FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 000-23447
MIDWAY AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3915637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WEST MORGAN STREET, SUITE 1200
DURHAM, NORTH CAROLINA 27701
(Address of principal executive offices)
(Zip Code)
919-956-4800
(Registrant's telephone number, including area code)
Indicate by checkmark 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.
Yes ____X___ No ________
As of April 27, 1998 there were 8,558,695 shares of Common Stock, $.01 par
value, of the registrant outstanding.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Midway Airlines Corporation
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
(unaudited) (audited)
---------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 40,630 $ 54,509
Restricted cash 9,819 2,811
Short-term investments 751 751
Accounts receivable:
Credit cards 2,163 1,937
Travel agencies 10,913 5,443
Other 977 674
Inventories 2,259 2,109
Prepaids and other 6,872 6,723
-------- --------
Total current assets 74,384 74,957
Equipment and property
Flight 62,394 45,214
Other 6,227 5,968
Less accumulated depreciation and amortization 5,559 4,608
-------- --------
Total equipment and property, net 63,062 46,574
Other noncurrent assets:
Equipment and aircraft purchase deposits 13,937 17,133
Aircraft lease deposits and other 4,408 3,448
-------- --------
Total other noncurrent assets 18,345 20,581
Total assets $155,791 $142,112
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,945 $ 6,777
Accrued expenses 3,879 4,324
Accrued excise taxes 1,683 1,421
Accrued income taxes 3,913 3,698
Advance ticket sales 26,970 21,859
Other current liabilities 4,551 5,709
Current maturities of long-term debt and capital leases obligations 3,170 9,016
-------- --------
Total current liabilities 50,111 52,804
Noncurrent liabilities:
Long-term debt & capital lease obligations 51,904 39,187
Other 109 308
-------- --------
Total noncurrent liabilities 52,013 39,495
-------- --------
Total liabilities 102,124 92,299
Stockholders' equity:
Preferred Stock -- --
Common Stock 85 85
Additional paid-in-capital 45,364 45,364
Retained earnings ($49.8 million of accumulated deficit
eliminated in the quasi-reorganization as of June 30, 1997) 8,218 4,364
-------- --------
Total stockholders' equity 53,667 49,813
Total liabilities and stockholders' equity $155,791 $142,112
======== ========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating revenues:
Passenger $ 49,074 $ 46,033
Cargo 410 517
Contract and other 1,037 1,303
----------- -----------
Total revenues 50,521 47,853
Operating expenses:
Wages, salaries and related costs 7,488 6,211
Aircraft fuel 5,084 6,089
Aircraft and engine rentals 7,373 8,152
Commissions 3,984 3,745
Maintenance, materials and repairs 4,108 4,547
Other rentals and landing fees 2,445 2,690
Depreciation and amortization 1,041 331
Other 12,432 12,207
Special recapitalization charges -- 1,225
----------- -----------
Total operating expenses 43,955 45,197
----------- -----------
Operating income (loss) 6,566 2,656
Other income (expense):
Interest income 977 296
Interest expense (1,118) (291)
Miscellaneous -- 1
----------- -----------
Total other income (expense) (141) 6
----------- -----------
Income before income taxes and extraordinary gain 6,425 2,662
Income tax expense 2,570 1,320
----------- -----------
Income before extraordinary gain 3,855 1,342
Extraordinary gain -- 15,272
----------- -----------
Net income $ 3,855 $ 16,614
=========== ===========
Earnings Per Share ($)
Earnings per common share (before extraordinary gain) $0.45 $0.16
Earnings per common share $0.45 $1.94
Earnings per common share-assuming dilution (before extraordinary gain) $0.39 $0.15
Earnings per common share-assuming dilution $0.39 $1.86
Weighted average shares used in computing earnings per common share
Basic 8,558,695 8,558,695
Diluted 9,798,785 8,947,862
</TABLE>
<PAGE>
MIDWAY AIRLINES CORPORATION
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities
Net income (loss) $ 3,855 $ 16,614
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization 1,041 331
Capitalized interest on purchase deposits (178) --
Special recapitalization charge -- 1,225
Extraordinary gain -- (15,272)
Changes in operating assets and liabilities
Restricted cash (7,008) 164
Accounts receivable (5,999) (2,406)
Inventories (150) (15)
Prepaids & other (166) (518)
Aircraft lease deposits & other (399) (113)
Accounts payable & accrued expenses (1,278) (418)
Accrued excise taxes and income taxes 477 (2,131)
Advance ticket sales 5,111 4,026
Other current liabilities (1,152) (1,465)
Other noncurrent liabilities (200) (69)
-------- --------
Net cash provided by operating activities (6,046) (47)
======== ========
Investing activities
Purchase of short-term investments -- (22,000)
Sale of short-term investments -- --
Purchase of equipment and property (82) (224)
Aircraft and equipment purchase deposits 2,551 --
-------- --------
Net cash provided by investing activities 2,469 (22,224)
======== ========
Financing activities
Issuance of common & preferred stock -- 22,000
Proceeds from issuance of long-term debt -- --
Repayment of long-term debt & capital lease obligations (10,518) (785)
Accreted interest on long term debt 216 256
-------- --------
Net cash used in financing activities (10,302) 21,471
======== ========
Increase (decrease) in cash and cash equivalents (13,879) (800)
Cash and cash equivalents , beginning of period 54,509 10,805
Cash and cash equivalents , end of period $ 40,630 $ 10,005
======== ========
Supplemental cash flow information
Interest paid $ 772 $ 42
======== ========
Income taxes paid $ 2,355 $ 0
======== ========
Schedule of non-cash activities
Issuance of long-term debt for assets $ 13,805 $ 0
======== ========
</TABLE>
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements
(Information as of March 31, 1998 and 1997 and for the three months
ended March 31, 1998 and 1997 is unaudited)
1. Basis of Presentation
The unaudited financial statements included herein have been prepared by Midway
Airlines Corporation (the "Company"), pursuant to the rules and regulations of
the Securities and Exchange Commission. The information furnished in the
financial statements includes the normal recurring adjustments and reflects all
adjustments which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Results of operations for the three
month periods presented are not necessarily indicative of the results to be
expected for the year ending December 31, 1998. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commissions, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements, and the
notes thereto, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include investments with an original maturity of three
months or less or which may be redeemed without penalty at any time. These
investments are stated at cost, which approximates market value. As of March 31,
1998 and 1997, approximately $9.8 and $1.8 million, respectively, of cash and
cash equivalents were restricted as to withdrawal; these funds serve as
collateral to support letters of credit and a credit card holdback; and are
classified as restricted cash in the balance sheets.
3. Hedged Loan Obligations
During December 1997, the Company entered into four Treasury Lock transactions
("Treasury Locks") with Bombardier, Inc., based on a 10 year US Treasury
Benchmark (the "Treasury rate"), to substantially eliminate the Company's
exposure to interest rate fluctuations on long-term financing for the purchase
of five CRJ aircraft to be financed during the first six months of 1998. The
Treasury Lock arrangements contemplate that the Company will receive or pay upon
dates certain (the intended financing date for each CRJ aircraft) an amount
which is equal to the present value of the difference between the interest cost
of a financing entered into at the time of entry into the Treasury Lock
arrangements and the interest cost of the same financing entered into at a later
date. The effect of such arrangements is that the Company essentially agreed to
borrow at fixed rates over periods extending to 16.5 years. The net cash amounts
paid or received on the agreements are recorded and recognized as an adjustment
of interest expense over the life of the related loans. The amount paid on the
first three aircraft as of March 31, 1998, totaled approximately $645,000.
<PAGE>
4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
March 31 December 31
1998 1997
------------------------
Maintenance $ 927 $1,992
Landing fees 582 561
Other 3,042 3,156
-----------------------
$4,551 $5,709
=======================
5. Long-Term Debt
On February 5, 1998, the interim loans which financed the purchase of the first
two CRJ aircraft in December 1997 were refinanced. The third and fourth aircraft
were received in March and April 1998, respectively. All four aircraft bear an
effective interest rate of 7.2% for 16.5 years. The Company's interest in the
four CRJ aircraft stands as security for its obligations under all of the notes
evidencing these loans as well as any other loans provided by the initial
lender, which is likely to include a new loan for the Company's purchase of its
fifth CRJ aircraft.
The aggregate principal maturities related to the financing of the first three
aircraft discussed above at March 31, 1998 are as follows (in thousands):
Year Ended March 31,
1999 $ 1,406
2000 1,506
2001 1,612
2002 1,727
2003 1,849
Thereafter 33,467
-------
Principal Balance at March 31, 1998 $41,567
-------
6. Leases
In April 1998, the Company acquired a spare engine from Rolls Royce for the
F-100 fleet. The engine is being leased over seven years at a rate tied to the
LIBOR which adjusts every six months. The initial six month period has an
interest rate of 5.8%. At the end of this lease, the Company becomes the owner
of this spare engine.
7. Commitments and Contingencies
In 1997, the Company executed an aircraft purchase agreement with Bombardier,
Inc. for the acquisition of ten newly manufactured CRJ-200ER Canadair Regional
Jet ("CRJs") aircraft. Two new aircraft were delivered in December 1997, one in
March 1998, and one in April 1998, with an additional six aircraft scheduled to
be delivered through December 1998. The purchase agreement provides Midway with
options to acquire up to 20 additional CRJ aircraft over a two year period with
delivery dates beginning in 1999. In April 1998, the Company exercised the first
option to purchase three more CRJs with deliveries scheduled during the first
half of 1999.
The Company expects to arrange a combination of third party debt and leveraged
lease financing for the nine additional CRJs now on order. For each aircraft
that is purchased (as opposed to leased), the Company anticipates an initial
cash outlay of approximately $4 million. Standby lease financing on terms
reasonably acceptable to management has also been arranged for the CRJs to be
delivered in 1998 and 1999. The first four CRJs were purchased, with permanent
financing completed in February, March and April 1998 (Note 5).
<PAGE>
Pursuant to an agreement with GE Aircraft Engines, a division of General
Electric International, Inc., the Company has agreed to purchase two CF34-3B1
spare engines to support the operation of the initial ten CRJ aircraft. This
agreement also provides for the purchase of an additional spare engine for each
five CRJ aircraft Midway acquires. The Company expects to arrange financing for
the two spare CRJ engines the Company has agreed to acquire.
The Company has agreed to acquire two spare engines for its F-100 fleet, one of
which will be leased over seven years, the other of which will be purchased for
$2.5 million. The leased engine was received in April 1998 (Note 6), and the
second engine is scheduled to be delivered on or before August 1, 1998. The
Company expects to purchase the second engine from working capital.
In September 1997, the Civil Aviation Security Division of the Federal Aviation
Administration ("FAA") conducted an investigation of the Company's compliance
with certain regulations requiring the Company to verify the accuracy of
background information provided by its employees who have access to secure
airport areas. The Company revised its background check procedures during the
course of the FAA's investigation and then obtained and verified the necessary
background information of those employees who had been identified by the FAA as
having insufficient background check documentation. This investigation will
likely result in the finding of violations of these regulations. While the
Company is unable to determine whether the FAA will pursue an assessment as a
result of the findings of this investigation, the Company believes that such an
assessment would not have a material effect on the Company.
The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.
In March 1995, Midway reached an agreement with Airbus for the acquisition of
four firm Airbus A320 and four option A319 or A320 aircraft with deliveries
beginning in 1998. Pursuant to the recapitalization, the delivery dates of these
aircraft have been moved to 2005 and later. The Company is required to make
deposits on the four firm aircraft in amounts to be determined beginning in
2003. The Company is considering several alternatives with respect to the A320s,
including restructuring its agreement with Airbus or selling its position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Selected Operating Data
<TABLE>
<CAPTION>
For the three months ended March 31, % change
------------------------------------ increase (decrease)
1998 1997 1997 to 1998
----------- ----------- -------------------
<S> <C> <C> <C>
Available seat miles (000s) 373,166 366,944 1.7%
Revenue passenger miles (000s) 232,067 221,157 4.9%
Load factor 62.2% 60.3% (3.2%)
Break-even load factor 53.9% 56.8% (5.1%)
Departures 7,751 6,774 14.4%
Block Hours 12,357 11,231 10.0%
Total revenue per available seat mile (cents) 13.5 13.0 3.8%
Yield (cents) 21.1 20.8 1.4%
Average fare $111 $114 (2.6%)
Cost per available seat mile (cents) 11.8 12.3 (4.1%)
Onboard passengers 441,960 402,646 9.8%
Average seats per departure 95 102 (6.9%)
Average stage length (miles) 495 550 (10.0%)
Aircraft (average during period) 15 13 15.4%
Aircraft utilization (hours per day) 9.1 9.6 (5.2%)
Fuel price per gallon (cents) $0.62 $0.83 (25.3%)
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Capacity. In the three months ended March 31, 1998, the company produced
373 million ASMs, an increase of 6 million or 1.7% over the three months ended
March 31, 1997. The increase in ASM production is attributable to 14.4% more
departures (to 7,751), a 10.0% shorter average stage length (to 495 miles) and
6.9% fewer seats per departure (to 95 seats). These changes resulted from the
Company's cancellation of service on certain longer haul routes and the addition
in December 1997 of the first two 50 seat CRJs.
Operating Revenues. The Company's operating revenues increased 5.6% to
$50.5 million for the three months ended March 31, 1998 from $47.9 million for
the three months ended March 31, 1997. The increase is attributable to a 4.9%
increase in revenue passenger miles to 232.1 million and a 1.4% increase in
passenger yield (revenue per RPM) to 21.1 cents. Revenue per ASM increased 3.8%
to 13.5 cents per ASM due to the 1.4% increase in yield to 21.1 cents combined
with a 1.9 percentage point increase in load factor to 62.2%.
Operating Expenses. The Company's operating expenses decreased 2.7% to
$44.0 million for the three months ended March 31, 1998 from $45.2 million for
the three months ended March 31, 1997. Total expenses declined primarily due to
the reduction in fuel prices and the benefits realized through the
Recapitalization, partially offset by
<PAGE>
increases in wage and depreciation expenses, as well as the absence in the
quarter ending March 31, 1998 of the Special Recapitalization charge incurred in
the quarter ending March 31, 1997. Total operating expense per ASM decreased
4.2% to 11.79 cents from 12.31 cents. Excluding the one-time charges for the
Recapitalization in 1997, operating expense per ASM decreased 1.6% to 11.79
cents from 11.98 cents. This decrease is attributable to the reduction in fuel
prices and the spreading of the company's fixed costs over the larger ASM base
discussed above in "Capacity", offset by increases in wages, salaries and
related costs, including profit sharing, and depreciation expenses.
<TABLE>
<CAPTION>
Three Months Ended March 31, Three Months Ended March 31,
--------------------------- ---------------------------
1998 1997
--------------------------- ---------------------------
Percent Percent
of Cost of Cost
Operating per ASM Operating per ASM
Expenses (cents) Expenses (cents)
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 17.0% 2.01 13.7% 1.69
Aircraft fuel 11.6% 1.36 13.5% 1.66
Aircraft and engine rentals 16.8% 1.98 18.0% 2.22
Commissions 9.1% 1.07 8.3% 1.02
Maintenance, materials and repairs 9.3% 1.10 10.1% 1.24
Other rentals and landing fees 5.5% 0.66 6.0% 0.73
Depreciation and amortization 2.4% 0.28 0.7% 0.09
Other operating expenses 28.3% 3.33 27.0% 3.33
-------- ------- -------- -------
Sub-Total operating expenses before
recapitalization charge 100.0% 11.79 97.3% 11.98
-------- ------- -------- -------
Recapitalization Charge 0.0% 0.00 2.7% 0.33
Total operating expenses 100.0% 11.79 100.0% 12.31
======== ======= ======== =======
</TABLE>
Wages, salaries and related costs increased $1.3 million or 20.6% to $7.5
million for the three months ended March 31, 1998 from $6.2 million for the
three months ended March 31, 1997. The increase is attributable to increased
staffing associated with the addition of the CRJs, increased staffing in
reservations as a third party service contract was cancelled and the work
brought in-house, and the Company's Profit Sharing Plan implemented in 1998.
Wages, salaries and related cost per ASM increased 0.32 cents or 18.9% to 2.01
cents. The increase in unit costs is attributable to the items noted above as
well as the changes noted in "Capacity".
Aircraft fuel expense decreased 16.5% to $5.1 million for the three months
ended March 31, 1998 from $6.1 million for the three months ended March 31,
1997. The decrease was due to a 25.3% decrease in the average fuel price per
gallon to 62 cents from 83 cents, and the flying of the lower fuel burn CRJ
aircraft, partially offset by the 10.0% increase in block hours. Aircraft fuel
expense per ASM decreased 18.1% to 1.36 cents from 1.66 cents.
Aircraft and engine rental expense decreased 9.6% to $7.4 million for the
three months ended March 31, 1998 from $8.2 million for the three months ended
March 31, 1997. The decrease in expense is attributable to the 1ower lease rates
for the F100s after the Recapitalization in February 1997 partially offset by
the rental of spare engines in early 1998. Aircraft and engine rentals expense
per ASM decreased 10.8% to 1.98 cents from 2.22 cents. The decrease in cost per
ASM resulted from a combination of the 1.7% increase in ASMs discussed above in
"Capacity" and no rental expense from the owned CRJs, supplemented by the
overall decrease in lease rates for the Fokker aircraft.
Commission expense increased 6.4% to $4.0 million for the three months
ended March 31, 1998 from $3.7 million for the three months ended March 31,
1997. This was due to the 6.6% increase in passenger revenues partially offset
by a decrease of travel agency revenues as a percent of passenger revenue to
68.7% from 70.5%. Commissions expense per ASM increased 4.9% to 1.07 cents from
1.02 cents, primarily driven by the 3.8% increase in revenue per available seat
mile to 13.5 cents from 13.0 cents.
Maintenance, materials and repairs expense decreased 9.7% to $4.1 million
for the three months ended March 31, 1998 from $4.5 million for the three months
ended March 31, 1997. The expense decrease is largely attributable to the new
maintenance contracts on most of the Company's aircraft, offset somewhat by
increases driven by the growth in block hours. Maintenance, materials and
repairs expense per ASM decreased 11.3% to 1.10 cents from 1.24 cents due to the
changes noted above, plus the addition to the fleet of the new CRJ aircraft.
Other rentals and landing fees expense decreased 9.1% to $2.4 million for
the three months ended March 31, 1998 from $2.7 million for the three months
ended March 31, 1997. The expense decrease is attributable primarily to
decreased facility rents. Other rentals and landing fees expense per ASM
decreased 9.6% to 0.66 cents from 0.73 cents.
Depreciation and amortization expense increased 214.5% to $1.0 million for
the three months ended March 31, 1998 from $0.3 million for the three months
ended March 31, 1997. Depreciation and amortization expense per ASM increased
211.1% to 0.28 cents from 0.09 cents in the three months ended March 31, 1997.
The increase is attributable to the acquisition of the CRJs and approximately $6
million in spare parts.
Other operating expense increased 1.8% to $12.4 million for the three
months ended March 31, 1998 from $12.2 million for the three months ended March
31, 1997. Other operating expenses consist primarily of reservations, ground
handling, advertising, general and administrative expense and insurance. The
expense increase is attributable to the 14.4% increase in departures and 9.8%
increase in passengers, partially offset by savings in insurance, marketing and
administrative expenses. Other operating expense per ASM remained stable at 3.33
cents.
<PAGE>
Liquidity and Capital Resources
Liquidity
The Company's working capital improved during the first three months of
1998 compared to the first three months of 1997. As of March 31, 1998, the
Company had cash, restricted cash, and short-term investments of $51.2 million
and working capital of $24.3 million compared to $33.8 million and $7.8 million
respectively as of March 31, 1997. During the three months ended March 31, 1998,
cash, restricted cash and short-term investments decreased $6.8 million,
reflecting net cash provided by operating activities of $1.0 million (net of
changes in restricted cash), net cash used in investing activities of $0.9
million, and net cash used in financing activities of $6.9 million. During the
three months ended March 31, 1998, net cash used in operating activities was
primarily due to increases in operating assets, net cash used in investing
activities was due to purchases of equipment and property, partially offset by
returns of equipment purchase deposits, and net cash used in financing
activities reflects repayment of long-term debt. During the three months ended
March 31, 1997, cash, restricted cash and short-term investments increased $21.0
million, reflecting net cash used in operating activities of $0.2 million (net
of changes in restricted cash), net cash used in investing activities of $0.2
million (net of changes in short-term investments), and net cash provided by
financing activities of $21.4 million. During the three months ended March 31,
1997, net cash used in operating activities was primarily due to increases in
operating assets, net cash used in investing activities was due to purchases of
of equipment, and net cash provided by financing activities was due to the
proceeds of the Recapitalization.
Capital Resources
Since the February 1997 Recapitalization, the Company has been able to
generate sufficient funds from operations to meet its working capital
requirements and does not currently have any lines of credit. The Company
believes that the working capital available to the Company from ongoing
operations combined with financing commitments arranged with an aircraft
manufacturer will be sufficient to meet its anticipated requirements for capital
expenditures and other cash requirements for the foreseeable future.
Capital Expenditures
The Company's cash outflows for capital expenditures in the three months
ended March 31, 1998 and 1997 were $3.4 million and $0.2 million, respectively,
excluding financed purchases.
In September 1997 the Company agreed to acquire 10 Canadair CRJ aircraft
between December 1997 and December 1998, and took options on 20 more aircraft
which would be delivered 10 each in 1999 and 2000. Two CRJs were added to the
fleet in December 1997 with initial operations in January 1998, the third was
received and placed in service in March 1998. In April 1998 the company
exercised the first three options bringing the remaining number on firm order to
ten, one of which was received in early April 1998. Several financing
alternatives have been arranged for the firm orders, including standby or
long-term lease financing, short-term bridge financing, and a firm commitment
for the purchase financing of the first five CRJs of which financing for the
first three was completed as of March 31, 1998, with the fourth completed in
early April 1998. The Company expects to arrange a combination of third party
debt and leveraged lease financing for the remaining CRJs, but will use the
standby lease financing in the event that it cannot arrange more attractive
financing from third party sources. For each aircraft that is purchased (as
opposed to leased), the Company anticipates an initial cash outlay of
approximately $4 million.
Midway expects to arrange financing for two spare CRJ engines the Company
has agreed to acquire. The Company anticipates spending approximately $1 million
on CRJ rotable parts during 1998. To support its operation of F-100 aircraft the
Company recently agreed to purchase a refurbished Rolls Royce Tay 650-15 Engine
for delivery prior to August 1, 1998 and took delivery in early April 1998 of a
new spare Rolls Royce Tay 650-15 engine which will be leased over seven years
(See Note 6 of the financial statements).
The Company's fixed costs will increase significantly with the induction of
the CRJs. Based on the current interest rate environment, the Company estimates
that its fixed charges will increase by approximately $18 million to $22 million
per year as a result of its debt-financed purchase or leveraged lease financing
of the thirteen CRJs. However, depending upon the financing method ultimately
chosen, the Company's balance sheet liabilities may or may not increase.
Other Financing
The Company has significant lease obligations for aircraft that are
classified as operating leases and therefore not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from less than
one year to approximately fifteen years. The Company's total rent expense for
the three months ended March 31, 1998 and 1997 under all non-cancelable aircraft
operating leases was approximately $6.9 million and $7.6 million, respectively.
Year 2000
The Company uses a significant number of computer software programs and
embedded operating systems that are essential to its operations. As a result,
the Company has implemented a Year 2000 project to ensure that the Company's
computer systems will function properly in the year 2000 and thereafter. The
Company anticipates completing its Year 2000 project prior to there being any
material impact on the operations of the Company, and believes that, with
modifications to its existing software and systems and/or conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems.
The Company has also initiated communications with its significant
suppliers and vendors with which its systems interface and exchange data or upon
which its business depends. The Company is coordinating efforts with these
parties to minimize the extent to which its business will be vulnerable to their
failure to remediate their own Year 2000 issues. The Company's business is also
dependent upon certain governmental organizations or entities such as the
Federal Aviation Administration ( "FAA") that provide essential aviation
industry infrastructure. There can be no assurance that the systems of such
third parties on which the Company's business relies (including those of the
FAA) will be modified on a timely basis. The Company's business, financial
condition or results of operations could be materially adversely affected by the
failure of its systems or those operated by other parties to operate properly
beyond 1999. To the extent possible, the Company will be developing and
executing contingency plans designed to allow continued operation in the event
of failure of the Company's or third parties' systems.
The total costs of the Company's Year 2000 project are expected to be
immaterial and will be funded through cash from operations. The cost of the
Company's Year 2000 project is limited by the substantial outsourcing of its
systems and the relative youth of the Company and its operating systems. The
costs of the Company's Year 2000 project and the date on which the Company
believes it will be completed are based on management's best estimates and
include assumptions regarding third-party modification plans. However, in
particular due to the potential impact of third-party modification plans, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in reports to share
owners. All statements which address operational performance, events or
developments which are anticipated to occur in the future, including statements
relating to revenue growth, cost reductions and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Act. The forward-looking statements are and
will be based on management's then current views and assumptions regarding
future events and operating performance.
The following are some of the factors that could cause actual results to
differ materially from estimates contained in the Company's forward-looking
statements:
o The ability to generate sufficient cash flows to support capital expansion
plans and general operating activities.
<PAGE>
o Competitive product and pricing pressures and the ability to gain or
maintain market share as a result of actions by competitors.
o Change in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretations) and environmental laws.
o Fluctuations in the cost and availability of materials, fuel and labor,
including the continued availability of landing slots at New York/LaGuardia
and Washington National airports.
o The ability to achieve earnings forecasts, which are based on projected
traffic and fares in the different markets the Company serves, some of
which are more profitable than others.
o Interest rate fluctuations and other capital market conditions.
o The ability to enter and develop new markets.
o The effectiveness of advertising, marketing and promotional programs.
o The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange
Commission filings.
o Adverse weather conditions, which could effect the Company's ability to
operate.
PART II. Other Information
Item 1. Legal Proceedings.
The Company is a party to routine litigation incidental to its business.
Management believes that none of this litigation is likely to have a material
adverse effect on the Company's financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
Through March 31, 1998, net proceeds from the offering were used as
follows:
1. $1.1 million as security for the Treasury Lock commitment (see
note 3 to the financial statements),
2. $0.6 million paid in settlement of the Treasury Lock,
3. $7.0 million to secure the Company's performance of its
obligations under a credit card processing agreement,
4. $10.5 million for down payments on debt-financed aircraft, and
5. $18.5 million was invested in marketable securities pending
future use.
Item 3. Defaults Upon Senior Securities.
None to report.
Item 4. Submission of Matters to a Vote of Security Holders.
None to report.
Item 5. Other Information.
In April, 1998, the Company extended its sublease on its office space in
Durham, North Carolina, until July, 1999. The Company's sublease for a hangar
facility in Orlando, Florida expired on April 30, 1998. The Company continues to
occupy a portion of this facility with lessor's consent while an extension is
being negotiated.
On May 7, 1998, the Company received notice that the National Mediation
Board had authorized that an election be held on the application of the
International Association of Machinists and Aerospace Workers, AFL-CIO, to
represent the Company's fleet service (ramp) employees. The ballots are
scheduled to be counted on June 11, 1998.
Item 6. Exhibits and Reports on Form 8-K.
None to report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Midway Airlines Corporation
Registrant
May 14, 1998 By /s/ STEVEN WESTBERG
-----------------------
Steven Westberg
Sr. Vice President and CFO
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