Attached files
file | filename |
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EX-32.2 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex32-2.htm |
EX-32.1 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex32-1.htm |
EX-31.2 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex31-2.htm |
EX-31.1 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex31-1.htm |
EX-10.66 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex10-66.htm |
EX-10.65 - REPUBLIC AIRWAYS HOLDINGS INC | v183345_ex10-65.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
QUARTERLY PERIOD ENDED March 31, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
TRANSITION PERIOD FROM TO
COMMISSION
FILE NUMBER: 000-49697
REPUBLIC
AIRWAYS HOLDINGS INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
06-1449146
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification Number)
|
incorporation or organization)
|
8909
Purdue Road, Suite 300, Indianapolis, Indiana 46268
(Address
of principal executive offices) (Zip Code)
(317)
484-6000
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
þ
Yes ¨ No
Indicated
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
¨ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and
smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one)
Large
accelerated filer ¨
|
Accelerated
filer þ
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨ Yes þ
No
Number of
shares of Common Stock outstanding as of the close of business on May 3, 2010:
34,272,871.
TABLE
OF CONTENTS
Part
I - Financial Information
|
||
Item
1.
|
Financial
Statements:
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
31, 2009
|
3
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 2010 and 2009
|
4
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 2010 and 2009
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
Item
4.
|
Controls
and Procedures
|
18
|
Part
II - Other Information
|
||
Item
6.
|
Exhibits
|
19
|
Signatures
|
20
|
|
Exhibit
10.65* Purchase Agreement No. PA-C006, by and between Bombardier Inc. and
Republic Airways Holdings Inc., dated as of February 24,
2010.
|
||
Exhibit
10.66* Credit Agreement by and among Chautauqua Airlines, Inc., Republic
Airways Holdings Inc. and certain lenders, dated as of March 26,
2010.
|
||
Exhibit
31.1 Certification by Chief Executive Officer
|
||
Exhibit
31.2 Certification by Chief Financial Officer
|
||
Exhibit
32.1 Certification by Chief Executive Officer
|
||
Exhibit
32.2 Certification by Chief Financial Officer
|
* A request for confidential
treatment was filed for certain portions of the indicated document. Certain
portions have been omitted and filed separately with the Commission as required
by Rule 24b-2 of the Commission.
All other
items of this report are inapplicable
2
PART I.
FINANCIAL INFORMATION
Item
1: Financial Statements
REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
Mar 31,
|
Dec 31,
|
|||||||
2010
|
2009
|
|||||||
|
(Unaudited)
|
|||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 146,342 | $ | 157,532 | ||||
Restricted
cash
|
239,392 | 192,700 | ||||||
Receivables—net
of allowance for doubtful accounts of $820 and $743,
respectively
|
78,041 | 69,510 | ||||||
Inventories—net
|
87,669 | 81,391 | ||||||
Prepaid
expenses and other current assets
|
43,276 | 42,568 | ||||||
Assets
held for sale
|
12,357 | 25,649 | ||||||
Deferred
income taxes
|
21,023 | 21,023 | ||||||
Total
current assets
|
628,100 | 590,373 | ||||||
Aircraft
and other equipment—net
|
3,370,537 | 3,418,160 | ||||||
Maintenance
deposits
|
147,253 | 143,868 | ||||||
Other
intangible assets—net
|
154,996 | 166,025 | ||||||
Other
assets
|
150,192 | 132,046 | ||||||
Total
|
$ | 4,451,078 | $ | 4,450,472 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 242,110 | $ | 243,259 | ||||
Accounts
payable
|
92,281 | 106,178 | ||||||
Air
traffic liability
|
211,922 | 138,242 | ||||||
Deferred
frequent flyer revenue
|
43,754 | 46,213 | ||||||
Accrued
liabilities
|
222,006 | 211,632 | ||||||
Total
current liabilities
|
812,073 | 745,524 | ||||||
Long-term
debt—less current portion
|
2,519,260 | 2,546,160 | ||||||
Deferred
frequent flyer revenue
|
111,579 | 108,545 | ||||||
Deferred
credits and other non current liabilities
|
113,010 | 97,788 | ||||||
Deferred
income taxes
|
412,634 | 434,575 | ||||||
Total
liabilities
|
3,968,556 | 3,932,592 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
Equity:
|
||||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized; no shares issued or
outstanding
|
- | - | ||||||
Common
stock, $.001 par value; one vote per share;150,000,000 shares authorized;
43,606,137 and 43,931,116 shares issued and 34,272,871 and 34,598,683
shares outstanding, respectively
|
44 | 44 | ||||||
Additional
paid-in capital
|
300,280 | 299,257 | ||||||
Treasury
stock, 9,333,266 and 9,332,433 shares at cost,
respectively
|
(181,827 | ) | (181,820 | ) | ||||
Accumulated
other comprehensive loss
|
(2,087 | ) | (2,172 | ) | ||||
Accumulated
earnings
|
366,112 | 402,571 | ||||||
Total
stockholders' equity
|
482,522 | 517,880 | ||||||
Total
|
$ | 4,451,078 | $ | 4,450,472 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
3
REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In
thousands, except per share amounts)
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
OPERATING
REVENUES:
|
||||||||
Fixed-fee
service
|
$ | 250,974 | $ | 321,712 | ||||
Passenger
service
|
336,525 | - | ||||||
Cargo
and other
|
21,213 | 3,593 | ||||||
Total
operating revenues
|
608,712 | 325,305 | ||||||
OPERATING
EXPENSES:
|
||||||||
Wages
and benefits
|
139,068 | 64,590 | ||||||
Aircraft
fuel
|
144,133 | 32,116 | ||||||
Landing
fees and airport rents
|
39,033 | 16,898 | ||||||
Aircraft
and engine rent
|
60,773 | 31,603 | ||||||
Maintenance
and repair
|
57,929 | 46,581 | ||||||
Insurance
and taxes
|
10,842 | 6,479 | ||||||
Depreciation
and amortization
|
51,521 | 35,895 | ||||||
Promotion
and sales
|
32,443 | - | ||||||
Goodwill
impairment
|
- | 13,335 | ||||||
Other
impairment charges
|
11,473 | - | ||||||
Other
|
81,514 | 33,041 | ||||||
Total
operating expenses
|
628,729 | 280,538 | ||||||
OPERATING
INCOME(LOSS)
|
(20,017 | ) | 44,767 | |||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
expense
|
(38,606 | ) | (35,434 | ) | ||||
Other—net
|
167 | 2,745 | ||||||
Total
other income (expense)
|
(38,439 | ) | (32,689 | ) | ||||
INCOME(LOSS)
BEFORE INCOME TAXES
|
(58,456 | ) | 12,078 | |||||
INCOME
TAX EXPENSE(BENEFIT)
|
(21,997 | ) | 9,918 | |||||
NET
INCOME(LOSS)
|
$ | (36,459 | ) | $ | 2,160 | |||
NET
INCOME(LOSS) PER COMMON SHARE—BASIC
|
$ | (1.06 | ) | $ | 0.06 | |||
NET
INCOME(LOSS) PER COMMON SHARE—DILUTED
|
$ | (1.06 | ) | $ | 0.06 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
4
REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
thousands)
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
NET
CASH FROM OPERATING ACTIVITIES
|
$ | 24,256 | $ | 55,509 | ||||
INVESTING
ACTIVITIES:
|
||||||||
Purchase
of aircraft and other equipment
|
(14,182 | ) | (18,937 | ) | ||||
Proceeds
from sale of aircraft and other equipment
|
18,708 | 52,709 | ||||||
Aircraft
deposits
|
(13,700 | ) | - | |||||
Aircraft
deposits returned
|
- | 6,405 | ||||||
Payments
on notes receivable
|
- | 51 | ||||||
Fundings
of notes receivable
|
- | (25,467 | ) | |||||
Other,
net
|
4,012 | (3,530 | ) | |||||
NET
CASH FROM INVESTING ACTIVITIES
|
(5,162 | ) | 11,231 | |||||
FINANCING
ACTIVITIES:
|
||||||||
Payments
on debt
|
(49,643 | ) | (33,509 | ) | ||||
Proceeds
from debt issuance
|
31,404 | - | ||||||
Payments
on early extinguishment of debt
|
(11,270 | ) | (44,411 | ) | ||||
Payments
of debt issue costs
|
(775 | ) | (577 | ) | ||||
NET
CASH FROM FINANCING ACTIVITIES
|
(30,284 | ) | (78,497 | ) | ||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(11,190 | ) | (11,757 | ) | ||||
CASH AND CASH
EQUIVALENTS—Beginning of period
|
157,532 | 129,656 | ||||||
CASH AND CASH
EQUIVALENTS—End of period
|
$ | 146,342 | $ | 117,899 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
CASH
PAID FOR INTEREST AND INCOME TAXES:
|
||||||||
Interest
paid
|
$ | 37,287 | $ | 35,062 | ||||
Income
taxes paid
|
529 | 258 | ||||||
NON-CASH
INVESTING & FINANCING TRANSACTIONS:
|
||||||||
Aircraft,
inventories, and other equipment purchased through financing arrangements
from manufacturer
|
10,000 | 64,187 | ||||||
Parts,
training and lease credits from aircraft manufacturer
|
(847 | ) | (4,248 | ) | ||||
Liabilities
assumed in Mokulele transaction
|
- | 9,300 |
See
accompanying notes to condensed consolidated financial statements
(unaudited).
5
REPUBLIC
AIRWAYS HOLDINGS INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Organization and Business
The
accompanying financial statements of Republic Airways Holdings Inc. (“Republic”
or the “Company”) have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”).
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements include the accounts of Republic and its
wholly-owned subsidiaries including Chautauqua Airlines, Inc. (“Chautauqua”),
Republic Airline Inc. (“Republic Airline”), Shuttle America Corporation
(“Shuttle America”), Frontier Holdings, Inc. (“Frontier”), and Midwest Air
Group, Inc. (“Midwest”). Unless the context indicates otherwise, the terms “the
Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings Inc. and our
subsidiaries.
As of
March 31, 2010, the Company’s operating airline subsidiaries offered scheduled
passenger service on approximately 1,600 flights daily to 115 cities in 44
states, Canada, Mexico, and Costa Rica under branded operations as Frontier and
Midwest, and through fixed-fee code-share agreements with AMR Corp., the parent
of American Airlines, Inc. (“American”), Continental Airlines, Inc.
(“Continental”), Delta Air Lines, Inc. (“Delta”), United Air Lines, Inc.
(“United”), and US Airways, Inc. (“US Airways”) (collectively referred to as
“Partners”).
The
Company acquired Midwest and Frontier on July 31, 2009 and October 1, 2009,
respectively. The acquisitions provided the Company additional revenue diversity
from its traditional fixed-fee services and allowed it to expand operations into
branded passenger service. The purchase price paid was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed
from Midwest and Frontier based on their estimated fair values as of the closing
dates. The Company is still in the process of finalizing its evaluation of
the fair value of the air traffic liability, the deferred frequent flyer
revenue, and the income tax implications of these transactions, and will likely
complete its purchase price allocations process during the second or third
quarter of 2010. There were no adjustments to the purchase price allocation
during the current quarter.
Midwest’s
branding, livery and route structure are operated by the Company’s operating
subsidiaries. During the current quarter and announced publicly on April 13,
2010, the Company selected Frontier Airlines as the name for its consolidated
branded network. See Note 5.
On
February 4, 2010, the Company announced it will wind-down the operations of one
of Frontier’s operating airline subsidiaries, Lynx Airlines, Inc. (“Lynx”), by
the end of the third quarter 2010. The Company expects to return all five leased
Q400 aircraft to the lessor and the remaining six owned aircraft will be reduced
to the lower of carrying value or estimated fair value less cost to sell and
classified as held for sale, as the aircraft are removed from service. The
Company recorded approximately $5.3 million of lease termination costs during
the first quarter 2010. Additional lease return costs will be accrued ratably
over the remaining lease term while the aircraft are operating once such costs
are probable and reasonably estimable. Service will continue to all current Lynx
destinations with the exception of Fargo, N.D., and Tulsa, Okla., where service
has been terminated. All routes will be operated on jet aircraft by one of the
Company’s other operating airline subsidiaries. The closure of
Lynx will result in the reduction of approximately 175 positions; accordingly,
the Company recorded approximately $0.5 million of severance related charges
during the first quarter of 2010.
In the
opinion of management, these financial statements reflect all adjustments that
are necessary to present fairly the results of operations for the interim
periods presented. All adjustments are of a normal recurring nature, unless
otherwise disclosed. The results of operations for the three months ended
March 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010. These financial
statements should be read in conjunction with the Company’s audited consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009, filed March 16,
2010.
2.
Summary of Significant Accounting Policies
Revenue
Recognition – Under the Company’s fixed-fee code-share agreements, the
Company is reimbursed an amount per aircraft designed to compensate the Company
for certain aircraft ownership costs. The Company has concluded that
a component of its fixed-fee service revenue under the agreement discussed above
is rental income, inasmuch as the agreement identifies the “right of use” of a
specific type and number of aircraft over a stated period of time. The amounts
deemed to be rental income during the three months ended March 31, 2010 and 2009
were $80.1 million and $94.3 million, respectively, and have been included in
fixed-fee service revenues in the Company’s condensed consolidated statements of
operations.
Assets Held for
Sale – Assets held for sale consist of grounded Midwest aircraft,
flight equipment and spare aircraft parts recorded at the lower of carrying
value or their estimated fair value less cost to sell. In the current quarter,
we sold certain grounded Midwest aircraft for consideration of $11.3 million.
The Company recorded a loss of approximately $0.2 million and the proceeds from
the sale were used to reduce the related debt secured by these
aircraft.
6
Stockholders’
Equity - The following summarizes the activity of the stockholders’
equity accounts for the period from December 31, 2009 through March 31,
2010. Additional paid-in capital increased from $299.3 million to
$300.3 million due to $1.0 million of stock compensation
expense. Accumulated other comprehensive loss decreased to $2.1
million from $2.2 million due to the reclassification adjustment for loss
realized on derivatives, net of tax. Accumulated earnings decreased
from $402.6 million to $366.1 million based on current quarter net
loss.
Net Income (Loss)
Per Common Share - is based on the weighted average number of shares
outstanding during the period. The following is a reconciliation of the weighted
average common shares for the basic and diluted per share
computations:
Three Months Ended
|
||||||||
March 31,
|
March 31,
|
|||||||
2010
|
2009
|
|||||||
Basic
and diluted income(loss) per share:
|
||||||||
Net
income(loss)
|
$ | (36,459 | ) | $ | 2,160 | |||
Weighted
average common shares outstanding (in thousands)
|
34,270,996 | 34,448,683 | ||||||
Basic
and diluted income(loss) per share
|
$ | (1.06 | ) | $ | 0.06 |
The
Company excluded 3,983,689 and 4,114,669 of employee stock options and
restricted shares from the calculation of diluted net income per share due to
their anti-dilutive impact for the three months ended March 31, 2010 and 2009,
respectively. The Company also excluded the impact of its convertible note
payable due to the anti-dilutive impact during the three months ended March 31,
2010. The convertible note payable has a $25.0 million face value and
is convertible in whole or in part up to 2,500,000 shares of the Company’s
common stock.
Fair Value
Measurements -
ASC Topic 820, “Fair
Value Measurements and Disclosures” requires disclosures about how fair
value is determined for assets and liabilities and a hierarchy for which these
assets and liabilities must be grouped is established. The Topic
establishes a three-tier fair value hierarchy which prioritizes the inputs used
in measuring fair value as follows:
Level 1
|
quoted prices (unadjusted) in
active markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement
date.
|
Level 2
|
quoted prices included within
Level 1 that are observable for the asset or liability, either directly or
indirectly.
|
Level 3
|
unobservable inputs for the asset
or liability.
|
Aircraft Fuel Derivatives –
Recurring - The Company’s derivative contracts are privately negotiated
contracts and are not exchange traded. Fair value measurements based on
level 2 inputs are estimated with option pricing models that employ observable
and unobservable inputs. Inputs to the valuation models include contractual
terms, market prices, yield curves, fuel price curves and measures of
volatility, among others. The fair value of fuel hedging derivatives of
$5.3 million is recorded in prepaid expenses and other current assets in the
consolidated balance sheets at March 31, 2010. The Company does not hold or
issue any derivative financial instruments for speculative trading
purposes. The Company chose not to designate these derivatives as
hedges, and, as such, realized and unrealized mark-to-market adjustments are
included in aircraft fuel expense in the consolidated statements of
operations.
Tradename Intangible -
Nonrecurring– as a result of the Company’s decision to unify its brand
names, the Company announced its intent to discontinue the use of the tradename
Midwest Airlines. The Company fully impaired the value of the Midwest Airlines
tradename intangible of $7.6 million to its fair value of zero based on
level 3 inputs. The estimates of fair value represent the Company’s best
estimate based on industry trends and reference to market rates and
transactions. See Note 5.
7
New Accounting
Pronouncements –
In
January 2010, the FASB issued an amendment to the Fair Value Measurements
and Disclosures topic of the ASC. This amendment requires disclosures about
transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3 measurements.
It also clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to measure fair
value. This amendment is effective for periods beginning after December 15,
2009, except for the requirement to provide the Level 3 activity of purchases,
sales, issuances, and settlements, which will be effective for fiscal years
beginning after December 15, 2010. Accordingly, the Company has adopted this
amendment in the current quarter by adding additional disclosures, except for
the additional Level 3 requirements which will be adopted in fiscal year
2011.
In
October 2009, the FASB issued guidance that changes the accounting for revenue
arrangements with multiple deliverables. The guidance requires an entity to
allocate consideration at the inception of an arrangement to all of its
deliverables based on their relative selling prices and eliminates the use of
the residual method of allocation. The guidance establishes a
hierarchy for determining the selling price of a deliverable, based on
vendor-specific objective evidence, third-party evidence or estimated selling
price. In addition, this guidance expands required disclosures
related to a vendor’s multiple-deliverable revenue arrangements. The
guidance will be effective for the Company prospectively for revenue
arrangements entered into or materially modified on or after January 1, 2011,
with early adoption permitted. Management has elected not to early adopt this
guidance and is currently evaluating the impact that this change will have on
its consolidated financial statements.
3.
Debt
During
the first quarter of 2010, the Company entered into a credit agreement and
borrowed $22.9 million which is secured by certain equipment and accrues
interest at a rate of LIBOR plus a margin. Payments of $2.1 million are due
quarterly beginning in April 2010, with the final balance outstanding payment
due on October 31, 2012. In addition, the Company debt financed other equipment
that was previously unencumbered increasing the Company’s debt balances by an
additional $8.5 million.
During
the first quarter of 2010, we sold certain aircraft held for sale and the
proceeds received of $11.3 million were used to reduce the related
debt.
We are
required to comply with certain financial covenants under certain of our
financing arrangements. We are required to maintain a certain level
of minimum unrestricted cash and maintain certain cash flow and working capital
covenants. As of March 31, 2010, we were in compliance with all our
covenants.
4. Commitments
and Contingencies
During
the current quarter, the Company entered into a purchase agreement with
Bombardier for the purchase of 40 CS300 aircraft and the option to purchase up
to an additional 40 aircraft with delivery beginning in the second quarter of
2015. In connection with the purchase agreement, the Company also signed an
exclusive 15-year maintenance contract with Pratt & Whitney for support of
the aircraft engines and agreed to purchase six engines. The combination of
these agreements increases our outstanding purchase commitments by approximately
$2.84 billion in the periods beyond March 15, 2015.
During
the current quarter the Company took delivery of an Airbus 320 aircraft, which
was lease financed.
8
5. Asset Impairment – Rebranding
During
the quarter ended March 31, 2010 the Company selected Frontier as its surviving
tradename for the Company’s branded passenger service operations. As a
result, the Midwest tradename intangible was fully impaired and certain
other assets related to the Midwest brand and aircraft liveries were written
down to their fair values. These impairments totaled $11.5 million and are
included in Other impairment charges in the Statements of
Operations.
6.
Segment Reporting
Generally
accepted accounting principles require disclosures related to components of a
company for which separate financial information is available to and regularly
evaluated by the company’s chief operating decision maker (“CODM”) when deciding
how to allocate resources and in assessing performance.
The
Company has identified three reportable segments, fixed-fee service,
branded passenger service, and other.
Financial
information for the three months ended March 31, 2010 for the Company’s
operating segments is as follows (in thousands):
Three
Months Ended
|
||||||||||||||||
March 31, 2010 (000's)
|
Fixed-fee
|
Branded
|
Other
|
Total
|
||||||||||||
Total
operating revenue*
|
$ | 251,035 | $ | 352,337 | $ | 5,340 | $ | 608,712 | ||||||||
Aircraft
fuel
|
14,537 | 129,526 | 70 | 144,133 | ||||||||||||
Depreciation
and amortization
|
30,957 | 17,893 | 2,671 | 51,521 | ||||||||||||
Other
impairment charges
|
- | 11,473 | - | 11,473 | ||||||||||||
Income(loss)
before income taxes
|
14,268 | (70,442 | ) | (2,282 | ) | (58,456 | ) | |||||||||
Total
assets
|
2,524,273 | 1,621,620 | 305,185 | 4,451,078 | ||||||||||||
Total
debt
|
1,834,533 | 729,662 | 197,175 | 2,761,370 |
*
Fixed-fee and Branded segment revenues include Cargo and other revenues
attributable to these segments.
Segment
financial information for the three months ended March 31, 2009 for the
Company’s operating segments is as follows (in thousands):
Three Months Ended
|
||||||||||||
March 31, 2009 (000's)
|
Fixed-fee
|
Other
|
Total
|
|||||||||
Total
operating revenue
|
$ | 321,759 | $ | 3,546 | $ | 325,305 | ||||||
Aircraft
fuel
|
32,007 | 109 | 32,116 | |||||||||
Depreciation
and amortization
|
34,567 | 1,328 | 35,895 | |||||||||
Goodwill
impairment
|
13,335 | - | 13,335 | |||||||||
Income(loss)
before income taxes
|
17,185 | (5,107 | ) | 12,078 | ||||||||
Total
assets
|
3,088,027 | 151,631 | 3,239,658 | |||||||||
Total
debt
|
2,188,014 | 80,171 | 2,268,185 |
9
Item
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations
In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward-looking statements. Republic Airways Holdings Inc. (the “Company”) may,
from time to time, make written or oral forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
encompass our beliefs, expectations, hopes or intentions regarding future
events. Words such as “may,” “will,” “should,” “expect,” “plan,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the
negative of such terms or other terminology are used to identify forward-looking
statements. All forward-looking statements included in this release are made as
of the date hereof and are based on information available to the Company as of
such date. The Company assumes no obligation to update any forward-looking
statement. Actual results may vary, and may vary materially, from those
anticipated, estimated, projected or expected for a number of reasons,
including, among others, the risks discussed in our Annual Report on Form 10-K
and our other filings made with the Securities and Exchange Commission, which
discussions are incorporated into this Quarterly Report on Form 10-Q by
reference. As used herein, "unit cost" means operating cost per Available Seat
Mile (ASM).
Overview
We are a
Delaware holding company that offers scheduled passenger services through our
wholly-owned operating subsidiaries including Chautauqua Airlines, Inc.
(“Chautauqua”), Republic Airline Inc. (“Republic Airline”), Shuttle America
Corporation (“Shuttle America”), Frontier Holdings, Inc. (“Frontier”), and
Midwest Air Group, Inc. (“Midwest”). The Company acquired Midwest
and Frontier on July 31, 2009 and October 1, 2009, respectively. The
acquisitions provided the Company additional revenue diversity from its
traditional fixed-fee services and allowed it to expand operations into branded
passenger service. Unless the context indicates otherwise, the terms
“the Company,” “we,” “us,” or “our,” refer to Republic Airways Holdings Inc. and
our subsidiaries. Midwest’s branding, livery and route structure are operated by
the Company’s operating subsidiaries.
As of
March 31, 2010, our operating subsidiaries offered scheduled passenger service
on approximately 1,600 flights daily to 115 cities in 44 states, Canada, Mexico,
and Costa Rica under branded operations as Frontier and Midwest, and through
fixed-fee code-share agreements with AMR Corp., the parent of American Airlines,
Inc. (“American”), Continental Airlines, Inc. (“Continental”), Delta Air Lines,
Inc. (“Delta”), United Air Lines, Inc. (“United”), and US Airways, Inc.
(“US Airways”) (collectively referred to as our “Partners”).
Our
branded network has a regional focus in Milwaukee, Kansas City, and
Denver. The branded passenger service operation exposes us to changes in
passenger demand, fare competition and fluctuations in fuel prices. We are
currently the largest carrier in Milwaukee and the second largest carrier in
Denver. The branded network has a significant base of frequent flyer
members and strong support in the hub cities.
On
February 4, 2010, the Company announced it will wind-down the operations of one
of Frontier’s operating airline subsidiaries, Lynx Airlines, Inc. (“Lynx”), by
the end of the third quarter 2010. The Company expects to return all five leased
Q400 aircraft to the lessor and the remaining six owned aircraft will be reduced
to the lower of carrying value or estimated fair value less cost to sell and
classified as held for sale, as the aircraft are removed from service. The
Company recorded approximately $5.3 million of lease termination costs during
the first quarter 2010. Additional lease return costs will be accrued ratably
over the remaining lease term while the aircraft are operating once such costs
are probable and reasonably estimable. Service will continue to all current Lynx
destinations with the exception of Fargo, N.D., and Tulsa, Okla., where service
has been terminated. All routes will be operated on jet aircraft by one of the
Company’s other operating airline subsidiaries. The closure of
Lynx will result in the reduction of approximately 175 positions; accordingly,
the Company recorded approximately $0.5 million of severance related charges
during the first quarter of 2010.
During
the first quarter of 2010 we announced our plans to unify the Midwest and
Frontier brands under one surviving name. On April 13, 2010, we publicly
announced that the Frontier Airlines was selected as the name for our branded
network. In addition, we announced plans to add 10 new destinations in 2010. We
have already announced the following new flight destinations; Branson, Mo.
(BKG); Grand Rapids, Mich. (GRR); Long Beach, Calif. (LGB); Madison, Wis. (MSN);
Newport News-Williamsburg, Va. (PHF); Santa Barbara, Calif. (SBA); and seasonal
nonstop service to Green Bay, Wis. (GRB). Additional destinations include
Colorado Springs, Aspen, Grand Junction and Durango in Colorado; Missoula and
Bozeman in Montana; Fargo, N.D., and Jackson, Wyoming.
During
the quarter the Company took delivery of one A320 aircraft and two E190 aircraft
previously purchased from US Airways and removed four E145 aircraft and the
final seven CRJ-200 aircraft from its fleet, bringing our total operational
fleet to 282 aircraft at March 31, 2010 from 290 aircraft at December 31, 2009.
The three new aircraft were placed into service in our branded operations and
the eleven 50-seat aircraft were removed from fixed-fee service and were
returned to the lessor or subleased offshore.
We have
firm orders to purchase eight A320 aircraft that have scheduled delivery dates
beginning in February 2013 and continuing through November 2014. In addition we
have commitments to purchase 40 CS300 jets and the option to purchase up to an
additional 40 aircraft. In connection with the purchase agreement, we
also signed an exclusive 15-year maintenance contract with Pratt & Whitney
for support of the aircraft engines.
10
Results
of Operations
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
The
following table sets forth fixed-fee operational statistics and the
percentage-of-change for the periods identified below:
Operating Highlights - Fixed-fee
|
Three Months Ended March 31
|
|||||||||||
2010
|
2009
|
Change
|
||||||||||
Fixed-fee
service revenues, excluding fuel ($000)
|
236,437 | 289,706 | -18 | % | ||||||||
Passengers
carried
|
3,818,256 | 4,433,809 | -14 | % | ||||||||
Revenue
passenger miles (000) (1)
|
1,964,567 | 2,257,102 | -13 | % | ||||||||
Available
seat miles (000) (2)
|
2,752,213 | 3,324,371 | -17 | % | ||||||||
Passenger
load factor (3)
|
71.4 | % | 67.9 | % |
3.5
pts
|
|||||||
Cost
per available seat mile, including
interest expense (cents) (4) (5)
|
8.60 | 8.76 | -2 | % | ||||||||
Fuel
cost per available seat mile (cents)
|
0.53 | 0.96 | -45 | % | ||||||||
Cost
per available seat mile, including interest
expense and excluding fuel expense (cents) (5)
|
8.07 | 7.80 | 4 | % | ||||||||
Operating
aircraft at period end:(6)
|
||||||||||||
37-50
seat jets
|
63 | 91 | -31 | % | ||||||||
70-99
seat jets
|
112 | 128 | -13 | % | ||||||||
Block
hours (7)
|
143,915 | 178,435 | -19 | % | ||||||||
Departures
|
82,399 | 104,692 | -21 | % | ||||||||
Average
daily utilization of each aircraft
(hours) (8)
|
9.6 | 9.7 | -1 | % | ||||||||
Average
length of aircraft flight (miles)
|
498 | 487 | 2 | % | ||||||||
Average
seat density
|
67 | 65 | 3 | % |
11
The
following table sets forth branded passenger service operational statistics for
the period identified below:
|
Three Months Ended
|
|||
Operating Highlights - Branded
|
March 31, 2010
|
|||
Total
revenue ($000)
|
352,337 | |||
Passengers
carried
|
3,211,375 | |||
Revenue
passenger miles (000) (1)
|
2,799,513 | |||
Available
seat miles (000) (2)
|
3,696,696 | |||
Passenger
load factor (3)
|
75.7 | % | ||
Total
revenue per available seat mile (cents)
|
9.53 | |||
Passenger
revenue per available seat mile (cents)
|
9.10 | |||
Cost
per available seat mile (cents) (4) (5)
|
11.13 | |||
Fuel
cost per available seat mile (cents)
|
3.50 | |||
Cost
per available seat mile, including interest expense and excluding
fuel expense (cents) (5)
|
7.63 | |||
Operating
aircraft at period end:(6)
|
||||
37-50
seat regional jets
|
11 | |||
70-99
seat regional jets
|
39 | |||
120
seat regional jets
|
52 | |||
Block
hours (7)
|
96,059 | |||
Departures
|
45,341 | |||
Average
daily utilization of each aircraft (hours) (8)
|
11.1 | |||
Average
length of aircraft flight (miles)
|
830 | |||
Average
seat density
|
98 |
(1)
|
Revenue
passenger miles are the number of scheduled miles flown by revenue
passengers.
|
(2)
|
Available
seat miles are the number of seats available for passengers multiplied by
the number of scheduled miles those seats are
flown.
|
(3)
|
Revenue
passenger miles divided by available seat
miles.
|
(4)
|
Total
operating and interest expenses divided by available seat
miles.
|
(5)
|
Costs
exclude goodwill impairment of $13.3 million and other expenses not
attributable to the fixed-fee segment (e.g. subleased aircraft and
amortization of slots) and exclude other impairment charges of $11.5
million on the branded segment. Total operating and interest expenses
excluding goodwill impairment and other impairment charges is not a
calculation based on accounting principles generally accepted in the
United States of America and should not be considered as an alternative to
total operating expenses. Cost per available seat mile
utilizing this measurement is included as it is a measurement recognized
by the investing public relative to the airline
industry.
|
(6)
|
Excludes
two idle 37-50 seat aircraft at March 31, 2010 and three and two idle
70-99 seat aircraft at March 31, 2010 and 2009,
respectively.
|
(7)
|
Hours
from takeoff to landing, including taxi
time.
|
(8)
|
Average
number of hours per day that an aircraft flown in revenue service is
operated (from gate departure to gate
arrival).
|
12
The
following table sets forth information regarding the Company’s revenues and
expenses for the three months ended March 31, 2010 and 2009. Individual expense
components are also expressed in cents per available seat mile
(“ASM”).
Consolidated Results of Operations
|
Quarter ended March 31,
|
|||||||||||||||
2010
|
2009
|
|||||||||||||||
Amount
|
Cents
|
Amount
|
Cents
|
|||||||||||||
(in thousands)
|
per ASM
|
(in thousands)
|
per ASM
|
|||||||||||||
OPERATING
REVENUES:
|
||||||||||||||||
Fixed-fee
service
|
$ | 250,974 | $ | 321,712 | ||||||||||||
Passenger
service
|
336,525 | - | ||||||||||||||
Cargo
and other
|
21,213 | 3,593 | ||||||||||||||
Total
operating revenues
|
608,712 | 325,305 | ||||||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Wages
and benefits
|
139,068 | 2.16 | 64,590 | 1.94 | ||||||||||||
Aircraft
fuel
|
144,133 | 2.24 | 32,116 | 0.97 | ||||||||||||
Landing
fees and airport rents
|
39,033 | 0.61 | 16,898 | 0.51 | ||||||||||||
Aircraft
and engine rent
|
60,773 | 0.94 | 31,603 | 0.95 | ||||||||||||
Maintenance
and repair
|
57,929 | 0.90 | 46,581 | 1.40 | ||||||||||||
Insurance
and taxes
|
10,842 | 0.17 | 6,479 | 0.19 | ||||||||||||
Depreciation
and amortization
|
51,521 | 0.80 | 35,895 | 1.08 | ||||||||||||
Promotion
and sales
|
32,443 | 0.50 | - | - | ||||||||||||
Goodwill
impairment
|
- | - | 13,335 | 0.40 | ||||||||||||
Other
impairment charges
|
11,473 | 0.18 | - | - | ||||||||||||
Other
|
81,514 | 1.26 | 33,041 | 0.99 | ||||||||||||
Total
operating expenses
|
628,729 | 9.76 | 280,538 | 8.44 | ||||||||||||
OPERATING
INCOME(LOSS)
|
(20,017 | ) | 44,767 | |||||||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
expense
|
(38,606 | ) | (0.60 | ) | (35,434 | ) | (1.07 | ) | ||||||||
Other
- net
|
167 | 0.00 | 2,745 | 0.08 | ||||||||||||
Total
other income (expense)
|
(38,439 | ) | (0.60 | ) | (32,689 | ) | (0.98 | ) | ||||||||
INCOME(LOSS)
BEFORE INCOME TAXES
|
(58,456 | ) | 12,078 | |||||||||||||
INCOME
TAX EXPENSE(BENEFIT)
|
(21,997 | ) | 9,918 | |||||||||||||
NET
INCOME(LOSS)
|
$ | (36,459 | ) | $ | 2,160 | |||||||||||
Total
operating and interest expense
|
$ | 667,335 | 10.36 | $ | 315,972 | 9.50 | ||||||||||
Total
operating and interest expense less fuel,
|
||||||||||||||||
goodwill
impairment, and other impairment charges
|
$ | 511,729 | 7.94 | $ | 270,521 | 8.14 |
13
Operating
revenue in 2010 increased 87.1%, or $283.4 million, to $608.7 million from
$325.3 million primarily as a result of revenues from branded airlines that were
acquired during the second half of 2009. Excluding reimbursement for
fuel expense, which is a pass-through cost to our Partners, fixed-fee service
revenues decreased 18.4% for 2010. While total block hours operated
by our regional jet subsidiaries were virtually unchanged year over year, block
hours for the fixed-fee business declined 19.3%. We have removed 28
aircraft from our fixed-fee operations since March 31,
2009. Twenty-one 50-seat aircraft were removed from Continental and
seven 50-seat aircraft were removed from United. We also transitioned
16 aircraft previously reported in our fixed-fee business to our branded
business.
Total
operating and interest expenses, excluding fuel, goodwill impairment, and other
impairment charges increased $241.2 million, to $511.7 million for 2010
compared to $270.5 million during 2009 due to the acquisitions of our branded
carriers, Midwest and Frontier. The cost per available seat mile on
total operating and interest expenses, excluding fuel expenses, goodwill
impairments and other impairment charges, decreased to 7.94¢ in 2010 compared to
8.14¢ in 2009. Factors relating to the change in operating expenses
are discussed below.
Wages and
benefits increased by 115.3%, or $74.5 million, to $139.1 million for
2010 compared to $64.6 million for 2009 due primarily to $67.1 million of
expenses at Midwest and Frontier. The remainder of the
increase was due to a shift in the mix of flying to larger regional jets and
normal wage increases. The cost per available seat mile increased to
2.16¢ for 2010 compared to 1.94¢ in 2009.
Aircraft
fuel expense increased 348.8%, or $112.0 million, to $144.1 million for
2010 compared to $32.1 million for 2009. Fuel expense for
branded operations in the current quarter was $129.5 million. The
cost per gallon for fuel used in the branded operation was $2.32 in
2010. The $17.5 million decrease in fixed-fee fuel expenses over the
prior year related to American and Delta, which began paying directly for fuel
in May and June 2009, respectively. The unit cost increased to 2.24¢
in 2010 compared to 0.97¢ in 2009.
Landing
fees and airport rents increased by 131.0%, or $22.1 million, to
$39.0 million in 2010 compared to $16.9 million in
2009. This was due to the acquisition of branded carriers during the
prior year, which accounted for $26.7 million of additional expense in
2010. Fixed-fee landing fees declined $4.6 million due to one of our
Partners paying directly for landing fees since August 2009. Our
fixed-fee agreements provide for a direct reimbursement of landing
fees. The unit cost was 0.61¢ in 2010 compared to 0.51¢ in
2009.
Aircraft
and engine rent increased by 92.3%, or $29.2 million, to $60.8 million in
2010 compared to $31.6 million in 2009. Expense at Frontier was
$29.3 million for the quarter. The unit cost decreased to 0.94¢ for 2010
compared to 0.95¢ for 2009.
Maintenance
and repair expenses increased by 24.4%, or $11.3 million, to $57.9 million in
2010 compared to $46.6 million for 2009 due mainly to the acquisition of
our branded operations. Maintenance expense at Frontier for the
quarter was $8.5 million. Regional jet maintenance jet expense
increased $2.7 million due to $1.7 million increase in engine life limited parts
expense and a $1.6 million increase in foreign object damage
expense. The unit cost decreased to 0.90¢ in 2010 compared to 1.40¢
in 2009.
Insurance
and taxes increased 67.3%, or $4.4 million, to $10.8 million in 2010
compared to $6.5 million in 2009. Expense at Frontier was $4.4 million in
the first quarter. Our fixed-fee agreements generally provide for a
direct reimbursement of insurance and property taxes. The unit cost
decreased to 0.17¢ in 2010 compared to 0.19¢ in 2009.
Depreciation
and amortization increased 43.5%, or $15.6 million, to $51.5 million
in 2010 compared to $35.9 million in 2009 due mainly to $11.5 million of
depreciation on assets acquired from Midwest and
Frontier. Depreciation on E190 aircraft purchased from US Airways in
late 2009 was $3.9 million for the quarter. The unit cost decreased
to 0.80¢ in 2010 compared to 1.08¢ in 2009.
Promotion
and sales expenses of $32.5 million were included as a result of the
acquisitions of Midwest and Frontier to our branded services. All of
these expenses relate to the branded operations only. The unit cost
was 0.50¢ in 2010.
Other
impairment charges in the current quarter are primarily the result of
management’s decision to combine the Midwest and Frontier branded operations
under one name. Trademark intangibles and other tangible assets
related to the Midwest brand livery and tradename were written down to their
fair values.
Goodwill
impairment of $13.3 million in 2009 is result of goodwill impairment from the
fixed-fee services. The unit cost was 0.40¢ in 2009.
Other
expenses increased 146.7%, or $48.5 million, to $81.5 million in 2010 from $33.0
million in 2009. Of the increase, $49.6 million related to expenses
from Frontier and Midwest. Of the total expense, approximately $13.1
million related to the integration of the branded business and return of
aircraft. The unit cost increased to 1.26¢ in 2010 compared to 0.99¢
in 2009.
14
Interest
expense increased 9.0%, or $3.2 million, to $38.6 million compared with $35.4
million due primarily to the acquisition of Frontier and the related aircraft
debt. The unit cost decreased to 0.60¢ from 1.07¢ in
2009.
We
recorded an income tax benefit of $22.0 million or 37.6% in the current quarter
compared with an income tax expense of $9.9 million or 82.1% effective tax rate
in the prior year quarter. The current quarter effective tax rate is
based on the projected annualized results. The effective tax rate for
the prior year quarter was higher than the statutory rate due to the $13.3
million write-off of goodwill, which is not deductible for tax and state income
taxes and non-deductible meals and entertainment expense, primarily for our
flight crews.
15
Liquidity
and Capital Resources
As of
March 31, 2010, we had total cash of $385.7 million of which $146.3 million was
unrestricted. At March 31, 2010, we had a working capital deficit of
$184.0 million. The Company currently anticipates that its
unrestricted cash on hand, the cash generated from operations, and other
financings will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next
12 months.
Working
capital deficits are customary for airlines since the air traffic liability and
a portion of the frequent flyer liability are classified as current
liabilities. Our liquidity depends to a large extent on the financial
strength of our Partners in relation to our fixed-fee business and the
number of passengers who fly in our branded passenger service, the fares they
pay, our operating and capital expenditures, our financing activities, the
amount of cash holdbacks imposed by our credit card processors, and the cost of
fuel. We cannot predict what the effect on our business might be from the
extremely competitive environment we are operating in or from events that are
beyond our control, such as volatile fuel prices, the economic recession, the
global credit and liquidity crisis, weather-related disruptions, the impact of
airline bankruptcies or consolidations, U.S. military actions or acts of
terrorism.
Net cash
provided by operating activities was $24.3 million and $55.5 million for the
three months ended March 31, 2010 and 2009, respectively. The $31.2
million decrease in operating cash flows is primarily attributable to
the loss from branded operations of $70.4 million offset by timing and
changes in our working capital needs.
Net cash
used in investing activities was $5.2 million for the three months ended March
31, 2010 as compared to net cash provided by investing activities of $11.2
million for the three months ended March 31, 2009. The decrease in
cash from investing activities over the prior year is the result deposits for
aircraft made in the current year as well as the result of proceeds from the
sale of aircraft in the prior year.
Net cash
used by financing activities was $30.3 for the three months ended March 31, 2010
compared to $78.5 million for the three months ended March 31,
2009. In the current quarter, we received proceeds of $31.4 million
as a result of debt issuances. The majority of the issuances relate
to the Company’s new credit agreement for $22.9 million, which is secured by
certain equipment and accrues interest at a rate of LIBOR plus a
margin.
Other
liquidity initiatives
We have
contracts with bankcard processors that require full collateralization of
bankcard funds equal to the air traffic liability associated with the estimated
amount of bankcard transactions plus related passenger taxes. As of
March 31, 2010, that amount totaled $202.6 million.
Aircraft
Leases and Other Off-Balance Sheet Arrangements
We have
significant obligations for aircraft and engines that are classified as
operating leases and, therefore, are not reflected as liabilities on our balance
sheet. Aircraft leases expire between 2010 and 2024. As of March 31, 2010, our
total mandatory payments under operating leases for aircraft aggregated
approximately $1.54 billion and total minimum annual aircraft rental payments
for the next 12 months under all non-cancelable operating leases is
approximately $230.1 million.
Other
non-cancelable operating leases consist of engines, terminal space, operating
facilities, office space and office equipment. The leases expire through 2033.
As of March 31, 2010, our total mandatory payments under other non-cancelable
operating leases aggregated approximately $196.3 million. Total minimum annual
other rental payments for the next 12 months are approximately $39.5
million.
16
Contractual
Obligations and Commercial Commitments
As of
March 31, 2010, we had firm orders to purchase eight A320 aircraft that have
scheduled delivery dates beginning in February 2013 and continuing through
November 2014. The current total list price of the eight aircraft is $349.0
million. Through March 31, 2010, we made aircraft deposits in
accordance with the aircraft commitments of $5.5 million. We also had a
commitment to acquire eight spare aircraft engines with a current list price of
approximately $41.9 million. We expect to take delivery of three
engines per year during 2010 and 2011 and two engines in 2012. These
commitments are subject to customary closing conditions.
During
the current quarter, the Company entered into a purchase agreement with
Bombardier for the purchase of 40 CS300 aircraft and the option to purchase up
to an additional 40 aircraft with delivery beginning in the second quarter of
2015. In connection with the purchase agreement, the Company also
signed an exclusive 15-year maintenance contract with Pratt & Whitney for
support of the aircraft engines and agreed to purchase six
engines. The combination of these agreements increases our
outstanding purchase commitments by approximately $2.84 billion in the periods
beyond March 15, 2015.
During
the current quarter the Company took delivery of an Airbus 320 aircraft, which
was lease financed.
Asset
Impairment and write-downs
During
the quarter ended March 31, 2010 the Company selected Frontier as its surviving
tradename for the Company’s branded passenger service operations. As
a result, the Midwest tradename intangible was fully impaired and certain
other assets related to the Midwest brand and aircraft liveries were written
down to their fair values. These impairments totaled $11.5 million
and are included in Other impairment charges in the Statements of
Operations.
Critical Accounting
Policies
Recent Accounting
Pronouncements
In
January 2010, the FASB issued an amendment to the Fair Value Measurements
and Disclosures topic of the ASC. This amendment requires disclosures about
transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances, and settlements relating to Level 3 measurements.
It also clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to measure fair
value. This amendment is effective for periods beginning after December 15,
2009, except for the requirement to provide the Level 3 activity of purchases,
sales, issuances, and settlements, which will be effective for fiscal years
beginning after December 15, 2010. Accordingly, the Company has adopted this
amendment in the current quarter by adding additional disclosures, except for
the additional Level 3 requirements which will be adopted in fiscal year
2011.
In
October 2009, the FASB issued guidance that changes the accounting for revenue
arrangements with multiple deliverables. The guidance requires an entity to
allocate consideration at the inception of an arrangement to all of its
deliverables based on their relative selling prices and eliminates the use of
the residual method of allocation. The guidance establishes a
hierarchy for determining the selling price of a deliverable, based on
vendor-specific objective evidence, third-party evidence or estimated selling
price. In addition, this guidance expands required disclosures
related to a vendor’s multiple-deliverable revenue arrangements. The
guidance will be effective for the Company prospectively for revenue
arrangements entered into or materially modified on or after January 1, 2011,
with early adoption permitted. Management has elected not to early adopt this
guidance and is currently evaluating the impact that this change will have on
its consolidated financial statements.
17
Item
3: Quantitative and Qualitative Disclosures About Market Risk
Interest
Rates
Our
earnings can be affected by changes in interest rates due to amount of cash and
securities held and variable rate debt. At March 31, 2010 and December 31, 2009,
approximately $520.1 million and $506.8 million, respectively, of our
outstanding debt was at variable interest rates. A one hundred
basis point change in the LIBOR rate would increase or decrease interest expense
by $5.3 million and $5.1 million, respectively.
Aircraft
Fuel Price Risk
Our
results of operations are materially impacted by changes in aircraft fuel
prices. In an effort to manage our exposure to this risk, we periodically
purchase call options on crude oil. We do not hold or issue any derivative
financial instruments for trading purposes. These fuel hedges do not qualify for
hedge accounting, and, as such, realized and unrealized non-cash mark-to-market
adjustments are included in aircraft fuel expense. A one dollar
change in the price per barrel of crude oil will increase or decrease our fuel
expense by $5.7 million. A one-cent change in the cost of each gallon
of fuel would impact our pre-tax income by approximately $2.4 million per year
based on our current fleet and aircraft fuel consumption.
Item
4: Controls and Procedures
We
maintain "disclosure controls and procedures", as such term is defined under
Securities Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. We have carried out an evaluation, as of the end of the period
covered by this report, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. Based upon their evaluation and subject to the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective.
Changes
in Internal Control
Except as set forth below, during the
three months ended March 31, 2010, we did not make any changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. We are in the process of completing our integration of
Midwest and Frontier. We are currently integrating policies, processes,
people, technology and operations for the combined companies. Management will
continue to evaluate our internal control over financial reporting as we execute
integration activities.
18
Part
II. OTHER INFORMATION
Item
6.
Exhibits
(a)
|
Exhibits
|
|
10.65*
|
Purchase
Agreement No. PA-C006, by and between Bombardier Inc. and Republic Airways
Holdings Inc., dated as of February 24, 2010.
|
|
10.66*
|
Credit
Agreement by and among Chautauqua Airlines, Inc., Republic Airways
Holdings Inc. and certain lenders, dated as of March 26,
2010.
|
|
31.1
|
Certification
by Bryan K. Bedford, Chairman of the Board, Chief Executive Officer and
President of Republic Airways Holdings Inc., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, in connection with Republic Airways
Holdings Inc.’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2010.
|
|
31.2
|
Certification
by Robert H. Cooper, Executive Vice President and Chief Financial Officer
of Republic Airways Holdings Inc., pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, in connection with Republic Airways Holdings
Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2010.
|
|
32.1
|
Certification
by Bryan K. Bedford, Chairman of the Board, Chief Executive Officer and
President of Republic Airways Holdings Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, in connection with Republic Airways Holdings Inc.’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2010.
|
|
32.2
|
Certification
by Robert H. Cooper, Executive Vice President and Chief Financial Officer
of Republic Airways Holdings Inc., pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in
connection with Republic Airways Holdings Inc.’s Quarterly Report on Form
10-Q for the quarter ended March 31,
2010.
|
*A
request for confidential treatment was filed for certain portions of the
indicated document. Confidential portions have been omitted and filed
separately with the Commission as required by Rule 24b-2 of the
Commission.
19
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
REPUBLIC AIRWAYS HOLDINGS
INC.
|
|
(Registrant)
|
|
Dated:
May 10, 2010
|
By:
/s/ Bryan K. Bedford
|
Name:
Bryan K. Bedford
|
|
Title:
Chairman of the Board, Chief Executive Officer and
President
|
|
(principal
executive officer)
|
|
Dated:
May 10, 2010
|
By:
/s/ Robert H. Cooper
|
Name:
Robert H. Cooper
|
|
Title:
Executive Vice President and Chief Financial Officer
|
|
(principal
financial and accounting
officer)
|
20