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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period
From ______________ to _________________
.
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
--------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
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(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,614,852 shares as of February 28, 1997.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
Portions of the Amtran Inc. and Subsidiaries' Proxy Statement dated
April 1, 1997, are incorporated by reference into Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 1996
AMTRAN INC. AND SUBSIDIARIES
Page #
PART I
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 17
Item 3. Legal Proceedings.................................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders................................................ 20
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...................... 20
Item 6. Selected Financial Data............................................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 22
Item 8 Financial Statements and Supplementary Data........................................................ 46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 62
PART III
Item 10. Directors and Officers of the Registrant........................................................... 63
Item 11. Executive Compensation............................................................................. 63
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 63
Item 13. Certain Relationships and Related Transactions..................................................... 63
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..................................... 64
PART I
Item 1. Business
General
Amtran, Inc. (the "Company") is a leading provider of charter,
and on a selective basis scheduled, airline services to leisure
and other value-oriented travelers. Through its principal
subsidiary, American Trans Air, Inc. ("ATA"), Amtran operates
the eleventh largest airline in the United States in terms of
1996 revenue passenger miles. ATA provides charter services
throughout the world to independent tour operators and the U.S.
military. In addition, ATA provides scheduled nonstop service
primarily to vacation destinations such as Hawaii, Las Vegas,
Florida and the Caribbean from selected gateway cities. ATA
commenced operations in 1973 as a provider of aircraft services
to the Ambassadair Travel Club, was certified as a public
charter carrier in 1981 and commenced scheduled service in 1986.
Overview of the Charter Airline Industry
The charter airline industry is comprised of (i) passenger
charter airlines, which provide passenger service primarily to
tour operators, the military and others who contract for
specific services, (ii) air freight carriers, which provide
cargo service on either a scheduled or charter basis and (iii)
scheduled airlines, which provide charter service on a limited
basis.
Charter airlines have been in existence in the United States and
Europe since the earliest days of commercial aviation.
Historically, charter airlines have supplemented the service
provided by scheduled airlines by providing specialized service
at times of peak demand. U.S. charter airlines have also
traditionally provided service to the military both in times of
peak demand, such as during the Persian Gulf War, and on a
longer-term basis to supplement the military's own transport
capacity. Based on Department of Transportation ("DOT")
statistics, total charter flights by all U.S. airlines
represented less than 3% of all available seat miles ("ASMs")
flown within the United States during the twelve months ended
July 31, 1996.
As a result of the increase in airline capacity since the late
1980s, the opportunity for charter airlines to provide
supplemental service in times of peak demand has been reduced.
In addition, several scheduled airlines have increased the
number of discounted seats on regularly scheduled flights that
they have made available to tour operators and thereby increased
the amount of competition faced by charter airlines on routes
served by both types of carriers.
Competition for charter carriers has further increased due to
the growth of discounted scheduled airline capacity serving
point to point markets, which have been the traditional source
of seasonal opportunity for charter operations within the United
States. The success of some carriers in developing their point
to point markets has posed a competitive threat to some
established large carriers, who have responded by developing
their own versions of highly discounted services using smaller
jet aircraft, and sometimes bypassing their own hubs.
Part I - Continued
In the United States, the charter airline industry has consisted
of a large number of relatively small airlines, many of which
operate a few older aircraft. In Mexico, the charter airline
industry consists of a few, relatively small airlines which
generally operate only narrow-body aircraft. In Europe, by
contrast, the charter airline industry has for a number of years
included both large and small airlines. In Europe, such charter
airlines traditionally have been significant competitors to the
scheduled airlines for passenger traffic to leisure destinations
such as the Mediterranean, the United States and the Caribbean.
Historically, this has been due in part to the fact that charter
carriers were subject to fewer price and route regulations than
the scheduled airlines. In addition, this regulatory advantage
has led some European scheduled airlines to form or acquire
charter airline affiliates, and to devote significant resources
toward the marketing of charter services. It also has
contributed to the formation of companies which own both a
charter airline and a significant tour operator business and, in
some cases, retail travel agencies.
In general, charter airlines have a lower cost structure than
scheduled airlines. Unlike most scheduled airlines, charter
airlines do not invest heavily in advertising and marketing, nor
do they maintain a sizeable and complex reservations system or
maintain extensive airport support facilities. Charter airlines
also generally operate with lower overall employment costs and
higher average load factors than scheduled airlines.
The Company's Airline Operations
Background
ATA flew its maiden flight on a Boeing 720 between Indianapolis
and Orlando in 1973 for Ambassadair. It was certificated as a
public charter carrier in 1981 and as a scheduled air carrier in
1985. ATA grew from flying approximately 355 million revenue
passenger miles ("RPMs") in 1982, its first full year as a
public charter carrier, to approximately 9.2 billion RPMs in
1996. In 1973, the Company's fleet consisted of a single leased
Boeing 720. As of December 31, 1996, the Company operated a
fleet of 45 aircraft. The following table illustrates the growth
of the Company over the most recent ten years:
Year Ended December 31,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
(Dollars in millions)
Operating revenues $254.4 $253.9 $279.1 $371.4 $414.0 $421.8 $467.9 $580.5 $715.0 $ 750.9
Net income (loss) $ 3.2 $ 7.0 $ 4.4 $(2.0) $ 5.6 $(2.1) $ 3.0 $ 3.5 $ 8.5 $(26.7)
Total assets $183.0 $193.4 $238.4 $251.8 $237.4 $239.0 $269.8 $346.3 $413.1 $ 370.3
Block hours 48,870 42,642 49,222 57,847 60,177 65,583 76,542 103,657 126,295 138,114
ASMs (in millions) 5,287 4,857 5,374 6,755 7,111 7,521 8,232 10,443 12,522 13,296
Employees (at period end) 1,675 1,789 2,134 2,310 2,205 2,412 3,418 4,136 4,830 4,435
Services Offered
The Company generally provides its airline services to its
customers in the form of charter and scheduled service sales.
The following table provides a summary of the Company's total
revenue for the periods indicated:
Year Ended December 31,
-------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ------------ ------------ -----------
(Dollars in millions)
Charter
Tour operator $271.5 $207.4 $196.1 $222.2 $218.2
Ambassadair (air only) 5.4 6.3 7.9 7.3 8.2
Military 47.1 78.4 91.8 77.5 84.2
----------- ----------- ------------ ------------ -----------
Total charter 324.0 292.1 295.8 307.0 310.6
Scheduled service 61.1 138.0 240.7 362.0 386.5
Other 36.7 37.8 44.0 46.0 53.8
----------- ----------- ------------ ------------ -----------
Total $421.8 $467.9 $580.5 $715.0 750.9
=========== =========== ============ ============ ===========
Charter Sales
As illustrated in the above table, charter sales represented
41.4% of the Company's total revenues for 1996. The Company's
principal customers for charter sales are tour operators,
military and government agencies, sponsors of incentive travel
packages and specialty charter customers.
Tour Operator Programs. Demand from tour operators for the
Company's low-cost, leisure services declined by 1.4% in 1996
over 1995. This segment accounted for approximately 30.2% of the
Company's total revenues and 32.8% of ASMs for 1996. These
leisure-market programs are generally contracted for repetitive,
round-trip patterns, operating over extended periods of time. In
such an arrangement, the tour operator pays a fixed price for
use of the aircraft (which includes the services of the cockpit
crew and flight attendants, together with check-in, baggage
handling and maintenance services, catering and all necessary
aircraft handling services) and assumes responsibility and risk
for the actual sale of the available aircraft seats. Because the
Company operates primarily on a contract basis, it can, subject
to competitive constraints, structure the terms of each contract
to reflect the costs of providing the specific service, together
with an acceptable return.
In general, tour operators either package the Company's flights
with traditional ground components (e.g., hotels, rental cars,
attractions) or sell only the airline passage ("airfare only").
Tickets on the Company's flights contracted to tour operators
are issued by the tour operator either directly to passengers or
through retail travel agencies. Under current DOT regulations
with respect to charter transportation originating in the United
States, all charter airline tickets must generally be paid for
in cash and all funds received from the sale of charter seats
(and in some cases the costs of land arrangements) must be
placed into escrow by the tour operator or protected by a surety
bond satisfying certain prescribed standards. Funds paid by tour
operators to the Company for charter transportation must be
escrowed or protected by a similar bonding arrangement.
Currently, the Company provides a third-party bond, which is
unlimited in amount in order to satisfy its obligations under
these regulations. Under the terms of its bonding arrangements,
the issuer of the bond has the right to terminate the bond at
any time on 30 days notice and the current premium is subject to
review and adjustment on June 30, 1997. The Company provides a
letter of credit to secure $2 million of its potential
obligations to the issuer of the bond. If the bond were to be
materially limited or canceled, the Company, like all other U.S.
charter airlines, would be required to escrow funds to comply
with the DOT requirements summarized above. Compliance with such
requirements would reduce the Company's liquidity and require it
to fund higher levels of working capital ranging up to
approximately $10 million based on 1996 peak travel periods. See
"Business -- Regulation".
Although the Company serves tour operator programs on a
worldwide basis, its primary customers are U.S.-based and
European-based tour operators. For 1996, the Company's five
largest tour operator customers represented approximately 22.4%
of the Company's consolidated revenues, and the ten largest tour
operator customers represented approximately 29.8% of the
Company's consolidated revenues.
In general, the Company enters into contracts with tour
operators four to six months in advance of the commencement of
the service to be provided. Pursuant to these contracts, tour
operators, who are often thinly capitalized, are required
generally to pay to the Company at the time the contract is
executed a deposit ranging from one week's revenue due under the
contract (in the case of recurring pattern contracts) to 10%-30%
of the total charter payment (in the case of nonrecurring
pattern contracts). Tour operators are required to pay the
remaining balance of the charter payment to the Company at least
two weeks prior to the flight date. In the event the tour
operator fails to make the remaining payment when due, the
Company must either cancel such flight at least ten days prior
to the flight date or, pursuant to DOT regulations, perform
under the contract notwithstanding the breach by the tour
operator. In the event the tour operator cancels or defaults
under the contract with the Company or otherwise notifies the
Company that such tour operator no longer needs charter service,
the Company is entitled under the contract to keep the
contractually established cancellation fees, which may be more
or less than the deposit. Whether the Company elects to exercise
this right in a particular case will depend upon a number of
factors, including the Company's ability to redeploy the
aircraft, the amount of money on deposit or secured by a letter
of credit, the relationship the Company has with the tour
operator and the general market conditions existing at the time.
The Company may choose to renegotiate a contract with a tour
operator from time to time based on market conditions. As part
of any such renegotiations a tour operator may seek to reduce
the per-seat price or the number of flights or seats per flight
which the tour operator is obligated to purchase.
In connection with its sales to tour operators, the Company
seeks to minimize its exposure to unexpected changes in
operating costs. The Company, under its contracts with tour
operators, is able to pass through most increases in average
fuel costs. Under these contracts, if the fuel increase causes
the total contract price to rise in excess of 10%, the tour
operator has the option of canceling the contract. These
contracts provide that the final fuel price is to be determined
based on a blended average of the Company's fuel costs two weeks
prior to the flight date. The Company is exposed to increases in
fuel costs that occur within 14 days of flight time, to all
increases associated with its scheduled service and to increases
affecting any charter contracts that do not include fuel cost
escalation provisions.
The Company believes that although price is the principal
competitive criterion, product quality and the ability to
deliver a charter service that is customized to the customer's
particular needs have become increasingly important to
independent tour operators. Accordingly, the Company seeks to
differentiate itself through increased emphasis on its ability
to deliver customized in-flight service (such as food service,
foreign language flight attendants and movie selections),
consistency of product delivery, customer handling, delivery
support and operational reliability for the tour operator. The
ability to deliver a tour product meeting the leisure traveler's
quality and price expectations provides a significant marketing
advantage to the tour operator.
Military/Government. In 1996 military/government sales were
11.2% of the Company's total revenues and 10.8% of total ASMs.
Traditionally, the Company's focus has been on short-term
"contract expansion" business which is routinely awarded by the
U.S. Government based on price and availability of appropriate
aircraft. The government prenegotiates contract prices for each
type of aircraft a carrier makes available to the military, with
the airline responsible for virtually all costs other than fuel.
The government pays for the entire cost of fuel. The short-term
expansion business is awarded pro rata to the carriers with
aircraft availability who have been awarded the most fixed-award
business, and then to any additional carrier that has aircraft
available. As discussed below, the Company's anticipated
fixed-award business should also assist the Company in obtaining
additional expansion business.
Pursuant to the military's fixed-award system, each
participating airline is given certain "mobilization value
points" based on the number and type of aircraft then available
from such airline. A participant may increase the number of its
mobilization value points by teaming up with one or more other
airlines to increase the total number of mobilization value
points of the team. Generally, a charter passenger airline will
seek to team up with one or more charter cargo airlines and vice
versa, as there is generally not enough cargo fixed-award
business available for these types of carriers to utilize all of
their mobilization value points. When the military determines
its carrier needs for a particular period, it determines how
much of each particular type of service it will need (e.g.,
narrow-body, passenger service). It will then award each type of
business to those carriers or teams that have committed to make
available that type of aircraft and service with the carriers or
teams with the highest amount of mobilization value points given
a preference. When an award is presented to a team, the charter
passenger airline will generally perform the passenger part of
the award and the charter cargo airline will perform the cargo
part of the award.
In 1992, the Company entered into a "contractor teaming
arrangement" with four other cargo and passenger airlines
serving the military. If the Company used only its own
mobilization value points, it would be entitled to a fixed-award
of approximately 1% of total awards under the system; however,
when all of the Company's team members are taken into account,
their portion of the fixed-award is approximately 34% of total
awards under the system. As a result, the contractor teaming
arrangement significantly increases the likelihood that the team
will receive a fixed-award contract, and, to the extent the
award includes passenger transport, increases the Company's
opportunity to provide such service because the Company
represents a significant portion of the team's passenger
transport capacity. In addition, since the expansion business is
also awarded as a function of the fixed-award system, the
Company, through its contractor teaming arrangement, should also
receive a greater percentage of the short-term expansion
business. As part of its participation in this contract teaming
arrangement, the Company pays certain utilization fees to other
team members.
The Company is subject to biennial inspections by the military
as a condition of retaining its eligibility to perform military
charter flights. The last such inspection was undertaken in 1995
and the next is scheduled for the third or fourth quarter of
1997. As a result of such inspections, the Company has been
required to implement measures beyond those required by the DOT,
Federal Aviation Administration ("FAA") and other government
agencies.
Military and other government flight activity has recently been,
and is expected to remain, a significant factor in the Company's
business mix. Because this business is generally less seasonal
than leisure travel, it should tend to have a stabilizing impact
on the Company's operations and earnings. The Company believes
its fleet of aircraft is well suited for the changing
requirements of military passenger service. Although the
military is reducing its troop size at foreign bases, the
military still desires to maintain its schedule frequency to
these bases. Therefore, the military has a need for smaller
capacity aircraft possessing long-range capability, such as the
Company's Boeing 757-200ER aircraft. In 1993, the Company became
the first North American carrier to receive FAA certification to
operate Boeing 757-200 aircraft with 180-minute Extended Twin
Engine Operation ("ETOPS"). This certification permits specially
equipped Boeing 757-200 aircraft to participate in long-range
missions over water in which the aircraft may be up to three
hours from the nearest alternate airport. All of the Company's
Boeing 757-200s are so equipped and certified. The Company
believes that this 180-minute ETOPS capability has enhanced the
Company's ability to obtain awards for certain long-range
missions.
Incentive Travel Programs. Many corporations offer travel to
leisure destinations or special events as incentive awards for
employees. The Company has historically provided air travel for
many corporate incentive programs. Incentive travel customers
range from national incentive marketing companies to large
corporations that handle their incentive travel programs on an
in-house basis.
The Company believes that its flexibility, versatility and
attention to detail have helped to establish it as one of the
leaders in providing incentive travel airline charter service.
Incentive travel services are generally customized to the
customer or sponsor, vacation destination or special event.
Generally, incentive travel operations are a demanding and
sophisticated part of the charter airline business. Incentive
travel operations can vary from a single round trip to an
extensive overseas pattern involving thousands of employees and
their families.
Specialty Charters. The Company operates a significant number of
specialty charter flights. These programs are normally
contracted on a single round-trip basis and vary extensively in
nature, from flying university alumni to a football game, to
transporting political candidates on campaign trips, to moving
the NASA space shuttle ground crew to an alternate landing site.
Traditionally, these flights are arranged on very short notice
on a bid basis and, if the Company has aircraft available, allow
the Company to increase aircraft utilization during off-peak
periods.
The Company believes it is able to attract this business due to
its fleet size and diversity of aircraft. The size and location
of the Company's fleet reduces nonproductive ferry flight
activity, resulting in more competitive pricing. The diversity
of aircraft types in its fleet also allows the Company to better
match a customer's particular charter requirements with the type
of aircraft best suited to satisfy those requirements.
Scheduled Service Sales
In addition to its charter sales, the Company markets air
travel, as well as packaged leisure travel products, directly to
retail consumers in selected markets. In scheduled service, the
Company focuses primarily on serving selected leisure
destinations with low-cost, nonstop or direct flights from
cities which do not have such service or where there is only
limited competition. The Company believes that it may be able,
on a selective basis, to expand this business as the major
scheduled airlines increasingly consolidate their hub-and-spoke
route systems.
The Company's scheduled service operations link the
Indianapolis, Chicago-Midway and Milwaukee markets with several
popular leisure destinations. The Company seeks to maintain
operational flexibility in its scheduled service. If the Company
is unsatisfied with its return on a specific scheduled service
route, it will reduce or cancel the service and reallocate the
assets based on alternative market opportunities.
The Company's strategy for its scheduled service is to offer
routine, low-frequency service which stresses nonstop
convenience and a simplified pricing structure oriented to the
buyer of leisure travel services. During 1996, scheduled service
provided 51.5% of the Company's consolidated revenues and 54.9%
of ASMs.
Included in the Company's scheduled service sales are bulk sales
agreements with tour operators. Under these arrangements, which
are very similar to charter sales, the tour operator may take a
significant portion of an aircraft with a bulk-seat purchase.
The Company retains only a minor portion, which it sells through
its own scheduled service distribution. The advantage for the
tour operators is that their product appears in the Computer
Reservation System ("CRS") and through other scheduled service
distribution channels. Under this arrangement, the Company is
ultimately responsible for the passenger's travel similar to any
other scheduled service, regardless of its ability to collect
from the tour operator. Bulk seat sales amounted to $67.3
million in 1996, which represented 9.0% of the Company's 1996
total consolidated revenue.
Other Revenues
Through its industry sales operations, the Company offers a
variety of aviation services, including the "wet leasing" of
aircraft (or "subservice") and maintenance services, management
and technical consulting and various training services. The
Company's customers for these services include established as
well as start-up airlines that lease equipment and subcontract
for aircraft services. During 1996, subservice sales provided
0.9% of the Company's total consolidated revenues. Other
industry sales revenues included in total operating revenues for
1996 were not significant.
The Company's aircraft leasing activities consist exclusively of
"wet leases" in which the lessor supplies, in addition to the
aircraft, the cockpit crew, insurance and maintenance, and the
lessee is responsible for all other matters in connection with
the aircraft, including handling, fuel and catering. Ad hoc
subservices for scheduled carriers are typically conducted as
"public charters" pursuant to waivers granted by the DOT from
its public charter regulations. In conducting subservice, the
Company also complies with all applicable FAA requirements,
including those pertaining to security arrangements for flight
operations conducted by U.S. carriers. The Company does not, and
is generally not permitted under its financing and leasing
arrangements, to enter into "dry leases" in which the lessee
leases only the aircraft itself and the lessee is responsible
for cockpit crew, insurance, maintenance and all other matters
in connection with the aircraft.
The aircraft subservice market has experienced a significant
decline over the past few years. This decline has been primarily
the result of (i) slower growth in traffic levels, which has
reduced the number of occasions when airlines have required
additional aircraft to cover peak capacity periods, and (ii) an
oversupply of available aircraft as a result of the deliveries
of new aircraft and a consolidation of the airline industry.
ATA Vacations. The Company's wholly-owned ATA Vacations
subsidiary markets complete vacation packages (i.e., hotel,
rental car, air) at destinations served by the Company both on a
charter and scheduled service basis. These packages target
customers seeking the added value associated with "one-call"'
vacation planning. Higher margins associated with the sale of
all-inclusive packages enhance the earnings performance for the
Company's single seat business.
Travel Club. The Company owns Ambassadair Travel Club, based in
Indianapolis. The travel club is dues-based, so that for an
initiation fee and annual dues, club members, who together
currently total approximately 39,000 individuals and families,
gain access to a broad variety of all-inclusive travel and
vacation packages. During 1996, the Company operated
approximately 400 trip options exclusively for club members.
During 1996, travel club members provided $21.9 million of
revenues from dues, air travel and ground packages.
Aircraft Fleet
As of December 31, 1996, the Company operated a fleet of 14
Lockheed L-1011s, 24 Boeing 727-200ADVs and 7 Boeing 757-200s.
Lockheed L-1011 Aircraft. The Company's Lockheed L-1011 aircraft
are wide-body aircraft, 12 of which have a range of 2,971
nautical miles and 2 of which have a range of 3,425 nautical
miles. These aircraft conform to the FAA's Stage 3 noise
requirements and have a low ownership cost relative to most
other wide-body aircraft types. (For information regarding Stage
3 noise requirements, see "Business -- Environmental Matters".)
As a result, the Company believes these aircraft offer a
competitive advantage when operated on long-range routes, such
as on transatlantic, Caribbean and West Coast-Hawaii routes. As
of December 31, 1996, twelve of these aircraft are owned by the
Company and two are under operating leases that expire in June
2000 and March 2001.
Boeing 727-200ADV Aircraft. The Company's Boeing 727-200ADV
aircraft are narrow-body aircraft equipped with high thrust,
JT8D-15/-15A/-17/-17A engines and have a range of 2,050 nautical
miles. These aircraft, 23 of which have been leased, have an
average age of approximately 16 years, of which 16 conform to
Stage 2 and eight conform to Stage 3 noise requirements as of
December 31, 1996. The leases for these aircraft have initial
terms that expire between December 1997 and November 2002,
subject to the Company's right to extend each lease for varying
terms. The Company may be required prior to December 31, 1998,
and will be required prior to December 31, 1999, to make
expenditures for engine "hushkits" or to acquire replacement
aircraft so that its entire fleet conforms to Stage 3 noise
requirements in accordance with FAA regulations. In general, the
lessors of the Company's Boeing 727-200ADVs have agreed to
finance hushkits for these aircraft which, if accepted by the
Company, will result in an automatic extension of the lease term
for each aircraft. Although Boeing 727-200ADV aircraft are
subject to the FAA's Aging Aircraft program, the Company does
not expect that its cost of compliance for these aircraft over
the next two years will be material. See "Business --
Regulation".
Boeing 757-200 Aircraft. The Company's Boeing 757-200 aircraft
are modern, narrow-body aircraft, all of which have a range of
3,679 nautical miles. These aircraft, all of which are leased,
have an average age of approximately 3 years and meet Stage 3
noise requirements. The Company's Boeing 757-200s have higher
ownership costs than the Company's Lockheed L-1011 and Boeing
727-200ADV aircraft, but relatively low operational costs. In
addition, unlike most other aircraft of similar size, the Boeing
757-200 has the capacity to operate on extended flights over
water. The leases for the Company's Boeing 757-200 aircraft have
initial terms that expire on various dates between March 1997
and March 2015, subject to the Company's right to extend each
lease for varying terms.
All of the aircraft and most of the engines owned by the
Company, together with the Company's related inventory of spare
parts, are subject to mortgages and other security interests
granted in favor of the Company's lenders under its credit
agreement and certain loan agreements. The terms of such
security arrangements prohibit any sale or lease of such
aircraft, engines or other assets without the consent of the
secured party, subject, however, to certain exceptions,
including in most cases leases not in excess of six months where
the Company maintains operational control of the property. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources --
Credit Facilities".
Flight Operations
Worldwide flight operations are planned and controlled by the
Company's Flight Operations Group operating out of its
facilities located in Indianapolis, Indiana, which are staffed
on a 24-hour basis seven days a week. Logistical support
necessary for extended operations away from the Company's fixed
bases are coordinated through its global communications network.
ATA's complex operating environment demands a high degree of
skill and flexibility from its Flight Operations Group.
In order to enhance the reliability of its service, the Company
seeks to maintain at least two spare Lockheed L-1011 aircraft
and two spare Boeing 727-200 aircraft at all times. The spare
aircraft can be dispatched on short notice to most locations in
the world where a substitute aircraft is needed for mechanical
or other reasons. The spare aircraft allows the Company to
provide to its customers a dispatch reliability that is hard for
an airline of comparable or smaller size to match.
Maintenance and Support
The Company's Maintenance and Engineering Center is located at
Indianapolis International Airport. The 120,000 square-foot
facility was designed to meet the maintenance needs of the
Company's operations as well as provide contract control of
purchased services. The Company performs approximately 75% of
its maintenance work, excluding engine overhauls and Lockheed
L-1011 and Boeing 727-200 heavy airframe checks.
The Company currently maintains ten permanent maintenance
facilities, including its Indianapolis facility. In addition,
the Company utilizes "Road Teams", which are dispatched as
flight operations require to arrange for and supervise
maintenance services at temporary locations. The Company sends
Road Teams to oversee the 25% of its airframe maintenance not
performed in house.
The Indianapolis Maintenance and Engineering Center is an
FAA-certificated repair station and has the expertise to perform
routine, as well as nonroutine, maintenance on Lockheed L-1011,
Boeing 727-200, and Boeing 757-200 aircraft. Capabilities of the
Maintenance and Engineering Center include: (i) airworthiness
directive and service bulletin compliance; (ii) modular teardown
and buildup of Rolls Royce RB211-22B and -535E4 engines; (iii)
nondestructive testing, including radiographics, x-ray,
ultrasound, magnetic particle and eddy current; (iv) avionics
component repair; (v) on-wing engine testing; (vi) interior
modification; (vii) repair and overhaul of accessories and
components, including hydraulic units and wheel and brake
assemblies; and (viii) sheet metal repair with hot bonding and
composite material capabilities. The Company contracts with
third parties for certain engine and airframe overhaul and other
services when the Company does not have the technical
capability, facility capacity, or if the services can be
obtained on a more cost-effective basis from outside sources.
In order to perform maintenance on its fleet, the Company has
established three different types of maintenance stations,
depending upon the frequency of aircraft visits and the level of
maintenance services available:
Class I: Stations with assigned Company mechanics, adequate
facilities, equipment and parts to perform both scheduled and
unscheduled maintenance on all aircraft normally operating into
that station.
Class II: Stations with assigned Company mechanics, but limited
facilities, equipment and parts that are capable of performing
certain scheduled and unscheduled maintenance.
Class III: Stations with on-call maintenance arranged by the
Company with other certificated operators or maintenance
facilities to perform both scheduled and unscheduled maintenance
on the Company's aircraft operating into the station. All work
is scheduled and controlled by the Company's Maintenance Control
division.
As of December 31, 1996, the Company had maintenance
capabilities in ten locations. The Off-Line Maintenance group is
responsible for aircraft maintenance at all Class III stations.
This group provides Road Teams and coordinates contract labor at
stations all around the world where maintenance is needed to
support short-term operations. The technical representatives of
the Company supervise the quality and completion of the work
performed on the Company's aircraft. During the last two years,
the Company has operated Class III stations at five locations in
the United States and one foreign location.
Other Activities
In addition to its airline and travel businesses, the Company
owns and operates or participates in several smaller businesses
that complement its airline service, including American Trans
Air Training Corporation, which provides professional training
schools for pilots, mechanics and flight attendants, ExecuJet,
an executive air charter service, and Amber Air Freight, a
freight forwarder. In 1996, revenues from these businesses
accounted for less than 1% of the Company's total operating
revenues.
American Trans Air Training Corporation. American Trans Air
Training Corporation (the "Training Corporation") was organized
in 1988 to service the training needs of airlines and airline
suppliers as well as individuals desiring to pursue a career in
aviation. The Training Corporation has two distinct areas of
training: Pilot and Contract Training and Airframe and Power
Plant Training.
The Training Corporation provides training to airline personnel,
including cockpit crews, flight attendants, ground security
coordinators, dispatchers and other support personnel. These
services are arranged on a contractual basis with an airline and
are generally completed in Indianapolis where the Training
Corporation has its educational facilities, including
classrooms, cabin trainers and other training aides. The
Training Corporation is a partner with a subsidiary of LTU
International Airlines, a German charter airline, in a joint
venture owning a Lockheed L-1011 simulator located in Miami,
Florida. The Training Corporation is the managing partner for
the venture operating the simulator and markets training time to
other Lockheed L-1011 operators. The flight school is FAR
('Federal Air Regulation') Part 141 certified; accordingly,
graduates receive an FAA approved pilot's license.
In July 1992, The Training Corporation opened its Airplane and
Power Plant School in Indianapolis providing training necessary
for licensing graduates as airplane and power plant mechanics
("A&Ps"). A&P licenses are required for all maintenance on
U.S.-registered aircraft (private and commercial) including all
scheduled and charter airlines. ATA, Federal Express and United
Airlines have maintenance facilities at Indianapolis
International Airport. These airlines should provide substantial
demand for future graduates of the Airframe and Power Plant
School.
ExecuJet. ExecuJet provides executive air charter services using
a Citation jet aircraft, as well as Bell 206B JetRanger III and
Aerospatiale 355F2 helicopters. ExecuJet's customers include
corporations and individuals requiring high-quality, private air
transportation.
The Company acquired the aircraft used by ExecuJet to provide
ATA with a prompt means to deliver crews, mechanics and spare
parts to its aircraft when reasonable alternatives do not
otherwise exist. The Company formed ExecuJet in order to utilize
more fully these aircraft. ExecuJet has expanded its client base
to include the entertainment field and Fortune 500 companies as
well as local corporate users.
Amber Air Freight, Inc. Amber Air Freight, Inc., is a general
partner in Amber Air Freight, an Indiana general partnership,
with a third party that is the manager of the venture. Amber Air
Freight markets the unused cargo capacity in ATA's scheduled and
charter operations. Amber Air Freight's customers include
freight transporters, such as freight forwarders and
consolidators, some of whom do not require year-round scheduled
service but that can rely on the seasonal patterns which charter
airlines develop. Amber Air Freight also markets this service to
other charter airlines.
Insurance
The Company carries types and amounts of insurance customary in
the charter airline industry, including coverage for public
liability, passenger liability, property damage, aircraft loss
or damage, baggage and cargo liability and workers'
compensation. Under the Company's current insurance policies, it
will not be covered by such insurance when it flies, without the
consent of its insurance provider, to the following countries:
Afghanistan, Angola, Chad, Columbia, Iraq, Liberia, Libya, Peru,
Somalia, Sudan, the area comprising the former Republic of
Yugoslavia and Zaire. The Company does not consider the
inability to operate into or out of any of these countries to be
a significant limitation on its business. The Company will
support certain U.S. government operations in areas where its
insurance policy does not provide coverage for losses when the
U.S. government provides sufficient replacement insurance
coverage.
Employees
As of December 31, 1996, the Company had approximately 4,435
employees. In June of 1991, the Company's flight attendants
elected the Association of Flight Attendants ("AFA"') as their
representative. In December 1994, the flight attendants ratified
a four-year collective agreement. In June of 1993, the Company's
cockpit crews elected the International Brotherhood of Teamsters
("IBT") as their representative. In September of 1996, following
three years of negotiation, a four-year collective agreement was
ratified by the cockpit crews.
The Company believes that its relations with its employees are
good. However, the existence of a significant dispute with any
sizable number of its employees could have a material adverse
effect on the Company's operations.
Competition
The Company competes in a number of different markets because it
offers different products and services, and the nature and
intensity of such competition varies from market to market. In
marketing its charter and scheduled airline services, the
Company emphasizes its ability to provide a simplified product
designed to meet the primary needs of leisure travelers. This
includes offering low fares, nonstop or direct flights from the
customer's city of origin and in-flight services that are
comparable to standard coach service on scheduled airlines. By
offering air travel products that can be tailored to meet the
particular needs of its customers, particularly independent tour
operators, the Company believes it is able to differentiate
itself from most major scheduled airlines, whose principal focus
is on frequent scheduled service on established routes, as well
as from smaller charter airlines, which often do not have
comparably diverse fleets or the ability to provide similar
support or customization.
In the United States, there are few barriers to entry into the
airline business, apart from the need for certain government
licenses and the need for and availability of financing,
particularly for those seeking to operate on a small scale with
limited infrastructure and other support systems. As a result,
the Company may face increased competition from start-up
airlines in selected markets from time to time. In the leisure
travel market, the Company's principal business, the competition
for airline passengers is significant. The Company competes with
both scheduled and charter airlines, both in the U.S. and
internationally. The Company generally competes on the basis of
price, distribution effectiveness, availability of equipment,
quality of service and convenience.
Competition from Scheduled Airlines
The Company competes against U.S., European and Mexican
scheduled airlines, most of which are significantly larger than
the Company and many of which have greater access to capital
than the Company. These airlines compete for leisure travel
customers in a variety of ways, including wholesaling to tour
operators discounted seats on scheduled flights, promoting
prepackaged tours to travel agents for sale to retail customers
and selling discounted, excursion airfare-only products to the
public. As a result, all charter airlines, including the
Company, generally are required to compete for customers against
the lowest revenue-generating seats of the scheduled airlines.
Charter airlines generally have a lower cost structure than most
scheduled airlines. The major scheduled airlines typically incur
higher costs related to labor, marketing, reservation systems
and airport facilities, among other items. Because of their cost
structures, the scheduled airlines generally do not compete
directly with charter airlines on a price basis. However, during
periods of dramatic fare cuts by the scheduled airlines, the
Company is forced to compete against these deeply discounted
seats. The scheduled airlines do compete with charter airlines
by selling excess capacity to tour operators and consolidators
at bulk rates and also selling charter services on a limited
basis.
The Company's charter service also competes against the
scheduled airlines on the basis of convenience and quality of
service. As the U.S. scheduled airline industry has
consolidated, the traffic patterns have evolved into what is
commonly referred to as the 'hub-and-spoke' system. Partially as
a result of the creation of numerous hub-and-spoke route
systems, many smaller cities are not served by direct or nonstop
flights to leisure destinations, and many secondary leisure
destinations do not receive direct or nonstop service from more
than a few major U.S. cities. The Company, through tour
operators, targets these markets by offering nonstop service to
leisure destinations on a limited-frequency basis designed to
appeal to the leisure traveler and to provide relatively high
load factors. The Company believes that a significant amount of
its charter flights provide nonstop convenience to destinations
not available to passengers through scheduled airlines.
The Company competes directly with several scheduled airlines on
certain leisure routes, particularly in the Indianapolis,
Chicago-Midway and Milwaukee markets. Although several airlines
serve these markets, historically, the Company has been able to
compete successfully for the leisure customer. The Company is
continually evaluating these markets for their future potential.
Competition from Charter Airlines
In addition to competing with the major domestic, European and
Mexican scheduled airlines, the Company also faces competition
in the U.S. from two smaller U.S. charter airlines. This is the
lowest number of charter carriers competing for business in many
years, a situation that could promote additional entries into
the charter market. In Europe, the Company competes with several
large European charter airlines, many of which are part of
entities which also own tour operators and travel agencies or
scheduled airlines. To date, the Company has been able to
compete successfully against both the U.S. and European charter
airlines. In the case of the European charter airlines, the
Company believes that its success has been primarily due to the
higher operating costs of such European airlines. In Mexico, the
Company competes against several Mexican charter airlines
operating charters between the U.S. and Mexico.
Based upon bilateral aviation agreements between the U.S. and
other nations, and, in the absence of such agreements, comity
and reciprocity principles, the Company, as a charter carrier,
is generally not restricted as to the number or frequency of its
flights to and from most destinations in Europe. However, these
agreements generally restrict the Company to the carriage of
passengers and cargo on flights which either originate in the
U.S. and terminate in a single European nation, or which
originate in a single European nation and terminate in the U.S.
Proposals for any additional charter service must generally be
specifically approved by the civil aeronautics authorities in
the relevant countries. Approval of such a proposal is typically
based on considerations of comity and reciprocity and cannot be
guaranteed.
Regulation
The Company is an air carrier subject to the jurisdiction of and
regulation by the DOT and the FAA. The DOT is primarily
responsible for regulating consumer protection and other
economic issues affecting air services and determining a
carrier's fitness to engage in air transportation. In 1981, the
Company was granted a Certificate of Public Convenience and
Necessity pursuant to Section 401 of the Federal Aviation Act
authorizing it to engage in air transportation. The Company is
also subject to the jurisdiction of the FAA with respect to its
aircraft maintenance and operations. The FAA requires each
carrier to obtain an operating certificate and operations
specifications authorizing the carrier to operate to specific
airports using specified equipment. All of the Company's
aircraft must have and maintain certificates of airworthiness
issued by the FAA. The Company holds an FAA air carrier
operating certificate under Part 121 of the Federal Aviation
Regulations.
The Company believes it is in compliance with all requirements
necessary to maintain in good standing its operating authority
granted by the DOT and its air carrier operating certificate
issued by the FAA. A modification, suspension or revocation of
any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
The FAA has issued a series of Airworthiness Directives under
its "Aging Aircraft" program which are applicable to the
Company's Lockheed L-1011 and Boeing 727-200 aircraft. The
Company does not currently expect the future cost of these
directives to be material.
Several aspects of airline operations are subject to regulation
or oversight by Federal agencies other than the DOT and FAA. The
United States Postal Service has jurisdiction over certain
aspects of the transportation of mail and related services
provided by the Company through its cargo affiliate. Labor
relations in the air transportation industry are generally
regulated under the Railway Labor Act, which vests in the
National Mediation Board certain regulatory powers with respect
to disputes between airlines and labor unions arising under
collective bargaining agreements. The Company is subject to the
jurisdiction of the Federal Communications Commission regarding
the utilization of its radio facilities. In addition, the
Immigration and Naturalization Service, the U.S. Customs
Service, and the Animal and Plant Health Inspection Service of
the Department of Agriculture have jurisdiction over inspection
of the Company's aircraft, passengers and cargo to ensure the
Company's compliance with U.S. immigration, customs and import
laws. The Commerce Department also regulates the export and
reexport of the Company's U.S.-manufactured aircraft and
equipment.
In addition to various Federal regulations, local governments
and authorities in certain markets have adopted regulations
governing various aspects of aircraft operations, including
noise abatement, curfews and use of airport facilities. Many
U.S. airports have adopted or are considering adopting a
"Passenger Facility Charge" of up to $3.00 generally payable by
each passenger departing from the airport. This charge must be
collected from passengers by transporting air carriers, such as
ATA, and must be remitted to the applicable airport authority.
Airport operators must obtain approval of the FAA before they
may implement a Passenger Facility Charge.
Environmental Matters
Under the Airport Noise and Capacity Act of 1990 and related FAA
regulations, the Company's aircraft fleet must comply with
certain Stage 3 noise restrictions by certain specified
deadlines. These regulations require that the Company achieve a
55% Stage 3 fleet by December 31, 1994, a 65% Stage 3 fleet by
December 31, 1996, and a 75% Stage 3 fleet by December 31, 1998.
In general, the Company would be prohibited from operating any
Stage 2 aircraft after December 31, 1999. As of December 31,
1996, 65% of the Company's fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by
the FAA, the Environmental Protection Agency ("EPA") regulates
operations, including air carrier operations, which affect the
quality of air in the United States. The Company has made all
necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
The Company maintains on its property in Indiana two underground
storage tanks which certain quantities of deicing fluid and
emergency generator fuel. These tanks are subject to various EPA
and State of Indiana regulations. The Company believes it is in
substantial compliance with applicable regulatory requirements
with respect to these storage facilities.
At its aircraft line maintenance facilities, the Company uses
materials which are regulated as hazardous under Federal, state
and local law. The Company maintains programs to protect the
safety of its employees who use these materials and to manage
and dispose of any waste generated by the use of these
materials, and believes that it is in substantial compliance
with all applicable laws and regulations.
Item 2. Properties
The Company leases three adjacent office buildings in
Indianapolis, consisting of approximately 136,000 square feet.
These buildings are located approximately one mile from the
Indianapolis International Airport and are used for headquarters
staff and for the operation of the Indianapolis reservations
center.
The Company's Maintenance and Engineering Center is located at
Indianapolis International Airport. This 120,000 square foot
facility was designed to meet the base maintenance needs of the
Company's operations, as well as to provide support services for
other maintenance locations. The Indianapolis Maintenance and
Engineering Center is an FAA-certificated repair station and has
the capability to perform routine, as well as non-routine,
maintenance on the Company's aircraft.
In 1995, the Company completed the lease of Hangar No. 2 at
Chicago's Midway Airport for an initial lease term of ten years,
subject to two five-year renewal options. With the reduction in
scheduled service in 1996, the Company is reconsidering the
option for the use of this hangar.
Also in 1995, the Company relocated and expanded its Chicago
area reservations unit to an 18,700 square foot facility located
near Chicago's O'Hare Airport. This new property is expected to
accommodate the Company's scheduled service into the foreseeable
future.
At December 31, 1996, the Company operated a fleet of 45
aircraft. Two additional Lockheed L-1011 aircraft, not currently
on the Company's operating certificate, were also subject to
operating leases at the end of 1996. The following table
summarizes the ownership, lease term (where applicable),
standard seating configuration, and Stage 2/Stage 3 noise
characteristics of each aircraft operated by the Company as of
the end of 1996.
Aircraft Owned/Leased Lease Expiration Seats Stage
(month/year)
---------------------------------- -------------------- -------------------- --------------- ------------
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-50 Owned n/a 362 3
Lockheed L-1011-100 Leased 06/2000 362 3
Lockheed L-1011-100 Leased 03/2001 362 3
Boeing 727-200ADV Owned n/a 173 3
Boeing 727-200ADV Leased 09/2002 173 3
Boeing 727-200ADV Leased 12/1997 173 2
Boeing 727-200ADV Leased 12/1997 173 2
Boeing 727-200ADV Leased 03/1998 173 2
Boeing 727-200ADV Leased 11/1998 173 2
Boeing 727-200ADV Leased 11/1998 173 2
Boeing 727-200ADV Leased 11/1998 173 2
Boeing 727-200ADV Leased 01/1999 173 2
Boeing 727-200ADV Leased 12/1999 173 2
Boeing 727-200ADV Leased 02/2000 173 2
Boeing 727-200ADV Leased 02/2000 173 2
Boeing 727-200ADV Leased 02/2000 173 2
Boeing 727-200ADV Leased 02/2000 173 2
Boeing 727-200ADV Leased 03/2000 173 2
Boeing 727-200ADV Leased 03/2000 173 2
Boeing 727-200ADV Leased 03/2000 173 2
Boeing 727-200ADV Leased 03/2000 173 2
Boeing 727-200ADV Leased 12/2001 173 3
Boeing 727-200ADV Leased 03/2002 173 3
Boeing 727-200ADV Leased 05/2002 173 3
Boeing 727-200ADV Leased 08/2002 173 3
Boeing 727-200ADV Leased 11/2002 173 3
Boeing 727-200ADV Leased 11/2002 173 3
Boeing 757-2Q8 Leased 03/1997 216 3
Boeing 757-23N Leased 10/1997 216 3
Boeing 757-2Q8 Leased 05/2002 216 3
Boeing 757-23N Leased 04/2008 216 3
Boeing 757-23N Leased 12/2010 216 3
Boeing 757-23N Leased 06/2014 216 3
Boeing 757-28AER Leased 03/2015 216 3
Item 3. Legal Proceedings
Various claims, contractual disputes and lawsuits against the Company
arise periodically involving complaints which are normal and
reasonably foreseeable in light of the nature of the Company's
business. The majority of these suits are covered by insurance. In the
opinion of management, the resolution of these claims will not have a
material adverse effect on the business, operating results or
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
quarter ended December 31, 1996.
Part II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol "AMTR." The Company had
371 registered shareholders at December 31, 1996.
Year Ended December 31, 1996
Market Prices of Common Stock High Low Close
-------------- ------------------- -----------------
First quarter 13-1/4 11-5/8 11-3/4
Second quarter 12-3/8 8-1/4 8-1/4
Third quarter 9-1/4 6-3/4 8-3/4
Fourth quarter 8-3/4 6-5/8 7
No dividends have been paid on the Company's common stock since
becoming publicly held.
PART II - Continued
- 45 -
- (Unaudited)cted Financial Data
The financial data in this table have been derived from the
consolidated financial statements of the Company for the respective
periods presented. The data should be read in conjunction with the
consolidated financial statements and related notes.
Amtran, Inc.
Five-Year Summary
Year Ended December 31,
---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
(In thousands, except per share data and
ratios)
---------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 750,851 $ 715,009 $ 580,522 $ 467,909 $ 421,790
Operating expenses 786,907 697,073 572,107 461,289 419,198
Operating income (loss) (36,056) 17,936 8,415 6,620 2,592
Income (loss) before taxes (39,581) 14,653 5,879 3,866 (2,643)
Net income (loss) (26,674) 8,524 3,486 3,035 (2,140)
Net income (loss) per share (1) (2.31) 0.74 0.30 0.28 (0.24)
Balance Sheet Data:
Property and equipment, net $ 224,540 $ 240,768 $ 223,104 $ 172,244 $ 166,882
Total assets 370,287 413,137 346,288 269,830 239,029
Total debt 150,057 138,247 118,106 79,332 87,949
Shareholders' equity 54,744 81,185 72,753 69,941 32,469
Ratio of total debt to shareholders'
equity 1.62 1.13 2.71
Ratio of total liabilities to 2.74 1.70
shareholders' 3.76 2.86 6.36
equity 5.76 4.09
Selected Operating Statistics for
Consolidated Passenger Services:
Revenue passengers carried (thousands) 5,680.5 5,368.2 4,237.9 2,971.8 2,658.0
Revenue passenger miles (millions) 9,172.4 8,907.7 7,158.8 5,593.5 5,547.1
Available seat miles (millions) 13,295.5 12,521.4 10,443.1 8,232.5 7,521.2
Passenger load factor 69.0% 71.1% 68.6% 67.9% 73.8%
(1) Net income (loss) per share is based on the weighted number of
common shares outstanding during the period. Amounts have been
restated to reflect a 1-for-8 stock dividend in March 1993.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
During 1996, the Company incurred operating and net losses of $(36.1) million
and $(26.7) million, respectively, as compared to operating and net income of
$17.9 million and $8.5 million in 1995. As discussed in more detail below, the
losses in 1996 reflected a number of factors, including (i) a significant
increase in competition from larger carriers in the scheduled service markets
served by the Company, (ii) the effects of the ValuJet accident in Florida that
occurred at the same time as a decompression incident on one of the Company's
flights, (iii) a significant increase in fuel prices, (iv) a Federal excise tax
on jet fuel that became effective on October 1, 1995, and (v) certain charges in
the third and fourth quarters of 1996 relating to fleet restructuring. The
Company believes that competition will remain intense for the foreseeable future
on many of the routes where the Company has provided scheduled service. As a
result, and as described further below, beginning in August 1996, the Company
significantly reduced its scheduled service operations and completed a reduction
in its overall fleet size in order to concentrate on its charter operations,
which may produce as much as two-thirds of the Company's operating revenues in
1997.
Restructuring of Scheduled Service Operations and Fleet Types
Beginning in May 1996, and continuing into the third quarter, the Company
undertook a detailed study of the profitability of its scheduled service,
military and tour operator business segments. This analysis initially covered
the six quarters ended June 30, 1996, and disclosed that a significant number of
scheduled service markets being served by the Company had become increasingly
unprofitable. Although some markets had been unprofitable during 1995, a more
significant deterioration in profitability in Boston, intra-Florida and certain
other markets occurred during late 1995 and the first half of 1996. This
analysis also showed that the Company's charter and military operations were
generally profitable during the same periods, although results from these
operations in 1996 were also adversely affected by some of the factors that
affected scheduled service.
The Company believes that several key factors had contributed to the
deteriorating profitability of scheduled service over these time periods.
Beginning in January 1996, a growing amount of low-fare competition entered
Boston-Florida and midwest-Florida markets, which increased total capacity in
these markets and decreased the average fares earned by the Company. Operating
revenues in all scheduled service markets were further adversely affected by the
ValuJet accident in Florida on May 11, which was followed on May 12 by a
decompression incident on one of the Company's own flights. These events focused
significant negative media attention on airline safety and on low-fare carriers
in particular. In spite of the Company's excellent safety record over almost a
quarter century of operation, during which no serious injuries or fatalities had
ever occurred, the Company estimates that it lost significant scheduled service
revenues in the second and third quarters of 1996 from canceled reservations,
and reservations which were never received. Additionally, effective October 1,
1995, the Company became subject to a Federal excise tax on jet fuel consumed in
domestic use which added approximately 3.5 cents to the average cost of each
gallon of jet fuel. During 1996, the market price (excluding tax) of jet fuel
also increased significantly as compared to prices paid in comparable 1995
periods, largely due to tight jet fuel inventories relative to demand throughout
this period. These trends continued and, as discussed below, intensified in
certain respects in the fourth quarter of 1996. Moreover, the Company believes
that intense competitive pressures from larger carriers will continue for the
foreseeable future on many of the routes served by the Company's scheduled
service operations.
On August 26, the Company announced a significant reduction in scheduled service
business. More than one-third of scheduled service departures and ASMs were
included in this schedule reduction. Boston operations and intra-Florida flights
were completely eliminated. Other selected markets from Indianapolis,
Chicago-Midway and Milwaukee were also exited completely or were reduced in
frequency. Exited operations ended between September 4 and December 2. The
Company continues to evaluate its scheduled service operations and may further
reduce or potentially restore some of its scheduled operations.
In association with its schedule reduction, the Company announced a reduction in
force of 15%. A significant portion of this reduction in force was accomplished
through furloughs of cockpit and cabin crews, with the remainder consisting of
reductions in base station and administrative staff. Maintenance staff
reductions were accomplished primarily through the reduction of base and line
maintenance contract labor. This reduction commenced during September and
resulted in the recognition of $135,000 in severance expense for the third
quarter of 1996, and $48,000 in additional severance expense for the fourth
quarter of 1996.
A separate aspect of the Company's 1996 study of business segment profitability
was directed toward the relative economics of the Company's three aircraft fleet
types as they were being used in scheduled service, charter and military flying.
Although all fleet types were being used profitably in some operations, the
Company determined that in many scheduled service markets the Boeing 727-200 was
a more profitable alternative aircraft than the Boeing 757-200. As a result, on
July 29, 1996, the Company entered into a Letter of Intent with a major lessor
to reduce the Company's Boeing 757-200 fleet by five units, and in the fourth
quarter of 1996 the Company entered into an additional transaction with the same
lessor to further reduce the number of Boeing 757-200 aircraft by two units.
These transactions were completed by December 16, 1996, and reduced the
Company's fleet of Boeing 757-200 aircraft as of the end of 1996 from a
previously planned thirteen units to seven actual units. In addition, these
transactions eliminated all Pratt-&-Whitney-powered Boeing 757-200 aircraft from
the Company's fleet, which became solely Rolls-Royce-powered by the end of 1996.
In addition to the adjustments to the Company's Boeing 757-200 fleet, the
reduction in existing scheduled service operations resulted in the reallocation
of five Boeing 727-200 aircraft to alternative uses in the fourth quarter of
1996. These aircraft were used to meet additional charter demand and to increase
scheduled service flights in several markets which the Company continues to
serve. Two Lockheed L-1011 aircraft which were used for seasonal scheduled
service to Ireland during the summer of 1996 were returned to charter operations
in the fourth quarter of 1996.
In 1996, the Company recorded a $4.5 million loss on disposal of assets
associated with Boeing 757-200 aircraft (see Disposal of Assets).
Results of Operations
The Company's operating revenues increased 5.0% to $750.9 million in 1996, as
compared to $715.0 million in 1995. Operating revenues for 1996 were 5.65 cents
per ASM, a reduction of 1.1% from 5.71 cents per ASM in 1995. Between these same
periods, ASMs increased 6.2% to 13.30 billion from 12.52 billion, RPMs increased
2.9% to 9.17 billion from 8.91 billion, and passenger load factor declined to
69.0% as compared to 71.1%. The yield on revenues in 1996 increased 2.1% to 8.19
cents per RPM, as compared to 8.02 cents per RPM in 1995. Total passengers
boarded increased 5.8% to 5.68 million in 1996, as compared to 5.37 million in
1995, and total departures increased 8.4% to 46,400 from 42,800 in the same
comparable periods.
The Company's operating revenues increased 23.2% to $715.0 million in 1995, as
compared to $580.5 million in 1994. Operating revenues for 1995 were 5.71 cents
per ASM, an increase of 2.7% from 5.56 cents per ASM in 1994. Between these same
periods, ASMs increased 19.9% to 12.52 billion from 10.44 billion, RPMs
increased 24.4% to 8.91 billion from 7.16 billion, and passenger load factor
increased to 71.1% as compared to 68.6%. The yield on revenues in 1995 declined
1.1% to 8.02 cents per RPM, as compared to 8.11 cents per RPM in 1994. Total
passengers boarded increased 26.7% to 5.37 million in 1995, as compared to 4.24
million in 1994, and total departures increased 23.3% to 42,800 from 34,700 in
the same comparable periods.
Operating expenses increased 12.9% to $786.9 million in 1996, as compared to
$697.1 million in 1995, and operating expenses increased 21.8% to $697.1 million
in 1995, as compared to $572.1 million in 1994. Operating expenses per ASM
increased 6.5% to 5.92 cents in 1996, as compared to 5.56 cents in 1995, while
operating expenses per ASM increased 1.5% to 5.56 cents in 1995, as compared to
5.48 cents in 1994.
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per ASM.
Cents Per ASM
Year Ended December 31,
1996 1995 1994
Operating revenues: 5.65 5.71 5.56
Operating expenses:
Salaries, wages and benefits 1.23 1.13 1.09
Fuel and oil 1.21 1.03 1.02
Handling, landing and navigation fees 0.53 0.59 0.58
Aircraft rentals 0.49 0.44 0.46
Depreciation and amortization 0.47 0.45 0.44
Aircraft maintenance, materials and repairs 0.42 0.44 0.44
Crew and other employee travel 0.27 0.25 0.25
Passenger service 0.25 0.28 0.29
Commissions 0.20 0.20 0.17
Ground package cost 0.14 0.13 0.14
Other selling expenses 0.13 0.12 0.08
Advertising 0.08 0.07 0.07
Facility and other rents 0.07 0.06 0.05
Disposal of assets 0.03 - -
Other operating expenses 0.40 0.37 0.40
Total operating expenses 5.92 5.56 5.48
Operating income (loss) (0.27) 0.15 0.08
ASMs (in thousands) 13,295,505 12,521,405 10,443,123
Year Ended December 31, 1996, Versus Year Ended December 31, 1995
Operating Revenues
Total operating revenues in 1996 increased 5.0% to $750.9 million from $715.0
million in 1995. This increase was due to a $24.5 million increase in scheduled
service revenues, a $3.5 million increase in charter revenues, a $1.9 million
increase in ground package revenues, and a $6.0 million increase in other
revenues.
Scheduled Service Revenues. Scheduled service revenues in 1996 increased 6.8% to
$386.5 million from $362.0 million in 1995. Scheduled service revenues comprised
51.5% of total operating revenues in 1996, as compared to 50.6% of operating
revenues in 1995. Scheduled service RPMs increased 5.2% to 4.918 billion from
4.673 billion, while ASMs increased 10.6% to 7.305 billion from 6.605 billion,
resulting in a reduction in passenger load factor to 67.3% in 1996 from 70.9% in
1995. Yield on scheduled service in 1996 increased 1.4% to 7.86 cents per RPM
from 7.75 cents per RPM in 1995. Scheduled service departures in 1996 increased
14.1% to 31,467 from 27,573 in 1995, while passengers boarded increased 7.5%
over such period to 3,551,141, as compared to 3,304,369.
During the second and third quarters of 1996, and prior to the restructuring of
scheduled service operations as further described below, the Company added
direct or connecting flights through the Company's four major domestic cities of
Indianapolis, Chicago-Midway, Milwaukee and Boston to west-coast and Florida
markets already being served. New seasonal scheduled service was also operated
during the summer months from New York to Shannon and Dublin, Ireland, and
Belfast, Northern Ireland, and from the midwest to Seattle. New year-round
service was also added to San Diego, California, in the second quarter of 1996.
Second and third quarter 1995 scheduled service in St. Louis was discontinued in
August 1995.
In association with the restructuring of the Company's scheduled service
operations, a significant reduction in scheduled service was announced on August
26. Between September 4 and December 2, 1996, more than one-third of the
scheduled service capacity operating during the 1996 summer months was
eliminated. All scheduled service flights to and from Boston were eliminated by
December 2, 1996, including service to West Palm Beach, San Juan, Montego Bay,
St. Petersburg, Las Vegas, Orlando and Ft. Lauderdale. Intra-Florida services
connecting the cities of Ft. Lauderdale, Orlando, Miami, Sarasota, St.
Petersburg and Ft. Myers were eliminated as of October 27, 1996. Other selected
services from Indianapolis, Chicago-Midway and Milwaukee to Florida and to
west-coast destinations were also reduced or eliminated by October 27, 1996. The
Company's scheduled service between Chicago-Midway and the cities of
Indianapolis and Milwaukee was replaced with a code share agreement with Chicago
Express on October 27, 1996. In association with this service reduction, all
scheduled service ceased at Seattle, Grand Cayman, West Palm Beach, Montego Bay,
Miami and San Diego.
After this scheduled service reduction, the Company's core scheduled service
flying included flights between Chicago-Midway and five Florida cities, Las
Vegas, Phoenix, Los Angeles and San Francisco; Indianapolis to four Florida
cities, Las Vegas and Cancun; Milwaukee to three Florida cities; Hawaii service
to San Francisco, Los Angeles and Phoenix; and service between Orlando and San
Juan and Nassau.
The Company's strategy for restructuring scheduled service operations in the
manner described above is to eliminate service in unprofitable scheduled service
markets, to enhance the profit potential of remaining scheduled service markets,
to reallocate aircraft to alternative operations and to dispose of surplus
aircraft. Through this process, the Company intends to strengthen its
competitive position and to improve both passenger load factors and yields in
remaining scheduled service operations. Based upon the Company's analysis of
scheduled service profitability through the final months of 1996, it has
determined that the performance of this operation improved in December as
compared to August, which was the last full month of scheduled service
operations conducted prior to the implementation of the restructuring plan. In
addition, the Company has noted early in the first quarter of 1997 that
scheduled service bookings, passenger load factors and yields are all performing
better than they did early in the first quarter of 1996. The Company will
continue to evaluate the profit and loss performance of scheduled service during
1997, and the Company may take further steps to restructure this operation.
Charter Revenues. The Company's charter revenues are derived principally from
independent tour operators and from the United States military. Total charter
revenues increased 1.1% to $310.6 million in 1996, as compared to $307.1 million
in 1995. Charter revenue growth, prior to scheduled service restructuring in
late 1996, was constrained by the dedication of a significant portion of the
Company's fleet to scheduled service expansion, including the utilization of two
Lockheed L-1011 aircraft for scheduled services to Ireland and Northern Ireland
between May and September 1996.
The analysis of profitability by business component which was performed by the
Company for the six quarters ended June 30, 1996, disclosed that both military
and tour operator components had produced consistent profits over the period
studied. The Company's Lockheed L-1011 fleet performed well in a charter
environment based upon relatively low frequency of operation and high passenger
load factors, and the Boeing 757-200 performed well in the military business
component while the Boeing 727-200 worked well with certain tour operators. The
Company began to implement strategies to improve the financial performance of
charter operations in the third and fourth quarters of 1996, and both tour
operator and military flying are expected to play a role of growing significance
in the Company's future business operations.
Charter revenues derived from independent tour operators (including the
Ambassadair Travel Club) decreased 1.4% to $226.4 million in 1996, as compared
to $229.5 million in 1995. Tour operator revenues comprised 30.2% of operating
revenues in 1996, as compared to 32.1% of operating revenues in 1995. Tour
operator ASMs decreased 2.0% to 4.363 billion from 4.450 billion and the revenue
per ASM (RASM) on tour operator revenues in 1996 increased 0.6% to 5.19 cents,
as compared to 5.16 cents in 1995. Tour operator passengers boarded increased
0.8% to 1,854,262 in 1996, as compared to 1,839,386 in 1995, and tour operator
departures decreased 3.6% to 10,920 in 1996, as compared to 11,324 in 1995.
The Company operates in two principal components of the tour operator business,
known as "track charter" and "specialty charter". The larger track charter
business component is generally comprised of repetitive domestic and
international flights between designated city pairs, which support high
passenger load factor and low frequency rotations marketed through tour
operators, and which provide value-priced and convenient non stop service to
these vacation destinations. The track charter business component allows the
Company to attain reasonable levels of aircraft and crew utilization and often
provides significant protection to the Company from fuel price increases through
the use of fuel escalation reimbursement clauses. The Company's analysis of
profitability for track charter operations in 1996 and 1995, however, disclosed
only modest average profit margins for those periods. During the late 1996
restructuring of scheduled service operations, therefore, the Company also
sought to negotiate changes in existing track charter contracts to provide
better profit performance for this business segment. Although some tour
operators were not able to maintain existing programs with the Company under
required economics, other tour operators, and new tour operators, have agreed to
new contracts under which the Company expects to improve track charter profit
performance in future periods. These new agreements generally become effective
for the spring and summer of 1997.
Specialty charter flying is a product which is highly customized to the
requirements of the buyer, but is generally operated with much lower frequency
than track charter. For example, the Company operates an increasing number of
"around the world" trips in all-first-class configuration for certain corporate
clients. The Company's profitability analysis for 1996 and 1995 disclosed that
specialty charter contracts provided a superior profit margin when compared to
track charter, even though these operations were cost-disadvantaged by a lower
achievable utilization rate for aircraft and crews. In order to leverage these
attractive margins, the Company has increased the number of specialty charter
contracts in its business mix for 1997 and continues to aggressively seek these
relationships with potential clients by marketing the Company's unique ability
to package and deliver highly specialized products to customers with particular
requirements.
The Company believes that improved track charter economics, combined with
expanded high-margin specialty charter programs, offer a unique opportunity to
the Company to improve the overall financial performance of this business
segment in 1997 and future years.
Charter revenues derived from the U.S. military increased 8.6% to $84.2 million
in 1996, as compared to $77.5 million in 1995. Military revenues comprised 11.2%
of total operating revenues in 1996, as compared to 10.8% of total operating
revenues in 1995. U.S. military ASMs increased 4.3% to 1.442 billion from
1.382 billion. The RASM on U.S. military revenues in 1996 increased 4.1% to
5.84 cents as compared to 5.61 cents in 1995. U.S. military passengers boarded
decreased 6.6% to 185,575 in 1996, as compared to 198,711 in 1995, and U.S.
military departures decreased 8.1% to 3,414 in 1996, as compared to 3,713 in
1995.
The Company's 1996 and 1995 profitability analysis of the military business
disclosed that although this operation was generally profitable, more attractive
margins were available from the use of the Boeing 757-200 aircraft in certain
military rotations, principally as a result of the lower operating cost of this
aircraft type as compared to alternative aircraft types in similar applications.
The Company believes that the U.S. military often prefers the Boeing 757-200
aircraft for its smaller capacity and longer range when used to maintain
existing frequencies to foreign military bases with reduced troop deployments.
The Company also believes that its Boeing 757-200 fleet is competitively
advantaged by its FAA certification to operate with 180-minute ETOPS, which
enhances opportunities for the Company to obtain awards of certain long-range
military missions over water.
As a result of these factors, for the military contract year ending September
30, 1997, the Company has committed four of its seven remaining Boeing 757-200
aircraft to the military business, while the other three Boeing 757-200 aircraft
are deployed to mission-specific uses within scheduled service.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its Ambassadair Travel Club subsidiary exclusively to club members and
through its ATA Vacations subsidiary to the general public. Ground package
revenues increased 9.3% to $22.3 million in 1996, as compared to $20.4 million
in 1995.
The Company's 24-year-old Ambassadair Travel Club offers hundreds of choices of
tour-guide-accompanied vacation packages to its approximately 39,000 individual
and family members annually. In 1996, total packages sold increased 2.4% as
compared to 1995, and the average price of each ground package sold increased
18.0% as compared to the prior year.
ATA Vacations offers numerous ground package combinations to the general public
for use on the Company's scheduled service flights throughout the United States
and to selected Mexico and Caribbean destinations. These packages are marketed
through travel agents, as well as directly by the Company's own reservation
centers. During 1996, the number of ground packages sold increased 21.8% as
compared to 1995, but the average price of each ground package sold decreased
16.9% as compared to the prior year.
The average price paid to the Company for a ground package sale is a function of
the mix of vacation destinations served, the quality and types of ground
accommodations offered, and general competitive conditions with other air
carriers offering similar products in the Company's markets. Some ATA Vacations
markets have experienced price reductions in 1996 due to intense price
competition. The average gross margin on ATA Vacations ground packages sold in
1996 declined to 21.6% as compared to 26.6% in 1995, while the average gross
margin on Ambassadair Travel Club ground package sales declined to 14.5% in
1996, as compared to 15.9% in the prior year.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased 23.5% to $31.5 million in 1996, as compared to $25.5 million
in 1995. Approximately $3.8 million of the revenue increase between years was
attributable to an increase in the number of block hours of substitute service
provided by the Company to other airlines. A substitute service agreement
typically provides for the Company to operate an aircraft with its own crews on
routes designated by the customer airline to carry the passengers of that
airline for a limited period of time. The remaining increase in other revenues
between periods was primarily due to revenue growth in several of the Company's
affiliated businesses.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related state and Federal taxes. Salaries,
wages and benefits expense for 1996 increased 16.2% to $164.0 million from
$141.1 million in 1995. Approximately $15.9 million of the increase in 1996 was
attributable to the addition of cockpit and cabin crews, reservations agents,
base station staff and maintenance staff to support the Company's growth in
capacity between periods, and approximately $3.6 million of the increase was
attributable to the related growth in employee benefits costs. Average Company
full-time-equivalent employees increased by 11.7% in 1996 as compared to the
prior year, although the reduction-in-force implemented in late 1996 resulted in
approximately 6.1% fewer full-time-equivalent employees in the fourth quarter of
1996 as compared to the fourth quarter of 1995. The Company substantially
completed this reduction in force in the fourth quarter of 1996, and recorded
$183,000 in related severance costs in 1996.
Salaries, wages and benefits expense in 1996 was 1.23 cents per ASM, an increase
of 8.8% from a cost of 1.13 cents per ASM in 1995. The cost per ASM increased
partially as a result of a 3.4% increase in the average rate of pay for the
Company's employees as compared to the prior year. In addition, the Company has
increased employment in several maintenance and base station locations in lieu
of continuing the use of third-party contractors, as it believes it can provide
more reliable operations and better customer service at a lower total cost by
using its own employees in these selected locations. The Company has experienced
related savings in the expense lines of handling, landing and navigation fees,
and in aircraft maintenance, materials and repairs, as further described in
those following sections.
In December 1994, the Company implemented a four-year collective bargaining
agreement with its flight attendants, which was the first of the Company's labor
groups to elect union representation. An additional four-year collective
bargaining agreement was ratified by the Company's cockpit crews on September
23, 1996. The pay-related terms of the new cockpit crew agreement were
implemented retroactively to August 6, 1996, including, among other things, a
rate increase of approximately 7.5% to cockpit crew pay scales for the first
year of the new contract.
Fuel and Oil. Fuel and oil expense for 1996 increased 24.4% to $161.2 million
from $129.6 million in 1995, due to an increase in fuel consumed to operate the
Company's expanded block hours of flying, an increase in the average price paid
per gallon of fuel consumed and the imposition of a 4.3-cent-per-gallon excise
tax on jet fuel consumed for domestic use effective October 1, 1995.
During 1996, the Company consumed 7.4% more gallons of jet fuel for flying
operations and flew 9.4% more block hours than in 1995, which accounted for
approximately $9.1 million in additional fuel and oil expense between years
(excluding price and tax changes). The growth in gallons of fuel consumed was
lower than the growth in block hours flown between years due to a change in the
mix of block hours flown by fleet type. Of greatest significance was the 4.1%
reduction of total block hours flown by the Lockheed L-1011 fleet between
periods, since the fuel burn per block hour for this wide-body aircraft is
approximately twice as high as the burn rates for the Company's other fleet
types.
During 1996, the Company's average price paid per gallon of fuel consumed
(excluding the excise tax described in the following paragraph) increased by
12.8% as compared to 1995. Fuel price increases paid by the Company reflected
generally tighter supply conditions for aviation fuel, which persisted
throughout most of 1996 as compared to the prior year. The Company estimates
that the year-over-year increase in average price paid for jet fuel resulted in
approximately $16.1 million in additional fuel and oil expense between periods.
On October 1, 1995, the Company became subject to a 4.3-cent-per-gallon excise
tax on jet fuel consumed for domestic use by commercial air carriers. The effect
of this tax in the first three quarters of 1996, as compared to the first three
quarters of 1995, was to increase the Company's cost of jet fuel by
approximately $6.4 million.
Fuel and oil expense for 1996 was 1.21 cents per ASM, an increase of 17.5% as
compared to 1.03 cents per ASM in 1995. The increase in the cost per ASM of fuel
and oil expense was primarily a result of higher prices and the new excise tax,
partially offset by the expanded use of the more fuel efficient twin-engine
Boeing 757-200 aircraft in the Company's fleet. During 1996, the Company's
Boeing 757-200 aircraft accounted for 29.4% of total b