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, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From to
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,635,027 shares outstanding as of October
31, 2000
<PAGE>
PART I - Financial Information
Item I - Financial Statements
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2000 1999
-------------------------- --------------------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents .................................. $ 124,969 $ 120,164
Receivables, net of allowance for doubtful accounts
(2000 - $1,467; 1999 - $1,511) ........................ 54,851 52,099
Inventories, net .......................................... 45,640 36,686
Prepaid expenses and other current assets .................. 17,567 22,945
-------------------------- --------------------------
Total current assets ............................................ 243,027 231,894
Property and equipment:
Flight equipment ........................................... 870,878 781,171
Facilities and ground equipment ............................ 107,992 92,060
-------------------------- --------------------------
978,870 873,231
Accumulated depreciation ................................... (427,883) (361,399)
-------------------------- --------------------------
550,987 511,832
Goodwill ........................................................ 22,661 23,453
Deposits and other assets ....................................... 82,529 48,102
-------------------------- --------------------------
Total assets .................................................... $ 899,204 $ 815,281
========================== ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....................... $ 5,908 $ 2,079
Accounts payable ........................................... 14,120 20,234
Air traffic liabilities .................................... 99,502 93,507
Accrued expenses ........................................... 123,844 126,180
-------------------------- --------------------------
Total current liabilities 243,374 242,000
Long-term debt, less current maturities ......................... 362,258 345,792
Deferred income taxes ........................................... 62,444 58,493
Other deferred items ............................................ 45,361 17,620
-------------------------- --------------------------
Total liabilities ............................................... 713,437 663,905
Redeemable preferred stock; authorized and issued 300 shares;
par value $100,000 .......................................... 30,000 -
Shareholders' equity:
Preferred stock; authorized 9,999,700 shares; none issued . - -
Common stock, without par value; authorized 30,000,000 ....
shares; 2000 - 12,959,523; 1999 - 12,884,306 ........... 57,047 55,826
Additional paid-in-capital ................................. 12,641 12,910
Deferred compensation - ESOP ............................... - (533)
Treasury stock:2000 - 844,355 shares; 1999 - 612,052 shares (14,491) (10,500)
Retained earnings .......................................... 100,570 93,673
-------------------------- --------------------------
155,767 151,376
-------------------------- --------------------------
Total liabilities and shareholders' equity ...................... $ 899,204 $ 815,281
========================== ==========================
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,
2000 1999 2000 1999
------------------------------------------ ------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C> <C> <C>
Scheduled service ........................ $ 206,469 $ 172,598 $ 571,342 $ 480,877
Charter .................................. 119,037 103,031 349,817 302,731
Ground package ........................... 9,692 14,876 47,003 46,565
Other .................................... 12,103 12,416 34,039 35,371
------------------- ---------------------- ------------------ -------------------
Total operating revenues .................... 347,301 302,921 1,002,201 865,544
------------------- ---------------------- ------------------ -------------------
Operating expenses:
Fuel and oil ............................. 78,022 50,571 204,704 124,233
Salaries, wages and benefits ............. 76,540 64,732 217,172 187,309
Depreciation and amortization ............ 31,646 26,609 93,999 72,467
Handling, landing and navigation fees .... 25,000 25,618 74,066 70,929
Aircraft rentals ......................... 19,213 14,020 52,075 43,402
Crew and other employee travel ........... 18,109 13,396 50,799 37,664
Aircraft maintenance, materials and repairs 16,250 14,301 53,225 42,432
Passenger service ........................ 12,968 11,822 36,390 30,283
Commissions .............................. 9,612 10,121 31,306 30,071
Other selling expenses ................... 9,572 7,677 27,056 21,025
Ground package cost ...................... 8,323 12,007 40,254 37,642
Facility and other rentals ............... 3,781 3,441 11,403 10,103
Advertising .............................. 3,446 3,340 15,021 13,587
Other .................................... 20,128 18,196 58,854 57,938
------------------- ---------------------- ------------------ -------------------
Total operating expenses .................... 332,610 275,851 966,324 779,085
------------------- ---------------------- ------------------ -------------------
Operating income ............................ 14,691 27,070 35,877 86,459
Other income (expense):
Interest income .......................... 2,269 1,363 6,154 4,526
Interest (expense) ....................... (8,091) (5,295) (23,733) (15,413)
Other .................................... 225 46 274 1,882
------------------- ---------------------- ------------------ -------------------
Other expense ............................... (5,597) (3,886) (17,305) (9,005)
------------------- ---------------------- ------------------ -------------------
Income before income taxes .................. 9,094 23,184 18,572 77,454
Income taxes ................................ 6,112 9,484 11,675 30,509
------------------- ---------------------- ------------------ -------------------
Net income .................................. $ 2,982 $ 13,700 $ 6,897 $ 46,945
=================== ====================== ================== ===================
Basic earnings per common share:
Average shares outstanding .................. 12,121,233 12,409,820 12,105,645 12,260,175
Net income per share ........................ $ 0.25 $ 1.10 $ 0.57 $ 3.83
=================== ====================== ================== ===================
Diluted earnings per common share:
Average shares outstanding .................. 12,747,685 13,566,468 12,846,162 13,537,288
Net income per share ........................ $ 0.23 $ 1.01 $ 0.54 $ 3.47
=================== ====================== ================== ===================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended September 30,
2000 1999
--------------------------------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income ................................................... $ 6,897 $ 46,945
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ........................... 93,999 72,467
Deferred income taxes ................................... 3,951 16,366
Other non-cash items .................................... 2,192 (62)
Changes in operating assets and liabilities, net of
effects from business acquisitions:
Receivables ............................................ (2,752) (5,841)
Inventories ............................................ (10,944) (14,638)
Prepaid expenses ....................................... 5,378 1,151
Accounts payable ....................................... (6,114) 6,075
Air traffic liabilities ................................ 5,995 (4,554)
Accrued expenses ....................................... (2,101) 20,439
---------------- -------------------
Net cash provided by operating activities ................ 96,501 138,348
---------------- -------------------
Investing activities:
Proceeds from sales of property and equipment ................ 60 234
Capital expenditures ......................................... (128,830) (217,680)
Acquisition of businesses, net of cash acquired .............. - 16,673
Additions to other assets .................................... (21,295) (38,886)
---------------- -------------------
Net cash used in investing activities ..................... (150,065) (239,659)
---------------- -------------------
Financing activities:
Proceeds from sale/leaseback transactions .................... 11,432 3,145
Proceeds from issuance of redeemable preferred stock ......... 30,000 -
Proceeds from issuance of common stock ....................... 713 3,439
Payments to purchase treasury stock .......................... (3,991) (6,623)
Proceeds from issuance of long-term debt ..................... 33,000 38,942
Payments on long-term debt ................................... (12,785) (1,377)
---------------- -------------------
Net cash provided by financing activities ................. 58,369 37,526
---------------- -------------------
Increase (decrease) in cash and cash equivalents ............. 4,805 (63,785)
Cash and cash equivalents, beginning of period ............... 120,164 172,936
---------------- -------------------
Cash and cash equivalents, end of period ..................... $ 124,969 $ 109,151
================ ===================
Supplemental disclosures:
Cash payments for:
Interest .................................................. $ 24,418 $ 17,790
Income taxes .............................................. 210 10,636
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, 2000 and 1999 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows for
such periods. Results for the nine months ended September 30, 2000, are
not necessarily indicative of results to be expected for the full fiscal
year ending December 31, 2000. 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,
1999.
2. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and out-
standing stock of T. G. Shown Associates, Inc., which owned 50% of the
Amber Air Freight partnership. The Company had already owned the other
50% of this air cargo operation.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent
tour operator. ATA had been providing passenger airline services to TCI
for over 14 years. TCI's results of operations, beginning February 1999,
were consolidated into the Company.
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. ATA had been providing passenger airline services to Key Tours for
over 15 years. The results of operations, beginning May 1999, of Key
Tours were consolidated into the Company.
The Company combined the operations of TCI, AATC, KTLV and KTI with its
existing vacation package brand, ATA Vacations, to form the ATA Leisure
Corp. ("ATALC").
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had maintained a code-share agreement with Chicago Express since April
1997. Chicago Express' results of operations, beginning May 1999, were
consolidated into the Company.
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,
2000 1999
-------------------------------------------
Numerator:
<S> <C> <C>
Net income $2,982,000 $13,700,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,121,233 12,409,820
Effect of dilutive securities:
Employee stock options 418,356 1,156,648
Redeemable preferred stock 208,096 -
-------------------- ----------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 12,747,685 13,566,468
==================== ======================
Basic earnings per share $ 0.25 $1.10
==================== ======================
Diluted earnings per share $ 0.23 $1.01
==================== ======================
Nine Months Ended September 30,
2000 1999
-------------------------------------------
Numerator:
Net income $6,897,000 $46,945,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,105,645 12,260,175
Effect of dilutive securities:
Employee stock options 670,645 1,277,113
Redeemable preferred stock 69,872 -
-------------------- ----------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 12,846,162 13,537,288
==================== ======================
Basic earnings per share $ 0.57 $3.83
==================== ======================
Diluted earnings per share $ 0.54 $3.47
</TABLE>
4. Segment Disclosures
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the
sale of scheduled service or charter air transportation. ATALC derives
its revenues from the sale of vacation packages, which, in addition to
air transportation, includes hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from American
Trans Air, Inc.
Segment financial data is provided in the following tables for the
periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2000
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ---------------- -----------------
(In thousands)
<S> <C> <C> <C> <C>
Operating revenue (external) $315,061 $16,378 $15,862 $347,301
Inter-segment revenue 10,494 752 (11,246) -
Operating expenses (external) 305,543 13,833 13,234 332,610
Inter-segment expenses 967 7,981 (8,948) -
Operating income (loss) 19,045 (4,684) 330 14,691
Segment assets 973,212 151,499 (225,507) 899,204
For the Three Months Ended September 30, 1999
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ---------------- -----------------
(In thousands)
Operating revenue (external) $264,490 $24,513 $13,918 $302,921
Inter-segment revenue 13,102 1,151 (14,253) -
Operating expenses (external) 246,723 17,613 11,515 275,851
Inter-segment expenses 1,621 9,385 (11,006) -
Operating income (loss) 29,248 (1,334) (844) 27,070
Segment assets 736,975 47,826 (38,019) 746,782
For the Nine Months Ended September 30, 2000
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ---------------- -----------------
(In thousands)
Operating revenue (external) $876,190 $80,164 $45,847 $1,002,201
Inter-segment revenue 47,817 2,257 (50,074) -
Operating expenses (external) 869,886 54,822 41,616 966,324
Inter-segment expenses 5,743 37,008 (42,751) -
Operating income (loss) 48,378 (9,409) (3,092) 35,877
Segment assets 973,212 151,499 (225,507) 899,204
For the Nine Months Ended September 30, 1999
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ---------------- -----------------
(In thousands)
Operating revenue (external) $750,522 $75,129 $39,893 $865,544
Inter-segment revenue 31,118 1,147 (32,265) -
Operating expenses (external) 694,355 55,393 29,337 779,085
Inter-segment expenses 5,419 20,710 (26,129) -
Operating income 81,866 173 4,420 86,459
Segment assets 736,975 47,826 (38,019) 746,782
</TABLE>
5. Purchase of Treasury Stock
In 1994 and 1999, the Company's Board of Directors approved the
repurchase of up to 850,000 shares of the Company's common stock. In
September and October 2000, the Board of Directors approved the
repurchase of up to an additional 850,000 shares of the Company's common
stock, for a total of 1,700,000 shares of the Company's common stock.
As of December 31, 1999, the Company had repurchased 612,052 common
shares. In the first nine months of 2000, the Company completed the
repurchase of 232,303 additional shares of Amtran common stock. In
October 2000, the Company completed the repurchase of an additional
505,500 shares of common stock. As of October 31, 2000, a total of
350,145 shares of the Company's common stock remain authorized for
repurchase.
6. Commitments and Contingencies
On May 4, 2000, the Company entered into a preliminary agreement to
obtain, as subsequently amended, 39 Boeing 737-800 aircraft and 10 Boeing
757-300 aircraft. As part of this agreement, the Company also received
purchase rights for an additional 50 aircraft. The Company also entered
into preliminary agreements with General Electric and Rolls-Royce to
supply engines to power the Boeing 737-800 and 757-300 aircraft,
respectively. The Company also secured various financing commitments for
all of the aircraft to be obtained. These financing commitments are
comprised of various operating leases, leveraged leases, single investor
leases and certain preferred stock purchase commitments. Closing of the
entire transaction is subject to the completion of definitive
documentation and customary closing conditions.
On June 30, 2000, the Company signed a definitive purchase agreement for
the 10 new Boeing 757-300s and 20 of the new Boeing 737-800s. These
represent the aircraft to be obtained directly from Boeing.
On September 20, 2000, the Company signed a definitive agreement to lease
14 new Boeing 737-800s from a lessor. In conjunction with this agreement,
the Company also committed to the purchase of two spare General Electric
aircraft engines. The aircraft under this agreement are scheduled for
delivery between May 2001 and May 2004, while the spare engines are
scheduled for delivery in 2001.
On November 2, 2000, the Company signed a definitive agreement for
warranty and ongoing maintenance services applicable to the General
Electric engines which will power all 39 Boeing 737-800 aircraft. Under
this agreement, all significant maintenance and overhaul will be provided
in exchange for fixed payments by the Company per engine flight hour over
the life of the agreement.
The remaining 737-800s are expected to be obtained from several potential
lessors through operating leases. Definitive agreements have not yet been
formalized with respect to these remaining aircraft and engines. The
Company expects to finalize most of these agreements in the fourth
quarter of 2000.
7. Redeemable Preferred Stock
In September 2000, the Company issued 300 shares of Series B convertible
redeemable preferred stock at a par value of $100,000 per share. The
holders of the preferred stock are entitled to cumulative quarterly
dividends at a rate of 5% on par value. The preferred shares are
convertible into shares of Amtran common stock at a conversion rate of
6,381.62 shares of common stock per share of preferred stock, at a
conversion price of $15.67 per share of common stock. The preferred stock
is optionally redeemable by the Company under certain conditions, but the
Company must redeem the preferred stock no later than September 20, 2015.
Optional redemption by the Company may occur at 103.6% of par value
beginning September 20, 2003, decreasing 0.3% per year to 100.0% at the
mandatory redemption date of September 20, 2015. The holders of the
preferred stock do not have the right to vote on or consent to any matter
as shareholders, unless six quarterly dividends go unpaid. If six
quarterly dividends go unpaid, the holders of the preferred stock will be
entitled to elect at the next annual shareholders meeting, twenty-five
percent of the Company's Board of Directors, but no less than two
directors.
<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, 2000, Versus Quarter and Nine Months
Ended September 30, 1999
Overview
Amtran, Inc. (the "Company") is a leading provider of targeted scheduled airline
services and charter airline services to leisure and other value-oriented
travelers. Amtran, through its principal subsidiary, American Trans Air, Inc.
("ATA"), has been operating for 27 years and is the eleventh largest U.S.
airline in terms of 1999 revenues. ATA provides scheduled service through
nonstop and connecting flights from Chicago-Midway and Indianapolis to
destinations such as Hawaii, Las Vegas, Phoenix, Florida, California, Mexico and
San Juan, as well as to Philadelphia, Boston, Seattle, Reagan Washington
National, 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, 2000, the Company recorded
operating income of $14.7 million and $35.9 million, respectively, as compared
to $27.1 million and $86.5 million in the same periods of 1999. The decline in
operating income in 2000 was primarily a result of higher fuel prices. In the
quarter and nine months ended September 30, 2000, fuel expense increased $17.6
million and $52.0 million, as compared to the same periods of 1999, net of fuel
price reimbursement earned under certain tour operator and military agreements.
In the third quarter of 2000, the Company began a fuel-hedging program; see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Fuel and Oil".
Results of Operations
For the quarter ended September 30, 2000, the Company earned $14.7 million in
operating income, a decrease of 45.8% as compared to operating income of $27.1
million in the third quarter of 1999; and the Company earned $3.0 million in net
income in the third quarter of 2000, a decrease of 78.1% as compared to net
income of $13.7 million in the third quarter of 1999. Operating revenues
increased 14.7% to $347.3 million in the third quarter of 2000, as compared to
$302.9 million in the same period of 1999. Consolidated operating revenue per
available seat mile ("RASM") increased 7.6% to 7.69 cents in the third quarter
of 2000, as compared to 7.15 cents in the third quarter of 1999. Operating
expenses increased 20.6% to $332.6 million in the third quarter of 2000, as
compared to $275.9 million in the comparable period of 1999. Consolidated
operating cost per available seat mile ("CASM") increased 13.2% to 7.37 cents in
the third quarter of 2000, as compared to 6.51 cents in the third quarter of
1999.
For the nine months ended September 30, 2000, the Company earned $35.9 million
in operating income, a decrease of 58.5% as compared to operating income of
$86.5 million in the comparable period of 1999; and the Company earned $6.9
million in net income in the nine months ended September 30, 2000, a decrease of
85.3% as compared to net income of $46.9 million in the same period of 1999.
Operating revenues increased 15.8% to $1.002 billion in the nine months ended
September 30, 2000, as compared to $865.5 million in the same period of 1999.
Consolidated RASM increased 6.8% to 7.97 cents in the nine months ended
September 30, 2000, as compared to 7.46 cents in the same period of 1999.
Operating expenses increased 24.0% to $966.3 million in the nine months ended
September 30, 2000, as compared to $779.1 million in the comparable period of
1999. Consolidated CASM increased 14.3% to 7.68 cents in the nine months ended
September 30, 2000, as compared to 6.72 cents in the same period of 1999.
<PAGE>
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per available seat mile ("ASM").
<TABLE>
<CAPTION>
Cents Per ASM Cents Per ASM
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total operating revenues 7.69 7.15 7.97 7.46
Operating expenses:
Fuel and oil 1.73 1.19 1.63 1.07
Salaries, wages and benefits 1.70 1.53 1.73 1.62
Depreciation and amortization 0.70 0.63 0.75 0.63
Handling, landing and navigation fees 0.55 0.60 0.59 0.61
Aircraft rentals 0.43 0.33 0.41 0.37
Crew and other employee travel 0.40 0.32 0.40 0.32
Aircraft maintenance, materials and repairs 0.36 0.34 0.42 0.37
Passenger service 0.29 0.28 0.29 0.26
Commissions 0.21 0.24 0.25 0.26
Other selling expenses 0.21 0.18 0.21 0.18
Ground package cost 0.18 0.28 0.32 0.32
Facility and other rentals 0.08 0.08 0.09 0.09
Advertising 0.08 0.08 0.12 0.12
Other 0.45 0.43 0.47 0.50
---- ---- ---- ----
Total operating expenses 7.37 6.51 7.68 6.72
---- ---- ---- ----
Operating income 0.32 0.64 0.29 0.74
---- ---- ---- ----
ASMs (in thousands) 4,515,766 4,234,403 12,575,623 11,599,119
</TABLE>
The following tables set forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars and expressed
in cents per ASM:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
2000 1999 Inc. (Dec)
----------------- ----------------- -----------------
Airline and Other
<S> <C> <C> <C> <C>
Operating revenue (000s) $330,171 $277,257 $52,914
RASM (cents) 7.31 6.55 0.76
Operating expense (000s) $310,796 $248,853 $61,943
CASM (cents) 6.88 5.87 1.01
ATA Leisure Corp. (ATALC)
Operating revenue (000s) $17,130 $25,664 $(8,534)
RASM (cents) 0.38 0.60 (0.22)
Operating expense (000s) $21,814 $26,998 $(5,184)
CASM (cents) 0.49 0.64 (0.15)
For the Nine Months Ended September 30,
2000 1999 Inc. (Dec)
----------------- --- ----------------- -- -----------------
Airline and Other
Operating revenue (000s) $919,780 $789,268 $130,512
RASM (cents) 7.31 6.80 0.51
Operating expense (000s) $874,494 $702,982 $171,512
CASM (cents) 6.95 6.06 0.89
ATA Leisure Corp. (ATALC)
Operating revenue (000s) $82,421 $76,276 $6,145
RASM (cents) 0.66 0.66 -
Operating expense (000s) $91,830 $76,103 $15,727
CASM (cents) 0.73 0.66 0.07
</TABLE>
ATALC operating revenues and expenses presented above include those from
external sources and those generated or incurred through another segment.
Airline and other operating revenues and expenses presented above include
intercompany eliminations.
<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/Saab" operations include the operations of
Jetstream 31 and Saab 340B propeller aircraft by Chicago Express Airlines, Inc.
as the ATA Connection.
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures Jet 14,823 13,189 1,634 12.39
Departures J31/Saab (a) 4,908 4,611 297 6.44
----------------------------------------------------------
Total Departures (b) 19,731 17,800 1,931 10.85
----------------------------------------------------------
Block Hours Jet 46,042 42,391 3,651 8.61
Block Hours J31/Saab 4,827 4,660 167 3.58
----------------------------------------------------------
Total Block Hours (c) 50,869 47,051 3,818 8.11
----------------------------------------------------------
RPMs Jet (000s) 3,362,058 3,153,974 208,084 6.60
RPMs J31/Saab (000s) 16,166 9,223 6,943 75.28
----------------------------------------------------------
Total RPMs (000s) (d) 3,378,224 3,163,197 215,027 6.80
----------------------------------------------------------
ASMs Jet (000s) 4,487,886 4,219,310 268,576 6.37
ASMs J31/Saab (000s) 27,880 15,093 12,787 84.72
----------------------------------------------------------
Total ASMs (000s) (e) 4,515,766 4,234,403 281,363 6.64
----------------------------------------------------------
Load Factor Jet 74.91 74.75 0.16 0.21
Load Factor J31/Saab 57.98 61.11 (3.13) (5.12)
----------------------------------------------------------
Total Load Factor (f) 74.81 74.70 0.11 0.15
----------------------------------------------------------
Passengers Enplaned Jet 2,032,703 1,787,108 245,595 13.74
Passengers Enplaned J31/Saab 88,556 53,647 34,909 65.07
----------------------------------------------------------
Total Passengers Enplaned (g) 2,121,259 1,840,755 280,504 15.24
----------------------------------------------------------
Revenue $(000s) 347,301 302,921 44,380 14.65
RASM in cents (h) 7.69 7.15 0.54 7.55
CASM in cents (i) 7.37 6.51 0.86 13.21
Yield in cents (j) 10.28 9.58 0.70 7.31
</TABLE>
See footnotes (a) through (j) on pages 14-15.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures Jet 41,800 38,081 3,719 9.77
Departures J31/Saab (a) 13,758 13,104 654 4.99
----------------------------------------------------------
Total Departures (b) 55,558 51,185 4,373 8.54
----------------------------------------------------------
Block Hours Jet 130,885 120,306 10,579 8.79
Block Hours J31/Saab 13,809 13,310 499 3.75
----------------------------------------------------------
Total Block Hours (c) 144,694 133,616 11,078 8.29
----------------------------------------------------------
RPMs Jet (000s) 9,222,563 8,524,224 698,339 8.19
RPMs J31/Saab (000s) 39,790 26,499 13,291 50.16
----------------------------------------------------------
Total RPMs (000s) (d) 9,262,353 8,550,723 711,630 8.32
----------------------------------------------------------
ASMs Jet (000s) 12,510,701 11,556,648 954,053 8.26
ASMs J31/Saab (000s) 64,922 42,471 22,451 52.86
----------------------------------------------------------
Total ASMs (000s) (e) 12,575,623 11,599,119 976,504 8.42
----------------------------------------------------------
Load Factor Jet 73.72 73.76 (0.04) (0.05)
Load Factor J31/Saab 61.29 62.39 (1.10) (1.76)
----------------------------------------------------------
Total Load Factor (f) 73.65 73.72 (0.07) (0.09)
----------------------------------------------------------
Passengers Enplaned Jet 5,901,164 5,314,396 586,768 11.04
Passengers Enplaned J31/Saab 221,252 152,567 68,685 45.02
----------------------------------------------------------
Total Passengers Enplaned (g) 6,122,416 5,466,963 655,453 11.99
----------------------------------------------------------
Revenue $(000s) 1,002,201 865,544 136,657 15.79
RASM in cents (h) 7.97 7.46 0.51 6.84
CASM in cents (i) 7.68 6.72 0.96 14.29
Yield in cents (j) 10.82 10.12 0.70 6.92
</TABLE>
See footnotes (d) through (j) on page 15.
(a) Chicago Express provides service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, South Bend and
Madison as the ATA Connection, using Saab 340B propeller aircraft. During 1999,
Chicago Express operated nine 19-seat Jetstream aircraft. During the first three
quarters of 2000, Chicago Express gradually replaced the Jetstream aircraft with
nine 34-seat Saab 340B aircraft. As of September 30, 2000, all Jetstream
aircraft have been removed from revenue service.
(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/Saab" include the operations of Jetstream
31 and Saab 340B propeller aircraft by Chicago Express as the ATA Connection.
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures Jet 10,842 9,411 1,431 15.21
Departures J31/Saab (a) 4,908 4,611 297 6.44
----------------------------------------------------------
Total Departures (b) 15,750 14,022 1,728 12.32
----------------------------------------------------------
Block Hours Jet 31,039 28,391 2,648 9.33
Block Hours J31/Saab 4,827 4,660 167 3.58
----------------------------------------------------------
Total Block Hours (c) 35,866 33,051 2,815 8.52
----------------------------------------------------------
RPMs Jet (000s) 2,082,759 1,952,291 130,468 6.68
RPMs J31/Saab (000s) 16,166 9,223 6,943 75.28
----------------------------------------------------------
Total RPMs (000s) (d) 2,098,925 1,961,514 137,411 7.01
----------------------------------------------------------
ASMs Jet (000s) 2,666,489 2,497,643 168,846 6.76
ASMs J31/Saab (000s) 27,880 15,093 12,787 84.72
----------------------------------------------------------
Total ASMs (000s) (e) 2,694,369 2,512,736 181,633 7.23
----------------------------------------------------------
Load Factor Jet 78.11 78.17 (0.06) (0.08)
Load Factor J31/Saab 57.98 61.11 (3.13) (5.12)
----------------------------------------------------------
Total Load Factor (f) 77.90 78.06 (0.16) (0.20)
----------------------------------------------------------
Passengers Enplaned Jet 1,551,642 1,295,266 256,376 19.79
Passengers Enplaned J31/Saab 88,556 53,647 34,909 65.07
----------------------------------------------------------
Total Passengers Enplaned (g) 1,640,198 1,348,913 291,285 21.59
----------------------------------------------------------
Revenue $(000s) 206,469 172,598 33,871 19.62
RASM in cents (h) 7.66 6.87 0.79 11.50
Yield in cents (j) 9.84 8.80 1.04 11.82
Rev per segment $ (k) 125.88 127.95 (2.07) (1.62)
</TABLE>
See footnotes (a) through (j) on pages 14-15.
(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,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures Jet 29,809 26,749 3,060 11.44
Departures J31/Saab (a) 13,758 13,104 654 4.99
----------------------------------------------------------
Total Departures (b) 43,567 39,853 3,714 9.32
----------------------------------------------------------
Block Hours Jet 87,093 79,068 8,025 10.15
Block Hours J31/Saab 13,809 13,310 499 3.75
----------------------------------------------------------
Total Block Hours (c) 100,902 92,378 8,524 9.23
----------------------------------------------------------
RPMs Jet (000s) 5,854,824 5,226,411 628,413 12.02
RPMs J31/Saab (000s) 39,790 26,499 13,291 50.16
----------------------------------------------------------
Total RPMs (000s) (d) 5,894,614 5,252,910 641,704 12.22
----------------------------------------------------------
ASMs Jet (000s) 7,433,895 6,673,153 760,742 11.40
ASMs J31/Saab (000s) 64,922 42,471 22,451 52.86
----------------------------------------------------------
Total ASMs (000s) (e) 7,498,817 6,715,624 783,193 11.66
----------------------------------------------------------
Load Factor Jet 78.76 78.32 0.44 0.56
Load Factor J31/Saab 61.29 62.39 (1.10) (1.76)
----------------------------------------------------------
Total Load Factor (f) 78.61 78.22 0.39 0.50
----------------------------------------------------------
Passengers Enplaned Jet 4,391,968 3,702,651 689,317 18.62
Passengers Enplaned J31/Saab 221,252 152,567 68,685 45.02
----------------------------------------------------------
Total Passengers Enplaned (g) 4,613,220 3,855,218 758,002 19.66
----------------------------------------------------------
Revenue $(000s) 571,342 480,877 90,465 18.81
RASM in cents (h) 7.62 7.16 0.46 6.42
Yield in cents (j) 9.69 9.15 0.54 5.90
Rev per segment $ (k) 123.85 124.73 (0.88) (0.71)
</TABLE>
See footnotes (a) through (k) on pages 14-15.
Scheduled service revenues in the third quarter of 2000 increased 19.6% to
$206.5 million from $172.6 million in the third quarter of 1999; and scheduled
service revenues in the nine months ended September 30, 2000, increased 18.8% to
$571.3 million from $480.9 million in the same period of 1999. Scheduled service
revenues comprised 59.4% and 57.0%, respectively, of consolidated revenues in
the quarter and nine months ended September 30, 2000, as compared to 57.0% and
55.6%, respectively, of consolidated revenues in the same periods of 1999.
The Company's third quarter 2000 scheduled service at Chicago-Midway accounted
for approximately 62.0% of scheduled service ASMs and 84.7% of scheduled service
departures, as compared to 52.1% and 77.0%, respectively, in the third quarter
of 1999. During the second and third quarters of 2000, the Company began
operating nonstop flights to Ronald Reagan Washington National Airport, Boston,
Seattle and Minneapolis-St. Paul, none of which were served in the comparable
periods of 1999. In addition to this new service, the Company served the
following existing jet markets in both years: Dallas-Ft. Worth, Denver, Ft.
Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New York's John F. Kennedy
Airport (seasonal), New York's LaGuardia Airport, Orlando, Phoenix, St.
Petersburg, San Francisco, San Juan and Sarasota.
In April 1999, the Company acquired all of the issued and outstanding stock of
Chicago Express Airlines, Inc., which then operated 19-seat Jetstream 31
propeller aircraft between Chicago-Midway and the cities of Indianapolis,
Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison. Chicago
Express began service to South Bend, Indiana, in October 2000, and will cease
flying to Lansing, Michigan, in November 2000. In the third quarter of 2000,
Chicago Express completed the replacement of nine 19-seat Jetstream 31 aircraft
with nine 34-seat Saab 340B aircraft. All Jetstream aircraft have been removed
from revenue service as of September 30, 2000, and are in the process of being
returned to the lessors.
The Company anticipates that its Chicago-Midway operation will represent a focus
of growing significance for its scheduled service business in 2000 and beyond.
The Company operated 89 peak daily jet and commuter departures from
Chicago-Midway in the third quarter of 2000, as compared to 67 in the third
quarter of 1999, and served 25 destinations on a nonstop basis in the third
quarter of 2000, as compared to 22 nonstop destinations served in the third
quarter of 1999. In order to accommodate growth in jet departures in the
existing terminal, in October 2000 Chicago Express established a remote boarding
operation at Chicago-Midway Airport with shuttle bus service between the remote
location and the main terminal. This change has allowed the Company to convert
the former Chicago Express gate to a jet departure gate, which will permit
further expansion of jet departures in the current concourse facilities.
The Company presently expects to occupy 12 jet gates and one commuter aircraft
gate on the new Chicago-Midway gate concourses. Although five of these
additional gates are not expected to be available for occupancy until 2004, the
Company expects to occupy new ticketing and passenger check-in space in the
newly constructed Chicago-Midway terminal in the spring of 2001. This modern
facility will provide the Company with 24 customer check-in positions for
ticketing and baggage, as compared to 16 similar positions currently occupied by
the Company in the existing terminal. The Company is currently investing in new
passenger processing technology for use in the new terminal, such as curbside
skycap check-in, roving agent check-in, and customer self-service kiosks. In
addition, the Company has begun construction of a Federal Inspection Service
facility at Chicago-Midway, from which it plans to commence nonstop
international services in 2001 to new leisure destinations.
The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low-cost, nonstop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company expects
its growing concentration of connecting flights at Chicago-Midway to provide
both revenue premiums and operating cost efficiencies, as compared to the
Company's other gateway cities. Due to the importance of Chicago-Midway to the
Company's scheduled service route network, the initial deliveries of new
aircraft are expected to be used primarily in the Chicago-Midway hub, which is
expected to be operating with an all-new fleet of Boeing aircraft as early as
January of 2002 (see footnote 6 to the consolidated financial statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources").
The Company's Hawaii service accounted for 22.1% of scheduled service ASMs and
5.6% of scheduled service departures in the third quarter of 2000, as compared
to 23.4% and 6.2%, respectively, in the third quarter of 1999. The Company
provided nonstop services in both periods from Los Angeles, Phoenix and San
Francisco to both Honolulu and Maui, with connecting service between Honolulu
and Maui. The Company provides these services through a marketing alliance with
the largest independent tour operator serving leisure travelers to Hawaii from
the United States. The Company distributes the remaining seats on these flights
through normal scheduled service channels. The Company believes it has superior
operating efficiencies in west coast-Hawaii markets due to relatively low
ownership costs of the Lockheed L-1011 fleet and because of the high daily hours
of utilization obtained for both aircraft and crew.
The Company's Indianapolis service accounted for 9.4% of scheduled service ASMs
and 7.6% of scheduled service departures in the third quarter of 2000, as
compared to 11.3% and 9.9%, respectively, in the third quarter of 1999. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles (service has ceased as of August 2000), Orlando, St.
Petersburg and Sarasota. The Company has served Indianapolis for 27 years
through the Ambassadair Travel Club and in scheduled service since 1986.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its schedule and frequencies from time to time.
The Company has announced new service between Chicago-Midway and Nassau
beginning the first quarter of 2001, and nonstop to Hawaii from Chicago-O'Hare
International Airport and New York's John F. Kennedy International Airport
beginning in December of 2000.
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 customer-designated destinations throughout the world.
Commercial charter revenues accounted for 18.8% and 19.8%, respectively, of
consolidated revenues in the quarter and nine months ended September 30, 2000,
as compared to 24.1% and 24.4%, respectively, in the comparable periods of 1999.
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 has addressed 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. The deployment of these aircraft into
the Company's fleet has increased the available seat capacity for these charter
business units, in addition to opening new long-range market opportunities. The
Company also expects to use some of these aircraft for scheduled service to and
from Hawaii.
<PAGE>
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,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures (b) 2,537 2,734 (197) (7.21)
Block Hours (c) 9,370 10,608 (1,238) (11.67)
RPMs (000s) (d) 841,025 1,030,934 (189,909) (18.42)
ASMs (000s) (e) 1,041,683 1,254,253 (212,570) (16.95)
Passengers Enplaned (g) 378,322 448,483 (70,161) (15.64)
Revenue $(000s) 65,462 72,941 (7,479) (10.25)
RASM in cents (h) 6.28 5.82 0.46 7.90
RASM less fuel escalation (l) 6.03 5.79 0.24 4.15
See footnotes (b) through (h) on pages 14-15.
Nine Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
Departures (b) 7,716 8,165 (499) (5.50)
Block Hours (c) 27,375 29,712 (2,337) (7.87)
RPMs (000s) (d) 2,215,153 2,687,955 (472,802) (17.59)
ASMs (000s) (e) 2,899,232 3,340,003 (440,771) (13.20)
Passengers Enplaned (g) 1,223,893 1,455,449 (231,556) (15.91)
Revenue $(000s) 198,096 211,132 (13,036) (6.17)
RASM in cents (h) 6.83 6.32 0.51 8.07
RASM less fuel escalation (l) 6.50 6.31 .19 3.01
</TABLE>
See footnotes (b) through (h) on pages 14-15.
(l) Commercial charter contracts generally provide for the reimbursement to the
Company by the tour operator of certain fuel cost increases, which, when earned,
are accounted for as additional revenue. A separate RASM calculation, excluding
the impact of fuel reimbursements is provided as a separate measure of unit
revenue changes.
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
$55.6 million and $160.5 million, respectively, in revenues in the quarter and
nine months ended September 30, 2000, as compared to $59.5 million and $160.6
million, respectively, in the comparable periods of 1999.
Specialty charter is a product that 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 that provides the most economical solution for those requirements.
Specialty charter accounted for approximately $5.6 million and $20.9 million,
respectively, in revenues in the quarter and nine months ended September 30,
2000, as compared to $7.6 million and $26.5 million, respectively, in the
comparable periods of 1999.
Military/Government 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Departures (b) 1,341 1,038 303 29.19
Block Hours (c) 5,222 3,380 1,842 54.50
RPMs (000s) (d) 414,104 170,308 243,796 143.15
ASMs (000s) (e) 741,779 466,647 275,132 58.96
Passengers Enplaned (g) 94,914 42,915 51,999 121.17
Revenue $(000s) 53,575 30,090 23,485 78.05
RASM in cents (h) 7.22 6.45 0.77 11.94
RASM less fuel escalation (m) 6.83 6.38 0.45 7.05
Nine Months Ended September 30,
2000 1999 Inc (Dec) % Inc (Dec)
-----------------------------------------------------------
Departures (b) 4,156 3,101 1,055 34.02
Block Hours (c) 15,935 11,341 4,594 40.51
RPMs (000s) (d) 1,123,515 596,750 526,765 88.27
ASMs (000s) (e) 2,132,416 1,523,456 608,960 39.97
Passengers Enplaned (g) 276,022 148,850 127,172 85.44
Revenue $(000s) 151,722 91,599 60,123 65.64
RASM in cents (h) 7.12 6.01 1.11 18.47
RASM less fuel escalation (m) 6.79 6.04 0.75 12.42
</TABLE>
See footnotes (b) through (h) on pages 14-15. See footnote (m) on page 22.
(m) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each contract
year. If actual fuel prices differ from the contract rate, revenues are adjusted
up or down to neutralize the impact of the change on the Company. A separate
RASM calculation is provided, excluding the impact of the fuel price
adjustments.
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 traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, 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 a majority of the
passenger transport capacity of its 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. Under its current teaming arrangement, the Company expects
its military/government charter revenues to decrease to approximately $130.0
million for the contract year ending September 2001. This represents a 23.3%
decrease from $169.5 million earned in the contract year ending September 2000.
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 Travel Club members and to its
scheduled service passengers through its ATA Vacations subsidiary. However,
since the acquisition of new tour operator businesses in the Detroit area in
1999 (see footnote 2 to the consolidated financial statements), the Travel
Charter and Key Tours brands in Detroit have accounted for a significant portion
of the Company's ground package sales.
In the third quarter of 2000, ground package revenues decreased 34.9% to $9.7
million, as compared to $14.9 million in the third quarter of 1999, and in the
nine months ended September 30, 2000, ground package revenues increased 0.9% to
$47.0 million, as compared to $46.6 million in the same period of 1999. The
decrease in the comparative third quarters was primarily due to a reduction in
sales of ground packages between Detroit and Las Vegas under the Key Tours brand
name. The Company has reduced its sales of ground packages in this market due to
unfavorable competitive pricing and excess capacity.
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
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company. Other revenues decreased 2.4% to $12.1 million in the third quarter of
2000, as compared to $12.4 million in the third quarter of 1999, and decreased
4.0% to $34.0 million in the nine months ended September 30, 2000, as compared
to $35.4 million in the same period of 1999. In both respective sets of periods,
the Company's other revenues decreased primarily due to a decline in
miscellaneous ATALC revenues.
Operating Expenses
Fuel and Oil. Fuel and oil expense increased 54.2% to $78.0 million in the third
quarter of 2000, as compared to $50.6 million in the third quarter of 1999, and
increased 64.8% to $204.7 million in the nine months ended September 30, 2000,
as compared to $124.2 million in the same period of 1999. The Company consumed
5.1% and 8.3%, respectively, more gallons of jet fuel for flying operations
between the third quarters and nine-month periods ended September 30, 2000 and
1999, which resulted in an increase in fuel expense of approximately $3.4
million and $10.4 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 46,042 jet block hours in the third
quarter of 2000, as compared to 42,391 jet block hours in the third quarter of
1999, and flew 130,885 jet block hours in the nine months ended September 30,
2000, as compared to 120,306 jet block hours in the same period of 1999.
During the third quarter of 2000, the Company's average cost per gallon of jet
fuel consumed increased by 44.4% as compared to the third quarter of 1999,
resulting in an increase in fuel and oil expense of approximately $23.9 million
between periods. During the nine months ended September 30, 2000, the average
cost per gallon of jet fuel increased by 53.5% as compared to the first nine
months of 1999, resulting in an increase in fuel and oil expense of
approximately $71.1 million between periods. The Company records fuel escalation
revenue from certain commercial charter customers and the U.S. military, as well
as from certain bulk seat scheduled service agreements, which partially offset
the impact of higher fuel prices. In the third quarter of 2000, the Company
recognized $7.0 million in fuel escalation revenue, as compared to $0.7 million
recognized in the same period of 1999. In the first nine months of 2000, the
Company recognized $18.9 million in fuel escalation revenue, as compared to
$(0.2) million in additional fuel expense recognized in the first nine months of
1999.
The Company implemented a fuel hedge program beginning in the third quarter of
2000. This program currently consists of swap agreements for heating oil. As of
September 30, 2000, the Company has entered into such agreements for
approximately 8.6 million gallons of heating oil for future delivery between
November 2000 and April 2001, representing less than 5.6% of total expected fuel
consumption for that period.
The Company expects that high prices for jet fuel will continue to negatively
impact its profitability in future quarters. The actual cost of jet fuel in
October 2000 was significantly higher that the average price of jet fuel in the
third quarter of 2000, and these unprecedented fuel prices are expected to
prevail at least into the first quarter of 2001. The Company expects to begin
generating significant fuel consumption savings, however, as it introduces its
new fleet of Boeing 737-800 and 757-300 aircraft between 2001 and 2003. The
twin-engine Boeing 737-800 aircraft on order is expected to burn approximately
40% fewer gallons per block hour as compared to the fuel burn of the Company's
existing fleet of three-engine Boeing 727-200 aircraft. The Company estimates
that, as compared to the actual fuel burn of its Boeing 727-200 fleet in the
third quarter of 2000, had that flying been done by a fleet of Boeing 737-800
aircraft, fuel consumption savings would have been approximately $11.5 million
at prevailing prices. Future dollar savings will vary according to the actual
price of jet fuel, and the Company will not realize the full benefit of this
higher fuel efficiency until the fleet transition is completed in 2003.
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 2000 increased
18.2% to $76.5 million from $64.7 million in the third quarter of 1999, and in
the nine months ended September 30, 2000, increased 16.0% to $217.2 million from
$187.3 million in the same period of 1999.
The Company increased its average equivalent employees by approximately 22.7%
and 20.5%, respectively, between the quarter and nine months ended September 30,
2000, and the comparable periods of 1999. This growth was most significant in
categories of employees that are influenced directly by flight activity, such as
flight crews and maintenance staff. Beginning in May 2000, the Company replaced
its contracted ground handler at its busiest airport, Chicago-Midway, with its
own ramp employees. Although this contributed to the increase in salaries, wages
and benefits, the Company experienced a corresponding reduction in handling,
landing and navigation fees. Some further employment growth in the first nine
months of 2000 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. Staff increases also occurred
for Chicago Express as a result of increased passengers boarded due to the
conversion from 19-seat to 34-seat aircraft in the first nine months of 2000.
The Company was also adversely affected by a significant increase in employee
benefit costs in the first nine months of 2000, as compared to the first nine
months of 1999.
These increases in salaries, wages and benefits costs were partially offset by
the elimination of employee incentive awards in 2000. Such awards were earned by
the Company's employees in 1999 due to record profitability in that year. In the
quarter and nine months ending September 30, 1999, the Company recognized $2.0
million and $8.0 million, respectively, in accrued incentive awards, none of
which was earned in the comparable periods of 2000.
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 18.8% to
$31.6 million in the third quarter of 2000, as compared to $26.6 million in the
third quarter of 1999, and increased 29.7% to $94.0 million in the nine months
ended September 30, 2000, as compared to $72.5 million in the same period of
1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $1.3 million and $8.3 million, respectively, in the
quarter and nine months ended September 30, 2000, as compared to the same
periods of 1999. Five L-1011-500s, and nine 727-200s (previously financed by
operating leases) were added to the Company's owned fleet throughout 1999 and
early 2000. The Company also increased its investment in rotable parts,
furniture and fixtures, and computer hardware and software, and increased its
provision for amortization of inventory obsolescence and debt issue costs
between years. These changes resulted in an increase in depreciation expense of
$1.8 million and $5.2 million, respectively, in the quarter and nine months
ended September 30, 2000, as compared to the same periods of 1999.
Amortization of capitalized engine and airframe overhauls increased $1.2 million
and $4.9 million, respectively, in the quarter and nine months ended September
30, 2000, as compared to the same periods of 1999, 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 just beginning 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 early engine failures increased $0.8
million and $2.2 million, respectively, in the quarter and nine months ended
September 30, 2000, as compared to the same periods of 1999. When these early
engine failures can be economically repaired, the related repairs are charged to
aircraft maintenance, materials and repairs expense.
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 decreased by 2.3% to $25.0 million in the
third quarter of 2000, as compared to $25.6 million in the third quarter of
1999, and increased 4.5% to $74.1 million in the nine months ended September 30,
2000, as compared to $70.9 million in the same period of 1999. The total number
of system-wide jet departures between the third quarters of 2000 and 1999
increased by 12.4% to 14,823 from 13,189, and the total number of system-wide
jet departures between the nine-month periods ended September 30, 2000 and 1999
increased by 9.8% to 41,800 from 38,081. The lower rate of growth in handling
costs in the third quarter of 2000, as compared to the growth in departures for
that quarter, was primarily due to the implementation of self-handling on the
ramp at Chicago-Midway Airport beginning in May 2000, which was done with
third-party contractors during all of 1999. A corresponding increase in
salaries, wages & benefits attributable to self-handling was experienced during
the third quarter of 2000.
Aircraft Rentals. Aircraft rentals expense for the third quarter of 2000
increased 37.1% to $19.2 million from $14.0 million in the third quarter of
1999, and in the nine months ended September 30, 2000, increased 20.0% to $52.1
million, as compared to $43.4 million in the same period of 1999. The Company
accepted delivery of four Boeing 757-200 aircraft from the manufacturer (two in
the fourth quarter of 1999, and two in June 2000), adding $3.7 million and $7.5
million, respectively, to aircraft rentals expense in the quarter and nine
months ended September 30, 2000, as compared to the same periods of the prior
year. Chicago Express aircraft rentals increased by $0.8 million and $1.6
million, respectively, in the quarters and nine month periods ended September
30, 2000 and 1999 due to the replacement of nine Jetstream aircraft with nine
larger and newer Saab 340B aircraft during the first nine months of 2000. The
Company also incurred $1.0 million and $2.1 million, respectively, in higher
rentals in the quarter and nine months ended September 30, 2000, as compared to
the same periods of 1999, due to the lease of spare engines to support the
Boeing 757-200 and Lockheed L-1011-500 fleets.
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 crewmembers incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
increased 35.1% to $18.1 million in the third quarter of 2000, as compared to
$13.4 million in the third quarter of 1999, and increased 34.7% to $50.8 million
in the nine months ended September 30, 2000, as compared to $37.7 million in the
same period of 1999.
Positioning and hotel costs increased significantly in 2000 due primarily to the
substantial increase in military departures in 2000, as compared to 1999.
Military flights often operate to and from remote points from the Company's crew
bases, thus requiring significant positioning expenditures for cockpit and cabin
crews on other airlines. Also, due to heavy airline industry load factors in the
first nine months of 2000, the Company paid higher average fares to position
crews. Average hotel costs are higher for military operations, since hotel rates
at international locations generally exceed domestic U.S. hotel rates.
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 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 & repair expense increased 14.0% to $16.3 million in the third quarter
of 2000, as compared to $14.3 million in the same period of 1999, and increased
25.5% to $53.2 million in the nine months ended September 30, 2000, as compared
to $42.4 million in the same period of 1999.
The Company performed a total of 51 maintenance checks on its fleet during the
first nine months of 2000 as compared to 37 in the same period of 1999. The cost
of materials consumed and components repaired in association with such checks
and other maintenance activity increased by $1.8 million and $7.7 million,
respectively, between the quarter and nine months ended September 30, 2000, and
the same periods of 1999.
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
2000 and 1999, catering represented 78.9% and 79.7%, respectively, of total
passenger service expense, while catering represented 78.4% and 81.7%,
respectively, of total passenger service expense for the nine month periods
ended September 30, 2000 and 1999.
The total cost of passenger service increased 10.2% to $13.0 million in the
third quarter of 2000, as compared to $11.8 million in the third quarter of
1999, and increased 20.1% to $36.4 million in the nine months ended September
30, 2000, as compared to $30.3 million in the same period of 1999. The Company
experienced increases of approximately 2.8% and 6.5%, respectively, in the
average unit cost of catering each passenger between the quarters and nine month
periods ended September 30, 2000 and 1999, primarily because in the first nine
months of 2000 there were relatively more military passengers in the Company's
business mix, who are provided a more expensive catering product due to more
expensive military catering specifications and the longer average duration of
these flights. This resulted in a price-and-business-mix increase of $0.3
million and $1.6 million, respectively, in catering expense in the quarter and
nine months ended September 30, 2000, as compared to the same periods of 1999.
Total jet passengers boarded, however, increased 13.7% and 11.0%, respectively,
between the same time periods, resulting in approximately $1.1 million and $2.5
million, respectively, in higher volume-related catering expenses between the
same sets of comparative periods.
In the third quarter and nine months ended September 30, 2000, as compared to
the same periods of 1999, the Company experienced increased departure delays
over 15 minutes of 23.7% and 25.0%, respectively. These irregular operations
resulted in higher costs to handle inconvenienced passengers and misconnected
baggage. In the third quarter and nine months ended September 30, 2000, as
compared to the same periods of 1999, such costs were $0.4 million and $2.4
million higher, respectively.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of vacation packages and single seats on scheduled service. In
addition, the Company incurs commissions to secure some commercial and
military/government charter business. Commissions expense decreased 5.0% to $9.6
million in the third quarter of 2000, as compared to $10.1 million in the third
quarter of 1999, and increased 4.0% to $31.3 million in the nine months ended
September 30, 2000, as compared to $30.1 million in the same period of 1999.
The Company incurred higher military commissions expense of $1.7 million and
$4.9 million, respectively, in the third quarter and nine months ended September
30, 2000, as compared to the same periods of 1999, which is consistent with
growth in military revenues between years. These increases were largely offset
by decreases in scheduled service commissions paid of $1.4 million and $4.6
million, respectively, in the third quarter and nine months ended September 30,
2000, as compared to the same periods of 1999, due to an industry reduction in
travel agency commission from 8.0% to 5.0% effective in the fourth quarter of
1999.
Other Selling Expenses. Other selling expenses are comprised primarily of fees
paid to computer reservation systems ("CRS") for scheduled service bookings,
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 24.7% to
$9.6 million in the third quarter of 2000, as compared to $7.7 million in the
same period of 1999, and increased 29.0% to $27.1 million in the nine months
ended September 30, 2000, as compared to $21.0 million in the same period of
1999.
Approximately $1.4 million of this increase in the third quarter of 2000, and
$4.6 million in the first nine months of 2000, resulted from an increase in CRS
fees. This increase resulted partially from the growth in single-seat sales
volumes between periods, and because of an increase in rates charged by CRS
systems for improved booking functionality. Credit card discount expense
increased $0.8 million and $2.1 million, respectively, in the quarter and nine
months ended September 30, 2000, as compared to the same periods of 1999,
primarily due to higher volumes of scheduled service tickets sold using credit
cards as form of payment. Toll-free telephone services decreased by $0.3 million
and $0.7 million in the quarter and nine months ended September 30, 2000, as
compared to the same periods of 1999, due to billing rate reductions secured
from related vendors.
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 ATALC customers. Ground package cost
decreased 30.8% to $8.3 million in the third quarter of 2000, as compared to
$12.0 million in the third quarter of 1999, and increased 7.2% to $40.3 million
in the nine months ended September 30, 2000, as compared to $37.6 million in the
same period of 1999. Ground package costs decreased between the comparative
third quarters primarily due to lower ground package sales between Detroit and
Las Vegas under the Key Tours brand of ATALC.
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 11.8% to $3.8 million in the third quarter of 2000, as
compared to $3.4 million in the third quarter of 1999, and increased 12.9% to
$11.4 million in the nine months ended September 30, 2000, as compared to $10.1
million in the same period of 1999. 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.
Advertising. Advertising expense increased 3.0% to $3.4 million in the third
quarter of 2000, as compared to $3.3 million in the third quarter of 1999, but
increased 10.3% to $15.0 million in the nine months ended September 30, 2000, as
compared to $13.6 million in the same period of 1999. The Company routinely
incurs advertising costs primarily to support single-seat scheduled service
sales and the sale of air and ground packages. Such expenses were higher in the
spring and summer months of 2000, as advertising support was provided for the
introduction of scheduled service to the new destinations of Boston, Seattle,
Washington, D.C. and Minneapolis-St. Paul.
Other Operating Expenses. Other operating expenses increased 10.4% to $20.1
million in the third quarter of 2000, as compared to $18.2 million in the third
quarter of 1999, and increased 1.7% to $58.9 million in the nine months ended
September 30, 2000, as compared to $57.9 million in the same period of 1999. The
purchase by ATALC of charter air services from airlines other than the Company
was $7.7 million less in the first nine months of 2000 than in the same period
of 1999, due to the increased utilization of the Company's own aircraft for
ATALC charter programs. In the first four months of 1999, the Company incurred
$3.2 million in Chicago Express code share expenses which were not incurred
during any period in 2000. Other expenses included in this category increased in
2000 as a general rule with the increase in the Company's flight activity.
Expenses increasing year over year included flight simulator rentals,
professional fees, insurance, and supplies. The Company also incurred higher
costs associated with irregular flight operations in the first nine months of
2000, as compared to the first nine months of 1999.
Interest Income and Expense. Interest expense in the quarter and nine months
ended September 30, 2000 increased to $8.1 million and $23.7 million,
respectively, as compared to $5.3 million and $15.4 million, respectively, in
the same periods of 1999. The increase in interest expense between periods was
primarily due to changes in the Company's capital structure resulting from the
sale in December 1999 of $75.0 million in principal amount of 10.5% unsecured
senior notes. Interest expense of $2.0 million and $5.9 million, respectively,
was recorded in the quarter and nine months ended September 30, 2000, applicable
to these notes, which was not incurred in the first nine months of 1999.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $2.3 million and $6.2 million,
respectively, in interest income in the quarter and nine months ended September
30, 2000, as compared to $1.4 million and $4.5 million, respectively, in the
same periods of 1999, when less cash was available for such investment.
Other Income. Other income decreased 85.6% to $274,000 in the first nine months
of 2000, as compared to $1.9 million in the same period of 1999. The Company
holds a membership interest in the SITA Foundation ("SITA"), an organization
that 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, 2000, the
Company recorded $6.1 million and $11.7 million, respectively, in income tax
expense applicable to $9.1 million and $18.6 million, respectively, of pre-tax
income for those periods; while in the quarter and nine months ended September
30, 1999, income tax expense of $9.5 million and $30.5 million, respectively,
was recorded on pre-tax income of $23.2 million and $77.5 million, respectively.
The effective tax rates applicable to the quarter and nine months ended
September 30, 2000, were 67.2% and 62.9%, respectively, as compared to 40.9% and
39.4%, respectively, for the same periods of 1999.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
certain amounts paid for crew per diem (40% in 2000 and 45% in 1999). The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes is to increase the effective rate as amounts of
pre-tax income decrease.
Liquidity and Capital Resources
Cash Flows. In the nine months ended September 30, 2000 and 1999, net cash
provided by operating activities was $96.5 million and $138.3 million,
respectively. The decrease in cash provided by operating activities between
periods was primarily attributable to lower earnings, partially offset by higher
depreciation and amortization charges.
Net cash used in investing activities was $150.1 million and $239.7 million,
respectively, in the nine months ended September 30, 2000 and 1999. Such amounts
primarily included capital expenditures totaling $128.8 million and $217.7
million, respectively, for engine and airframe overhauls, airframe improvements,
hushkit installations, the purchase of rotable parts, and for purchase deposits
made on aircraft scheduled for future delivery. The Company paid $34.5 million
in the first nine months of 2000 for deposits applicable to new aircraft
deliveries beginning in 2001 (see footnote 6 to the consolidated financial
statements). Included in capital expenditures for the first nine months of 1999
were approximately $41.5 million for the purchase of nine Boeing 727-200
aircraft; approximately $62.2 million for the purchase and modification of
Lockheed L-1011-500 aircraft; and $15.7 million associated with the acquisitions
of Travel Charter, Key Tours, Chicago Express and T. G. Shown Associates, Inc.
(see footnote 2 to the consolidated financial statements).
Net cash provided by financing activities was $58.4 million and $37.5 million,
respectively, in the nine months ended September 30, 2000 and 1999. During the
first nine months of 2000, the Company issued two notes totaling $23.0 million,
collateralized by two L-1011-500s; obtained a $10.0 million 14-year mortgage
loan secured by the Company's Indianapolis hangar; received $11.4 million in
proceeds from the sale/leaseback of several aircraft; and issued $30.0 million
in preferred stock. During the first nine months of 1999, the Company received
proceeds of $7.9 million for a note of $8.0 million, collateralized by the newly
constructed Maintenance and Operations Center at the Indianapolis Airport, and
issued $2.2 million in stock to complete the acquisition of Chicago Express. In
addition, as of September 30, 1999, the Company had borrowed $31.0 million
against its bank credit facility, all of which was repaid on October 1, 1999.
There were no borrowings outstanding against the bank credit facility at
September 30, 2000.
Aircraft and Fleet Transactions. In November 1994, the Company signed a purchase
agreement for six new Boeing 757-200s that, as subsequently amended, now
provides for 13 total aircraft to be delivered between 1995 and 2000. As of
September 30, 2000, the Company had accepted delivery of the first 11 aircraft
under these agreements, all of which were financed under leases accounted for as
operating leases. The final two deliveries are scheduled to occur in November
2000. Advance payments totaling approximately $13.8 million ($6.9 million per
aircraft) are required prior to delivery of the two remaining aircraft, with the
remaining purchase price payable at delivery. As of September 30, 2000 and 1999,
the Company had recorded fixed-asset additions of $13.8 million and $11.8
million, respectively, in advanced payments applicable to aircraft scheduled for
future delivery, other than those aircraft described in the following paragraph.
The Company intends to finance the remaining two Boeing 757-200 deliveries
through sale/leaseback transactions accounted for as operating leases.
As further described in Note 6 to the consolidated financial statements, on June
30, 2000, the Company concluded a purchase agreement with the manufacturer to
acquire 10 new Boeing 757-300s and 20 new Boeing 737-800s. The manufacturer's
list price under this agreement is $73.1 million for each 757-300 and $52.4
million for each 737-800, subject to escalation. The Company's purchase price
for each aircraft is subject to various discounts. The deliveries of these
aircraft are scheduled between June 2001 and April 2003. Advance payments are
required for these purchases, and the Company has preliminary agreements in
place to fund these advance deposits through long-term debt collateralized by
the deposits and certain issuances of preferred stock. As of September 30, 2000,
the Company had made $34.5 million in advanced payments for these aircraft.
In September 2000, the Company issued 300 shares of series B redeemable
preferred stock at a par value of $100,000 per share. The $30.0 million in
proceeds received from this transaction were used to finance aircraft deposits
as described in the preceding paragraph. The holder of the preferred stock is
entitled to cumulative quarterly dividends at a rate of 5% on par value. The
preferred shares are convertible into shares of Amtran common stock at a
conversion rate of 6,381.62 shares of common stock per share of preferred stock,
at a conversion price of $15.67 per share of common stock. The preferred stock
is optionally redeemable by the Company under certain conditions, but the
Company must redeem the preferred stock no later than September 20, 2015.
Optional redemption by the Company may occur at 103.6% of par value beginning
September 20, 2003, decreasing by 0.3% per year to 100.0% at the mandatory
redemption date of September 20, 2015. There are no voting rights attached to
these shares.
In January 2000, Chicago Express Airlines, Inc., a wholly owned subsidiary of
Amtran, entered into an agreement to purchase nine Saab 340B aircraft, including
spare engines, spare parts and crew training, for an aggregate purchase price of
approximately $30.0 million. These aircraft were placed into service throughout
2000 in conjunction with the retirement of the current fleet of Jetstream J31s,
all of which are currently leased. As of September 30, 2000, Chicago Express had
taken delivery of all nine of these aircraft, all of which have been placed into
revenue service, and financed them through sale/leaseback transactions accounted
for as operating leases.
Between the third quarter of 1998 and the fourth quarter of 1999, the Company
accepted delivery of five L-1011-500 aircraft, which are powered by Rolls-Royce
RB211-524B4-02 engines. Upon delivery of each aircraft, the Company completed
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. Modifications were completed on all aircraft, the last of which was
placed into service in the first quarter of 2000. The total cost of the five
aircraft, together with spare engines and spare parts, was approximately $100.0
million. The Company financed these aircraft primarily through the issuance of
unsecured notes.
Significant Financings. In July 1997, the Company sold $100.0 million principal
amount of 10.5% unsecured senior notes. In December 1999, the Company sold an
additional $75.0 million principal amount of 10.5% senior notes. The $75.0
million in notes sold in 1999 were issued as a private placement under Rule
144A. The Company subsequently completed an exchange offer under which
registered notes of equal value were issued to holders of the original notes.
In December 1998, the Company sold $125.0 million principal amount of 9.625%
unsecured senior notes in a public offering.
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 financed this facility with an $8.0 million 15-year mortgage
loan.
In December 1999, ATA issued $17.0 million principal amount of special facility
revenue bonds to finance the construction of certain facilities at
Chicago-Midway Airport. The bonds are payable from and secured by a pledge and
assignment of special facility revenues, including certain of the City of
Chicago's rights under a special facility financing agreement between the City
of Chicago and the Company. Payment of the bonds is guaranteed by the Company.
Construction of this facility is currently in progress and is expected to be
completed by the end of 2001.
In December 1999, the Company revised its revolving credit facility to provide a
maximum of $100.0 million, including up to $50.0 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. This facility is subject to certain restrictive
covenants, and is collateralized by certain L-1011-50 and Boeing 727-200
aircraft. As of September 30, 2000, there were no borrowings under the facility.
As of September 30, 1999, the Company had borrowed $31.0 million under the
facility, all of which was repaid on October 1, 1999. The Company had
outstanding letters of credit secured under the facility of $32.9 million and
$15.5 million, respectively, as of September 30, 2000 and 1999. No amounts had
been drawn against letters of credit in either period.
In February 2000, the Company borrowed $11.5 million for operating cash
purposes, and in September 2000, the Company borrowed an additional $11.5
million for operating cash purposes. Each five-year note reflecting these
borrowings is collateralized by one Lockheed L-1011-500 aircraft.
In December 1995, the Company entered into a sale/lease transaction with the
City of Indianapolis on its maintenance facility at the Indianapolis
International Airport that resulted in the advance of $10.0 million in cash to
the Company as secured by the maintenance facility. In September 2000, the
Company obtained a $10.0 million, 14-year mortgage loan, the proceeds of which
were used to repay the advance from the City of Indianapolis.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as subsequently amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement 133," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." These accounting
standards are effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, requiring that all derivatives be recognized as either assets or
liabilities at fair value. The Company is evaluating the new accounting
standards and will adopt them in the first quarter of 2001. The Company has
engaged in certain fuel hedging activities beginning in the third quarter of
2000, which the Company expects will be subject to the accounting and disclosure
provisions of SFAS No. 133, as amended. The Company cannot currently predict
what impact, if any, adoption of the statement will have on its results of
operations and financial position in future periods.
In December 1999, the Securities and Exchange Commission ("SEC") published Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). This guidance clarifies the SEC's position on certain policies of revenue
recognition. Most of the Company's revenue recognition policies are already
consistent with SAB 101. The Company expects to complete the adoption of SAB 101
in the fourth quarter of 2000. None of the changes implemented by the Company in
response to SAB 101 has had, or is expected to have, a material effect on the
results of operations or financial position of the Company.
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.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different from
those expected. Such factors include, but are not limited to, the following:
o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation;
o consumer perceptions of the Company's products;
o demand for air transportation in markets in which the Company operates; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the Securities and Exchange Commission.
The Company does not undertake to update its forward-looking statements to
reflect future events or circumstances.
<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 14, 2000 Kenneth K. Wolff
Kenneth K. Wolff
Executive Vice President and Chief Financial Officer
Director
Date: November 14, 2000 David M. Wing
David M. Wing
Vice President and Controller
Chief Accounting Officer
