966 7.96
----------------------------------------------------------
Total Departures (b) 39,853 35,164 4,689 13.33
----------------------------------------------------------
Block Hours Jet 79,068 68,392 10,676 15.61
Block Hours J31 13,310 11,847 1,463 12.35
----------------------------------------------------------
Total Block Hours (c) 92,378 80,239 12,139 15.13
----------------------------------------------------------
RPMs Jet (000s) 5,226,411 4,359,466 866,945 19.89
RPMs J31 (000s) 26,499 22,808 3,691 16.18
----------------------------------------------------------
Total RPMs (000s) (d) 5,252,910 4,382,274 870,636 19.87
----------------------------------------------------------
ASMs Jet (000s) 6,673,153 5,767,773 905,380 15.70
ASMs J31 (000s) 42,471 38,710 3,761 9.72
----------------------------------------------------------
Total ASMs (000s) (e) 6,715,624 5,806,483 909,141 15.66
----------------------------------------------------------
Load Factor Jet 78.32 75.58 2.74 3.63
Load Factor J31 62.39 58.92 3.47 5.89
----------------------------------------------------------
Total Load Factor (f) 78.22 75.47 2.75 3.64
----------------------------------------------------------
Passengers Enplaned Jet 3,702,651 3,055,545 647,106 21.18
Passengers Enplaned J31 152,567 130,149 22,418 17.22
----------------------------------------------------------
Total Passengers Enplaned (g) 3,855,218 3,185,694 669,524 21.02
----------------------------------------------------------
Revenue $(000s) 480,877 384,456 96,421 25.08
RASM in cents (h) 7.16 6.62 0.54 8.16
Yield in cents (j) 9.15 8.77 0.38 4.33
Rev per segment $ (k) 124.73 120.68 4.05 3.36
- ------------------------------------------------------------------------------------------------
</TABLE>
See footnotes (a) through (j) on pages 13-14. See footnote (k) on page 15.
Scheduled service revenues in the third quarter of 1999 increased 27.9% to
$172.6 million from $135.0 million in the third quarter of 1998; and scheduled
service revenues in the nine months ended September 30, 1999, increased 25.1% to
$480.9 million from $384.5 million in the same period of 1998. Scheduled service
revenues comprised 57.0% and 55.6%, respectively, of consolidated revenues in
the quarter and nine months ended September 30, 1999, as compared to 55.7% and
54.1%, respectively, of consolidated revenues in the same periods of 1998.
The Company's third quarter 1999 scheduled service at Chicago-Midway accounted
for approximately 52.1% of scheduled service ASMs and 77.0% of scheduled service
departures, as compared to 51.2% and 75.7%, respectively, in the third quarter
of 1998. On July 7, 1998, the Company began nonstop service to New York's
LaGuardia Airport, which service continued throughout 1999. On May 1, 1999, the
Company began nonstop service to Philadelphia, which was not served during the
third quarter of 1998. In addition to this new service, the Company served the
following existing jet markets in both quarters: Dallas-Ft. Worth, Denver, 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 had a code-share agreement with Chicago Express under which Chicago
Express operated 19-seat Jetstream 31 propeller aircraft between Chicago-Midway
and the cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids,
Lansing and Madison. On April 30, 1999, the Company acquired all of the issued
and outstanding stock of Chicago Express Airlines, Inc., which continues to
operate these services as a wholly owned subsidiary of the Company.
The Company's operation at Chicago-Midway continues to be the fastest growing
portion of the scheduled service business in 1999. The Company operated a peak
schedule of 67 daily jet and commuter departures from Chicago-Midway and served
22 destinations on a nonstop basis in the summer of 1999, as compared to 57 peak
daily departures and 21 nonstop destinations served in the summer of 1998. 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 12 jet
gates and one commuter aircraft gate at the new Chicago-Midway terminal which is
presently scheduled for completion in 2004, as compared to the six jet gates
currently occupied in the existing terminal.
The Company's Hawaii service accounted for 23.4% of scheduled service ASMs and
6.2% of scheduled service departures in the third quarter of 1999, as compared
to 27.6% and 7.0%, respectively, in the third quarter of 1998. The Company
provided nonstop services in both periods from Los Angeles 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 remaining seats on these flights are distributed through normal
scheduled service channels. The Company also provides nonstop service from
Phoenix to Honolulu which is distributed in a similar manner but through a
different tour operator.
The Company's Indianapolis service accounted for 11.3% of scheduled service ASMs
and 9.9% of scheduled service departures in the third quarter of 1999, as
compared to 13.1% and 10.8%, respectively, in the third 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.
On June 9, 1999, nonstop service commenced between Ft. Lauderdale and San Juan,
and on June 16, 1999, nonstop service was begun between New York's Kennedy
Airport and San Juan. Between June and September 1999, ATA began seasonal
nonstop service between New York's John F. Kennedy International Airport and
Dublin and Shannon, Ireland.
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 24.1% and 24.4%, respectively,
of consolidated revenues in the quarter and nine months ended September 30,
1999, as compared to 25.9% and 25.1%, respectively, in the comparable periods of
1998.
During the last several years, the Company has deployed additional 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 businesses through the acquisition of long-range
Lockheed L-1011 series 500 aircraft. 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 10-to-11 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. In July 1998, the Company committed to
the purchase of five such aircraft. The Company placed three of these aircraft
into revenue service in January, May and August 1999, and expects to place the
two remaining aircraft into service in the last quarter 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 the charter
businesses in 2000, in addition to opening new long-range market opportunities
to the Company which it cannot serve with its existing fleet. The L-1011 series
500 will also provide much of the additional seat capacity which the Company
needs to operate its expanded military/government business for the contract year
beginning October 1, 1999.
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 September 30,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures (b) 2,734 2,521 213 8.45
Block Hours (c) 10,608 9,527 1,081 11.35
RPMs (000s) (d) 1,030,934 972,345 58,589 6.03
ASMs (000s) (e) 1,254,253 1,176,448 77,805 6.61
Passengers Enplaned (g) 448,483 393,948 54,535 13.84
Revenue $(000s) 72,941 62,782 10,159 16.18
RASM in cents (h) 5.82 5.34 0.48 8.99
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Nine Months Ended September 30,
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures (b) 8,165 7,573 592 7.82
Block Hours (c) 29,712 26,577 3,135 11.80
RPMs (000s) (d) 2,687,955 2,478,914 209,041 8.43
ASMs (000s) (e) 3,340,003 3,110,695 229,308 7.37
Passengers Enplaned (g) 1,455,449 1,309,403 146,046 11.15
Revenue $(000s) 211,132 178,468 32,664 18.30
RASM in cents (h) 6.32 5.74 0.58 10.10
- -----------------------------------------------------------------------------------------------
</TABLE>
See footnotes (b) through (h) on pages 13-14.
The increase in 1999 commercial charter RASM is attributable primarily to the
addition of Travel Charter and Key Tours because these companies contribute
significant operating revenue without increasing ASMs.
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
$59.5 million and $160.6 million, respectively, in revenues in the quarter and
nine months ended September 30, 1999, as compared to $55.9 million and $150.0
million, respectively, in the comparable periods of 1998.
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 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 $7.6 million and
$26.5 million, respectively, in revenues in the quarter and nine months ended
September 30, 1999, as compared to $3.9 million and $20.3 million, respectively,
in the comparable periods of 1998.
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 September 30,
<S> <C> <C> <C> <C>
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures (b) 1,038 1,141 (103) (9.03)
Block Hours (c) 3,380 4,118 (738) (17.92)
RPMs (000s) (d) 170,308 204,279 (33,971) (16.63)
ASMs (000s) (e) 466,647 467,118 (471) (0.10)
Passengers Enplaned (g) 42,915 50,145 (7,230) (14.42)
Revenue $(000s) 30,090 30,167 (77) (0.26)
RASM in cents (h) 6.45 6.46 (0.01) (0.15)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Nine Months Ended September 30,
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures (b) 3,101 3,600 (499) (13.86)
Block Hours (c) 11,341 13,475 (2,134) (15.84)
RPMs (000s) (d) 596,750 691,580 (94,830) (13.71)
ASMs (000s) (e) 1,523,456 1,580,959 (57,503) (3.64)
Passengers Enplaned (g) 148,850 168,301 (19,451) (11.56)
Revenue $(000s) 91,599 99,295 (7,696) (7.75)
RASM in cents (h) 6.01 6.28 (0.27) (4.30)
- -----------------------------------------------------------------------------------------------
See footnotes (b) through (h) on pages 13-14.
</TABLE>
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 value 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 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, cruise and other 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 third quarter
of 1999, ground package revenues increased 144.3% to $14.9 million, as compared
to $6.1 million in the third quarter of 1998, and in the nine months ended
September 30, 1999, ground package revenues increased 164.8% to $46.6 million,
as compared to $17.6 million in the same period of 1998.
Effective January 31, 1999, the Company completed the acquisition 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 $1.2 million and $14.1 million, respectively, of the
increases in ground package revenues in the quarter and nine months ended
September 30, 1999, were attributable to the incremental ground package revenues
of TCI, none of which revenues were included in the Company's results of
operations in the same periods of 1998.
Effective April 30, 1999, the Company completed the purchase of Key Tours, Inc.
and affiliated companies, also a tour operator serving the Detroit metropolitan
area (see footnote 4). Key Tours provides tour packages, including ground
arrangements, to such leisure destinations as Las Vegas and Florida. The Company
has had a relationship with Key Tours as a major provider of passenger airline
services for over 15 years. Approximately $7.9 million and $13.1 million,
respectively, of the increase in ground package revenues in the quarter and nine
months ended September 30, 1999, were attributable to the incremental ground
package revenues of Key Tours, none of which revenues were included in the
Company's results of operations in the same periods of 1998.
The Company's Ambassadair Travel Club offers hundreds of tour-guide-accompanied
vacation packages to its approximately 40,000 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 increased 47.6% to $12.4 million in the third quarter of 1999, as
compared to $8.4 million in the third quarter of 1998, and increased 16.8% to
$35.4 million in the nine months ended September 30, 1999, as compared to $30.3
million in the same period of 1998. In both respective sets of periods, the
Company's other revenues increased due to higher revenues earned in
non-passenger airline businesses, especially cargo revenues which increased
significantly due to the acquisition of Amber Air Freight at the beginning of
the year (see footnote 4).
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 third quarter of 1999 increased
21.2% to $64.7 million from $53.4 million in the third quarter of 1998, and in
the nine months ended September 30, 1999, increased 20.2% to $187.3 million from
$155.8 million in the same period of 1998.
The Company increased its average equivalent employees by approximately 12.8%
and 14.1%, respectively, between the quarter and nine months ended September 30,
1999, and the comparable periods of 1998 in order to appropriately staff the
growth in ASMs flown between periods. This growth was most significant in
categories of employees which are influenced directly by flight activity. Some
employment growth in the first nine months 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 Company's salaries, wages and benefits expense in the quarter and nine
months ended September 30, 1999, also increased by approximately $2.3 million
and $4.6 million, respectively, as compared to the same periods of 1998, due to
the acquisition of new businesses in 1999 (see footnote 4).
The average rate of pay earned by the Company's employees (including all
categories of salaries, wages and benefits) increased by approximately 7.4% and
5.4%, respectively, in the third quarters and nine-month periods ended September
30, 1999 compared with 1998. In addition to the Company's annual merit pay
increases granted to employee groups in both periods, in late 1998 the Company
granted several special pay increases to maintain pay scales at competitive
market rates.
Fuel and Oil. Fuel and oil expense increased 42.1% to $50.6 million in the third
quarter of 1999, as compared to $35.6 million in the third quarter of 1998, and
increased 15.4% to $124.2 million in the nine months ended September 30, 1999,
as compared to $107.6 million in the same period of 1998. The Company consumed
12.8% and 10.4%, respectively, more gallons of jet fuel for flying operations
between the third quarters and nine-month periods ended September 30, 1999 and
1998, which resulted in an increase in fuel expense of approximately $4.7
million and $11.3 million, respectively, between periods. Jet fuel consumption
increased primarily due to the increased number of block hours of jet flying
operations between periods. The Company flew 42,391 jet block hours in the third
quarter of 1999, as compared to 38,003 jet block hours in the third quarter of
1998, and flew 120,306 jet block hours in the nine months ended September 30,
1999, as compared to 110,372 jet block hours in the same period of 1998.
The percentage change in fuel consumption between the first nine months of 1999
and 1998 was greater than the percentage change in block-hour growth for the
same periods, since block-hour growth in the first half of 1999 was concentrated
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. Block- hour growth in the third quarter of 1999 was
concentrated on more fuel-efficient Boeing 757-200 aircraft.
During the third quarter of 1999, the Company's average cost per gallon of jet
fuel consumed increased by 25.0% as compared to the third quarter of 1998,
resulting in an increase in fuel and oil expense of approximately $10.2 million
between periods. During the nine months ended September 30, 1999, the average
cost per gallon of jet fuel increased by 2.5% as compared to the first nine
months of 1998, resulting in an increase in fuel and oil expense of
approximately $4.0 million between periods.
During the first six months 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. These hedges resulted in no significant difference in
hedge-related fuel and oil expense between the six-month periods ended June 30,
1999 and 1998. There were no such hedging activities for the quarters ended
September 30, 1999 and 1998. As of September 30, 1999, the Company does not have
any fuel price hedge agreements in effect.
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 43.0% to
$26.6 million in the third quarter of 1999, as compared to $18.6 million in the
third quarter of 1998, and increased 24.4% to $72.5 million in the nine months
ended September 30, 1999, as compared to $58.3 million in the same period of
1998.
Depreciation expense attributable to owned airframes and leasehold improvements
increased $2.4 million and $5.9 million, respectively, in the quarter and nine
months ended September 30, 1999, as compared to the same periods of 1998. The
Company owned nine Boeing 727-200 aircraft during most of the first nine months
of 1999 which were financed through operating leases in the first nine months 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
$2.5 million and $5.3 million, respectively, in the quarter and nine months
ended September 30, 1999, as compared to the same periods of 1998.
Amortization of capitalized engine and airframe overhauls increased $3.8 million
and $10.0 million, respectively, in the quarter and nine months ended September
30, 1999, as compared to the same periods 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 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, nine of which were delivered new
from the manufacturer since late 1995, 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 increased $0.5 million and
decreased $2.1 million, respectively, in the quarter and nine months ended
September 30, 1999, as compared to the same periods 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 2, 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. This change in estimate reduced depreciation expense in
the quarter and nine months ended September 30, 1999, by $1.4 million and $3.3
million, resulting in a decrease of $0.4 million and $2.3 million, respectively,
in the quarter and nine months ended September 30, 1999, as compared to the same
periods of 1998. In addition, effective January 1, 1999, the Company extended
the estimated useful lives of capitalized Boeing 727-200 airframes, engines and
improvements, all leasehold improvements, and all rotable parts associated with
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 quarter and nine months ended September 30, 1999, by $0.8 million and
$2.6 million, respectively, as compared to the same periods of 1998.
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 15.3% to $25.6 million in the
third quarter of 1999, as compared to $22.2 million in the third quarter of
1998, and increased 23.3% to $70.9 million in the nine months ended September
30, 1999, as compared to $57.5 million in the same period of 1998. The total
number of system-wide jet departures between the third quarters of 1999 and 1998
increased by 11.1% to 13,189 from 11,875, and the total number of system-wide
jet departures between the nine-month periods ended September 30, 1999 and 1998
increased by 9.6% to 38,081 from 34,749. Many of these departures were to
destinations with significantly higher handling costs and landing fees. The
Company incurred approximately $0.2 million in lower deicing costs in the
quarter. However, deicing costs increased for the nine-months ended September
30, 1999, by $1.3 million as compared to the same period of 1998. This is
attributable to more severe winter weather in 1999 than in 1998. Additionally,
the Company recorded approximately $0.5 million and $1.3 million, respectively,
in additional cargo handling expenses in the quarter and nine months ended
September 30, 1999, as compared to the same periods of 1998, due to the
acquisition of T.G. Shown Associates, Inc. in January 1999 (see footnote 4).
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 decreased 1.0% to $14.3
million in the third quarters of 1999 and 1998, and increased 1.9% to $42.4
million in the nine months ended September 30, 1999, as compared to $41.6
million in the same period of 1998.
The Company performed approximately the same number of C-checks on its fleet
during the first nine months of 1999 and 1998. The cost of materials consumed
and components repaired in association with such checks and other maintenance
activity decreased by $0.8 million between the third quarters of 1999 and 1998,
and showed no change for the nine months ended September 30, 1999, as compared
to the same period of 1998. The Company also recorded approximately $0.5 million
higher and $0.2 million lower in lease return condition expenses in the quarter
and nine months ended September 30, 1999, as compared to the same periods of
1998.
Aircraft Rentals. Aircraft rentals expense for the third quarter of 1999
increased 4.5% to $14.0 million from $13.4 million in the third quarter of 1998,
and in the nine months ended September 30, 1999, increased 10.7% to $43.4
million, as compared to $39.2 million in the same period of 1998. The Company
was leasing three additional Boeing 757-200 aircraft in the first nine months of
1999, as compared to the same period of 1998, adding $2.6 million and $8.8
million, respectively, to aircraft rentals expense in the quarter and nine
months ended September 30, 1999, as compared to the same periods of the prior
year.
The Company also owned nine Boeing 727-200 aircraft during most of the first
nine months of 1999 which had been financed through operating leases during the
first nine months of 1998, thereby reducing aircraft rentals expense by $2.0
million and $4.9 million, respectively, in the quarter and nine months ended
September 30, 1999, as compared to the same periods of 1998.
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 Travel Charter and Key Tours, which were acquired by the Company in
the first nine months of 1999 (see footnote 4). Ground package cost increased
135.3% to $12.0 million in the third quarter of 1999, as compared to $5.1
million in the third quarter of 1998 and increased 150.7% to $37.6 million in
the nine months ended September 30, 1999, as compared to $15.0 million in the
same period of 1998. Approximately $7.0 million and $21.1 million, respectively,
of these increases were attributable to the operations of Travel Charter and Key
Tours in the quarter and nine months ended September 30, 1999, none of which
costs were included in the Company's results of operations in the first nine
months 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 18.6% to $13.4 million in
the third quarter of 1999, as compared to $11.3 million in the third quarter of
1998, and increased 20.8% to $37.7 million in the nine months ended September
30, 1999, as compared to $31.2 million in the same period of 1998.
The average hotel cost per full-time-equivalent crew member increased 7.9% in
the third quarter of 1999, as compared to the same period of 1998, and increased
15.9% in the nine months ended September 30, 1999, as compared to the same
period in 1998. Such hotel costs increased due to both higher room rates paid in
1999, and due to aircraft flow changes implemented in mid-1998 which resulted in
more crews terminating their daily flying away from their home bases in the
first three quarters of 1999 than in the first three quarters 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 46.4% to $10.1 million in the third
quarter of 1999, as compared to $6.9 million in the third quarter of 1998, and
increased 40.0% to $30.1 million in the nine months ended September 30, 1999, as
compared to $21.5 million in the same period of 1998.
Approximately $1.8 million and $5.9 million, respectively, of the increases in
commissions in the quarter and nine months ended September 30, 1999, as compared
to the same periods of 1998, were attributable to commissions paid to travel
agents by Travel Charter and Key Tours, which were acquired during the first
half of 1999 (see footnote 4). Such commissions were not included in the
Company's results of operations in the first half of 1998.
Scheduled service commissions expense increased by $1.3 million and $2.9
million, respectively, between the quarter and nine months periods ended
September 30, 1999 and 1998, 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 third quarters of
1999 and 1998, catering represented 79.7% and 81.6%, respectively, of total
passenger service expense, while catering represented 81.7% and 83.6%,
respectively, of total passenger service expense for the nine month periods
ended September 30, 1999 and 1998.
The total cost of passenger service increased 15.7% to $11.8 million in the
third quarter of 1999, as compared to $10.2 million in the third quarter of
1998, and increased 12.6% to $30.3 million in the nine months ended September
30, 1999, as compared to $26.9 million in the same period of 1998. The Company
experienced decreases of approximately 8.4% and 7.2%, respectively, in the
average unit cost of catering each passenger between the quarters and nine
months ended September 30, 1999 and 1998, primarily because in the first nine
months 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 $0.7 million
and $1.8 million, respectively, in catering expense in the quarter and nine
months ended September 30, 1999, as compared to the same periods of 1998. Total
jet passengers boarded, however, increased 18.5% and 15.5%, respectively,
between the same time periods, resulting in approximately $1.4 million and $3.3
million, respectively, in higher volume-related catering expenses between the
same sets of comparative periods.
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 45.3% to $7.7 million in the
third quarter of 1999, as compared to $5.3 million in the same period of 1998,
and increased 27.8% to $21.0 million in the nine months ended September 30,
1999, as compared to the same period of 1998. All such selling expenses
increased due to growth in the scheduled service and tour operator business
units between periods.
Advertising. Advertising expense decreased 25.0% to $3.3 million in the third
quarter of 1999, as compared to $4.4 million in the third quarter of 1998, but
increased 1.2% to $13.6 million in the nine months ended September 30, 1999, as
compared to the same period 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 nine months 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 41.7% to $3.4 million in the third quarter of 1999, as
compared to $2.4 million in the third quarter of 1998, and increased 44.3% to
$10.1 million in the nine months ended September 30, 1999, as compared to $7.0
million in the same period 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 11.7% to $18.2
million in the third quarter of 1999, as compared to $16.3 million in the third
quarter of 1998, and increased 21.4% to $57.9 million in the nine months ended
September 30, 1999, as compared to $47.7 million in the same period of 1998.
These increases for the quarter and nine months ended September 30, 1999, as
compared to the same periods of 1998, were primarily attributable to the cost of
passenger air transportation purchased by Travel Charter and Key Tours from air
carriers other than the Company during the first half of 1999, none of which
expense was included in the Company's results of operations in the first half of
1998 (see footnote 4).
Interest Income and Expense. Interest expense in the quarter and nine months
ended September 30, 1999, increased to $5.3 million and $15.4 million,
respectively, as compared to $3.2 million and $9.7 million, respectively, in the
same periods 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 and $9.0 million, respectively,
was recorded in the quarter and nine months ended September 30, 1999, for these
notes, which was not incurred in the first nine months of 1998.
Interest expense in the quarter and nine months ended September 30, 1999, was
$0.6 million lower and $2.1 million lower, respectively, than in the comparable
periods of 1998 due to more interest being capitalized primarily on Boeing
757-200 and Lockheed L-1011-500 fleet acquisitions, $0.5 million lower and $1.6
million lower, respectively, due to the repayment of a note payable secured by a
Boeing 757-200 aircraft, which had been outstanding during the first nine months
of 1998 and was $0.2 million and $0.4 million higher, respectively, due to other
incremental borrowing.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $1.4 million and $4.5 million,
respectively, in interest income in the quarter and nine months ended September
30, 1999, as compared to $1.1 million and $3.3 million, respectively, in the
same periods of 1998, when less cash was available for such investment.
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, in the first quarter of 1999.
Income Tax Expense. In the quarter and nine months ended September 30, 1999, the
Company recorded $9.5 million and $30.5 million, respectively, in income tax
expense applicable to $23.2 million and $77.5 million, respectively, of pre-tax
income for those periods, while in the quarter and nine months ended September
30, 1998, income tax expense of $8.4 million and $26.1 million, respectively,
was recorded on pre-tax income of $20.8 million and $64.8 million, respectively.
The effective tax rates applicable to the quarter and nine months ended
September 30, 1999 were 40.9% and 39.4%, respectively, as compared to 40.4% and
40.4%, respectively, for the same periods of 1998. Income tax expense in both
sets of comparative periods was affected by the permanent non-deductibility for
federal income tax purposes of 45% of amounts paid for crew per diem. The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes decreases 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 nine months ended September 30, 1999 and 1998, net cash provided by
operating activities was $141.5 million and $131.9 million, respectively. The
increase in cash provided by operating activities between periods was
attributable to such factors as increased earnings, higher depreciation and
amortization, higher deferred income taxes, higher accrued expenses and other
factors. These increases were offset by higher inventories, receivables and
other factors.
Net cash used in investing activities was $239.7 million and $115.6 million,
respectively, in the nine months ended September 30, 1999 and 1998. Such amounts
primarily included capital expenditures totaling $217.7 million and $115.6
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 capital expenditures for the nine months
ended September 30, 1999, were approximately $41.5 million for the purchase of
nine Boeing 727-200 aircraft, and approximately $62.2 million for the purchase
and modification of Lockheed L-1011-500 aircraft. Also in the first nine months
of 1999, the Company had expenditures of $15.7 million associated with the
acquisitions of Travel Charter, Key Tours, Chicago Express 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 11 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 to provide
RB211-535E4 engines to power the new Boeing 757-200 aircraft. With the eleventh
delivery, the Company will have purchased 22 installed engines and two spare
engines to support this fleet. 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 nine aircraft under these agreements between September 1995 and
October 1999, all of which were financed under leases accounted for as operating
leases. The aggregate purchase price under these agreements for the remaining
two aircraft is approximately $50.0 million per aircraft, subject to escalation.
The final two deliveries are scheduled for June 2000. Advanced payments totaling
approximately $13.2 million (approximately $6.6 million per aircraft) are
required prior to delivery of the remaining aircraft, with the remaining
purchase price payable at delivery. As of October 31, 1999, the Company had
recorded fixed asset additions of $11.8 million, in advanced payments applicable
to aircraft scheduled for future delivery. The Company intends to finance the
remaining 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 engines. The Company
accepted delivery of these aircraft under this purchase agreement between August
1998 and September 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 the aircraft begins the modification process. Three modified aircraft were
placed into revenue service in January, May and August 1999, operating primarily
in the commercial and military/government charter businesses. The remaining two
modified aircraft are expected to enter revenue service in the last quarter 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 $105.0 million. The Company used the proceeds from the issuance of
unsecured notes in December 1998 to acquire and modify these airplanes.
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 initially expired in
December 1999, but the lessor has exercised its right to leave the aircraft with
the Company for one additional year at a reduced rental amount. The lessor, who
has the right to extend the lease for one more year, may "call" the aircraft
with six months notice to the Company.
In the second quarter of 1999, the Company completed the construction of a
120,000 square foot Maintenance and Operations Center immediately adjacent to
the Company's maintenance hangar at Indianapolis International Airport. In June
1999, the Company incurred an $8.0 million 15-year mortgage loan on the
Maintenance and Operations Center. The mortgage loan requires monthly principal
and interest payments.
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 is using the
net proceeds together with available cash and bank facility borrowings, for the
purchase of Lockheed L-1011-500 aircraft, engines and spare parts, and, 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, and is collateralized by certain L-1011-100 and Boeing 727-200 ADV
aircraft.
As of September 30, 1999, the Company had borrowings of $31.0 million against
this credit facility, all of which was repaid October 1, 1999. In addition, the
Company had outstanding letters of credit secured by this facility aggregating
$15.5 million. No amounts had been drawn against letters of credit at September
30, 1999.
Aircraft and Hushkit Purchase Commitments. The Company has signed a purchase
agreement to acquire eight Boeing 727-200ADV aircraft. Seven of these aircrafts
have been purchased including one on lease to another airline. The final
aircraft is expected to be purchased in November 1999. The Company currently
expects to sell the aircraft that had been operated by the other lessor. The
Company has to install engine hushkits on all of the Boeing 727-200 aircraft
that it currently operates in order to meet federal Stage 3 noise regulations
for its fleet by December 31, 1999. It expects to install the final two hushkits
to meet those requirements.
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 Year 2000 readiness.
The Company's Year 2000 Project involves the completion of five specific phases
of work. The first, or awareness phase (now 100% complete), included 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, inventory and assessment (now 100% complete), included 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 readiness standards for such components, development of a
critical vendor database, development of renovation standards and guidelines,
development of testing standards and guidelines, creation of a dedicated testing
environment, 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. With respect to the 693 computer
components included in the Company's initial inventory, 65 project plans were
developed to address high-risk components, and 72 project plans were developed
to address low-risk components.
The third phase, renovation (now 100% complete), included the conversion,
replacement or elimination of selected hardware platforms and devices, operating
systems, databases, purchased software, utilities, and internal and external
interfaces. Renovation required the completion and documentation of software and
hardware changes, development of replacement systems and decommissioning systems
to be eliminated. Renovation also included 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 continue to be updated and
completed.
The fourth phase was validation (now 100% complete with respect to high-risk
components and 98% complete with respect to low-risk components), which included
user acceptance testing of all new or renovated components. Such testing has
validated 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 was implementation (now 100% complete with respect to high-risk
components and 94% complete with respect to low-risk components), which included
integration testing of individual components as to interfaces and
interdependencies with other components or elements of the Company's technology
infrastructure and installation of any Year 2000 related modifications into a
production environment.
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-ready, and the expected time and effort which would be required
to replace the Year-2000-defective vendor with a Year-2000-ready vendor. Under
this classification system, the Company has identified 621 "tier 3" vendors
whose lack of Year 2000 readiness and the resulting loss of essential goods and
services could create immediate operations or financial impact to the Company,
with replacement of such vendors taking considerable time and effort. All but 3
of the "tier 3" vendors have now been certified by the Company as meeting its
Year 2000 readiness standards, with the remainder targeted for completion in
early November 1999.
The Company has further classified 398 vendors as "tier 2" vendors, which could
pose some operations or financial concerns 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 but 6 of the "tier 2" vendors have now been determined by the
Company as meeting its Year 2000 readiness standards, with the remainder
currently undergoing a follow-up process.
Over 2,000 remaining vendors have been classified as "tier 1" vendors, the loss
of which would pose only minor inconveniences to the Company in the event that
they should fail to meet Year 2000 readiness, and all of which could be easily
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.
The Company has identified approximately 180 domestic and international airports
that are now scheduled, or potentially could be scheduled by the Company at a
future time, for flight arrivals and departures during the final two weeks of
1999 and the first four weeks of 2000. As a member of the Air Transport
Association Year 2000 Airports Sub-Committee, the Company is actively involved
in an industry-wide process to verify the Year 2000 readiness of domestic and
international airports and associated air traffic control systems. To date, the
Company has received Year 2000 readiness information on all but a few of the 180
targeted airports and traffic control systems. The Company has also communicated
directly with business partners and suppliers at targeted airports, and receives
regular updates on Year 2000 readiness status from internal and industry
sources. Although this information has improved the Company's ability to
evaluate the risks, the Company cannot be certain that all airport and air
traffic control system Year 2000 readiness issues will be resolved before the
end of 1999. The Company continues to evaluate the most current information
available and will make a final determination regarding any flight schedule
changes and other contingency plans during the weeks immediately preceding the
end of 1999.
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 continue to be directed toward completing an independent
verification of the readiness of these agencies.
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 $6.4 million. Such
estimated cost includes approximately $2.2 million in capital expenditures to
acquire new software and hardware to replace Year-2000-defective computer
devices, as well as approximately $4.2 million in labor and related expenses to
perform all Year 2000 projects, vendor-readiness assessment and contingency
planning. Approximately $5.8 million of this estimated cost has been incurred as
of September 30, 1999, with the remaining $0.6 million to be incurred in the
fourth quarter 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, will
mitigate all significant risks of business and operational disruption arising
from Year-2000-defective computer components. However, the Company cannot be
assured that domestic and foreign air transportation infrastructure upon which
it depends, such as airports and air traffic control systems, will be fully
compliant with Year 2000 requirements by the end of 1999, in which case the
Company could suffer some disruptions to business processes and operations, and
might be required to make some changes to its planned flying schedules just
prior to and immediately after 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. During the
fourth quarter of 1999, these contingency plans will be refined and tested.
Contingency plans include such strategies as securing alternative vendors and
preparing for manual workarounds, where feasible.
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. 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>
PART II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports of Form 8-K
(a) None.
(b) None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amtran, Inc.
(Registrant)
Date November 15, 1999 John P. Tague
John P. Tague
President and Chief Executive Officer
Director
Date November 15, 1999 James W. Hlavacek
James W. Hlavacek
Executive Vice President, Chief Operating Officer
and President of ATA Training Corporation
Director
Date November 15, 1999 Kenneth K. Wolff
Kenneth K. Wolff
Executive Vice President and Chief Financial Officer
Director
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