FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number
0-25732
ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1207329
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
538 Commons Drive, Golden, Colorado 80401
(Address of principal executive offices) (Zip Code)
(303) 526-5050
(Registrant's telephone number, including area code)
Indicated 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 period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ x ] Yes [ ] No
As of October 25, 1999 the Registrant had 34,341,170 shares of
$.01 par value Common Stock outstanding.
ATLAS AIR, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations-
Quarter and Nine Months Ended September 30, 1999
and 1998
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Signatures
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
September 30, December 31,
1999 1998
(Unaudited)
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 345,677 $ 449,627
Short-term investments 102,665 22,187
Accounts receivable and other, net 70,315 86,234
Total current assets 518,657 558,048
Property and equipment:
Flight equipment 1,735,643 1,527,921
Other 16,395 11,584
1,752,038 1,539,505
Less accumulated depreciation (188,071) (146,311)
Net property and equipment 1,563,967 1,393,194
Other assets:
Debt issuance costs,net of
accumulated amortization of
$12,755 and $10,413 28,476 32,224
Deposits and other 3,408 5,403
31,884 37,627
Total assets $2,114,508 $1,988,869
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 76,390 $ 155,452
Accounts payable and accrued
expenses 103,191 100,051
Income tax payable 5,955 8,034
Total current liabilities 185,536 263,537
Long-term debt, net of current portion 1,321,772 1,166,460
Other liabilities 227,216 235,308
Deferred income tax payable 48,751 39,674
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1 par value;
10,000,000 shares authorized;
no shares issued -- --
Common Stock, $0.01 par value;
50,000,000 shares authorized;
34,460,946 and 33,819,882 shares
issued, respectively 345 338
Additional paid-in capital 195,605 178,131
Retained earnings 138,588 108,892
Deferred Compensation -
Restricted Stock (496) --
Treasury Stock, at cost;
132,409 and 164,403 shares,
respectively (2,809) (3,471)
Total stockholders' equity 331,233 283,890
Total liabilities and
stockholders' equity $2,114,508 $1,988,869
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
<S> <C> <C> <C> <C>
Contract services $154,807 $ 98,027 $425,210 $261,205
Charters, scheduled
services and other 7,089 11,162 13,093 15,568
Total operating revenues 161,896 109,189 438,303 276,773
Operating expenses:
Flight crew salaries and
benefits 11,959 9,661 33,633 24,110
Other flight-related
expenses 15,071 9,116 36,691 21,093
Maintenance 30,525 23,869 90,867 65,385
Aircraft and engine
rentals 11,925 3,977 34,442 6,163
Fuel and ground handling 7,132 2,570 14,584 6,317
Depreciation and
amortization 20,593 15,600 56,584 40,837
Other 16,522 8,680 45,519 24,091
Total operating expenses 113,727 73,473 312,320 187,996
Operating income 48,169 35,716 125,983 88,777
Other income (expense):
Interest income 4,926 3,229 13,621 7,821
Interest expense (30,546) (18,707) (79,430) (51,892)
(25,620) (15,478) (65,809) (44,071)
Income before income taxes 22,549 20,238 60,174 44,706
Provision for income taxes (8,456) (7,493) (22,565) (16,546)
Income before extraordinary
item and cumulative effect
of a change in accounting
principle 14,093 12,745 37,609 28,160
Extraordinary item:
Loss from extinguishment
of debt, net of applicable
tax benefit of $3,872 -- -- (6,593) --
Cumulative effect of a
change in accounting
principle:
Write-off of start-up
costs, net of applicable
tax benefit of $850 -- -- (1,416) --
Net income $ 14,093 $ 12,745 $ 29,600 $ 28,160
Basic earnings per share:
Income before extraordinary
item and cumulative effect
of a change in accounting
principle $ 0.41 $ 0.38 $ 1.10 $ 0.84
Extraordinary item -- -- (0.19) --
Cumulative effect of a
change in accounting
principle -- -- (0.04) --
Net income $ 0.41 $ 0.38 $ 0.87 $ 0.84
Weighted average common
shares 34,322 33,647 34,212 33,690
Diluted earnings per share:
Income before extraordinary
item and cumulative effect
of a change in accounting
principle $ 0.41 $ 0.38 $ 1.09 $ 0.83
Extraordinary item -- -- (0.19) --
Cumulative effect of a
change in accounting
principle -- -- (0.04) --
Net income $ 0.41 $ 0.38 $ 0.86 $ 0.83
Weighted average common
shares 34,613 33,801 34,503 33,844
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
Operating activities:
<S> <C> <C> <C> <C>
Net income $ 29,600 $ 28,160
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 56,584 40,984
Amortization of debt issuance
costs, lease financing costs
and other 1,489 3,739
Non-cash portion of --
extraordinary loss 2,491
Write-off of start-up costs 2,266 --
Change in deferred income tax 7,917
payable 9,077
Changes in operating assets and
liabilities:
Accounts receivable and other 15,919 (9,406)
Deposits and other 1,995 610
Accounts payable and accrued
expenses 3,140 (5,245)
Income tax payable (2,079) 8,270
Net cash provided by
operating activities 120,482 75,029
Investment activities:
Purchase of property and equipment (344,196) (260,627)
Purchase of short-term investments (95,478) (206,029)
Maturity of short-term investments 15,000 217,664
Net cash used in investing
activities (424,674) (248,992)
Financing activities:
Issuance of Common Stock 17,481 1,195
Purchase of Treasury Stock (775) (3,894)
Issuance of Treasury Stock 725 597
Net proceeds from debt issuance and
lease financing 436,713 361,091
Principal payments on notes payable (252,828) (66,871)
Debt issuance costs and deferred
lease costs (1,074) (6,138)
Net cash provided by
financing activities 200,242 285,980
Net (decrease) increase in cash (103,950) 112,017
Cash and cash equivalents at
beginning of period 449,627 41,334
Cash and cash equivalents at end of
period $ 345,677 $ 153,351
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
ATLAS AIR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Consolidated Financial Statements
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present
fairly the financial position of Atlas Air, Inc. and its wholly-
owned subsidiaries (collectively, the "Company" or "Atlas") as of
September 30, 1999 and the results of operations and cash flows
for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. The results of operations
for the periods presented are not necessarily indicative of the
results to be expected for the full year. Management believes
the disclosures made are adequate to ensure that the information
is not misleading, and suggests that these financial statements
be read in conjunction with the Company's December 31, 1998
audited financial statements included in its Annual Report on
Form 10-K.
2. Reclassifications
Certain prior year amounts have been reclassified to conform
to current year presentation.
3. Recently Issued Accounting Standards
In March 1998, the Accounting Standards Executive Committee
("AcSEC") of the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998.
This statement was adopted in the first quarter of 1999 and did
not have a material impact on the financial statements of the
Company.
In April 1998, the AcSEC issued SOP 98-5 "Reporting on the
Costs of Start-up Activities." SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs and
requires such costs to be expensed as incurred. In accordance
with SOP 98-5, initial application should be reported as the
cumulative effect of a change in accounting principle. SOP 98-5
is effective for financial statements for fiscal years beginning
after December 15, 1998. During 1998, the Company deferred
certain start-up costs related to the introduction of new Boeing
747-400 freighter aircraft into its fleet. This statement was
adopted in the first quarter of 1999 and the net-of-tax effect of
its application was a one-time charge of approximately $1.4
million. In 1999, the Company continues to incur costs
associated with the introduction of additional new Boeing 747-400
freighter aircraft into its fleet and expenses these costs as
incurred.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes
in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS
No. 137, is effective for years beginning after June 15, 2000 and
may be implemented as of the beginning of any fiscal quarter
after June 15, 1998. The Company has not yet quantified the
impact, if any, of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of its
adoption of SFAS No. 133. However, SFAS No.133 could increase
volatility in earnings and other comprehensive income.
4. Short-Term Investments
The Company invests excess cash in part in various held-to-
maturity securities, as defined in SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which
requires investments in debt securities to be classified as held-
to-maturity and measured at amortized cost only if the reporting
enterprise has the positive intent and ability to hold those
securities to maturity. The following table sets forth the
aggregate fair value, gross unrealized holding gains, gross
unrealized holding losses, and amortized/accreted cost basis by
major security type as of September 30, 1999 (in thousands):
<TABLE>
Gross Gross
Unrealized Unrealized (Amorti-
Aggregate Holding Holding zation)
Security Type Fair Value Gains Losses Accretion
Included in cash
and cash
equivalents:
<S> <C> <C> <C> <S><C> <C> <C>
Commercial Paper $ 88,199 $ -- $ 9 $ 113
Corporate Bonds 34,700 -- -- --
Corporate Notes 82,500
Market Auction
Preferreds 35,400 -- -- --
Totals $ 240,799 $ -- $ 9 $ 113
Included in short-
term investments:
U.S. Government
Agencies $ 14,898 $ -- $ 102 $ --
Market Auction
Preferreds 17,000 -- --
Zero Coupon
Bonds 1,586 9 8
Corporate Bonds 28,106 103 (23)
Corporate Notes 23,471 97 (8)
Euro Bonds 14,859 84 (5)
Taxable Auction
Securities 800 -- -- --
Totals $ 100,720 $ -- $ 395 $ (28)
</TABLE>
In addition, accrued interest on cash equivalents and short-term
investments at September 30, 1999 was approximately $2.1 million.
Interest earned on these investments and related maturities are
reinvested in similar securities.
5. Commitments and Contingencies
In June 1997, the Company entered into the Boeing Purchase
Agreement to purchase 10 new 747-400 freighter aircraft to be
powered by engines acquired from GE, with options to purchase up
to 10 additional 747-400 aircraft. The Company arranged leveraged
lease financing for four 747-400 freighter aircraft and debt
financing for one 747-400 freighter aircraft that were delivered
in 1998. In April 1999, the Company arranged Enhanced Equipment
Trust Certificates debt financing ("1999 EETCs") for the
remaining five aircraft, four of which were delivered in 1999,
and one which is to be delivered in 2000. The 1999 EETCs are not
direct obligations of, or guaranteed by, the Company and
therefore are not included in its consolidated financial
statements until such time that the Company draws upon the
proceeds to take delivery and ownership of an aircraft. In
February 1999, the Company exercised options for two additional
747-400 freighter aircraft, which are currently scheduled for
delivery in 2000. The Company has not yet arranged financing for
those two aircraft. The Boeing Purchase Agreement requires that
the Company pay pre-delivery deposits to Boeing prior to the
delivery date of each 747-400 freighter aircraft in order to
secure delivery of the 747-400 freighter aircraft and to defray a
portion of the manufacturing costs. Based on the current
expected firm aircraft delivery schedule, the Company expects the
maximum total amount of pre-delivery deposits at any time
outstanding will be approximately $55.5 million for the remaining
three firm aircraft, which was paid as of September 30, 1999 and
included in flight equipment. Upon each delivery, Boeing refunds
to the Company the pre-delivery deposits associated with the
delivered 747-400 freighter aircraft. In addition, the Boeing
Purchase Agreement provides for a deferral of a portion of the
pre-delivery deposits (deferred aircraft obligations) for which
the Company accrues and pays interest quarterly at 6-month LIBOR,
plus 2.0%. As of September 30, 1999, there was $112.7 million of
deferred aircraft obligations included in other liabilities, and
the combined interest rate was approximately 7.25%.
In November 1998, the Company entered into a contract with
Boeing to re-engine the only two Pratt & Whitney ("P&W") powered
aircraft in its fleet from P&W engines to GE engines, in order to
improve the performance of the aircraft and to improve the
standardization of its fleet. The Company acquired the GE
engines and other parts required for such re-engineing from a
third party. These re-engineing efforts had no material
financial impact due to the sale of the removed P&W engines,
coupled with the value derived from the unused parts associated
with the acquisition. The first re-engined aircraft was re-
delivered to the Company in June 1999 and the second re-engined
aircraft was re-delivered to the Company in August 1999. On a
prospective basis, and as a result of these re-engineing efforts,
the Company expects to incur lower maintenance costs related to
these two aircraft compared to the costs it has experienced to
date.
In January 1999, the Company purchased a Boeing Business Jet
("BBJ") from Boeing for approximately $32 million and immediately
delivered the BBJ to a third party for installation of the
interior business configuration. Shortly thereafter, the Company
entered into a sale-leaseback transaction with GE Capital to
finance the BBJ. This aircraft will be used to transport the
Company's executives on business trips throughout the world. The
Company's Chairman, President and CEO has agreed to share in the
acquisition costs and capital improvement costs of the BBJ (see
Note 7).
In September 1999, the Company entered into a sale-leaseback
transaction for one of its 747-400 aircraft. The net book value
of this aircraft and the related debt were removed from the
balance sheet.
Under the FAA's Directives issued under its "Aging Aircraft"
program, the Company is subject to extensive aircraft
examinations and will be required to undertake structural
modifications to its fleet to address the problem of corrosion
and structural fatigue. In November 1994, Boeing issued Nacelle
Strut Modification Service Bulletins which have been converted
into Directives by the FAA. Two of the Company's Boeing 747-200
aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of
approximately $1.0 million. As part of the FAA's overall aging
aircraft program, it has issued Directives requiring certain
additional aircraft modifications to be accomplished. The
Company estimates that the modification costs per 747-200
aircraft will range between $2 million and $3 million. Thirteen
aircraft of the 747-200 fleet have already undergone the major
portion of such modifications. The remaining ten 747-200
aircraft will require modification prior to the year 2009. Other
Directives have been issued that require inspections and minor
modifications to Boeing 747-200 aircraft. The newly manufactured
747-400 freighter aircraft were delivered to the Company in
compliance with all existing FAA Directives at their respective
delivery dates. On December 3, 1998, the FAA issued a Directive
ordering Boeing 747 operators to change fuel pump procedures to
prevent dry tank operation that could result in ignition of the
center fuel or horizontal stabilizer tanks. Compliance with this
Directive may adversely impact the Company's customers' operating
costs and schedules. It is possible that additional Directives
applicable to the types of aircraft or engines included in the
Company's fleet could be issued in the future, the cost of which
could be substantial.
In April 1999, the Company received notification from the
National Mediation Board ("NMB") that Atlas' crew members voted
for representation by the Air Line Pilots Association ("ALPA").
The Company expects its labor costs to decline initially since
its profit sharing plan (the "Plan") excludes from the category
of eligible employees, those employees who have been certified by
the NMB for representation. In response to ALPA's claims that
such an exclusion violates the Railway Labor Act, on May 6, 1999,
the Company filed an action in the United States District Court
for the District of Columbia seeking a declaratory judgment
confirming, inter alia, the enforceability of the Plan's
exclusion. On May 10, 1999, ALPA filed a counterclaim in that
action, alleging that the exclusion of its members from the Plan
violates the Railway Labor Act, and seeking restoration of profit
sharing pay. The Company believes ALPA's claim to be without
merit and intends to vigorously defend against the counterclaim
(see Note 7).
In March 1997, Air Support International, Inc. ("ASI") filed
a complaint against the Company in the United States District
Court for the Eastern District of New York alleging actual and
punitive damages of approximately $13.5 million arising from the
Company's refusal to pay commissions which ASI claims it is owed
for allegedly arranging certain ACMI Contracts. On June 15,
1999, the Court granted the Company's request for summary
judgment to dismiss the most substantial of ASI's claims.
Additionally, the Court granted a motion by ASI for summary
judgment on one claim of approximately $500,000, plus interest,
for which the Company had previously reserved. As a result of
the Court's recent findings, ASI's alleged claims have been
reduced to approximately $1.3 million. ASI's claim for punitive
damages was dismissed in earlier proceedings. The Company
intends to vigorously defend against the remaining ASI claims.
6. Stockholders' Equity
In January 1999, the Company announced a 3-for-2 stock split
in the form of a stock dividend to stockholders of record at the
close of business on January 25, 1999. The new shares were
delivered on February 8, 1999. The share data and earnings per
share data for all periods presented in these consolidated
financial statements have been restated to reflect the stock
split.
7. Subsequent Events
In October 1999, the BBJ was delivered to the Company upon
completion of the interior business configuration by a third
party for which the costs were financed by GE Capital.
In October 1999, the United States District Court for the
District of Columbia entered a summary judgment in favor of the
Company with respect to the counterclaim filed by ALPA in May
1999. The Court ruled that the Company did not violate
applicable law when it eliminated crew members' participation in
the Plan following ALPA's certification as the crew members'
collective bargaining agent. Further, the Court dismissed all
other claims in the case. ALPA has filed a notice of appeal to
the United States Circuit Court of Appeals.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
We provide airport-to-airport cargo transportation services
throughout the world to major international air carriers
generally under three- to five-year fixed-rate contracts which
typically require that we supply aircraft, crew, maintenance and
insurance (the "ACMI Contracts"). The cargo operations of our
airline customers are seasonal in nature, with peak activity
typically occurring in the second half of the year, and with a
significant decline occurring in the first quarter. This decline
in cargo activity is largely due to the decrease in shipping that
occurs following the December and January holiday seasons
associated with the celebration of Christmas and the Chinese New
Year. Certain customers have, in the past, elected to use that
period of the year to exercise their contractual options to
cancel a limited number (generally not more than 5% per year) of
guaranteed hours with us, and are expected to continue to do so
in the future. As a result, our revenues typically decline in
the first quarter of the year as our contractual aircraft
utilization level temporarily decreases. We seek to schedule, to
the extent possible, our major aircraft maintenance activities
during this period to take advantage of any unutilized aircraft
time.
The aircraft acquisitions and lease arrangements are
described in Note 6 of our December 31, 1998 Consolidated
Financial Statements. The timing of when an aircraft enters our
fleet can affect not only annual performance, but can make
quarterly results vary, thereby affecting the comparability of
operations from period to period. In addition, the number of
aircraft utilized from period to period as spare or maintenance
back-up aircraft may also cause quarterly results to vary.
The table below sets forth selected financial and operating
data for the first, second and third quarters of 1999 and 1998
(dollars in thousands).
<TABLE>
1999
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
<S> <C> <C> <C> <C>
revenues $438,303 $161,896 $138,568 $137,839
Operating expenses 312,320 113,727 97,461 101,132
Operating income 125,983 48,169 41,107 36,707
Other income (expense) (65,809) (25,620) (19,875) (20,314)
Net income (1) 29,600 14,093 13,270 2,237
Block hours 75,442 27,650 23,861 23,931
Average aircraft
operated 28.5 30.0 28.4 27.0
Operating margin 28.7% 29.8% 29.7% 26.6%
1998
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
revenues $276,773 $109,189 $87,950 $79,634
Operating expenses 187,996 73,473 56,432 58,091
Operating income 88,777 35,716 31,518 21,543
Other income (expense) (44,071) (15,478) (15,479) (13,114)
Net income 28,160 12,745 10,105 5,310
Block hours 51,142 18,926 16,828 15,388
Average aircraft
operated 18.2 19.9 17.7 17.0
Operating margin 32.1% 32.7% 35.8% 27.1%
</TABLE>
(1) Net income is after extraordinary item and cumulative
effect of a change in accounting principle for the 1999
Cumulative and 1st Quarter 1999 columns.
Operating Revenues and Results of Operations
Total operating revenues for the quarter ended September 30,
1999 increased to $161.9 million from $109.2 million for the same
period in 1998, or approximately 48%. This reflected the
increase in the average number of aircraft in our fleet during
the third quarter of 1999, to 30.0 aircraft compared to 19.9
during the same period in 1998, or an increase of approximately
51%. Total block hours for the third quarter of 1999 were 27,650
compared to 18,926 for the same period in 1998, an increase of
approximately 46%, principally reflecting the increase in the
average number of aircraft in our fleet, somewhat offset by the
impact of one aircraft out of service which was being re-engined
for a significant portion of the third quarter of 1999. Revenue
per block hour increased by approximately 1% to $5,855 for the
third quarter of 1999 compared to $5,769 for the third quarter of
1998. The revenue per block hour rates for both of these
quarters reflect the increase in the number of 747-400 freighter
aircraft in our fleet and the increase in the volume of charter
operations beginning in the third quarter of 1998, for which the
rate per block hour is higher in order to offset additional
operating costs borne by us under such arrangements. Charter
operations are performed on an ad hoc basis and are dependent
upon surplus availability of our aircraft and customer demand.
In addition, the third quarter of 1998 reflected delayed delivery
credits provided to us with respect to the late delivery to us by
Boeing of the first and second 747-400 freighter aircraft,
pursuant to the Boeing Purchase Agreement. The revenue per block
hour for the 747-400 aircraft in both of these quarters was
higher than that for the 747-200 aircraft, reflecting the higher
pricing structure of the 747-400 customer contracts.
Our operating results improved by approximately 35% from a
$35.7 million operating profit for the third quarter of 1998 to
an operating profit of $48.2 million for the third quarter of
1999. Results of operations were favorably impacted by the
substantial increase in the size of our fleet and the newer 747-
400 freighter aircraft, offset by the higher percentage of leased
aircraft compared to owned aircraft in our fleet period over
period and the effects of Hurricane Floyd, Typhoon York and the
earthquake in Taiwan at the end of the third quarter of 1999.
Net income of $12.7 million for the third quarter of 1998
increased by approximately 11% to a net income of $14.1 million
for the third quarter of 1999.
Total operating revenues for the nine months ended September
30, 1999 increased to $438.3 million from $276.8 million for the
same period in 1998, or approximately 58%. This reflected the
increase in the average number of aircraft in our fleet during
the first nine months of 1999, to 28.5 aircraft compared to 18.2
during the same period in 1998, an increase of approximately 57%.
Total block hours for the first nine months of 1999 were 75,442
compared to 51,142 for the same period in 1998, an increase of
approximately 48%, principally reflecting the increase in the
average number of aircraft in our fleet, offset by the impact of
two aircraft out of service which were being re-engined for a
significant portion of the second and third quarters of 1999 and
the effects of Hurricane Floyd, Typhoon York and the earthquake
in Taiwan at the end of the third quarter of 1999. Revenue per
block hour increased by approximately 7% to $5,810 for the first
nine months of 1999 compared to $5,412 for the same period in
1998. This was substantially due to the increase in the number
of 747-400 freighter aircraft in our fleet and the increase in
the volume of charter operations period over period, as discussed
above.
Our operating results improved by approximately 42% from a
$88.8 million operating profit for the first nine months of 1998
to an operating profit of $126.0 million for the first nine
months of 1999. Results of operations were favorably impacted by
the increase in 747-400 freighter aircraft in our fleet,
partially offset by the increase in leased aircraft compared to
owned aircraft. Net income of $28.2 million for the first nine
months of 1998 increased by 5% to a net income of $29.6 million
for the first nine months of 1999. In the first quarter of 1999,
we recorded an extraordinary charge from the extinguishment of
the $100 million of 12 1/4% Equipment Notes and a one-time charge
associated with the write-off of start-up costs related to the
introduction of new Boeing 747-400 freighter aircraft into our
fleet, as required by SOP 98-5 (as defined). Net income before
extraordinary item and cumulative effect of a change in
accounting principle for the first nine months of 1999 was $37.6
million, or an increase of approximately 34% compared to the
first nine months of 1998.
Operating Expenses
Our principal operating expenses include flight crew
salaries and benefits; other flight-related expenses;
maintenance; aircraft and engine rentals; fuel costs and ground
handling; depreciation and amortization; and other expenses.
Flight crew salaries and benefits include all such expenses
for our pilot work force. Flight crew salaries and benefits
increased to $12.0 million in the third quarter of 1999 compared
to $9.7 million in the same period of 1998, or approximately 24%,
principally reflecting the increase in the size of our fleet
quarter over quarter, partially offset by the termination of
profit sharing costs for our flight crew. In the second quarter
of 1999, the flight crew voted to be represented by ALPA (as
defined), which resulted in the exclusion of the flight crew from
eligibility of participation in our profit sharing plan. On a
block hour basis, flight crew salaries and benefits decreased by
approximately 15% to $433 per hour for the third quarter of 1999
from $510 per hour for the same period in 1998. For the first
nine months of 1999, this expense increased by approximately 40%,
from $24.1 million to $33.6 million, primarily due to the
increase in the size of our fleet period over period, partially
offset by the cessation of profit sharing costs discussed above.
On a block hour basis, this expense decreased to $446 per hour
from $471 per hour for the same period in 1998, or approximately
5%.
Other flight-related expenses include aircraft hull and
liability insurance, crew travel and meal expenses, initial and
recurrent crew training costs and other expenses necessary to
conduct our flight operations.
Other flight-related expenses increased to $15.1 million in
the third quarter of 1999 compared to $9.1 million for the same
period of 1998, and to $36.7 million in the nine months ended
September 30, 1999 compared to $21.1 million in the nine months
ended September 30, 1998, or approximately 65% and 74%,
respectively. On a block hour basis, other flight-related
expenses increased by approximately 13% to $545 per hour for the
third quarter of 1999 compared to $482 per hour for the same
period in 1998, and by approximately 18% to $486 per hour for the
nine months ended September 30, 1999 compared to $412 per hour
for the same period in 1998. These increases were primarily due
to the impact of added training and travel costs associated with
the introduction of the five new 747-400 freighter aircraft into
our fleet in the second half of 1998, the four additional new 747-
400 freighter aircraft delivered in 1999 and preparation for the
remaining three aircraft to be delivered in 2000. Additionally,
the weather disruptions discussed above caused an increase in
expenses for the third quarter of 1999 compared to the prior year
quarter.
Maintenance expenses include all expenses related to the
upkeep of the aircraft, including maintenance, labor, parts,
supplies and maintenance reserves. The costs of C Checks, D
Checks and engine overhauls not otherwise covered by maintenance
reserves are capitalized as they are incurred and amortized over
the life of the maintenance event. In January 1995, we
contracted with KLM for a significant part of our regular
maintenance operations and support on a fixed cost per flight
hour basis. Effective October 1996, certain additional aircraft
engines were accepted into the GE engine maintenance program,
also on a fixed cost per flight hour basis, pursuant to a 10-year
maintenance agreement. During 1998, we entered into separate
long-term contracts with Lufthansa Technik for the airframe
maintenance and with GE for the engine maintenance of the 747-400
freighter aircraft, effective with the introduction of the 747-
400 freighter aircraft into our fleet in the second half of 1998.
Maintenance expense increased to $30.5 million in the third
quarter of 1999 from $23.9 million in the same period of 1998,
and to $90.9 million for the nine months ended September 30, 1999
from $65.4 million for the nine months ended September 30, 1998,
or approximately 28% and 39%, respectively, primarily due to the
increased size of our fleet. On a block hour basis, maintenance
expense decreased by approximately 12% quarter over quarter and
decreased by approximately 6% for the first nine months of 1999
compared to the year-earlier period.
Aircraft and engine rentals include the cost of leasing
aircraft and spare engines, as well as the cost of short-term
engine leases required to replace engines removed from our
aircraft for either scheduled or unscheduled maintenance and any
related short-term replacement aircraft lease costs.
Aircraft and engine rentals were $11.9 million in the third
quarter of 1999 compared to $4.0 million in the same period of
1998, and were $34.4 million in the first nine months of 1999
compared to $6.2 million in the first nine months of 1998, or an
increase of approximately 200% and 459%, respectively. The
quarter and nine-month increases were due to the additional
leased 747-400 freighter aircraft beginning in the second half of
1998 and continuing through the third quarter of 1999.
Because of the nature of our ACMI Contracts, our airline
customers bear all other operating expenses. As a result, we do
not incur fuel and ground handling expenses except when we
operate on our own behalf either in scheduled services, for ad
hoc charters or for ferry flights. Fuel expenses for our non-
ACMI Contract services include both the direct cost of aircraft
fuel as well as the cost of delivering fuel into the aircraft.
Ground handling expenses for non-ACMI Contract services include
the costs associated with servicing our aircraft at the various
airports to which we operate.
Fuel and ground handling costs increased by approximately
178% to $7.1 million for the third quarter of 1999 from $2.6
million for the third quarter of 1998, and increased by
approximately 131% to $14.6 million for the first nine months of
1999 from $6.3 million for the first nine months of 1998. The
quarter over quarter and nine-month year over year increases were
primarily due to increased charter activity. Additionally, the
weather disruptions discussed above caused an increase in
expenses for the third quarter of 1999 compared to the prior year
quarter.
Depreciation and amortization expense includes depreciation
on aircraft, spare parts and ground equipment, and the
amortization of capitalized major aircraft maintenance and engine
overhauls. Owned aircraft are depreciated over their estimated
useful lives of 20 to 30 years, using the straight-line method
and estimated salvage values of 10% of cost.
Depreciation and amortization expense increased to $20.6
million in the third quarter of 1999 from $15.6 million in the
same period of 1998, and to $56.6 million in the first nine
months of 1999 from $40.8 million in the year-earlier period, or
approximately 32% and 39%, respectively. These increases reflect
the increase in owned aircraft, engines and spare parts for the
third quarter and the first nine months of 1999 over the same
periods in 1998.
Other operating expenses include salaries, wages, benefits,
travel and meal expenses for non-crew members and other
miscellaneous operating costs.
Other operating expenses increased to $16.5 million in the
third quarter of 1999 from $8.7 million in the same period of
1998, and to $45.5 million for the first nine months of 1999 from
$24.1 million for the same period of 1998, or approximately 90%
and 89%, respectively. On a block hour basis, these expenses
increased to $598 per hour in the third quarter of 1999 from $459
per hour in the same period of 1998, and to $603 per hour for the
first nine months of 1999 from $471 per hour in the same period
of 1998, or approximately 30% and 28%, respectively. These
increases in cost from the prior year periods were due primarily
to addition of ground personnel and other costs associated with
the expansion of our fleet and operations.
Other Income (Expense)
Other income (expense) consists of interest income and
interest expense. Interest income increased to $4.9 million in
the third quarter of 1999 from $3.2 million in the same period of
1998, and to $13.6 million for the first nine months of 1999 from
$7.8 million for the first nine months of 1998, primarily due to
increases in the amount of funds available for investing as well
as an overall increase in the rates of return on investments.
Interest expense increased to $30.5 million in the third quarter
of 1999 from $18.7 million in the same period of 1998, and to
$79.4 million in the first nine months of 1999 from $51.9 million
in the year-earlier period, or approximately 63% and 53%,
respectively. These increases reflect the financing costs
associated with the purchase of five additional aircraft in the
second half of 1998; the purchase of three additional aircraft in
1999; and the issuance $175 million of 9 1/4% Senior Notes in
April 1998 and $150 million of 9 3/8% Senior Notes in November
1998, of which a portion was used to extinguish the $100 million
of 12 1/4% Equipment Notes in January 1999.
Income Taxes
Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," we have recorded a tax provision based on tax
rates in effect during the period. Accordingly, we accrued for
taxes at the rate of 37.5% during the third quarter and first
nine months of 1999 and 37.0% during the third quarter and first
nine months of 1998. Due to significant capital costs, which are
depreciated at an accelerated rate for tax purposes, a
significant portion of our tax provision in these periods is
deferred.
Liquidity and Capital Resources
At September 30, 1999, we had cash and cash equivalents of
approximately $345.7 million, short-term investments of
approximately $102.7 million and working capital of approximately
$333.1 million. During the first nine months of 1999, cash and
cash equivalents decreased approximately $104.0 million,
primarily reflecting the purchase of flight and other equipment
of $344.2 million, purchase of short-term investments of $80.5
million (net of maturities), principal reductions of indebtedness
of $252.8 million, including the early redemption of $100 million
of 12 1/4% Equipment Notes in January 1999, debt issuance costs
of $1.1 million and purchases of treasury stock (net of proceeds
from issuance) of $0.1 million. Partially offsetting these
decreases was cash provided from operations of $120.5 million,
proceeds from equipment financings of $436.7 million and net
proceeds from the issuance of common stock related to the
exercise of stock options of $17.5 million. Our overall
borrowing level increased to $1.4 billion at September 30, 1999
from $1.3 billion at December 31, 1998.
In June 1997, we entered into the Boeing Purchase Agreement
to purchase 10 new 747-400 freighter aircraft to be powered by
engines acquired from GE, with options to purchase up to 10
additional 747-400 aircraft. We arranged leveraged lease
financing for four 747-400 freighter aircraft and debt financing
for one 747-400 freighter aircraft that were delivered in 1998.
In April 1999, we arranged EETC debt financing for the remaining
five aircraft, four of which were delivered in 1999, and one
which is to be delivered in 2000. See discussions of 1999 EETCs
below. In February 1999, we exercised options for two additional
747-400 freighter aircraft, which are currently scheduled for
delivery in 2000. We have not yet arranged financing for those
two aircraft. The Boeing Purchase Agreement requires that we pay
pre-delivery deposits to Boeing prior to the delivery date of
each 747-400 freighter aircraft in order to secure delivery of
the 747-400 freighter aircraft and to defray a portion of the
manufacturing costs. Based on the current expected firm aircraft
delivery schedule, we expect the maximum total amount of pre-
delivery deposits at any time outstanding will be approximately
$55.5 million for the remaining three firm aircraft, which was
paid as of September 30, 1999 and was included in flight
equipment. Upon each delivery, Boeing refunds us the pre-
delivery deposits associated with the delivered 747-400 freighter
aircraft. In addition, the Boeing Purchase Agreement provides
for a deferral of a portion of the pre-delivery deposits
(deferred aircraft obligations) for which we accrue and pay
interest quarterly at 6-month LIBOR, plus 2.0%. As of September
30, 1999, there was $112.7 million of deferred aircraft
obligations included in other liabilities, and the combined
interest rate was approximately 7.25%.
In November 1998, we entered into a contract with Boeing to
re-engine the only two Pratt & Whitney ("P&W") powered aircraft
in our fleet from P&W engines to GE engines, in order to improve
the performance of the aircraft and to improve the
standardization of our fleet. We acquired the GE engines and
other parts required for such re-engineing from a third party.
These re-engineing efforts had no material financial impact due
to the sale of the removed P&W engines, coupled with the value
derived from the unused parts associated with the acquisition.
The first re-engined aircraft was re-delivered to us in June 1999
and the second re-engined aircraft was re-delivered to us in
August 1999. On a prospective basis, and as a result of these re-
engineing efforts, we expect to incur lower maintenance costs
related to these two aircraft compared to the costs we have
experienced to date.
In January 1999, we announced a 3-for-2 stock split in the
form of a stock dividend to stockholders of record at the close
of business on January 25, 1999. The new shares were delivered
on February 8, 1999. The share data and earnings per share data
for all periods presented in these consolidated financial
statements have been restated to reflect the stock split.
In January 1999, we purchased a Boeing Business Jet ("BBJ")
from Boeing for approximately $32 million and immediately
delivered the BBJ to a third party for installation of the
interior business configuration. Shortly thereafter, we entered
into a sale-leaseback transaction with GE Capital to finance the
BBJ. This aircraft will be used to transport our executives on
business trips throughout the world. Our Chairman, President and
CEO has agreed to share in the acquisition costs and capital
improvement costs of the BBJ. In October 1999, the BBJ was
delivered to us upon completion of the interior business
configuration by a third party for which the costs were financed
by GE Capital.
In January 1999, we used a portion of the proceeds from the
previous issuance of $150 million of 9 3/8% Senior Notes to
redeem at 108% all $100 million outstanding of our 12 1/4%
Equipment Notes due 2002. We recorded an approximate $6.6
million one-time extraordinary charge from the extinguishment of
debt, which is net of an applicable tax benefit of approximately
$3.9 million, in the first quarter of 1999 associated with this
redemption. The extinguishment of this debt eliminated liens on
three 747-200 freighter aircraft, one of which was subsequently
transferred to Atlas Freighter Leasing, Inc., a wholly-owned
subsidiary.
In February 1999, we filed a $650 million shelf registration
statement (the "$650 million Shelf Registration") with the
Securities and Exchange Commission, which was declared effective
shortly thereafter. The $650 million Shelf Registration provided
for debt or equity financing, or a combination of both, the net
proceeds from which were available for general corporate
purposes, including but not limited to, repayment of
indebtedness, capital expenditures, repurchase of common stock
and acquisitions.
In April 1999, we completed an offering of $543.6 million
Enhanced Equipment Trust Certificates ("1999 EETCs"), which
represented a substantial portion of the $650 million Shelf
Registration. The 1999 EETCs are not direct obligations of, or
guaranteed by, us and therefore are not included in our
consolidated financial statements until such time that we draw
upon the proceeds to take delivery and ownership of an aircraft.
The cash proceeds from the 1999 EETCs transaction were deposited
with an escrow agent and a portion of the proceeds was used in
the second and third quarters of 1999 to finance, through secured
debt financings, the debt portion of the acquisition cost of
three new 747-400 freighter aircraft from Boeing. In connection
with these secured debt financings, we executed equipment notes
in the aggregate amount of $325.1 million, with a weighted
average interest rate of 7.6%. In the third quarter of 1999, a
portion of the proceeds was used to finance through a leveraged
lease an additional new 747-400 freighter aircraft scheduled for
delivery from Boeing in 1999. The remaining proceeds from the
1999 EETCs will be used to finance (either through a leveraged
lease or secured debt financing) the debt portion of the
acquisition cost of the next firm new 747-400 freighter aircraft
from Boeing scheduled to be delivered to us in 2000. In
connection therewith, we intend to seek certain owner
participants who will commit lease equity financing to be used in
a leveraged lease of that aircraft.
In April 1999, we filed a new $250 million shelf
registration statement (the "$250 million Shelf Registration")
with the Securities and Exchange Commission as a replacement for
the $106.4 million of funds remaining under the $650 million
Shelf Registration. The $250 million Shelf Registration provides
for debt or equity financing, or a combination of both, the net
proceeds from which will be available for general corporate
purposes, including but not limited to, repayment of
indebtedness, capital expenditures, repurchase of common stock
and acquisitions. The $250 million Shelf Registration was
declared effective May 10, 1999.
In September 1999, the Company entered into a sale-leaseback
transaction for one of its 747-400 aircraft. The net book value
of this aircraft and the related debt were removed from the
balance sheet.
Due to the contractual nature of our business, management
does not consider our operations to be highly working capital-
intensive in nature. Because most of the non-ACMI costs normally
associated with operations are borne by and directly paid for by
our customers, we do not incur significant costs in advance of
the receipt of corresponding revenues. Moreover, ACMI costs,
which are our responsibility, are generally incurred on a
regular, periodic basis on either a flight hour or calendar month
basis. These costs are largely matched by revenue receipts, as
our contracts require regular payments from our customers based
upon current flight activity, generally every two to four weeks.
As a result, we have not had a requirement for a working capital
facility.
Under the FAA's Directives issued under its "Aging Aircraft"
program, the Company is subject to extensive aircraft
examinations and will be required to undertake structural
modifications to its fleet to address the problem of corrosion
and structural fatigue. In November 1994, Boeing issued Nacelle
Strut Modification Service Bulletins which have been converted
into Directives by the FAA. Two of the Company's Boeing 747-200
aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of
approximately $1.0 million. As part of the FAA's overall aging
aircraft program, it has issued Directives requiring certain
additional aircraft modifications to be accomplished. The
Company estimates that the modification costs per 747-200
aircraft will range between $2 million and $3 million. Thirteen
aircraft of the 747-200 fleet have already undergone the major
portion of such modifications. The remaining ten 747-200
aircraft will require modification prior to the year 2009. Other
Directives have been issued that require inspections and minor
modifications to Boeing 747-200 aircraft. The newly manufactured
747-400 freighter aircraft were delivered to the Company in
compliance with all existing FAA Directives at their respective
delivery dates. On December 3, 1998, the FAA issued a Directive
ordering Boeing 747 operators to change fuel pump procedures to
prevent dry tank operation that could result in ignition of the
center fuel or horizontal stabilizer tanks. Compliance with this
Directive may adversely impact the Company's customers' operating
costs and schedules. It is possible that additional Directives
applicable to the types of aircraft or engines included in its
fleet could be issued in the future, the cost of which could be
substantial.
From time to time we engage in discussions with third
parties regarding the possible acquisition or sale of aircraft in
our fleet. We are currently in discussions with third parties
for the possible acquisition and sale of additional aircraft for
1999 and beyond.
We believe that cash on hand and the cash flow generated
from our operations, combined with the proceeds of the $175
million of 9 1/4% Senior Notes, the remaining portion of the
$543.6 million of 1999 EETCs and the $150 million of 9 3/8%
Senior Notes, will be sufficient to meet our normal ongoing
liquidity needs for the next twelve months.
Year 2000
We have performed a review of our internal information
systems for Year 2000 ("Y2K") automation problems through a
company-wide effort, assisted by Y2K experienced consultants, to
address internal Y2K system issues and, jointly with industry
trade groups, issues related to key business partners which are
common to other air carriers. As a result, we do not anticipate
that Y2K compliance will have a material financial impact. We
have completed an inventory of our computer network environment
and an assessment of the effort involved to bring our internal
computer system environment to full Y2K compliance. Due to our
relatively modern systems, advanced client server, development
and data base architecture, and our partial reliance on vendor
representations regarding Y2K compliant third-party systems,
related remediation efforts are believed to be minimal and
achievable. Third-party hardware and software used by us has
been verified Y2K compliant. We partnered with Boeing to
determine the Y2K status of our 747-200 and 747-400 aircraft.
Boeing concluded that there are no Y2K date rollover flight
safety issues related to our aircraft and all systems are Y2K
compliant. We have developed contingency plans for all the
systems that are critical to our operations. These contingency
plans are designed to reduce the likelihood that our operations
will be interrupted by Y2K related issues. We have reviewed the
status of key supplier/business partner compliance to some
extent. Currently, we are selecting alternate supplier/business
partners and implementing contingency plans in circumstances
where existing supplier/business partners were not Y2K compliant.
Common to all airlines is the state of Y2K readiness of
airports and air traffic services. Our Y2K team is actively
participating in an ongoing study undertaken by both the Air
Transport Association and the International Air Transport
Association to determine the Y2K compliance of airports and air
traffic services world wide. Significant progress has been made,
but several airports utilized by us are not yet reporting full
compliance. We are diligently working in conjunction with
regulatory agencies, governing authorities, and customer airlines
to ensure that the most current information is available to us
and contingency plans are in place for the airports in question.
The Y2K problem is pervasive and complex, as virtually every
global computer operation could be affected in some way.
Consequently, no assurance can be given that all company-used
third-party systems and suppliers/business partners can achieve
Y2K compliance. We expect that the costs incurred to become Y2K
compliant will not exceed $300,000.
Forward-looking Information
Certain statements included or incorporated by reference in
this Form 10-Q constitute "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 2lE of the Exchange Act. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, levels of activity, performance or achievements or
industry results, to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. In
addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe" or
"continue" or the negative thereof or variations thereon or
similar terminology. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we
can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results
to differ materially from our expectations are disclosed under
"Risk Factors" and elsewhere in our Annual Report on Form 10-K
for December 31, 1998.
To the extent that any of the statements contained herein
relating to our expectations, assumptions and other Company
matters are forward-looking, they are made in reliance upon the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on current
expectations that involve a number of uncertainties and risks
that could cause actual results to differ materially from those
projected in the forward-looking statements, including, but not
limited to, risks associated with:
- - worldwide business and economic conditions;
- - product demand and the rate of growth in the air cargo
industry;
- - the impact of competitors and competitive aircraft and aircraft
financing availability;
- - the ability to attract and retain new and existing customers;
- - normalized aircraft operating costs and reliability;
- - management of growth and complying with FAA policies;
- - the continued productivity of our workforce;
- - dependence on key personnel; and
- - other regulatory requirements.
As a result of the foregoing and other factors, no assurance
can be given as to our future results and achievements. Neither
we nor any other person assumes responsibility for the accuracy
and completeness of these statements.
ATLAS AIR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1997, Air Support International, Inc. ("ASI") filed
a complaint against us in the United States District Court for
the Eastern District of New York alleging actual and punitive
damages of approximately $13.5 million arising from our refusal
to pay commissions which ASI claims it is owed for allegedly
arranging certain ACMI Contracts. On June 15, 1999, the Court
granted our request for summary judgment to dismiss the most
substantial of ASI's claims. Additionally, the Court granted a
motion by ASI for summary judgment on one claim of approximately
$500,000, plus interest, for which we had previously reserved.
As a result of the Court's recent findings, ASI's alleged claims
have been reduced to approximately $1.3 million. ASI's claim for
punitive damages was dismissed in earlier proceedings. We intend
to vigorously defend against the remaining ASI claims.
In April 1999, we received notification from the National
Mediation Board ("NMB") that our crew members have voted to be
represented by the Air Line Pilots Association ("ALPA"). We
expect our labor costs to decline initially since our profit
sharing plan (the "Plan") excludes from the category of eligible
employees, those employees who have been certified by the NMB for
representation. In response to ALPA's claims that such an
exclusion violates the Railway Labor Act, on May 6, 1999, we
filed an action in the United States District Court for the
District of Columbia seeking a declaratory judgment confirming,
inter alia, the enforceability of the Plan's exclusion. On May
10, 1999, ALPA filed a counterclaim in that action, alleging that
the exclusion of its members from our Plan violates the Railway
Labor Act, and seeking restoration of profit sharing pay. In
October 1999, the Court entered a summary judgment in our favor
with respect to this counterclaim filed by ALPA. The Court ruled
that we did not violate applicable law when we eliminated crew
members' participation in the Plan following ALPA's certification
as the crew members' collective bargaining agent. Further, the
Court dismissed all other claims in the case. ALPA has filed a
notice of appeal to the United States Circuit Court of Appeals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports filed on Form 8-K
None.
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.
ATLAS AIR, INC.
(Registrant)
Date: November 2, 1999 By: /s/ Stephen C. Nevin
Stephen C. Nevin
Vice President and
Chief Financial Officer
Principal Accounting Officer
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