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, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period From to
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
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. [ X ]
The aggregate market value of shares of the registrant's Common Stock held by
non-affiliates of the registrant (based on closing price of shares of Common
Stock on the NASDAQ National Market on February 28, 2001) was approximately
$34.8 million.
Applicable Only to Registrants 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 Registrants
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,380,195 shares outstanding as of February
28, 2001.
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. Proxy Statement to be filed within 120 days after
the close of the last fiscal year are incorporated by reference into Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 2000
AMTRAN, INC. AND SUBSIDIARIES
PART I
Page #
PART I
Item 1. Business.............................................................................................3
Item 2. Properties..........................................................................................12
Item 3. Legal Proceedings...................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders.................................................13
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters........................14
Item 6. Selected Consolidated Financial Data................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............16
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..........................................43
Item 8. Financial Statements and Supplementary Data.........................................................44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................66
PART III
Item 10. Directors and Officers of the Registrant............................................................67
Item 11. Executive Compensation..............................................................................67
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................67
Item 13. Certain Relationships and Related Transactions......................................................67
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................68
Item 14d. Valuation and Qualifying Accounts...................................................................69
Item 1. Business
Amtran, Inc. (the "Company") owns American Trans Air, Inc. ("ATA"), the 11th
largest passenger airline in the United States (based on 2000 capacity and
traffic) and a provider of airline-related services in selected markets. The
Company is the largest commercial charter airline in the United States and the
largest provider of passenger airline services to the U.S. military, in each
case based on 2000 revenue. For the year ended December 31, 2000, the revenues
of the Company consisted of 58.3% scheduled service, 19.1% commercial charter
service and 14.6% military charter service, with the balance derived from
related services. The Company is an Indiana corporation incorporated in 1984.
PART I - Continued
Segment Information
The Company identifies its business segments on the basis of similar products
and services. The airline segment derives its revenues principally from the sale
of scheduled service, commercial charter and military/government charter air
transportation. The tour operator segment (ATA Leisure Corp.) derives its
revenues primarily from the sale of vacation packages that, in addition to
scheduled service and commercial charter air transportation, typically include
hotels, rental cars and other ground arrangements. For detailed segment
disclosures, see "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 14 - Segment Disclosures."
During 1999, the Company acquired several independent tour operator businesses
and combined their operations with the Company's existing vacation package
brand, ATA Vacations, to form ATA Leisure Corp. See "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 13
- -Acquisition of Businesses."
Scheduled Service
The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway and Indianapolis and also provides
transpacific services between the western United States, Chicago and New York to
Hawaii. During the second and third quarters of 2000, the Company began
operating nonstop flights from Chicago-Midway to Ronald Reagan Washington
National Airport, Boston, Seattle and Minneapolis-St. Paul. The Company also
began nonstop service in December 2000 to Hawaii from Chicago's O'Hare
International Airport and New York's John F. Kennedy International Airport. The
Company focuses on routes where it believes it can be a leading provider of
nonstop service and targets leisure and value-oriented business travelers.
The Company believes that it has significant competitive advantages in each of
its primary markets.
o Chicago-Midway, the Company's largest and fastest growing gateway, rep-
resented approximately 63.5% of the Company's total scheduled service capacity
in 2000. The Company is the number one carrier in terms of market share, based
on origin and destination revenue passengers, on 16 of the 18 non-stop jet
routes it serves from Chicago-Midway. The Company believes its service at this
gateway would be difficult to replicate because of limited airport capacity.
This competitive position is enhanced by Chicago-Midway's proximity to downtown
Chicago and the fact that, for a substantial portion of the population within
the metropolitan region, Chicago-Midway is the most convenient airport. The
Company also enjoys a strong competitive position relative to the entire Chicago
metropolitan area. The Company is the number one carrier in terms of market
share on four of its 18 non-stop jet routes after taking into consideration
competitors' flights originating from both Chicago-Midway and O'Hare
International Airport, and is one of the top five carriers in terms of market
share on those routes on which it is not the number one carrier. The Company's
Chicago-Midway operations include service to a number of midwestern cities
provided by its commuter airline subsidiary, Chicago Express. This service
provides an increasingly important source of feeder traffic for longer-haul
flights from Chicago-Midway. The Company began service at Chicago-Midway in
December 1992.
o Hawaii represented approximately 17.0% of the Company's total scheduled
service capacity in 2000. The Company believes it is the lowest-cost provider of
scheduled service between the western United States and Hawaii, which is
critical in this price-sensitive, predominantly leisure market. Furthermore,
a majority of the Company's capacity in the Hawaiian market is contracted to
the nation's largest independent Hawaiian tour operator, which assumes capacity,
yield and most fuel risk. The Company has served the Hawaiian market since 1974
through its commercial charter operations and since 1987 through its scheduled
service operations.
o Indianapolis represented approximately 12.2% of the Company's total
scheduled service capacity in 2000. The Company began scheduled service from
Indianapolis in 1986 and believes that it benefits from being perceived as the
hometown airline. The Company is the number one provider in terms of market
share, based on origin and destination revenue passengers, in seven of its
eight jet routes from Indianapolis. In Indianapolis, the Company operates
Ambassadair, the nation's largest travel club, with approximately 38,500 indi-
vidual or family memberships, providing the Company with a local marketing
advantage similar to a frequent flier program.
Commercial Charter Service
The Company is the largest commercial passenger charter airline in the United
States and provides services throughout the world, primarily to U.S. and
European tour operators. The Company seeks to maximize the profitability of
these operations by leveraging its leading market position, diverse aircraft
fleet and worldwide operating capability. The Company believes its commercial
charter services are a predictable source of revenues and operating profits in
part because its commercial charter contracts require tour operators to assume
capacity, yield and fuel price risk, and also because of the Company's ability
to re-deploy assets into alternate markets.
Military/Government Charter Service
The Company has provided passenger airline services to the U.S. military since
1983 and is currently the largest commercial airline provider of these services.
The Company believes that because these operations are generally less seasonal
than leisure travel, they have tended to have a stabilizing impact on the
Company's operating margins. The U.S. government awards one-year contracts for
its military charter business and pre-negotiates contract prices for each type
of aircraft that a carrier makes available. The Company believes that its fleet
of aircraft is well-suited to the needs of the military.
ATA Leisure Corp.
The Company has provided vacation package sales to its scheduled service
customers under the wholly owned brand of ATA Vacations since 1987. In addition,
the Company has served primarily vacation travelers in the Detroit metropolitan
area for approximately 15 years in its commercial charter business. In order to
grow and consolidate its vacation package business, the Company acquired several
Detroit-area tour operators in 1999 (see "Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 13 - Acquisition of
Businesses") The Company operates all of its vacation package brands as the ATA
Leisure Corp., with administrative offices based in Detroit.
Strategy
The Company intends to enhance its position as a leading provider of passenger
airline services to selected markets where it can capitalize on its competitive
strengths. The key components of this strategy are:
Participate in Markets Where it Can Be a Leader
The Company focuses on markets where it can be a leading provider of airline
services. In scheduled service, the Company concentrates on routes where it can
be the number one or number two carrier. The Company achieves this result
principally through nonstop schedules, value-oriented pricing, focused marketing
efforts and certain airport and aircraft advantages. The Company is the leading
provider of commercial and military charter services in large part because of
its variety of aircraft types, superior operational performance and its
worldwide service capability.
Maintain Low-Cost Position
For 2000, 1999 and 1998, the Company's operating cost per available seat mile
("CASM") of 7.86(cent), 6.84(cent) and 6.09(cent), respectively, was one of the
lowest among large U.S. passenger airlines. The airline segment CASM was
7.19(cent), 6.17(cent) and 5.94(cent), respectively, for the same annual
periods. In 2000 and 1999, the Company's CASM was significantly impacted by
higher fuel costs. The Company's CASM, adjusted to 1998 fuel prices, was
7.19(cent), 6.72(cent) and 6.09(cent), respectively, for 2000, 1999 and 1998.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations in Cents per ASM." The Company believes that
its lower costs provide a significant competitive advantage, allowing it to
operate profitably while pricing competitively in the scheduled service and
commercial and military charter markets. The Company believes its low-cost
position is primarily derived from its simplified product, route structure and
low overhead costs.
In May 2000, the Company entered into a series of preliminary agreements to
acquire 39 new Boeing 737-800 aircraft, and 10 new Boeing 757-300 aircraft.
These aircraft are scheduled to replace the Company's 24 older Boeing 727-200
aircraft, which will be retired from service between 2001 and 2002. The Company
expects to achieve significant operating cost savings with the introduction of
these new aircraft, including (a) reduced fuel consumption; (b) transition from
three-person to two-person cockpit crews; (c) lowered maintenance costs; and (d)
improved utilization and dispatch reliability. The Company will accept delivery
of the initial new aircraft in May 2001, and all new aircraft are expected to be
in service by 2004.
Target Growth Opportunities
The Company intends to expand its operations selectively in areas where it
believes it can achieve attractive financial returns.
Scheduled Service Expansion at Chicago-Midway. The Company plans to increase
frequencies and potentially add new destinations from its Chicago-Midway gateway
over the next 12 months. The Company will also occupy additional gates upon
completion of the new terminal at Chicago-Midway to facilitate these expanding
operations. In addition, the Company is using the proceeds of a $17.0 million
Special Facility Revenue Bond issued in December 1999 to pay a portion of the
cost of construction of a Federal Inspection Service facility ("FIS") at the
Chicago-Midway Airport. This will allow international flights to operate
directly to and from Chicago-Midway. This FIS facility is expected to be
completed in late 2001.
Selected Strategic Transactions The Company continually evaluates possible
acquisitions of related businesses or interests therein to enhance its
competitive position in its market segments. In addition, the Company has and
will continue to evaluate other possible business combinations or other
strategic transactions, some of which could result in an increase in
indebtedness, a change of control of Amtran, Inc., or both.
Industry Overview
Scheduled Airline Service
During 2000, several significant large airline business combinations were
announced, and several large carriers have considered or are considering other
combinations. Such combinations, if approved by regulatory authorities, could
significantly increase the percentage of domestic scheduled service controlled
by the largest airlines.
Commercial and Military/Government Charter Airline Service
In the United States, the passenger charter airline business is served by major
scheduled airlines and a number of U.S. and non-U.S. charter airlines.
Historically, charter airlines have supplemented the service provided by
scheduled airlines by providing additional capacity at times of peak demand,
such as during the Persian Gulf War, and on a longer-term basis to supplement
the U.S. military's own passenger fleet. Based on the most recently available
U.S. Department of Transportation ("DOT") statistics, total charter flights by
all U.S. airlines represented approximately 2.7% of all available seat miles
("ASMs") flown within the United States during the twelve months ended June 30,
2000.
The Company's Airline Operations
Services Offered
The following table provides a summary of the Company's major revenue sources
for the periods indicated:
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in millions)
Scheduled Service $ 753.3 $ 624.6 $ 511.3 $ 371.8 $ 386.5
------- ------- ------- ------- -------
Commercial Charter 246.7 263.8 222.6 228.1 226.4
Military Charter 188.6 126.2 121.9 131.1 84.2
----- ----- ----- ----- ----
Total Charter Service 435.3 390.0 344.5 359.2 310.6
----- ----- ----- ----- -----
Other 103.0 107.8 63.6 52.2 53.8
----- ----- ---- ---- ----
Total $ 1,291.6 $ 1,122.4 $ 919.4 $ 783.2 $ 750.9
--------- --------- ------- ------- -------
Scheduled Service
The Company provides scheduled airline services on selected routes where it
believes that it can be one of the leading carriers in those markets, focusing
primarily on low-cost, nonstop or direct flights. The Company currently provides
scheduled service primarily from its gateway cities of Chicago-Midway and
Indianapolis to popular vacation destinations such as Hawaii, Phoenix, Las
Vegas, Florida, California, Mexico and the Caribbean, as well as to New York's
John F. Kennedy and LaGuardia Airports, Philadelphia, Denver, Dallas-Ft. Worth,
Washington, D.C., Boston, Seattle and Minneapolis-St. Paul. Virtually all of the
Company's scheduled service revenue growth has resulted from expanded flying to
and from Chicago-Midway.
Beginning in April 1997, the Company had entered into a code-share agreement
with Chicago Express to operate passenger airline services between
Chicago-Midway and other midwestern cities using Jetstream 31s. On April 30,
1999, the Company acquired all of the issued and outstanding stock of Chicago
Express. Chicago Express' results of operations, beginning in May 1999, were
consolidated into those of the Company, replacing the fixed fee per flight
previously recorded by the Company. This generated no material change to
operating revenues or expenses. Chicago Express began service to South Bend,
Indiana in October 2000 and ceased flying to Lansing, Michigan in November 2000.
In January 2000, Chicago Express entered into an agreement to purchase nine
34-seat Saab 340B aircraft, engines and related parts. These aircraft were
placed into service during the first three quarters of 2000 in conjunction with
the retirement from service of the Jetstream 31s.
Included in the Company's jet scheduled service are bulk sales agreements with
tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator may take up to 85% of an aircraft as a bulk-seat
purchase. The seats that the Company retains are sold through its own scheduled
service distribution network. Under bulk sales arrangements, the Company is
obligated to provide transportation to the tour operators' customers even in the
event of non-payment to the Company by tour operators. To minimize its credit
exposure under these arrangements, the Company requires bonding or a security
deposit for a portion of the contract price. Bulk seat sales amounted to $84.5
million, $71.2 million and $68.6 million in 2000, 1999 and 1998, respectively,
which represented 6.5%, 6.3% and 7.5%, respectively, of the Company's
consolidated revenues for such periods.
Commercial Charter
Commercial charter represented 19.1%, 23.5% and 24.2%, respectively, of the
Company's consolidated revenues for 2000, 1999 and 1998. The Company's principal
customers for commercial charter are tour operators, sponsors of incentive
travel packages and specialty charter customers.
Tour Operator Programs. These leisure-market programs are generally contracted
for repetitive, round-trip patterns, operating over varying periods of time. In
such an arrangement, the tour operator pays a fixed price for use of the
aircraft, including the crew and all necessary passenger and aircraft handling
services, and assumes responsibility and risk for the actual sale of the
available aircraft seats. Under most of its contracts with tour operators, the
Company passes through increases in fuel costs from a contracted price. Under
these contracts, if the fuel price increase causes the tour operator's fuel cost
to rise in excess of 10%, the tour operator has the option of canceling the
contract. The Company experienced no significant contract cancellations in 2000
or 1999 as a result of fuel price increases. The Company is required to absorb
increases in fuel costs that occur within 14 days of flight time.
Although the Company serves tour operators on a worldwide basis, its primary
customers are U.S.-based. The Company's five largest tour operator customers
represented approximately 11.9%, 12.5% and 14.4%, respectively, of the Company's
consolidated revenues for 2000, 1999 and 1998, and the ten largest tour operator
customers represented approximately 12.8%, 14.7% and 17.5%, respectively, of the
Company's consolidated revenues for the same periods.
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for their employees. The
Company has historically provided air travel for many corporate incentive
programs. Incentive travel customers range from national incentive marketing
companies who arrange such programs for corporate clients, to large corporations
that handle their incentive travel programs on an in-house basis.
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. These flights allow the Company to
increase aircraft utilization during off-peak periods.
Military/Government Charter
In 2000, 1999 and 1998, sales to the U.S. military and other governmental
agencies were approximately 14.6%, 11.2% and 13.3%, respectively, of the
Company's consolidated revenues. Traditionally, the Company's focus has been on
short-term military "contract expansion" business which is routinely awarded by
the U.S. government based on availability of appropriate aircraft. The U.S.
government awards one-year contracts for its military charter business and
pre-negotiates contract prices for each type of aircraft a carrier makes
available. Such contracts are awarded based upon the participating airlines'
average costs. The short-term expansion business is awarded pro rata to those
carriers with aircraft availability who have been awarded the most fixed-award
business, and then to any additional carrier that has aircraft available.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards. Under its current teaming arrangement, the Company expects
its military/government charter revenues to decrease to approximately $141.6
million for the contract year ending September 2001. This represents a 16.5%
decrease from $169.5 million earned in the contract year ending September 2000.
The Company is subject to biennial inspections by the U.S. Department of Defense
as a condition of retaining its eligibility to perform military charter flights.
The last such inspection was completed in the fourth quarter of 1999.
Other Business
In addition to its charter and scheduled service businesses, the Company
operates several other smaller businesses that complement its airline
businesses. The Company sells ground arrangements (hotels, car rentals and
attractions) through its Ambassadair and ATA Leisure Corp. subsidiaries;
provides airframe and power plant mechanic training through American Trans Air
Training Corporation; and provides helicopter charter services through its
ExecuJet subsidiary. Additionally, the Company, through its subsidiary ATA
Cargo, Inc., markets cargo services primarily in the Company's scheduled
operations. In aggregate, these businesses, together with incidental revenues
associated with core charter and scheduled service operations, accounted for
8.0%, 9.6% and 6.9%, respectively, of consolidated revenues in 2000, 1999 and
1998.
Aircraft Fleet
As of December 31, 2000, ATA was certified to operate a fleet of 19 Lockheed
L-1011s, 24 Boeing 727-200ADVs and 15 Boeing 757-200s. The Company's commuter
affiliate, Chicago Express, was separately certified to operate 9 Saab 340B
propeller aircraft as of December 31, 2000.
Lockheed L-1011 Aircraft
The Company's 19 Lockheed L-1011 aircraft are wide-body aircraft, 11 of which
have a range of 2,971 nautical miles, three of which have a range of 3,425
nautical miles, and five of which have a range of 5,577 nautical miles. These
aircraft conform to the FAA's Stage 3 noise requirements and have a low
ownership cost relative to other wide-body aircraft types. See "- Environmental
Matters." These aircraft have an average age of approximately 24 years. As of
December 31, 2000, the Company owned 18 of these aircraft and one was under an
operating lease that expires in March 2003. Certain of the Lockheed L-1011
aircraft owned by the Company are subject to mortgages and other security
interests granted in favor of the Company's lenders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Boeing 727-200ADV Aircraft
The Company's 24 Boeing 727-200ADV aircraft are narrow-body aircraft equipped
with high-thrust, JT8D-17/-17A engines and have a range of 2,050 nautical miles.
These aircraft conform to Stage 3 noise requirements and have an average age of
approximately 21 years. As of December 31, 2000, the Company owned 13 of these
aircraft, while leasing the remaining 11 aircraft with initial lease terms that
expire between December 2000 and September 2003, subject to the Company's right
to extend each lease for varying terms or purchase the aircraft.
Boeing 757-200 Aircraft
The Company's 15 Boeing 757-200 aircraft are relatively new, 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 lower
operational costs. In addition, the Company's Boeing 757-200s have 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
December 2001 and September 2022, subject to the Company's right to extend each
lease for varying terms.
Saab 340B Aircraft
The Company's nine Saab 340B aircraft are commuter aircraft with two turboprop
engines. These 34-seat aircraft have an average age of approximately 11 years.
The Company leases all of these aircraft.
New Aircraft Acquisitions
In the second quarter of 2000, the Company entered into a series of agreements
to acquire 39 new Boeing 737-800 aircraft, and 10 new Boeing 757-300 aircraft.
These aircraft will have Boeing's latest technology and are significantly more
fuel-efficient than the Company's existing 3-engine fleets. The Company expects
to achieve significant operating cost savings with the introduction of these new
aircraft, resulting from reduced fuel consumption, transition from three-person
to two-person cockpit crews and improved reliability. The Company expects
delivery of these aircraft to begin in May 2001 and to be substantially complete
by December 2002.
Although Lockheed L-1011 and Boeing 727-200 aircraft are subject to the FAA's
Aging Aircraft program, the Company does not currently expect that its cost of
compliance for these aircraft will be material. See "- Regulation."
Flight Operations
Worldwide flight operations are planned and controlled by the Company's Flight
Operations Group based in Indianapolis, Indiana, which is staffed on a 24-hour
basis, seven days a week. Logistical support necessary for extended operations
away from the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
Maintenance and Support
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the maintenance needs of the Company's fleet and to provide supervision and
control of purchased maintenance services. The Company has approximately 1,270
employees supporting its maintenance and technical efforts.
The Company currently maintains 15 permanent maintenance facilities, including
its Indianapolis facility. In addition, the Company utilizes "road teams," which
are dispatched primarily as charter flight operations require to arrange and
supervise maintenance services at temporary locations. The Company also uses
road teams to supervise all maintenance not performed in-house.
Fuel Price Risk Management
The Company has fuel reimbursement clauses and guarantees, which applied to
approximately 33.5%, 34.8% and 45.0%, respectively, of consolidated revenues in
2000, 1999 and 1998. The Company engaged in a fuel-hedging program from 1998 to
mid-1999, which hedged a portion of its scheduled service fuel exposure during
that time period. The Company re-established its fuel-hedging program in the
third quarter of 2000 and expects to continue this program in 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Operating Expenses - Fuel and Oil."
Competition
The Company's products and services face varying degrees of competition in
diverse markets.
Competition for Scheduled Services
In scheduled service, the Company competes both against the large U.S. scheduled
service airlines and, from time to time, against smaller regional or start-up
airlines. Competition is generally on the basis of price, schedule and
frequency, quality of service and convenience.
Competition for Commercial Charter Services
In the commercial charter market, the Company competes both against the major
U.S. scheduled airlines and against small U.S. charter airlines. The scheduled
carriers compete for leisure travel customers with the Company's commercial
charter operations in a variety of ways, including wholesaling discounted seats
on scheduled flights to tour operators, promoting packaged tours to travel
agents for sale to retail customers and selling discounted, 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.
The Company also competes against several U.S. and foreign charter airlines. In
the United States, these charter airlines are smaller in size than the Company.
In Europe, several charter airlines are as large or larger than the Company.
Certain European charter airlines are affiliates of large scheduled airlines or
tour operators.
Competition for Military/Government Charter Services
The Company competes for military and other government charters with primarily
smaller U.S. airlines. The allocation of U.S. military air transportation
contracts is based upon the number and type of aircraft a carrier, alone or
through a teaming arrangement, makes available for use to the military, among
other factors.
Insurance
The Company carries types and amounts of insurance customary in the 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 were it to fly, without the consent of its insurance
provider, to certain high-risk countries. The Company will support certain U.S.
government operations in areas where its insurance policy does not provide
coverage when the U.S. government provides replacement insurance coverage.
Employees
As of December 31, 2000, the Company had approximately 7,800 full and part-time
employees, approximately 2,675 of whom were represented under collective
bargaining agreements. The Company's flight attendants are represented by the
Association of Flight Attendants ("AFA"), and the Company's cockpit crews are
represented by the Air Line Pilots Association ("ALPA"). The current collective
bargaining agreement with the AFA was ratified in April 2000 and will become
subject to amendment in October 2004. The current collective bargaining
agreement with ALPA became subject to amendment, but did not expire, in
September 2000. The Company began negotiations with ALPA in the second quarter
of 2000 to amend the collective bargaining agreement, and negotiations are
currently in progress.
The Company's flight dispatchers elected the Transport Workers Union ("TWU") to
represent them in October 1999, and a collective agreement was ratified in
August 2000, which will become subject to amendment in August 2004.
The Company believes that relations with its employees are good. Any prolonged
dispute with employees, whether or not represented by a union, could have an
adverse impact on the Company's operations.
Regulation
The Company is subject to a wide range of governmental regulation, including
that of the DOT and the Federal Aviation Administration ("FAA").
The DOT principally regulates economic matters affecting air service, including:
air carrier certification and fitness; insurance; leasing arrangements;
allocation of route rights and authorization of proposed scheduled and charter
operations; allocation of landing slots and departing slots; consumer
protection; and competitive practices. The FAA primarily regulates flight
operations, especially matters affecting air safety, including airworthiness
requirements for each type of aircraft and crew certification. The FAA requires
each carrier to obtain an operating certificate and operations specifications
authorizing the carrier to fly to specific airports using specified equipment.
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. Also, while the Company's aircraft are in foreign
countries, they must comply with the requirements of similar authorities in
those countries. The Commerce Department also regulates the export and re-export
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 and remitted by the Company to the applicable airport authority.
At the Company's aircraft maintenance facilities, materials are used that are
regulated as hazardous under federal, state or local laws. The Company is
required to maintain programs to protect the safety of the employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with these laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of material into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any of these regulations will have a material impact on the
Company's capital expenditures, earnings or competitive position. Additional
laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by, for instance, imposing
additional requirements or restrictions on operations.
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 frequency
of its flights to and from most foreign destinations. 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 foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
The civil aeronautics authorities in the relevant countries must generally
specifically approve proposals for any additional charter service. Approval of
such requests is typically based on considerations of comity and reciprocity and
cannot be guaranteed.
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.
Environmental Matters
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft must comply with certain Stage 3 noise restrictions by
certain specified deadlines. In general, the Company is prohibited from
operating any Stage 2 aircraft after December 31, 1999. As of December 31, 2000,
the Company's entire fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by the FAA, the
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. The Company
believes it has made all necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
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 terminal and are used as
principal business offices and for the Indianapolis reservations center.
The Company's Maintenance and Engineering Center is also 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 and non-routine maintenance on the Company's
aircraft.
In 1995, the Company leased Hangar No. 2 at Chicago's Midway Airport for an
initial lease term of ten years, subject to two five-year renewal options. The
Company has completed significant improvements to this leased property, which is
used to provide line maintenance for the Boeing 757-200 and Boeing 727-200
narrow-body fleets. The Company also leases an 18,700-square-foot reservation
facility located near Chicago's O'Hare Airport. During the second quarter of
1999, the Company completed construction of a 120,000-square-foot building
immediately adjacent to the Company's hangar at Indianapolis International
Airport. This facility is used primarily by operations and maintenance staff.
The Company routinely leases various properties at airports for use by passenger
service, flight operations and maintenance staffs.
At December 31, 2000, ATA and Chicago Express were certified to operate a fleet
of 67 aircraft. The following table summarizes the ownership characteristics of
each aircraft type operated by the Company as of the end of 2000.
Owned (Encumbered
Owned -Pledged on Bank Leased (Fixed Operating-Lease
(Unencumbered) Facility or Other Debt) Buy-out) (No Buy-out) Total
Boeing 727-200ADV 3 10 11 - 24
Boeing 757-200ER - - 13 2 15
Lockheed L-1011-50/100 1 12 - 1 14
Lockheed L-1011-500 1 4 - - 5
Saab 340B - - 9 - 9
TOTAL 5 26 33 3 67
Item 3. Legal Proceedings
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are routine and incidental to the
Company's business. The majority of these lawsuits are covered by insurance. To
the knowledge of management, none of these claims involve a claim for damages in
excess of 10 percent of the assets of the Company, is a material proceeding
under Federal or state environmental laws or is an environmental proceeding
brought by a governmental authority involving potential monetary sanctions in
excess of $100,000.
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, 2000.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "AMTR." The Company had 255 and 272 registered shareholders,
respectively, at December 31, 2000 and 1999.
Year Ended December 31, 2000
Market Prices of Common Stock High Low Close
---- --- -----
First Quarter 19 3/8 13 5/8 17 7/8
Second Quarter 18 7/16 8 5/8 12 7/16
Third Quarter 13 7/8 10 10 15/16
Fourth Quarter 15 9 14 1/2
Year Ended December 31, 1999
Market Prices of Common Stock High Low Close
---- --- -----
First Quarter 28 1/8 18 1/2 19
Second Quarter 25 18 7/8 24 5/8
Third Quarter 27 1/2 18 1/2 18 3/4
Fourth Quarter 22 16 1/2 19 3/8
No dividends have been paid on the company's common stock since becoming
publicly held.
On September 20, 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value ("Series B
Preferred"), at a price of $100,000 per share. The purchaser of the Series B
Preferred, International Lease Finance Corporation ("ILFC"), is entitled to
cumulative quarterly dividends at an annual rate of 5% on the liquidation amount
($100,000 per share) of Series B Preferred. The Series B Preferred is
convertible into shares of Amtran common stock at a conversion rate of 6,381.62
shares of common stock per share of Series B Preferred, at a conversion price of
$15.67 per share of common stock, subject to antidilution adjustments. The
Series B Preferred is optionally redeemable by the Company under certain
conditions, but the Company must redeem the Series B Preferred no later than
September 20, 2015. Optional redemption by the Company may occur at 103.6% of
the liquidation amount beginning September 20, 2003, decreasing 0.3% of the
liquidation amount per year to 100.0% of the liquidation amount at the mandatory
redemption date of September 20, 2015. Shares of Series B Preferred have the
right to vote on or consent to only the following matters (in addition to any
voting rights otherwise required by law): (1) amendments to the Company's
Articles of Incorporation which are adverse to the holders of Series B
Preferred, (2) if six quarterly dividends go unpaid, the owner of Series B
Preferred, together with the owner of Series A Preferred (as defined below) and
the owners of any other preferred stock ranking equal to Series B Preferred,
will be entitled to elect at the next annual shareholders meeting twenty-five
percent of the Company's Board of Directors, but no less than two directors and
(3) increases in the number of authorized shares of Series B Preferred and
authorizations of preferred stock ranking senior to Series B Preferred. Votes
will be allocated among holders of preferred stock based on the percentage owned
by each holder of the total liquidation amount of all series of preferred stock.
On December 28, 2000, the Company issued and sold 500 shares of Series A
redeemable preferred stock, without par value ("Series A Preferred"), at a price
of $100,000 per share. The purchaser of the Series A Preferred, Boeing Capital
Corporation, Inc. ("BCC") is entitled to cumulative semiannual dividends at an
annual rate of 8.44% on the liquidation amount ($100,000 per share) of Series A
Preferred. The Series A Preferred is optionally redeemable by the Company under
certain conditions, but the Company must redeem the Series A Preferred in equal
semiannual payments beginning December 28, 2010, and ending December 28, 2015.
Optional redemption by the Company may occur at a redemption premium of 50.0% of
the dividend rate beginning December 28, 2003, decreasing 10.0% per year to
20.0% of the dividend rate commencing December 28, 2006, and to 0.0% after the
seventh year after issuance. Prior to the third anniversary of issuance, the
Company may redeem the Series A Preferred with net proceeds of a public offering
of the Company's common stock. Shares of Series A Preferred have the right to
vote on or consent to only the following matters (in addition to any voting
rights otherwise required by law): (1) amendments to the Company's Articles of
Incorporation which are adverse to the holders of Series A Preferred, (2) if
three semiannual dividends go unpaid, the owner of Series A Preferred, together
with the owner of Series B Preferred and the owners of any other preferred stock
ranking equal to Series A Preferred, will be entitled to elect at the next
annual shareholders meeting, twenty-five percent of the Company's Board of
Directors, but no less than three directors, (3) approval of (a) an acquisition
by the Company or one of its subsidiaries of assets and liabilities from a third
party the net asset value of which equals ten percent of the Company's net
consolidated assets in its most recent publicly available balance sheet or (b) a
merger by the Company or one of its subsidiaries with a third party involving an
acquisition or disposition of more than ten percent of the Company's
consolidated net assets in its most recent publicly available balance sheet
(other than a disposition of all the Company's L-1011 or Boeing 727 aircraft)
that, in either case, results in a downgrade of the Company's credit rating by
Moody's to "C1" or by Standard & Poor's to "C+", unless the Company offers to
redeem the Series A Preferred prior to that transaction at a price equal to the
liquidation amount plus accrued and unpaid dividends to the redemption date and
(4) increases in the number of authorized shares of Series A Preferred and
authorizations of preferred stock ranking senior to Series A Preferred. Votes
will be allocated among holders of preferred stock based on the percentage owned
by each holder of the total liquidation amount of all series of preferred stock.
The Company has the right on any date on which dividends are payable to exchange
in whole but not in part subordinated notes for shares of Series A Preferred;
the principal amount of any exchanged subordinated notes will equal the
liquidation amount of the shares of Series A Preferred, plus any accrued and
unpaid dividends.
The issuance and sale of the Series A and Series B Preferred are exempt from
registration requirements under Section 4(2) of the Securities and Exchange Act
of 1933, which applies to private offerings of securities. The proceeds of the
issuances of the Series A Preferred and the Series B Preferred were used to
finance aircraft deposits on Boeing 757-300 and Boeing 737-800 aircraft ordered
by the Company.
Item 6. Selected Consolidated Financial Data - (Unaudited)
The unaudited selected consolidated 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,
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data and ratios) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 1,291,553 $1,122,366 $ 919,369 $ 783,193 $ 750,851
Operating expenses 1,288,983 1,032,339 843,996 769,709 786,907
Operating income (loss) (1) 2,570 90,027 75,373 13,484 (36,056)
Income (loss) before taxes (19,931) 77,797 67,210 6,027 (39,581)
Net income (loss) available to common shareholders (3) (15,699) 47,342 40,081 1,572 (26,674)
Net income (loss) per share - basic (2) (1.31) 3.86 3.41 0.14 (2.31)
Net income (loss) per share - diluted (2) (1.31) 3.51 3.07 0.13 (2.31)
Balance Sheet Data (at end of period):
Property and equipment, net $ 662,046 $ 511,832 $ 329,332 $ 267,681 $ 224,540
Total assets 1,032,430 815,281 594,549 450,857 369,601
Total debt 457,949 347,871 246,671 191,804 149,371
Redeemable preferred stock 80,000 - - - -
Shareholders' equity 124,654 151,376 102,751 56,990 54,744
Ratio of total debt to shareholders' equity 3.67 2.30 2.40 3.37 2.73
Ratio of total liabilities to shareholders' equity 6.64 4.39 4.79 6.91 5.75
Selected Operating Statistics for Consolidated Passenger
Services: (4)
Revenue passengers carried (thousands) 8,006.1 7,044.6 6,168.3 5,307.4 5,680.5
Revenue passenger miles (millions) 11,816.8 10,949.0 9,758.1 8,986.0 9,172.4
Available seat miles (millions) 16,390.1 15,082.6 13,851.7 12,647.7 13,295.5
Passenger load factor 72.1% 72.6% 70.5% 71.0% 69.0%
(1) In the third quarter of 1996 and fourth quarter of 2000, the Company
recorded $4.7 million and $2.2 million, respectively, in losses on the
disposal of leased and owned assets associated with the reconfiguration of
its fleet.
(2) In 1997, the Company adopted Financial Accounting Standards Board
Statement 128, "Earnings per Share," which established new standards for
the calculation and disclosure of earnings per share. Loss per share for
1996 was restated to conform to the new standards under Statement 128.
(3) Preferred stock dividends of $375,000 were paid in the fourth quarter of
2000.
(4) Operating statistics pertain only to ATA and Chicago Express and do not
include information for other operating subsidiaries of the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company is a leading provider of targeted scheduled airline services and
charter airline services to leisure and other value-oriented travelers. The
Company, through its principal subsidiary, ATA, has been operating for 28 years
and is the 11th largest U.S. passenger airline in terms of 2000 capacity and
traffic. ATA provides scheduled service through nonstop and connecting flights
from the gateways of Chicago-Midway and Indianapolis to popular vacation
destinations such as Hawaii, Phoenix, Las Vegas, Florida, California, Mexico and
the Caribbean, as well as to New York's LaGuardia and John F. Kennedy Airports,
Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston, Seattle and
Minneapolis-St Paul. Chicago Express also provides commuter passenger service
between Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines,
Dayton, Grand Rapids, Madison and South Bend. ATA also provides charter service
throughout the world to independent tour operators, specialty charter customers
and the U.S. military.
The Company generated operating income of $2.6 million, and a net loss of $15.3
million, for the year ended December 31, 2000. Profitability in 2000 was
severely impacted by fuel prices, which averaged nearly 50% more per gallon than
in 1999, and the Company's fleet, which is generally older and less
fuel-efficient. Both the Lockheed L1011 and the Boeing 727-200 aircraft operate
with three engines, compared to more fuel-efficient new aircraft that are
powered by two more technologically advanced engines.
In May 2000, the Company placed an order for 39 new Boeing 737-800 aircraft and
ten new Boeing 757-300 aircraft. These aircraft will be equipped with Boeing's
latest technology and equipment, and are significantly more fuel-efficient than
the Company's current three-engine aging aircraft. Delivery of the new aircraft
is scheduled to begin in May 2001 and to be substantially completed by December
2002.
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, consolidated oper-
ating revenues and expenses expressed as cents per ASM.
Cents per ASM
Year Ended December 31,
2000 1999 1998
---- ---- ----
Consolidated operating revenues:
7.88 7.44 6.64
Consolidated operating expenses:
Salaries, wages and benefits 1.81 1.67 1.52
Fuel and oil 1.68 1.13 0.99
Depreciation and amortization 0.76 0.64 0.57
Handling, landing and navigation fees 0.59 0.59 0.54
Aircraft rentals 0.44 0.39 0.38
Aircraft maintenance, materials and repairs 0.43 0.37 0.39
Crew and other employee travel 0.40 0.33 0.30
Ground package cost 0.31 0.33 0.14
Passenger service 0.28 0.26 0.24
Commissions 0.24 0.26 0.21
Other selling expenses 0.22 0.19 0.16
Advertising 0.13 0.12 0.13
Facilities and other rentals 0.10 0.09 0.07
Other 0.47 0.47 0.45
Total consolidated operating expenses 7.86 6.84 6.09
Consolidated operating income 0.02 0.60 0.55
ASMs (in thousands) 16,390,101 15,082,630 13,851,731
The following table sets forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars, and expressed
as cents per ASM.
Year Ended December 31,
2000 1999 1998
---- ---- ----
Airline and Other
Operating revenue (000s) $1,192,984 $1,022,541 $ 897,884
RASM (cents) 7.28 6.78 6.48
Operating expense (000s) $1,178,737 $ 929,898 $ 822,468
CASM (cents) 7.19 6.17 5.94
ATALC
Operating revenue (000s) $ 98,569 $ 99,825 $ 21,485
RASM (cents) 0.60 0.66 0.16
Operating expense (000s) $ 110,246 $ 102,441 $ 21,528
CASM (cents) 0.67 0.67 0.15
Year Ended December 31, 2000, Versus Year Ended December 31, 1999
Consolidated Flight Operations and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31/Saab" operations include the operations of
Jetstream 31 and Saab 340B propeller aircraft by Chicago Express Airlines, Inc.
as the ATA Connection.
Twelve Months Ended December 31,
2000 1999 Inc (Dec) % Inc (Dec)
------------------------------------------------------
Departures Jet 55,714 50,207 5,507 10.97
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
------ ------ ----- ----
Total Departures (b) 74,699 67,923 6,776 9.98
------ ------ ----- ----
Block Hours Jet 172,824 157,481 15,343 9.74
Block Hours J31/Saab 18,708 17,979 729 4.05
------ ------ --- ----
Total Block Hours (c) 191,532 175,460 16,072 9.16
------- ------- ------ ----
RPMs Jet (000s) 11,760,135 10,913,081 847,054 7.76
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
------ ------ ------ -----
Total RPMs (000s) (d) 11,816,804 10,949,003 867,801 7.93
---------- ---------- ------- ----
ASMs Jet (000s) 16,295,730 15,025,000 1,270,730 8.46
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
------ ------ ------ -----
Total ASMs (000s) (e) 16,390,101 15,082,630 1,307,471 8.67
---------- ---------- --------- ----
Load Factor Jet 72.17 72.63 (0.46) (0.63)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
----- ----- ----- -----
Total Load Factor (f) 72.10 72.59 (0.49) (0.68)
----- ----- ----- -----
Passengers Enplaned Jet 7,686,077 6,838,339 847,738 12.40
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
------- ------- ------- -----
Total Passengers Enplaned (g) 8,006,139 7,044,643 961,496 13.65
--------- --------- ------- -----
Revenue $ (000s) 1,291,553 1,122,366 169,187 15.07
RASM in cents (h) 7.88 7.44 0.44 5.91
CASM in cents (i) 7.86 6.84 1.02 14.91
Yield in cents (j) 10.93 10.25 0.68 6.63
See footnotes (c) through (j) on page 20.
(a) Chicago Express provides service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, South Bend and
Madison as the ATA Connection, using Saab 340B propeller aircraft. During 1999,
Chicago Express operated nine 19-seat Jetstream aircraft. During the first three
quarters of 2000, Chicago Express replaced the Jetstream aircraft with nine
34-seat Saab 340B aircraft. As of September 30, 2000, all Jetstream aircraft had
been removed from revenue service.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city. (c) Block hours for any aircraft
represent the elapsed time computed from the moment the aircraft first moves
under its own power from the origin city boarding ramp to the moment it comes to
rest at the destination city boarding ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because the Company
sells an entire aircraft instead of individual seats. Since both costs and
revenues are largely fixed for these types of charter flights, changes in load
factor have less impact on business unit profitability. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
Operating Revenues
Total operating revenues in 2000 increased 15.2% to $1.292 billion from $1.122
billion in 1999. This increase was due to a $128.7 million increase in scheduled
service revenues, a $62.3 million increase in military/government charter
revenues and a $1.7 million increase in ground package revenues, offset by a
$6.4 million decrease in other revenues and a $17.1 million decrease in
commercial charter revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31/Saab" include the operations of Jetstream
31 and Saab 340B propeller aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
2000 1999 Inc (Dec) % Inc (Dec)
------------------------------------------------------
Departures Jet 40,892 35,402 5,490 15.51
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
------ ------ ----- ----
Total Departures (b) 59,877 53,118 6,759 12.72
------ ------ ----- ----
Block Hours Jet 118,473 104,555 13,918 13.31
Block Hours J31/Saab 18,708 17,979 729 4.05
------ ------ --- ----
Total Block Hours (c) 137,181 122,534 14,647 11.95
------- ------- ------ ----
RPMs Jet (000s) 7,700,639 6,828,181 872,458 12.78
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
------ ------ ------ -----
Total RPMs (000s) (d) 7,757,308 6,864,103 893,205 13.01
---------- ---------- ------- ----
ASMs Jet (000s) 10,025,603 8,809,564 1,216,039 13.80
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
------ ------ ------ -----
Total ASMs (000s) (e) 10,119,974 8,867,194 1,252,780 14.13
---------- ---------- --------- ----
Load Factor Jet 76.81 77.51 (0.70) (0.90)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
----- ----- ----- -----
Total Load Factor (f) 76.65 77.41 (0.76) (0.98)
----- ----- ----- -----
Passengers Enplaned Jet 5,873,598 4,878,643 994,955 20.39
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
------- ------- ------- -----
Total Passengers Enplaned (g) 6,193,660 5,084,947 1,108,713 21.80
--------- --------- ------- -----
Revenue $ (000s) 753,301 624,647 128,654 20.60
RASM in cents (h) 7.44 7.04 0.40 5.68
CASM in cents (i) 9.71 9.10 0.61 6.70
Yield in cents (j) 121.62 122.84 (1.22) (0.99)
See footnotes (a) through (j) on pages 19 and 20.
(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in 2000 increased 20.6% to $753.3 million from $624.6
million in 1999. Scheduled service revenues were 58.3% of consolidated revenues
in 2000, as compared to 55.7% of consolidated revenues in 1999.
The Company's scheduled service at Chicago-Midway accounted for approximately
63.5% of scheduled service ASMs and 83.5% of scheduled service departures in
2000, as compared to 56.7% and 77.2%, respectively, during 1999. During the
second and third quarters of 2000, the Company began operating nonstop flights
to Ronald Reagan Washington National Airport, Boston, Seattle and
Minneapolis-St. Paul, none of which were served in the comparable periods of
1999. In addition to this new service, the Company served the following existing
jet markets in both years: Dallas-Ft. Worth, Denver, Ft. Lauderdale, Ft. Myers,
Las Vegas, Los Angeles, New York's John F. Kennedy Airport (seasonal), New
York's LaGuardia Airport, Orlando, Phoenix, St. Petersburg, San Francisco, San
Juan and Sarasota.
In April 1999, the Company acquired all of the issued and outstanding stock of
Chicago Express Airlines, Inc., which then operated 19-seat Jetstream 31
propeller aircraft between Chicago-Midway and the cities of Indianapolis,
Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison. Chicago
Express began service to South Bend, Indiana, in October 2000, and ceased flying
to Lansing, Michigan, in November 2000. In the first three quarters of 2000,
Chicago Express completed the replacement of nine 19-seat Jetstream 31 aircraft
with nine 34-seat Saab 340B aircraft. All Jetstream aircraft were removed from
revenue service by September 30, 2000, and are currently being returned to the
lessors.
The Company anticipates that its Chicago-Midway operation will represent an
increasing proportion of its scheduled service business in 2001 and beyond. The
Company operated 94 peak daily jet and commuter departures from Chicago-Midway
in 2000, as compared to 67 in 1999, and served 25 destinations on a nonstop
basis in 2000, as compared to 22 nonstop destinations served in 1999. In order
to accommodate the growth in jet departures in the existing terminal, in October
2000 Chicago Express established a remote boarding operation at Chicago-Midway
Airport with shuttle bus service between the remote location and the main
terminal. This change has allowed the Company to convert the former Chicago
Express gate to a jet departure gate, which will permit further expansion of jet
departures in the current concourse facilities.
The Company presently expects to occupy 12 jet gates and one commuter aircraft
gate on the new Chicago-Midway airport concourses. Eight of the gates which the
Company will occupy are expected to open in late 2001 and five additional gates
are expected to be available for use by the Company in 2004. The Company is
currently investing in new passenger processing technology for use in the new
terminal and expects to occupy ticketing and passenger check-in space in the
newly constructed Chicago-Midway terminal in the first week of March 2001. In
addition, the Company has begun construction of a FIS facility at
Chicago-Midway, from which it plans to commence nonstop international services
in late 2001. Due to the importance of Chicago-Midway to the Company's scheduled
service route network, the initial deliveries of new aircraft are expected to be
used primarily in the Chicago-Midway hub.
The Company's Hawaii service accounted for 17.0% of scheduled service ASMs and
4.3% of scheduled service departures in 2000, as compared to 18.5% and 4.7%,
respectively, in 1999. The Company provided nonstop service in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. The majority of seats in these
markets are sold to independent tour operators, while the company distributes
the remaining seats through its normal scheduled service channels.
The Company's Indianapolis service accounted for 12.2% of scheduled service ASMs
and 8.8% of scheduled service departures in 2000, as compared to 14.0% and
10.8%, respectively, in 1999. In both years, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles (service was
discontinued as of August 2000), Orlando, St. Petersburg and Sarasota. The
Company has served Indianapolis for 28 years through the Ambassadair Travel Club
and through scheduled service since 1986.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its schedule and flight frequencies from time to
time. The Company, in cooperation with a tour operator partner, began nonstop
service to Hawaii from Chicago-O'Hare International Airport and New York's John
F. Kennedy International Airport in December of 2000.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to customer-designated destinations throughout the world.
Commercial charter revenues accounted for 19.1% of consolidated revenues in 2000
as compared to 23.5% in 1999.
During the last several years, the Company has deployed additional aircraft into
its rapidly growing scheduled service markets, reducing the availability of
aircraft capacity for commercial and military/government charter flying. The
Company has addressed its seat capacity limitations in the commercial and
military/government charter businesses through the acquisition of long-range
Lockheed L-1011-500 aircraft. Although Lockheed L-1011-500 maintenance
procedures and cockpit design are similar to the Company's fleet of Lockheed
L-1011-50 and 100 aircraft, they differ operationally in that their
10-to-11-hour range permits them to operate nonstop to parts of Asia, South
America and Central and Eastern Europe using an all-coach seating configuration
preferred by the U.S. military and most of the Company's commercial charter
customers. The deployment of these aircraft into the Company's fleet has
increased the available seat capacity for the commercial and military/government
charter business units in addition to opening new long-range market
opportunities. The Company also uses several of these aircraft for scheduled
service to and from Hawaii.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
Twelve Months Ended December 31,
2000 1999 Inc (Dec) % Inc (Dec)
----------------------------------------------------
Departures (b) 9,722 10,212 (490) (4.80)
Block Hours (c) 34,356 37,119 (2,763) (7.44)
RPMs (000s) (d) 2,687,051 3,253,165 (566,114) (17.40)
ASMs (000s) (e) 3,610,413 4,129,966 (519,553) (12.58)
Passengers Enplaned (g) 1,472,340 1,753,237 (280,897) (16.02)
Revenue $ (000s) 246,705 263,766 (17,061) (6.47)
RASM in cents (h) 6.83 6.39 0.44 6.89
RASM less fuel escalation (l) 6.47 6.35 0.12 1.89
See footnotes (b) through (h) on pages 19 and 20.
(l) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned, are
accounted for as additional revenue. A separate RASM calculation, excluding the
impact of fuel reimbursements, is provided as a separate measure of unit revenue
changes.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low- frequency but
repetitive domestic and international flights between city pairs, which support
high-passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed-city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$192.8 million in revenues in 2000, as compared to $193.8 million in 1999.
Specialty charter is a product that is designed to meet the unique requirements
of a customer and is a business characterized by lower frequency of operation
and by greater variation in city pairs served than the track charter business.
Specialty charter includes such diverse contracts as flying university alumni to
football games, transporting political candidates on campaign trips and moving
NASA space shuttle ground crews to alternate landing sites. The Company also
operates trips in an all-first-class configuration for certain corporate and
high-end leisure clients. Although lower utilization of crews and aircraft and
infrequent service to specialty destinations often result in higher average
operating costs, the Company has determined that the revenue premium earned by
meeting special customer requirements more than compensates for these increased
costs. The diversity of the Company's three fleet types also permits the Company
to meet a customer's particular needs by choosing the aircraft type that
provides the most economical solution for those requirements. Specialty charter
accounted for approximately $31.5 million in revenues in 2000, as compared to
$40.0 million in 1999.
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government charter operations of the Company.
Twelve Months Ended December 31,
2000 1999 Inc (Dec) % Inc (Dec)
---------------------------------------------------
Departures (b) 4,961 4,444 517 11.63
Block Hours (c) 19,443 15,354 4,089 26.63
RPMs (000s) (d) 1,339,545 818,627 520,918 63.63
ASMs (000s) (e) 2,605,791 2,027,471 578,320 28.52
Passengers Enplaned (g) 329,200 199,013 130,187 65.42
Revenue $ (000s) 188,556 126,213 62,343 49.40
RASM in cents (h) 7.24 6.23 1.01 16.21
RASM less fuel escalation (m) 6.88 6.21 0.67 10.79
See footnotes (b) through (h) on pages 19 and 20.
(m) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each contract
year. If actual fuel prices differ from the contract rate, revenues are adjusted
up or down to neutralize the impact of the change on the Company. A separate
RASM calculation is provided, excluding the impact of the fuel price
adjustments.
The Company participates in two related military/government charter programs
known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of its team. As part of its participation in this
teaming arrangement, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization value points.
All airlines participating in the fixed-award business contract annually with
the U.S. military from October 1 to the following September 30. For each
contract year, reimbursement rates are determined for aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts generally are not subject to renegotiation once they
become effective.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Short-term expansion
flying is generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards. Under its current teaming arrangement, the Company expects
its military/government charter revenues to decrease to approximately $141.6
million for the contract year ending September 2001. This represents a 16.5 %
decrease from $169.5 million earned in the contract year ending September 2000.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental, cruise and other accommodations in conjunction with
the Company's air transportation product. The Company traditionally marketed
these ground packages to its Ambassadair Travel Club members and to its
scheduled service passengers through its ATA Vacations subsidiary. However,
since the acquisition of new tour operator businesses in the Detroit area in
1999, the Travel Charter and Key Tours brands in Detroit have accounted for a
significant portion of the Company's ground package sales.
The Company's Ambassadair Travel Club offers tour-guide-accompanied vacation
packages to its approximately 38,500 individual and family members annually. ATA
Leisure Corp. offers numerous ground accommodations to the general public in
many areas of the United States. These packages are marketed through travel
agents, as well as directly by the Company.
In 2000, ground package revenues increased 2.7% to $59.8 million, as compared to
$58.2 million in 1999. The number of ground packages sold and the average
revenue earned by the Company for a ground package sale are a function of the
seasonal mix of vacation destinations served, the quality and types of ground
accommodations offered and general competitive conditions in the Company's
markets, all of which factors can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company. Other revenues decreased 13.1% to $43.1 million in 2000, as compared to
$49.6 million in 1999.
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 local, state and federal taxes.
Salaries, wages and benefits expense in 2000 increased 17.6% to $297.0 million
from $252.6 million in 1999.
The Company increased its average equivalent employees by approximately 20.4%
between 2000 and 1999. This growth was most significant in categories of
employees that are influenced directly by flight activity, such as flight crews
and maintenance staff. Beginning in May 2000, the Company replaced its
contracted ground handler at its busiest airport, Chicago-Midway, with its own
ramp employees. Although this contributed to the increase in salaries, wages and
benefits, the Company experienced a corresponding reduction in handling, landing
and navigation fees. Some further employment growth in 2000 was also provided to
improve customer service in targeted areas by increasing customer service staff,
such as at airport ticket counters, in reservations facilities and in other
staff groups primarily involved in delivering services to the Company's
customers. Staff increases also occurred for Chicago Express as a result of
increased passengers boarded due to the conversion from 19-seat to 34-seat
aircraft in the first nine months of 2000. The Company was also adversely
affected by a significant increase in employee benefit costs in 2000, as
compared to 1999.
These increases in salaries, wages and benefits costs were partially offset by
the elimination of employee incentive awards in 2000. In 1999, the Company
expensed $6.4 million in accrued incentive awards while no incentive awards were
earned in 2000.
Fuel and Oil. Fuel and oil expense increased 60.8% to $274.8 million in 2000, as
compared to $170.9 million in 1999. The Company consumed 8.1% more gallons of
jet fuel for flying operations between 2000 and 1999, which resulted in an
increase in fuel expense of approximately $14.1 million between periods. Jet
fuel consumption increased primarily due to the increased number of block hours
of jet flying operations between periods. The Company flew 172,824 jet block
hours in 2000, as compared to 157,481 jet block hours in 1999, an increase of
9.7% between years.
During 2000, the Company's average cost per gallon of jet fuel consumed
increased by 49.7% as compared to 1999, resulting in an increase in fuel and oil
expense of approximately $91.6 million between periods. The Company contacts
with most commercial charter customers, the U.S. military, and with certain bulk
seat purchasers to provide for fuel escalation revenue, which partially offset
the impact of higher fuel prices. In 2000, the Company recognized $26.4 million
in fuel escalation revenue, as compared to $1.8 million recognized in 1999.
The Company implemented a fuel hedge program beginning in the third quarter of
2000. This program currently consists of swap agreements for heating oil. The
company uses heating oil swaps to hedge its jet fuel risk because heating oil
trades publicly on an exchange and is a refined oil product like jet fuel.
Heating oil and jet fuel also demonstrate a strong price correlation. As of
December 31, 2000, the Company has entered into swap agreements for
approximately 13.6 million gallons of heating oil for future delivery between
January 2001 and September 2001, which represents approximately 6.3% of total
expected fuel consumption for that period.
The Company expects that high prices for jet fuel will continue to negatively
impact its profitability in future quarters. The Company expects to begin
generating significant fuel consumption savings, however, as it introduces its
new fleet of Boeing 737-800 and 757-300 aircraft between 2001 and 2003. The
twin-engine Boeing 737-800 aircraft are expected to burn 40% fewer gallons per
block hour than the Company's three-engine Boeing 727-200 aircraft. The Company
estimates that, as compared to the actual fuel burn of its Boeing 727-200 fleet
in 2000, had that flying been done by a fleet of Boeing 737-800 aircraft, fuel
consumption savings would have been approximately $42.8 million at fuel prices
prevailing in 2000. Future fuel consumption savings will vary according to the
actual price of jet fuel, and the Company will not realize the full benefit of
this higher fuel efficiency until the fleet transition is completed in 2003.
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls for all fleet types on a
units-of-production basis using aircraft flight hours and cycles (landings) as
the units of measure. Depreciation and amortization expense increased 30.2% to
$125.0 million in 2000, as compared to $96.0 million in 1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $9.3 million in 2000, as compared to 1999. The Company
added four owned L-1011-500s, to the Company's fleet from late 1999 through
2000. The Company also purchased seven hushkits for 727-200 aircraft and two
spare engines for the L-1011-500s late in 1999 through 2000. The Company also
increased its investment in rotable parts, furniture and fixtures, and computer
hardware and software, and increased its provision for amortization of inventory
obsolescence and debt issue costs between years. These changes resulted in an
increase in depreciation expense of $8.4 million in 2000, as compared to 1999.
Amortization of capitalized engine and airframe overhauls increased $8.5 million
in 2000, as compared to 1999, after including amortization of related
manufacturers' credits. Changes to the cost of overhaul amortization were partly
due to the increase in total block hours and cycles flown between comparable
periods for the Lockheed L-1011 fleet, since such expense varies with that
activity, and partly due to the completion of more engine and airframe overhauls
in 2000 for the Boeing 727-200 and Lockheed L-1011 fleets. Rolls-Royce-powered
Boeing 757-200 aircraft, thirteen of which were delivered new from the
manufacturer since late 1995, are starting to generate engine and airframe
overhaul expense. This resulted in a $1.2 million increase in amortization costs
between periods.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these early engine failures increased $2.5
million in 2000, as compared to 1999. When these early engine failures can be
economically repaired, the related repairs are charged to aircraft maintenance,
materials and repairs expense.
The current depreciable life of assets related to the L1011-50 and 100 aircraft
assumes a common retirement date for the fleet of December 31, 2004. With
continuously increasing repair costs and the fuel-inefficiency of this fleet,
the Company has begun re-evaluating this decision. The Company is considering
retiring each L1011-50 and 100 aircraft prior to its next scheduled heavy
maintenance check. To ensure the correct economic decision, the Company is
performing an extensive analysis of expected revenue generation and operating
cost of each aircraft in this fleet. As of December 31, 2000, this analysis is
not yet complete. Two aircraft in the fleet are scheduled for heavy maintenance
checks in the first quarter of 2001. These aircraft cannot be operated past
these dates unless the necessary scheduled heavy maintenance is performed. As of
December 31, 2000, the Company is uncertain whether this required maintenance
will be performed or whether these two aircraft will be retired. The net book
value of these two aircraft less anticipated salvage value, as of December 31,
2000 was approximately $5.6 million.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 9.1% to $97.4 million in 2000
as compared to $89.3 million in 1999. The total number of system-wide jet
departures between 2000 and 1999 increased by 11.0% to 55,714 from 50,207. The
lower rate of growth in handling costs in 2000, as compared to the growth in
departures, was partly due to the implementation of self-handling on the ramp at
Chicago-Midway Airport beginning in May 2000, which was done with third-party
contractors during all of 1999. A corresponding increase in salaries, wages &
benefits attributable to self-handling was experienced during the remainder of
2000.
Aircraft Rentals. Aircraft rentals expense for 2000 increased 22.8% to $72.1
million from $58.7 million in 1999. The Company accepted delivery of six Boeing
757-200 aircraft from the manufacturer (two in the fourth quarter of 1999, two
in June 2000 and two in November 2000), adding $10.8 million to aircraft rentals
expense in 2000, as compared to 1999. Chicago Express aircraft rentals increased
by $2.4 million in 2000 as compared to 1999, due to the replacement of 19-seat
Jetstream aircraft with 34-seat Saab 340B aircraft. The Company also incurred
$2.8 million in higher rentals in 2000, as compared to 1999, due to the lease of
spare engines to support the Boeing 757-200 and Lockheed L-1011-500 fleets. The
Company purchased 12 Boeing 727-200 aircraft between the first quarter of 1999
and fourth quarter of 2000, which had previously been financed through operating
leases, resulting in a decrease in aircraft rentals of $1.5 million between
periods.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. Aircraft maintenance,
materials & repair expense increased 26.6% to $70.4 million in 2000, as compared
to $55.6 million in 1999.
The Company performed a total of 62 maintenance checks on its fleet during 2000
as compared to 53 in 1999. The cost of materials consumed and components
repaired in association with such checks and other maintenance activity
increased by $9.0 million between 2000 and 1999.
The Company recognized an increase in aircraft maintenance, materials and
repairs of $2.5 million in 2000, as compared to 1999, due to the consolidation
of the results of its wholly owned subsidiary, Chicago Express. The results of
operation for Chicago Express were consolidated with the Company beginning in
May 1999.
Crew and Other Employee Travel. Crew and other employee travel consists
primarily of the cost of air transportation, hotels and per diem reimbursements
to cockpit and cabin crewmembers incurred to position crews away from their
bases to operate Company flights throughout the world. The cost of crew and
other employee travel increased 32.4% to $65.8 million in 2000 as compared to
$49.7 million in 1999.
Positioning and hotel costs increased significantly in 2000 due primarily to the
substantial increase in military departures in 2000, as compared to 1999.
Military flights often operate to and from points remote from the Company's crew
bases, thus requiring significant positioning expenditures for cockpit and cabin
crews on other airlines. Also, due to heavy airline industry load factors in
2000, the Company paid higher average fares to position crews. Average hotel
costs are higher for military operations since hotel rates at international
locations generally exceed domestic U.S. hotel rates.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATA Leisure Corp. ("ATALC") customers.
Ground package cost increased 3.9% to $50.9 million in 2000, as compared to
$49.0 million in 1999. Ground package costs increased in proportion to the
increase in ground package revenues.
Passenger Service. Passenger service expense includes the costs of onboard meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For 2000 and 1999,
catering represented 78.8% and 82.0%, respectively, of total passenger service
expense.
The total cost of passenger service increased 16.3% to $45.6 million in 2000, as
compared to $39.2 million in 1999. The Company experienced an increase of
approximately 2.1% in the average unit cost of catering each passenger between
2000 and 1999, primarily because in 2000 there were relatively more military
passengers in the Company's business mix, who are provided a more expensive
catering product due to military catering specifications and the longer average
duration of these flights. This resulted in a price-and-business-mix increase of
$0.8 million in catering expense in 2000, as compared to 1999.
Total jet passengers boarded, however, increased 12.4% between years, resulting
in approximately $3.7 million in higher volume-related catering expenses between
the same sets of comparative periods.
In 2000, as compared to 1999, the Company experienced increased departure delays
over 15 minutes of 34.3%. These irregular operations resulted in higher costs to
handle inconvenienced passengers and misconnected baggage. In 2000, as compared
to 1999, such costs were $2.6 million higher.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of vacation packages and single seats on scheduled service. In
addition, the Company incurs commissions to secure some commercial and
military/government charter business. Commissions expense stayed constant at
$39.1 million between 2000 and 1999.
The Company incurred higher military commissions expense of $4.4 million in
2000, as compared to 1999, which is consistent with growth in military revenues
between years. These increases were largely offset by decreases in scheduled
service commissions paid of $4.9 million due to an industry reduction in travel
agency commission from 8.0% to 5.0% effective in the fourth quarter of 1999.
Other Selling Expenses. Other selling expenses comprise primarily fees paid to
computer reservation systems ("CRS") for scheduled service bookings, credit card
discount expenses incurred when selling single seats and ground packages to
customers using credit cards for payment, and toll-free telephone services
provided to single-seat and vacation package customers who contact the Company
directly to book reservations. Other selling expenses increased 30.6% to $36.7
million in 2000, as compared to $28.1 million in 1999.
Approximately $6.3 million of this increase in 2000 resulted from an increase in
CRS fees. This increase resulted partially from the growth in single-seat sales
volumes between periods and because of an increase in rates charged by CRS
systems for improved booking functionality. Credit card discount expense
increased $3.0 million as compared to 1999, primarily due to higher volumes of
scheduled service tickets sold using credit cards as form of payment. Toll-free
telephone services decreased by $0.8 million in 2000, as compared to 1999, due
to billing rate reductions secured from related vendors.
Advertising. Advertising expense increased 18.3% to $22.0 million in 2000, as
compared to $18.6 million in 1999. The Company routinely incurs advertising
costs primarily to support single-seat scheduled service sales and the sale of
air and ground packages. Such expenses were higher in the spring and summer
months of 2000, as advertising support was provided for the introduction of
scheduled service to the new destinations of Boston, Seattle, Washington, D.C.
and Minneapolis-St. Paul. Advertising also increased due to increased marketing
emphasis on commuter and Florida markets in 2000.
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 18.8% to $15.8 million in 2000, as compared to $13.3 million
in 1999. Growth in facilities costs between periods was primarily attributable
to the need to provide facilities at airport locations to support new scheduled
service destinations and expanded services at existing destinations.
Other Operating Expenses. Other operating expenses increased 5.7% to $76.3
million in 2000, as compared to $72.2 million in 1999. The purchase by ATALC of
charter air services from airlines other than the Company was $7.5 million less
in 2000 than in 1999 due to the increased utilization of the Company's own
aircraft for ATALC charter programs. In 1999, the Company incurred $3.1 million
in Chicago Express code share expenses, which were not incurred during any
period in 2000. Other expenses included in this category increased in 2000 as a
general rule with the increase in the Company's flight activity. Expenses
increasing year over year included flight simulator rentals, professional fees,
insurance and supplies. The Company also incurred higher costs associated with
irregular flight operations in 2000, as compared to 1999.
Interest Income and Expense. Interest expense in 2000 increased to $31.5 million
as compared to $21.0 million in 1999. The increase in interest expense between
periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1999 of $75.0 million in principal amount of
10.5% unsecured senior notes. Interest expense of $7.7 million was recorded in
2000, applicable to these notes, which was not incurred in 1999.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $8.4 million in interest income in 2000,
as compared to $5.4 million in 1999, when less cash was available for such
investment.
Other Income. Other income decreased 82.4% to $0.6 million in 2000, as compared
to $3.4 million in 1999. The Company holds a membership interest in the SITA
Foundation ("SITA"), an organization that provides data communication services
to the airline industry. SITA's primary asset is its ownership in Equant N.V.
("Equant"). In February and December 1999, SITA sold a portion of its interest
in Equant in a secondary public offering and distributed the pro rata proceeds
to certain of its members (including the Company) that elected to participate in
the offering. The Company recorded a gain of $1.7 million in the first quarter
of 1999 and a similar gain of $1.3 million in the fourth quarter of 1999.
Income Tax Expense. In 2000, the Company recorded $4.6 million in income tax
credits applicable to $19.9 million of pre-tax loss for that period, while in
1999 income tax expense was $30.5 million on pre-tax income of $77.8 million.
The effective tax rate applicable to credits in 2000 was 23.1%, as compared to
an effective tax rate of 39.2% in 1999.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
certain amounts paid for crew per diem (40% in 2000 and 45% in 1999). The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes is to increase the effective rate as amounts of
pre-tax income decrease and to decrease tax credit otherwise applicable to
pre-tax losses.
Year Ended December 31, 1999, Versus Year Ended December 31, 1998
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
1999 1998 Inc (Dec) % Inc (Dec)
-----------------------------------------------------
Departures Jet 50,207 45,881 4,326 9.43
Departures J31 (a) 17,716 16,388 1,328 8.10
------ ------ ----- ----
Total Departures (b) 67,923 62,269 5,654 9.08
------ ------ ----- ----
Block Hours Jet 157,481 144,237 13,244 9.18
Block Hours J31 17,979 16,166 1,813 11.21
------ ------ ----- -----
Total Block Hours (c) 175,460 160,403 15,057 9.39
------- ------- ------ ----
RPMs Jet (000s) 10,913,081 9,727,097 1,185,984 12.19
RPMs J31 (000s) 35,922 30,991 4,931 15.91
------ ------ ----- -----
Total RPMs (000s) (d) 10,949,003 9,758,088 1,190,915 12.20
---------- --------- --------- -----
ASMs Jet (000s) 15,025,000 13,799,507 1,225,493 8.88
ASMs J31 (000s) 57,630 52,224 5,406 10.35
------ ------ ----- -----
Total ASMs (000s) (e) 15,082,630 13,851,731 1,230,899 8.89
---------- ---------- --------- ----
Load Factor Jet 72.63 70.49 2.14 3.04
Load Factor J31 62.33 59.34 2.99 5.04
----- ----- ---- ----
Total Load Factor (f) 72.59 70.45 2.14 3.04
----- ----- ---- ----
Passengers Enplaned Jet 6,838,339 5,991,662 846,677 14.13
Passengers Enplaned J31 206,304 176,604 29,700 16.82
------- ------- ------ -----
Total Passengers Enplaned (g) 7,044,643 6,168,266 876,377 14.21
--------- --------- ------- -----
Revenue $ (000s) 1,122,366 919,369 202,997 22.08
RASM in cents (h) 7.44 6.64 0.80 12.05
CASM in cents (i) 6.84 6.09 0.75 12.32
Yield in cents (j) 10.25 9.42 0.83 8.81
See footnotes (a) through (j) on pages 19 and 20.
Operating Revenues
Total operating revenues in 1999 increased 22.0% to $1.122 billion from $919.4
million in 1998. This increase was due to a $113.4 million increase in scheduled
service revenues, a $41.2 million increase in commercial charter revenues, a
$35.0 million increase in ground package revenues, a $9.1 million increase in
other revenues and a $4.3 million increase in military/government charter
revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
1999 1998 Inc (Dec) % Inc (Dec)
---------------------------------------------------
Departures Jet 35,402 31,237 4,165 13.33
Departures J31 (a) 17,716 16,388 1,328 8.10
------ ------ ----- ----
Total Departures (b) 53,118 47,625 5,493 11.53
------ ------ ----- -----
Block Hours Jet 104,555 92,263 12,292 13.32
Block Hours J31 17,979 16,166 1,813 11.21
------ ------ ----- -----
Total Block Hours (c) 122,534 108,429 14,105 13.01
------- ------- ------ -----
RPMs Jet (000s) 6,828,181 5,777,555 1,050,626 18.18
RPMs J31 (000s) 35,922 30,991 4,931 15.91
------ ------ ----- -----
Total RPMs (000s) (d) 6,864,103 5,808,546 1,055,557 18.17
--------- --------- --------- -----
ASMs Jet (000s) 8,809,564 7,756,330 1,053,234 13.58
ASMs J31 (000s) 57,630 52,224 5,406 10.35
------ ------ ----- -----
Total ASMs (000s) (e) 8,867,194 7,808,554 1,058,640 13.56
--------- --------- --------- -----
Load Factor Jet 77.51 74.49 3.02 4.05
Load Factor J31 62.33 59.34 2.99 5.04
----- ----- ---- ----
Total Load Factor (f) 77.41 74.39 3.02 4.06
----- ----- ---- ----
Passengers Enplaned Jet 4,878,643 4,094,454 784,189 19.15
Passengers Enplaned J31 206,304 176,604 29,700 16.82
------- ------- ------ -----
Total Passengers Enplaned (g) 5,084,947 4,271,058 813,889 19.06
--------- --------- ------- -----
Revenue $ (000s) 624,647 511,254 113,393 22.18
RASM in cents (h) 7.04 6.55 0.49 7.48
Yield in cents (j) 9.10 8.80 0.30 3.41
Revenue per segment $ (k) 122.84 119.70 3.14 2.62
See footnotes (a) through (j) on pages 19 and 20. See footnote (k) on page 21.
Scheduled service revenues in 1999 increased 22.2% to $624.6 million from $511.3
million in 1998. Scheduled service revenues comprised 55.7% of consolidated
revenues in 1999, as compared to 55.6% of consolidated revenues in 1998.
The Company's scheduled service at Chicago-Midway accounted for approximately
56.7% of scheduled service ASMs and 77.2% of scheduled service departures in
1999, as compared to 53.4% and 73.5%, respectively, during 1998. During 1998,
the Company began nonstop service to New York's LaGuardia Airport, Dallas-Ft.
Worth and Denver, which continued throughout 1999. During 1999, the Company
began nonstop service to Philadelphia, which was not served during 1998. In
addition to these new services, the Company served the following existing jet
markets in both years: Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles,
New York's John F. Kennedy International Airport, Orlando, Phoenix, St. Peters-
burg, San Francisco and Sarasota. The Company's operations at Chicago-Midway
continued to be the fastest growing portion of its scheduled service business
in 1999. The Company operated a peak schedule of 67 daily jet and commuter
departures from Chicago-Midway and served 22 destinations on a nonstop basis in
the summer of 1999, as compared to 57 peak daily departures and 21 nonstop
destinations served in the summer of 1998. In 1998, the Company completed a
$1.7 million renovation of the existing terminal facilities at Chicago-Midway
to enhance their attractiveness and convenience for its customers.
The Company's Hawaii service accounted for 18.5% of scheduled service ASMs and
4.7% of scheduled service departures in 1999, as compared to 21.3% and 5.4%,
respectively, in 1998. The Company provided nonstop services in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui.
The Company's Indianapolis service accounted for 14.0% of scheduled service ASMs
and 10.8% of scheduled service departures in 1999, as compared to 16.1% and
12.7%, respectively, in 1998. In 1999 and 1998, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, St.
Petersburg, San Francisco and Sarasota.
On June 9, 1999, nonstop service commenced between Ft. Lauderdale and San Juan,
Puerto Rico, and on June 16, 1999, nonstop service was begun between New York's
John F. Kennedy International Airport and San Juan. Between June and September
1999, the Company operated seasonal service between New York's John F. Kennedy
International Airport and Dublin and Shannon, Ireland.
Commercial Charter Revenues. Commercial charter revenues accounted for 23.5% of
consolidated revenues in 1999, as compared to 24.2% in 1998. The following table
sets forth, for the periods indicated, certain key operating and financial data
for the commercial charter operations of the Company.
Twelve Months Ended December 31,
1999 1998 Inc (Dec) % Inc (Dec)
---------------------------------------------------
Departures (b) 10,212 9,602 610 6.35
Block Hours (c) 37,119 33,516 3,603 10.75
RPMs (000s) (d) 3,253,165 3,009,638 243,527 8.09
ASMs (000s) (e) 4,129,966 3,882,202 247,764 6.38
Passengers Enplaned (g) 1,753,237 1,617,901 135,336 8.36
Revenue $ (000s) 263,766 222,571 41,195 18.51
RASM in cents (h) 6.39 5.73 0.66 11.52
RASM less fuel escalation (l) 6.35 5.73 0.62 10.82
See footnotes (b) through (h) on pages 19 and 20. See footnote (l) on page 23.
Track charter accounted for approximately $193.8 million in revenues in 1999, as
compared to $176.4 million in 1998. Specialty charter accounted for
approximately $40.0 million in revenues in 1999, as compared to $35.1 million in
1998.
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
Twelve Months Ended December 31,
1999 1998 Inc (Dec) % Inc (Dec)
----------------------------------------------------
Departures (b) 4,444 4,447 (3) (0.07)
Block Hours (c) 15,354 16,389 (1,035) (6.32)
RPMs (000s) (d) 818,627 821,813 (3,186) (0.39)
ASMs (000s) (e) 2,027,471 1,963,069 64,402 3.28
Passengers Enplaned (g) 199,013 205,641 (6,628) (3.22)
Revenue $ (000s) 126,213 121,911 4,302 3.53
RASM in cents (h) 6.23 6.21 0.02 0.32
RASM less fuel escalation (m) 6.21 6.35 (0.14) (2.20)
See footnotes (b) through (h) on pages 19 and 20. See footnote (m) on page 24.
Ground Package Revenues. In 1999, ground package revenues increased 150.9% to
$58.2 million, as compared to $23.2 million in 1998.
Effective January 31, 1999, the Company completed the acquisition of Travel
Charter International ("TCI") in Detroit, Michigan (see "Financial Statements
and Supplementary Data Notes to Consolidated Financial Statements - Note 13 -
Acquisition of Businesses.") TCI provides tour packages, including ground
arrangements, primarily to Mexican, Caribbean and Central American destinations
during the winter season, and to Europe in the summer. Prior to the acquisition,
the Company had a relationship with TCI as a major provider of passenger airline
services for over 14 years. Approximately $15.6 million of the increase in
ground package revenues was attributable to the incremental ground package
revenues of TCI, none of which were included in the Company's results of
operations in 1998.
Effective April 30, 1999, the Company completed the purchase of Key Tours, Inc.
and affiliated companies, also a tour operator serving the Detroit metropolitan
area (see "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - Note 13 - Acquisition of Businesses.") Key Tours provides
tour packages, including ground arrangements, to such leisure destinations as
Las Vegas and Florida. The Company has had a relationship with Key Tours as a
major provider of passenger airline services for over 15 years. Approximately
$16.6 million of the increase in ground package revenues was attributable to the
incremental ground package revenues of Key Tours, none of which were included in
the Company's results of operations in 1998.
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 22.8% to $49.6 million during 1999, as compared to $40.4
million in 1998. The Company's other revenues increased primarily due to higher
revenues earned in non-passenger airline businesses, especially cargo revenues
which increased approximately $6.5 million, largely due to the acquisition of
the remaining 50% of the Amber Air Freight partnership at the beginning of 1999
(see "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - Note 13 - Acquisition of Businesses").
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits expense in 1999
increased 19.5% to $252.6 million, as compared to $211.3 million in 1998.
The Company increased its average equivalent employees by approximately 14.8% in
1999, as compared to 1998, in order to appropriately staff the Company's growth
between periods. This growth was most significant in categories of employees,
which are influenced directly by flight activity. Some employment growth in 1999
was also provided to improve customer service in targeted areas, such as at
airport ticket counters, in reservations and in other departments primarily
involved in delivering services to the Company's customers. The Company also
recorded $6.7 million in additional salaries, wages and benefits in 1999
attributable to new companies acquired. The average rate of pay earned by the
Company's employees (including all categories of salaries, wages and benefits)
increased by approximately 4.1% in 1999 as compared to 1998.
In 1999, the Company recorded $6.4 million in variable compensation and related
payroll taxes as compared to 1998, when $8.9 million in such compensation was
recorded. The Company's variable compensation plans in both 1999 and 1998 paid
significant cash awards to employees as a result of the achievement of specific
profitability targets.
Fuel and Oil. Fuel and oil expense increased 24.4% to $170.9 million in 1999, as
compared to $137.4 million in 1998. The Company consumed 11.3% more gallons of
jet fuel for flying operations between years, which resulted in an increase in
fuel expense of approximately $15.0 million. Jet fuel consumption increased
primarily due to the increased number of block hours of jet flying operations
between periods. The Company flew 157,481 jet block hours in 1999, as compared
to 144,237 jet block hours in 1998, an increase of 9.2% between years.
During 1999, the Company's average cost per gallon of jet fuel consumed
increased by 12.0% as compared to 1998, resulting in an increase in fuel and oil
expense of approximately $18.0 million between years. This increase in fuel
price was experienced generally in the airline industry as a result of
significant increases in average crude oil and distillate market prices, as
compared to 1998, particularly in the last two quarters of 1999.
The Company entered into fuel price hedge contracts during 1998 and the first
six months of 1999 under which the Company sought to reduce the risk of fuel
price increases. These hedges impacted fuel and oil expense by 1.8% and 1.2% in
1999 and 1998, respectively.
Depreciation and Amortization. Depreciation and amortization expense increased
22.0% to $96.0 million in 1999, as compared to $78.7 million in 1998. The
Company recorded goodwill amortization expense of $0.9 million in 1999 due to
the acquisition of new businesses, which was not incurred in 1998.
Depreciation expense attributable to owned engines, airframes and leasehold
improvements increased $9.0 million in 1999, as compared to 1998. The Company
purchased nine Boeing 727-200 aircraft in 1999, which had been previously
financed through operating leases, thereby increasing depreciation expense on
engines and airframes between years. The Company recorded a reduction in
aircraft rental expense between periods for the termination of operating leases
for these aircraft, which is further described below under "Aircraft Rentals."
The Company also placed four Lockheed L-1011-500 owned aircraft into service in
1999, none of which were owned in 1998. The Company also increased its
investment in rotable parts and computer hardware and software, among other
items of property and equipment, resulting in an increase in depreciation
expense of $6.6 million in 1999, as compared to 1998.
Amortization of capitalized engine and airframe overhauls increased $9.7 million
in 1999, as compared to 1998, after including the offsetting amortization
associated with manufacturers' credits. Changes to the cost of overhaul
amortization were partly due to the increase in total block hours and cycles
flown between comparable periods for the Boeing 727-200 and Lockheed L-1011
fleets since such expense varies with that activity, and partly due to the
completion of more engine and airframe overhauls between periods for these fleet
types. Rolls-Royce-powered Boeing 757-200 aircraft, nine of which were delivered
new from the manufacturer between late 1995 and late 1999, are not presently
generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under the Company's
maintenance programs.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs decreased $2.3 million in
1999, as compared to 1998. When these early engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.
As is more fully explained in Note 12 to the Consolidated Financial Statements,
certain changes in accounting estimates for depreciation have been made by the
Company. Effective July 1, 1998, the Company extended the estimated useful life
of the 13 owned Lockheed L-1011-50 and 100 aircraft to a common retirement date
of December 2004, and also reduced the estimated salvage value of the related
airframes, engines and rotables. This change in estimate reduced depreciation
expense in 1999 by $2.0 million, as compared to 1998. In addition, effective
January 1, 1999, the Company extended the estimated useful lives of capitalized
Boeing 727-200 airframes, engines and improvements, all leasehold improvements,
and all rotable parts associated with this fleet, and reduced the associated
estimated salvage values. The effect of this change in estimate was to reduce
depreciation expense in 1999 by $4.6 million, as compared to 1998.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 19.7% to $89.3 million in 1999, as compared to $74.6 million in
1998. The total number of system-wide jet departures between 1999 and 1998
increased by 9.4% to 50,207 from 45,881, resulting in approximately $6.8 million
in volume-related handling and landing expense increases between periods. Many
of these departures were to destinations with significantly higher handling
costs and landing fees, and proportionately more such departures were made by
wide-body L-1011 aircraft, which incur higher handling and landing costs per
departure. These price and departure mix variances resulted in $4.7 million more
handling and landing costs in 1999 than in 1998. The Company incurred
approximately $1.1 million in higher deicing costs in 1999, as compared with
1998, attributable to the impact of more winter weather on flight operations in
1999 than in 1998. Additionally, the Company recorded approximately $1.4 million
in higher cargo handling expenses in 1999, as compared to 1998, due to the
acquisition of T.G. Shown Associates, Inc. in January 1999.
Aircraft Rentals. Aircraft rentals expense for 1999 increased 10.5% to $58.7
million from $53.1 million in 1998. The Company financed four and refinanced one
additional Boeing 757-200 aircraft in 1999 with operating leases, including two
aircraft delivered new from the manufacturer at the end of 1998, and two others
delivered in October and November 1999, increasing aircraft rentals expense by
$12.5 million in 1999, as compared to 1998. The Company also owned nine Boeing
727-200 aircraft during most of 1999, which had been financed through operating
leases during most of 1998, thereby reducing aircraft rentals expense by $6.9
million between years.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and
repairs expense increased 3.5% to $55.6 million in 1999, as compared to $53.7
million in 1998. The Company expensed a total of 53 maintenance checks on its
fleet during 1999, as compared to 51 in 1998. The cost of materials consumed and
components repaired in association with such checks and other maintenance
activity increased by $2.3 million between 1999 and 1998.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 19.5% to $49.7 million in 1999, as compared to $41.6 million in 1998.
During 1999, the Company's average full-time-equivalent cockpit and cabin crew
employment was 9.7% higher than in 1998, while jet block hours flown increased
by 9.2% between the same periods. The Company also experienced lower utilization
of crewmembers due to the increase in military business. The average cost of
hotel rooms per full-time-equivalent crewmember increased 17.6% in 1999, as
compared to 1998. Such hotel costs increased primarily due to higher room rates
paid in 1999.
Ground Package Cost. Ground package cost increased 151.3% to $49.0 million in
1999, as compared to $19.5 million in 1998. Approximately $27.3 million of this
increase was attributable to the operations of Travel Charter and Key Tours in
1999, none of which costs were incurred in 1998.
Passenger Service. For 1999 and 1998, catering represented 82.0% and 84.1%,
respectively, of total passenger service expense. The total cost of passenger
service increased 15.3% to $39.2 million in 1999, as compared to $34.0 million
in 1998. The Company experienced a decrease of approximately 2.7% in the average
unit cost of catering each passenger between years, primarily because in 1999
there were relatively more scheduled service passengers in the Company's
business mix, who are provided a less-expensive catering product than the
Company's longer-stage-length commercial and military/government charter
passengers. This resulted in a price-and-business-mix reduction of $1.0 million
in catering expense in 1999, as compared to 1998. Total jet passengers boarded,
however, increased 14.1% between years, resulting in approximately $3.9 million
in higher volume-related catering expenses between the same sets of comparative
periods.
Commissions. Commissions expense increased 37.2% to $39.1 million in 1999, as
compared to $28.5 million in 1998. Approximately $7.5 million of the increase in
commissions in 1999, as compared to 1998, was attributable to commissions paid
to travel agents by Travel Charter and Key Tours, which were acquired during the
first half of 1999. Such commissions were not included in the Company's results
of operations in 1998.
Scheduled service commissions expense increased by $2.8 million between 1999 and
1998, due to the corresponding increase in commissionable revenues earned
between periods. The Company experienced a decrease in fourth quarter 1999
commission expenses due to an industry decrease in travel agency commissions
paid from 8.0% to 5.0%.
Other Selling Expenses. Other selling expenses increased 27.1% to $28.1 million
in 1999, as compared to $22.1 million in 1998. Scheduled service passengers
boarded increased 19.1% between the same periods. All such selling expenses
increased due to growth in the scheduled service and tour operator business
units between periods.
Advertising. Advertising expense increased 4.5% to $18.6 million in 1999, as
compared to $17.8 million in 1998. The Company incurs advertising costs
primarily to support single-seat scheduled service sales and the sale of
air-and-ground packages. Advertising support for these lines of businesses was
increased in 1999, consistent with the Company's overall strategy to enhance
scheduled service RASM through increases in load factor and yield.
Facilities and Other Rentals. The cost of facilities and other rentals increased
40.0% to $13.3 million in 1999, as compared to $9.5 million in 1998.
Approximately $1.7 million of the growth in facilities costs between periods was
attributable to the need to provide facilities at airport locations to support
new scheduled service destinations and expanded services at existing
destinations. Facility costs also increased $0.8 million as a result of the
acquisition of new businesses.
Other Operating Expenses. Other operating expenses increased 16.1% to $72.2
million in 1999, as compared to $62.2 million in 1998. Other operating expenses
increased primarily due to the cost of passenger air transportation purchased by
Travel Charter and Key Tours from air carriers other than the Company during
1999, none of which was included in the Company's 1998 results of operation.
Interest Income and Expense. Interest expense in 1999 increased to $21.0
million, as compared to $12.8 million in 1998. The increase in interest expense
between periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1998 of $125.0 million in principal amount
of 9.625% unsecured senior notes. In December 1999, the Company completed an
additional sale of $75.0 million principal amount of 10.5% unsecured senior
notes. Interest expense of $11.5 million was recorded in 1999 for these notes,
which was not incurred in 1998.
The interest expense increase in 1999 was partially offset by $1.7 million due
to more interest being capitalized primarily on Boeing 757-200 and Lockheed
L-1011-500 fleet acquisitions, and $2.3 million due to the repayment of a note
payable secured by a Boeing 757-200 aircraft, which had been outstanding during
1998.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $5.4 million in interest income in 1999,
as compared to $4.4 million in 1998.
Other Non-Operating Income. The Company holds a membership interest in the SITA
Foundation ("SITA"), an organization that provides data communication services
to the airline industry. SITA's primary asset is its ownership in Equant N.V.
("Equant"). In February and December 1999, SITA sold a portion of its interest
in Equant in a secondary public offering and distributed the pro rata proceeds
to certain of its members (including Amtran, Inc.) that elected to participate
in the offering. The Company recorded a gain on the sale of Equant shares of
$1.7 million in the first quarter of 1999 and a similar gain of $1.3 million in
the fourth quarter of 1999.
Income Tax Expense. In 1999, the Company recorded $30.5 million in income tax
expense applicable to $77.8 million of pre-tax income for that period, while in
1998, income tax expense was $27.1 million on pre-tax income of $67.2 million.
The effective tax rate applicable to 1999 was 39.2%, as compared to 40.4% in
1998.
Liquidity and Capital Resources
Cash Flows. In 2000, 1999 and 1998, the net cash provided by operating
activities was $111.7 million, $152.7 million and $151.5 million, respectively.
The decrease in cash provided by operating activities between 1999 and 2000 was
primarily attributable to lower earnings, partially offset by higher
depreciation and amortization charges.
Net cash used in investing activities was $290.8 million, $305.7 million and
$142.4 million, respectively, in the years ended December 31, 2000, 1999 and
1998. Such amounts primarily included capital expenditures totaling $263.5
million, $274.3 million and $175.4 million, respectively, for aircraft purchases
and pre-delivery deposits, engine and airframe overhauls, airframe improvements,
hushkit installations and the purchase of rotable parts. The Company recorded
$144.2 million and $20.4 million in 2000 and 1999, respectively, for deposits
applicable to aircraft scheduled for future delivery. In 1999, the Company
recorded $74.2 million in capital expenditures related to the purchase and
modification of five L-1011-500 aircraft and $41.5 million for the purchase of
nine Boeing 727-200 aircraft that were previously leased.
Net cash provided by financing activities for the year ended December 31, 2000,
1999 and 1998, was $188.1 million, $100.3 million and $59.6 million,
respectively. In all years, cash provided by financing activities was primarily
attributable to proceeds from long-term debt, which in 2000 consisted primarily
of $89.9 million in aircraft deposit finance facilities, $23.0 million in notes
collateralized by two L-1011-500 aircraft and a $10.0 million mortgage secured
by the Company's Indianapolis maintenance facility, and in 1999 consisted
primarily of $75.0 million principal amount of unsecured senior notes, a $17.0
million special facility revenue bond and a $7.9 million note payable. In 1998,
proceeds from long-term debt were comprised primarily of $125.0 million
principal amount of unsecured senior notes and a $6.0 million special facility
revenue bond. Also contributing to cash provided by financing activities were
proceeds from the sale/leaseback of several new aircraft of $10.8 million, $6.9
million and $0.4 million in 2000, 1999 and 1998, respectively. In 2000, cash
provided by financing activities also included the sale of $80.0 million of
redeemable preferred stock. These cash inflows were offset by treasury stock
purchases of $14.1 million, $8.6 million and $0.1 million in 2000, 1999 and
1998, respectively. Cash inflows were also offset by payments on long-term debt
of $14.0 million in 2000 for scheduled monthly installment payments and the
repayment of an advance from the City of Indianapolis obtained in 1995 and $1.6
million for scheduled monthly installment payments in 1999. In 1998, payments on
long-term debt consisted primarily of a $34.0 million repayment of the bank
credit facility, a $30.0 million repayment of a note payable and $7.5 million
for other repayments.
Aircraft and Fleet Transactions. On May 4, 2000, the Company announced a series
of preliminary agreements to obtain 39 Boeing 737-800 aircraft and ten Boeing
757-300 aircraft, as well as engines to power the aircraft. The Boeing 737-800
aircraft will be powered by General Electric CFM56-7B27 engines, and the Boeing
757-300 aircraft will be powered by Rolls-Royce RB211-535 E4C engines. During
the second half of the year, the Company converted most of the preliminary
agreements into firm commitments.
On June 30, 2000, the Company signed a purchase agreement with the Boeing
Company to purchase the ten new Boeing 757-300s and 20 of the new Boeing
737-800s. The aircraft will be obtained directly from Boeing. The manufacturer's
list price is $73.1 million for each 757-300 and $52.4 million for each 737-800,
subject to escalation. The Company's purchase price for each aircraft is subject
to various discounts. The deliveries of the aircraft are scheduled between June
2001 and April 2003. Advance payments are required for these purchases, and,
during 2000, the Company funded these advance deposits through aircraft deposit
finance facilities and the sale of preferred stock. As of December 31, 2000, the
Company had made $136.9 million in advanced payments for these aircraft.
On September 20, 2000, the Company signed an agreement to lease 14 of the new
Boeing 737-800s from International Lease Finance Corporation ("ILFC"). In
conjunction with this agreement, the Company also committed to the purchase of
two spare General Electric aircraft engines, which will also be funded through
lease financing from ILFC. The aircraft under this lease agreement are scheduled
for delivery between May 2001 and May 2004, while the spare engines are
scheduled for delivery in 2001.
On December 6, 2000, the Company signed an agreement to lease five of the new
Boeing 737-800s from GE Capital Aviation Services. The aircraft under this lease
agreement are scheduled for delivery from July 2001 through July 2002.
In connection with the new aircraft orders, the Company is negotiating with BCC
on a structure for the creation of a limited liability company ("LLC") to
remarket the Company's Boeing 727-200 aircraft in both passenger and cargo
configurations. In exchange for supplying the aircraft and certain operating
services to this joint venture, the Company expects to receive both cash and
equity in the LLC. The Company expects that BCC will provide the marketing
expertise and capital for cargo conversions.
In 1994, the Company signed a purchase agreement for six new Boeing 757-200s
that, as subsequently amended, provided for 13 total aircraft to be delivered
between 1995 and 2000. As of December 31, 2000, the Company had accepted
delivery of all of the aircraft under these agreements. The final two deliveries
occurred in November 2000. The Company financed these aircraft through
sale/leaseback transactions accounted for as operating leases.
In January 2000, Chicago Express Airlines, Inc., a wholly owned subsidiary of
Amtran, entered into an agreement to purchase nine Saab 340B aircraft, including
spare engines, spare parts and crew training, for an aggregate purchase price of
approximately $30.0 million. These aircraft were placed into service throughout
2000 in conjunction with the retirement of their fleet of Jetstream J31s, all of
which were leased. As of December 31, 2000, Chicago Express had taken delivery
of all nine of these aircraft, all of which have been placed into revenue
service, and financed them through sale/leaseback transactions accounted for as
operating leases.
Between the third quarter of 1998 and the fourth quarter of 1999, the Company
accepted delivery of five L-1011-500 aircraft, which are powered by Rolls-Royce
RB211-524B4-02 engines. Upon delivery of each aircraft, the Company completed
certain modifications and improvements to the airframes and interiors in order
to qualify them to operate in a standard coach-seating configuration of 307
seats. Modifications were completed on all aircraft, the last of which was
placed into service in the first quarter of 2000. The total cost of the five
aircraft, together with spare engines and spare parts, was approximately $100.0
million. The Company financed these aircraft through the issuance of unsecured
notes and secured equipment debt.
Significant Financings. In July 1997, the Company sold $100.0 million principal
amount of 10.5% unsecured senior notes. In December 1999, the Company sold an
additional $75.0 million principal amount of 10.5% unsecured senior notes. The
$75.0 million in notes sold in 1999 were issued as a private placement under
Rule 144A. The Company subsequently completed an exchange offer under which
registered notes of equal value were issued to holders of the original notes.
In December 1998, the Company sold $125.0 million principal amount of 9.625%
unsecured senior notes in a public offering.
In the second quarter of 1999, the Company completed the construction of a
120,000 square foot Maintenance and Operations Center immediately adjacent to
the Company's maintenance hangar at Indianapolis International Airport. The
Company financed this facility with an $8.0 million loan secured by a 15-year
mortgage on the facility.
In December 1999, ATA issued $17.0 million of special facility revenue bonds to
finance the construction of certain facilities at Chicago-Midway Airport. The
bonds are payable from and secured by an assignment of special facility
revenues, including certain of the City of Chicago's rights under a special
facility financing agreement between the City of Chicago and the Company. The
Company guarantees payment on the bonds. Construction of this facility is
currently in progress and is expected to be completed by the end of 2001.
In December 1999, the Company amended its revolving credit facility to provide
for maximum borrowings of $100.0 million, including up to $50.0 million for
stand-by letters of credit. The facility matures January 2, 2003, and borrowings
under the facility bear interest, at the option of ATA, at either LIBOR plus a
margin or the agent bank's prime rate. This facility is subject to certain
restrictive covenants and is collateralized by certain L-1011-50, L-1011-100 and
Boeing 727-200 aircraft. As of December 31, 2000, there were no borrowings under
the facility.
On February 22, 2000, the Company borrowed $11.5 million, and in September 2000,
the Company borrowed an additional $11.5 million. Each five-year note reflecting
these borrowings is collateralized by one Lockheed L-1011-500 aircraft.
On September 29, 2000, the Company obtained a $10.0 million, 14-year loan,
secured by a mortgage on its maintenance facility at the Indianapolis
International Airport. The proceeds of the loan were used to repay an advance
received from the City of Indianapolis, in December 1995, that resulted from the
sale/leaseback of the facility.
In December 2000, the Company entered into three finance facilities, with Banca
Commerciale Italiana, General Electric Capital Corporation and Rolls Royce, to
fund pre-delivery deposits on new Boeing 757-300 and Boeing 737-800 aircraft.
These facilities provide for up to $173.2 million in aircraft deposit funding,
and, as of December 31, 2000, the Company had borrowed $89.9 million against
these three facilities, of which $75.6 million has been classified as a current
liability because the amounts are payable upon delivery of aircraft in 2001. The
remaining $14.3 million has been classified as a long-term liability because the
Company has obtained a commitment for lease financing upon delivery of the
aircraft. Interest on the facilities is payable monthly.
As described under "Market for the Registrant's Common Stock and Related
Security Holder Matters," on September 20, 2000, the Company issued and sold 300
shares of Series B Preferred to ILFC. For additional details with respect to the
issuance and sale of the Series B Preferred, see "Market for the Registrant's
Common Stock and Related Security Holder Matters" and "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 9 -
Preferred Stock."
As described under "Market for the Registrant's Common Stock and Related
Security Holder Matters," on December 28, 2000, the Company issued and sold 500
shares of Series A Preferred to BCC. For additional details with respect to the
issuance and sale of the Series A Preferred, see "Market for the Registrant's
Common Stock and Related Security Holder Matters" and "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 9 -
Preferred Stock."
The proceeds from the issuance and sale of the Series A Preferred and the Series
B Preferred were used to finance aircraft deposits on the Boeing 757-300 and
Boeing 737-800 aircraft.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as subsequently amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement 133, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities. These accounting
standards are effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, requiring that all derivatives be recognized as either assets or
liabilities at fair value. The Company has evaluated the new accounting
standards and will adopt them in the first quarter of 2001. The Company has
engaged in certain fuel hedging activities beginning in the third quarter of
2000, which will be subject to the accounting and disclosure provisions of SFAS
No. 133, as amended. The adoption of this statement will not have a material
effect on the Company's financial statements.
Forward-Looking Information
Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking information which
can be identified by forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "anticipates," or the negative thereof, or other
variations in comparable terminology. Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences between expected outcomes and actual results may be material,
depending upon the circumstances. Where the Company expresses an expectation or
belief as to future results in any forward-looking information, such expectation
or belief is expressed in good faith and is believed to have a reasonable basis.
The Company can provide no assurance that the statement of expectation or belief
will result or will be achieved or accomplished.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different from
those expected. Such factors include, but are not limited to, the following:
o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation and regulation;
o consumer perceptions of the Company's products;
o demand for air transportation in markets in which the Company operates; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the Securities and Exchange Commission.
The Company does not undertake to update its forward-looking statements to
reflect future events or circumstances.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including commodity price risk
resulting from aircraft fuel price fluctuations and interest rate risk. The
adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate the Company's exposure to such changes.
See the notes to consolidated financial statements for a description of the
Company's accounting policies and other information related to these financial
instruments.
Aircraft Fuel. The Company's results of operations are significantly impacted by
changes in the price of aircraft fuel. During 2000, aircraft fuel accounted for
approximately 21.3% of the Company's operating expenses, compared to 16.6% in
1999. In addition to purchasing fuel-hedging contracts, the Company obtains fuel
price fluctuation protection from escalation clauses in certain commercial
charter, military charter, bulk scheduled service and mail contracts.
During 1999 and 2000, the Company entered into fuel hedge contracts to reduce
the volatility of fuel prices. During early 1999, the company hedged fuel using
swap agreements, which establish specific swap prices for designated periods,
and fuel cap agreements, which guarantee a maximum price per gallon for
designated periods. As of December 31, 1999, however, the Company had no fuel
hedge contracts in effect. During 2000, the Company again began entering into
fuel hedge contracts, this time exclusively hedging fuel price using heating oil
swaps. As of December 31, 2000, the Company had outstanding fuel hedge
agreements totaling 13.6 million gallons, or 4.8% of the Company's projected
aircraft fuel requirements for 2001.
The following table depicts the estimated fair values the Company would pay or
receive on December 31, 2000, had the contracts been terminated on that date,
based on a comparison of the average contract rate to the estimated forward
prices of heating oil as of December 31, 2000.
Estimated Fair
Notional Amount Average Contract Values
(in Gallons) Rate per Gallon (Pay)/Receive
---------------------------------------------------------
Swap Contracts - Heating Oil 13,608,000 $0.8175 ($528,999)
Interest Rates. The Company's results of operations are affected by fluctuations
in market interest rates. As of December 31, 2000, the Company has approximately
$71.5 million of variable-rate debt available through a revolving credit
facility. In 2001, the Company does not expect to incur significant borrowings
under the facility, so the risk of exposure to market interest rate fluctuations
is not significant.
As of December 31, 2000, the Company had fixed-rate unsecured debt with a
carrying value of $300 million. Based upon discounted future cash flows using
current incremental borrowing rates for similar types of instruments, the fair
value of the fixed-rate debt is estimated at approximately $303.7 million.
Market risk, estimated as the potential decrease in fair value resulting from a
hypothetical 1.0% decrease in interest rates, was approximately $14.5 million as
of December 31, 2000. As of December 31, 1999, that risk was approximately $7.5
million.
If 2001 average short-term interest rates decreased by 1.0% as compared to 2000
average rates, the Company's projected interest income from short-term
investments would decrease by approximately $1.5 million during 2001.
PART II - Continued
Item 8. Financial Statements and Supplementary Data
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Amtran, Inc.
We have audited the accompanying consolidated balance sheets of Amtran, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amtran, Inc. and
subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth herein.
/S/ERNST & YOUNG LLP
Indianapolis, Indiana
January 23, 2001
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
2000 1999
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 129,137 $ 120,164
Receivables, net of allowance for doubtful accounts
(2000 - $1,191; 1999 - $1,511) .............................. 56,605 52,099
Inventories, net ............................................ 49,055 36,686
Prepaid expenses and other current assets ................... 25,411 22,945
------ ------
Total current assets ............................................. 260,208 231,894
Property and equipment:
Flight equipment ............................................ 962,906 781,171
Facilities and ground equipment ............................. 111,825 92,060
------- ------
1,074,731 873,231
Accumulated depreciation .................................... (412,685) (361,399)
-------- --------
662,046 511,832
Goodwill ......................................................... 22,858 23,453
Deposits and other assets ........................................ 87,318 48,102
------ ------
Total assets ..................................................... $ 1,032,430 $ 815,281
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ......................... $ 82,476 $ 2,079
Accounts payable ............................................. 10,066 20,234
Air traffic liabilities ...................................... 107,050 93,507
Accrued expenses ............................................. 147,095 126,180
------- -------
Total current liabilities ........................................ 346,687 242,000
Long-term debt, less current maturities .......................... 375,473 345,792
Deferred income taxes ............................................ 54,503 58,493
Other deferred items ............................................. 51,113 17,620
------ ------
Total liabilities ................................................ 827,776 663,905
Redeemable preferred stock; authorized and issued 800 shares 80,000 --
Shareholders' equity:
Preferred stock; authorized 9,999,200 shares; none issued...... -- --
Common stock, without par value; authorized 30,000,000 shares;
issued 13,082,118 - 2000; 12,884,306 - 1999 ............... 59,012 55,826
Treasury stock; 1,696,355 shares - 2000; 612,052 shares - 1999 (24,564) (10,500)
Additional paid-in-capital ................................... 12,232 12,910
Retained earnings ............................................ 77,974 93,673
Deferred compensation - ESOP ................................. -- (533)
----
Total shareholders' equity ....................................... 124,654 151,376
------- -------
Total liabilities and shareholders' equity ....................... $ 1,032,430 $ 815,281
=========== ===========
See accompanying notes.
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31,
2000 1999 1998
------------------------------------------
Operating revenues:
Scheduled service.............................................. $ 753,301 $ 624,647 $ 511,254
Charter........................................................ 435,262 389,979 344,482
Ground package................................................. 59,848 58,173 23,186
Other.......................................................... 43,142 49,567 40,447
------ ------ ------
Total operating revenues.......................................... 1,291,553 1,122,366 919,369
--------- --------- -------
Operating expenses:
Salaries, wages and benefits................................... 297,012 252,595 211,304
Fuel and oil................................................... 274,820 170,916 137,401
Depreciation and amortization.................................. 125,041 96,038 78,665
Handling, landing and navigation fees.......................... 97,414 89,302 74,640
Aircraft rentals............................................... 72,145 58,653 53,128
Aircraft maintenance, materials and repairs.................... 70,432 55,645 53,655
Crew and other employee travel................................. 65,758 49,707 41,565
Ground package cost............................................ 50,903 49,032 19,466
Passenger service.............................................. 45,571 39,231 34,031
Commissions.................................................... 39,065 39,050 28,483
Other selling expenses......................................... 36,650 28,099 22,147
Advertising.................................................... 22,016 18,597 17,772
Facilities and other rentals................................... 15,817 13,318 9,536
Other.......................................................... 76,339 72,156 62,203
------ ------ ------
Total operating expenses.......................................... 1,288,983 1,032,339 843,996
--------- --------- -------
Operating income.................................................. 2,570 90,027 75,373
Other income (expense):
Interest income................................................. 8,389 5,375 4,433
Interest expense................................................ (31,452) (20,966) (12,808)
Other........................................................... 562 3,361 212
--- ----- ---
Other expenses.................................................... (22,501) (12,230) (8,163)
------- ------- ------
Income (loss) before income taxes and preferred stock dividends... (19,931) 77,797 67,210
Income taxes (credit)............................................. (4,607) 30,455 27,129
------ ------ ------
Net income (loss)................................................. (15,324) 47,342 40,081
Preferred dividends............................................... (375) - -
----
Income (loss) available to common shareholders.................... $ (15,699) $ 47,342 $ 40,081
========== =========== ==========
Basic earnings per common share:
Average shares outstanding........................................ 11,956,532 12,269,474 11,739,106
Net income (loss) per common share................................ $ (1.31) $ 3.86 $ 3.41
========== =========== ==========
Diluted earnings per common share:
Average shares outstanding........................................ 11,956,532 13,469,537 13,066,222
Net income (loss) per common share................................ $ (1.31) $ 3.51 $ 3.07
========== =========== ==========
See accompanying notes.
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(Dollars in thousands)
Redeemable Additional Deferred
Preferred Common Treasury Paid-in Retained Comp
Stock Stock Stock Capital Earnings ESOP
------------------------------------------------------------------------------
Balance, December 31, 1997 .............. $ -- $ 38,760 $ (1,760) $ 15,340 $ 6,250 $ (1,600)
Net income ........................... -- -- -- -- 40,081 --
Issuance of common stock for ESOP .... -- -- -- (257) -- 534
Restricted stock grants .............. -- 147 -- (66) -- --
Stock options exercised .............. -- 8,725 -- (4,089) -- --
Purchase of 8,506 shares of treasury
stock................................. -- -- (121) -- -- --
Disqualifying disposition of stock ... -- -- -- 807 -- --
---
Balance, December 31, 1998 .............. 0 47,632 (1,881) 11,735 46,331 (1,066)
- ------ ------ ------ ------ ------
Net income ........................... -- -- -- -- 47,342 --
Issuance of common stock for ESOP .... -- -- -- 37 -- 533
Restricted stock grants .............. -- 32 -- (10) -- --
Stock options exercised .............. -- 6,897 -- (3,207) -- --
Purchase of 418,546 shares of
treasury stock ....................... -- -- (8,619) -- -- --
Disqualifying disposition of stock ... -- -- -- 3,887 -- --
Acquisition of businesses ............ -- 1,265 -- 468 -- --
----- ---
Balance, December 31, 1999 .............. 0 55,826 (10,500) 12,910 93,673 (533)
- ------ ------- ------ ------ ----
Net loss ............................. -- -- -- -- (15,699) --
Issuance of redeemable preferred stock 80,000 -- -- -- -- --
Issuance of common stock for ESOP .... -- -- -- 276 -- 533
Restricted stock grants .............. -- 67 (14) 17 -- --
Stock options exercised .............. -- 2,937 -- (1,356) -- --
Purchase of 1,084,303 shares of
treasury stock ....................... -- -- (14,050) -- -- --
Disqualifying disposition of stock ... -- -- -- 411 -- --
Acquisition of businesses ............ -- 182 -- (26) -- --
--- ---
Balance, December 31, 2000 .............. $80,000 $59,012 $(24,564) $12,232 $77,974 $0
====== ====== ======= ====== ====== =
See accompanying notes.
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2000 1999 1998
--------------------------------------
Operating activities:
Net income (loss) $ (15,324) $ 47,342 $ 40,081
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization....................... 125,041 96,038 78,665
Deferred income taxes............................... (3,990) 5,873 21,160
Other non-cash items................................ 4,324 7,573 1,358
Changes in operating assets and liabilities:
Receivables ........................................ (4,506) (21,197) (1,655)
Inventories ........................................ (15,191) (18,746) (4,356)
Prepaid expenses ................................... (2,466) 7,484 (4,712)
Accounts payable ................................... (10,168) 10,684 (3,353)
Air traffic liabilities ............................ 13,543 (2,465) 8,108
Accrued expenses ................................... 20,429 20,087 16,166
------ ------ ------
Net cash provided by operating activities ........... 111,692 152,673 151,462
------- ------- -------
Investing activities:
Proceeds from sales of property and equipment ........... 68 264 37,061
Capital expenditures .................................... (263,501) (274,300) (175,417)
Acquisition of businesses, net of cash acquired ......... -- 16,673 --
Additions to other assets ............................... (27,404) (48,355) (3,996)
Net cash used in investing activities ................... (290,837) (305,718) (142,352)
Financing activities:
Preferred stock dividends.................................. (375) -- --
Payments on short-term debt................................ -- -- (4,750)
Proceeds from sale/leaseback transactions.................. 10,791 6,890 350
Proceeds from long-term debt. ............................. 123,942 99,902 131,000
Payments on long-term debt ................................ (13,998) (1,590) (71,485)
Proceeds from stock option exercises ...................... 1,822 3,690 4,636
Proceeds from redeemable perferred stock .................. 80,000 -- --
Purchase of treasury stock ................................ (14,064) (8,619) (121)
------- ------ ----
Net cash provided by financing activities ................. 188,118 100,273 59,630
------- ------- ------
Increase (decrease) in cash and cash equivalents .......... 8,973 (52,772) 68,740
Cash and cash equivalents, beginning of period ............ 120,164 172,936 104,196
Cash and cash equivalents, end of period .................. $ 129,137 $ 120,164 $ 172,936
Supplemental disclosures:
Cash payments for:
Interest ............................................... $ 31,628 $ 24,411 $ 14,685
Income taxes ........................................... 579 11,910 7,897
Financing and investing activities not affecting cash:
Capital lease .......................................... $ 117 $ 2,729 --
Accrued capital interest ............................... $ 7,890 -- --
See accompanying notes.
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation and Business Description
The consolidated financial statements include the accounts of Amtran, Inc.
(the "Company") and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company operates principally in one business segment through American
Trans Air, Inc. ("ATA"), its principal subsidiary, which accounts for
approximately 90% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter
and scheduled passenger air services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are carried at cost and are primarily comprised of
investments in U.S. Treasury bills, commercial paper and time deposits
which are purchased with original maturities of three months or less (see
Note 2).
Inventories
Inventories consist primarily of expendable aircraft spare parts, fuel and
other supplies. Aircraft parts inventories are stated at cost and are
reduced by an allowance for obsolescence. The obsolescence allowance is
provided by amortizing the cost of the aircraft parts inventory, net of an
estimated residual value, over its estimated useful service life. The
obsolescence allowance at December 31, 2000 and 1999 was $13.1 million and
$10.3 million, respectively. Inventories are charged to expense when
consumed.
Revenue Recognition
Revenues are recognized when air transportation or other services are
provided. Customer flight deposits and unused passenger tickets sold are
included in air traffic liability. As is customary within the industry,
the Company performs periodic evaluations of this estimated liability, and
any adjustments resulting therefrom, which can be significant, are
included in the results of operations for the periods in which the
evaluations are completed.
Passenger Traffic Commissions
Passenger traffic commissions are recognized as expense when the
transportation is provided and the related revenue is recognized. The
amount of passenger traffic commissions paid but not yet recognized as
expense is included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets.
Property and Equipment
Property and equipment is recorded at cost and is depreciated to residual
value over its estimated useful service life using the straight-line
method. Advanced payments for future aircraft purchases are recorded at
cost. As of December 31, 2000 and 1999, the Company had recorded advanced
payments for future aircraft deliveries totaling $136.9 million and $20.4
million, respectively. The estimated useful service lives for the
principal depreciable asset classifications are as follows:
Asset Estimated Useful Service Life
Aircraft and related equipment
Lockheed L-1011 (Series 50 and 100) Depreciating to common retirement date of December
2004 (see Notes 11 and 12)
Lockheed L-1011 (Series 500) Depreciating to common retirement date of December
2010
Boeing 727-200 Depreciating to common retirement date of December
2008 (see Notes 11 and 12)
Boeing 757-200 All aircraft are subject to operating leases
Saab 340B All aircraft are subject to operating leases
Major rotable parts, avionics and assemblies Life of equipment to which applicable (generally
ranging from 5-18 years)
Improvements to leased flight equipment Period of benefit or term of lease
Other property and equipment 3-7 years
The costs of major airframe and engine overhauls are capitalized and
amortized over their estimated useful lives based upon usage (or to
earlier fleet common retirement dates) for both owned and leased aircraft.
Intangible Assets
Goodwill, which represents the excess of cost over fair value of net
assets acquired, is amortized on a straight-line basis over 20 years. The
Company periodically reviews the carrying amounts of intangible assets to
assess their continued recoverability in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. The Company's policy is to record an impairment loss in the period
when it is determined that the carrying amount of the asset may not be
recoverable.
Financial Instruments
The carrying amounts of cash equivalents, receivables and both
variable-rate and fixed-rate debt (see Note 4) approximate fair value. The
fair value of fixed-rate debt, including current maturities, is estimated
using discounted cash flow analysis based on the Company's current
incremental rates for similar types of borrowing arrangements.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
December 31,
2000 1999
-----------------------
(in thousands)
Cash $ 19,264 $ 19,831
Commercial paper 108,938 99,948
U.S. Treasury repurchase agreements 935 385
$ 129,137 $ 120,164
3. Property and Equipment
The Company's property and equipment consist of the following:
December 31,
2000 1999
-------------------------
(in thousands)
Flight equipment, including airframes, engines and other $ 826,036 $ 760,778
Advance payments for future aircraft deliveries 136,870 20,393
------- ------
Total flight equipment 962,906 781,171
Less accumulated depreciation 351,329 313,090
------- -------
611,577 468,081
------- -------
Facilities and ground equipment 111,825 92,060
Less accumulated depreciation 61,356 48,309
------ ------
50,469 43,751
------ ------
$ 662,046 $ 511,832
--------- ---------
4. Long-Term Debt
Long-term debt consists of the following:
December 31,
2000 1999
---------------------
(in thousands)
Unsecured Senior Notes, fixed rate of 10.50%, payable in August 2004 $ 175,000 $ 175,000
Unsecured Senior Notes, fixed rate of 9.625%, payable in December 2005 125,000 125,000
Aircraft deposit finance facilities, variable rates, payable upon
delivery of aircraft 89,875 --
City of Chicago variable-rate special facility revenue bonds, payable
in January 2029 16,960 16,960
Note payable to institutional lender, variable rate, payable in varying
installments through October 2005 11,075 --
Note payable to institutional lender, variable rate, payable in varying
installments through March 2005 10,083 --
Mortgage note payable to institutional lender, fixed rate of 8.75%,
payable in varying installments through June 2014 9,937 --
Mortgage note payable to institutional lender, fixed rate of 8.30%,
payable in varying installments through June 2014 7,595 7,886
City of Chicago variable-rate special facility revenue bonds, payable
in December 2020 6,000 6,000
City of Indianapolis advance -- 10,000
Other 6,424 7,025
----- -----
457,949 347,871
Less current maturities 82,476 2,079
------ -----
$ 375,473 $ 345,792
----------- -----------
In July 1997, the Company sold $100.0 million principal amount of
unsecured senior notes. The Company sold an additional $75.0 million
principal amount of these notes in December 1999. Interest on these notes
is payable on February 1 and August 1 of each year. The Company may redeem
the notes, in whole or in part, at any time on or after August 1, 2002,
initially at 105.25% of their principal amount plus accrued interest,
declining ratably to 100.0% of their principal amount plus accrued
interest at maturity. Prior to August 1, 2000, the Company had the right
to redeem, at any time, up to 35.0% of the original aggregate principal
amount of the notes with the proceeds of sales of common stock at a
redemption price of 110.5% of their principal amount plus accrued
interest, provided that at least $113.8 million in aggregate principal
amount of the notes remained outstanding after such redemption. The net
proceeds of the $100.0 million unsecured notes issued in 1997 were
approximately $96.9 million, after deducting costs and fees of issuance.
The Company used a portion of the net proceeds to repay in full the
Company's prior bank facility and used the balance of the proceeds for
general corporate purposes. The net proceeds of the $75.0 million
unsecured notes issued in 1999 were approximately $73.0 million after
deducting costs and fees of issuance, and were used for general corporate
purposes.
In December 1998, the Company sold $125.0 million principal amount of
unsecured senior notes. Interest on these notes is payable on June 15 and
December 15 of each year. The Company may redeem the notes, in whole or in
part, at any time on or after June 15, 2003, initially at 104.81% of their
principal amount plus accrued interest, declining to 102.41% of their
principal amount plus accrued interest on June 15, 2004, then to 100.0% of
their principal amount plus accrued interest at maturity. At any time
prior to June 15, 2001, the Company may redeem up to 35.0% of the
principal amount of the notes with the proceeds of one or more sales of
its common stock, at a redemption price of 109.625% of their principal
amount plus accrued interest, provided that at least $81.25 million
aggregate principal amount of the notes remains outstanding after such
redemption. The net proceeds of the $125.0 million unsecured notes were
approximately $121.0 million after deducting costs and fees of issuance.
The Company used the net proceeds for the purchase of Lockheed L-1011-500
aircraft, engines and spare parts, and, together with available cash and
bank facility borrowings, for the purchase of Boeing 727-200 aircraft,
engines, engine hushkits and spare parts.
In December 2000, the Company entered into three finance facilities to
fund pre-delivery deposits on the new Boeing 757-300 and Boeing 737-800
aircraft. The Company obtained the first facility from Banca Commerciale
Italiana. It provides up to $75.0 million in deposit funding, against
which the Company had borrowed $55.7 million as of December 31, 2000. The
Company obtained a second facility from General Electric Capital
Corporation. This facility provides for up to approximately $58.2 million
in pre-delivery deposit funding, against which the Company had borrowed
$14.3 million at December 31, 2000. The third facility, obtained from
Rolls-Royce, will fund up to $40.0 million in deposits, against which the
Company had borrowed $19.9 million as of December 31, 2000. Of the
aggregate amount of $89.9 million borrowed against the three facilities as
of December 31, 2000, $75.6 million has been classified as a current
liability because the amounts are payable upon delivery of aircraft in
2001. The remaining $14.3 million has been classified as a long-term
liability because the Company has obtained a commitment for lease
financing upon delivery of the related aircraft. Interest on these
facilities is payable monthly.
In December 1999, the Company issued $17.0 million in variable-rate
special facility revenue bonds through the City of Chicago. Interest on
the bonds is payable on the first of every month, and the principal is due
on January 1, 2029. Net proceeds from the bonds are being used to finance
costs related to designing, constructing, equipping and installing a
Federal Inspection Service facility at Chicago-Midway Airport.
On February 22, 2000, the Company borrowed $11.5 million, and on September
22, 2000, the Company borrowed an additional $11.5 million. Each of these
five-year notes is collateralized by one Lockheed L-1011-500 aircraft.
On September 29, 2000, the Company obtained a $10.0 million, 14-year loan,
secured by a mortgage on its maintenance facility at the Indianapolis
International Airport. The proceeds of the loan were used to repay an
advance received from the City of Indianapolis in December 1995 that
resulted from the sale/leaseback of the facility.
In June 1999, the Company obtained an $8.0 million loan secured by a
15-year mortgage on the new Maintenance and Operations Center. The
construction of the 120,000 square foot facility was completed in the
second quarter of 1999.
In December 1999, the Company amended its revolving bank credit facility
to provide for maximum borrowings of $100.0 million, including up to $50.0
million for stand-by letters of credit. ATA is the borrower under the
credit facility, which is guaranteed by the Company and each of the
Company's other active subsidiaries. The principal amount of the facility
matures on January 2, 2003, and borrowings are secured by certain Boeing
727-200 aircraft and certain Lockheed L-1011-50 and L-1011-100 aircraft
and engines. Borrowings under the facility bear interest, at the option of
ATA, at either LIBOR plus a margin or the agent bank's prime rate.
The unsecured senior notes, bank credit facility and other loans secured
by certain collateral are subject to restrictive covenants, including,
among other things, limitations on: the incurrence of additional
indebtedness; the payment of dividends; certain transactions with
shareholders and affiliates; and the creation of liens on or other
transactions involving certain assets. In addition, certain covenants
require specified financial ratios to be maintained.
Future maturities of long-term debt are as follows:
December 31, 2000
-----------------
(in thousands)
2001 $ 82,476
2002 19,982
2003 5,238
2004 180,124
2005 134,429
Thereafter 35,700
------
$ 457,949
---------
Interest capitalized in connection with long-term asset purchase
agreements and construction projects was $15.3 million and $6.1 million in
2000 and 1999, respectively.
5. Lease Commitments
At December 31, 2000, the Company had aircraft leases on one Lockheed
L-1011-100, 11 Boeing 727-200s, 15 Boeing 757-200s and 9 SAAB 340B
aircraft, which are operated by Chicago Express. The Lockheed L-1011-100
has an initial lease term of 60 months and expires in 2003. The Boeing
757-200s have initial lease terms which expire between 2001 and 2022. The
Boeing 727-200s have initial lease terms of 3 to 7 years and expire
between 2001 and 2003. The Saab 340B aircraft have initial lease terms of
9.5 years and expire between 2009 and 2010. The Company also leases six
engines for use on the Lockheed L-1011-500s and five engines for use on
the Boeing 757-200s. The L-1011-500 engine leases expire between 2006 and
2007, and the Boeing 757-200 engine leases expire from 2008 through 2011.
All aircraft and engine leases are accounted for as operating leases.
The Company is responsible for all maintenance costs on these aircraft and
engines, and it must meet specified airframe and engine return conditions
upon lease expiration.
As of December 31, 2000, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance
facilities, with lease terms that vary from 1.5 to 45 years and expire at
various dates through 2040. The lease agreements relating to the ground
facilities, which are primarily owned by governmental units or
authorities, generally do not provide for transfer of ownership, nor do
they contain options to purchase.
The Company leases its headquarters facility from the Indianapolis Airport
Authority under an operating lease agreement, which expires in December
2002. The agreement has an option to extend for five years. The Company is
responsible for maintenance, taxes, insurance and other expenses
incidental to the operation of the facilities.
Future minimum lease payments at December 31, 2000, for noncancelable
operating leases with initial terms of more than one year are as follows:
Facilities
Flight and Ground
Equipment Equipment Total
-------------------------------------------------
(in thousands)
2001 $ 75,510 $ 8,224 $ 83,734
2002 72,134 8,060 80,194
2003 66,404 7,899 74,303
2004 65,541 8,413 73,954
2005 65,541 6,222 71,763
Thereafter 638,402 37,440 675,842
------- ------ -------
$ 983,532 $ 76,258 $ 1,059,790
--------- -------- -----------
Rental expense for all operating leases in 2000, 1999 and 1998 was $88.0
million, $72.0 million and $62.7 million, respectively.
6. Income Taxes
The provision for income tax expense (credit) consisted of the following:
December 31,
2000 1999 1998
----------------------------------------
(In thousands)
Federal:
Current $ - $ 15,339 $ 6,403
Deferred (4,278) 10,889 18,102
------ ------ ------
(4,278) 26,228 24,505
State:
Current 328 1,284 686
Deferred (657) 2,943 1,938
---- ----- -----
(329) 4,227 2,624
---- ----- -----
Income tax expense (credit) $(4,607) $ 30,455 $ 27,129
-------- -------- --------
The provision for income taxes differed from the amount obtained by
applying the statutory federal income tax rate to income before income
taxes as follows:
December 31,
2000 1999 1998
---- ---- ----
(In thousands)
Federal income taxes at statutory rate $ (6,841) $ 27,175 $ 23,523
State income taxes, net of federal benefit (143) 1,997 1,711
Non-deductible expenses 1,872 1,578 1,234
Other, net 505 (295) 661
--- ---- ---
Income tax expense (credit) $ (4,607) $ 30,455 $ 27,129
-------- -------- --------
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the
financial statements. The principal temporary differences relate to the
use of accelerated methods of depreciation and amortization for tax
purposes. Deferred tax liability and asset components are as follows:
December 31,
2000 1999
----------------------
(In thousands)
Deferred tax liabilities:
Tax depreciation in excess of book depreciation $ 100,187 $ 84,505
Other taxable temporary differences 714 474
--- ---
Deferred tax liabilities 100,901 84,979
Deferred tax assets:
Tax benefit of net operating loss carryforwards 12,739 270
Alternative minimum tax and other tax credit carryforwards 15,813 18,611
Vacation pay accrual 4,552 3,839
Amortization of lease credits 1,830 1,897
Deferred gain on sale of fixed assets 12,959 3,411
Other deductible temporary differences 2,978 2,565
----- -----
Deferred tax assets 50,871 30,593
Deferred taxes classified as:
Current asset $ 4,473 $ 4,107
------- -------
Non-current liability $ 54,503 $ 58,493
-------- --------
At December 31, 2000, for federal tax reporting purposes, the Company had
approximately $32.5 million of net operating loss carryforward available
to offset future federal taxable income and $15.8 million of alternative
minimum tax and other tax credit carryforwards available to offset future
federal tax liabilities. The net operating loss carryforward expires in
2015. The alternative minimum tax and other tax credit carryforwards have
no expiration dates.
7. Retirement Plan
The Company has a defined contribution 401(k) savings plan which provides
for participation by substantially all the Company's employees who have
completed one year of service. The Company has elected to contribute an
amount equal to 50.0% in 2000, 45.0% in 1999, and 40.0% in 1998, of the
amount contributed by each participant up to the first six percent of
eligible compensation. Company matching contributions expensed in 2000,
1999 and 1998 were $3.9 million, $3.1 million and $2.3 million,
respectively.
In 1993, the Company added an Employee Stock Ownership Plan ("ESOP")
feature to its existing 401(k) savings plan. The ESOP used the proceeds of
a $3.2 million loan from the Company to purchase 200,000 shares of the
Company's common stock. The selling shareholder was the Company's
principal shareholder. Shares of common stock held by the ESOP were
allocated to participating employees annually for seven years, ending in
1999, as part of the Company's 401(k) savings plan contribution. The fair
value of the shares allocated during the year was recognized as
compensation expense. As the program ended in 1999, the Company recognized
no related compensation expense in 2000, but recognized $0.7 million in
both 1999 and 1998.
8. Shareholders' Equity
In 1994, the Company's Board of Directors approved the repurchase of up to
250,000 shares of the Company's common stock. In 1999, the repurchase of
an additional 600,000 common shares was approved. In the second half of
2000, the Board of Directors approved the repurchase of up to another
850,000 shares of the Company's common stock, allowing for a total of
1,700,000 repurchased common shares. As of December 31, 2000, the Company
had repurchased 1,696,355 common shares at a cost of $24.6 million.
The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorizes the grant of options for up to 900,000 shares of the Company's
common stock. The Company's 1996 Incentive Stock Plan for Key Employees
(1996 Plan) authorizes the grant of options for up to 3,000,000 shares of
the Company's common stock. The Company's 2000 Incentive Stock Plan for
Key Employees (2000 Plan) authorizes the grant of options for up to
3,000,000 shares of the Company's common stock. Options granted have 5 to
10-year terms and generally vest and become fully exercisable over
specified periods of up to three years of continued employment.
A summary of common stock option changes follows:
Number Weighted-Average
of shares Exercise Price
-------------------------------------
Outstanding at December 31, 1997 2,512,400 $ 9.39
--------- ------------
Granted 560,900 9.67
Exercised (545,347) 8.50
Canceled (157,700) 9.08
-------- ----
Outstanding at December 31, 1998 2,370,253 9.38
--------- ----
Granted 582,510 26.33
Exercised (431,075) 8.56
Canceled (28,528) 15.02
------- -----
Outstanding at December 31, 1999 2,493,160 13.41
--------- -----
Granted 638,550 15.69
Exercised (183,906) 8.61
Canceled (37,331) 17.88
------- -----
Outstanding at December 31, 2000 2,910,473 $ 14.19
========= ============
Options excercisable at December 31, 1999 1,077,554 $ 10.04
========= ============
Options excercisable at December 31, 2000 1,741,092 $ 11.51
--------- ------------
During 1996, the Company adopted the disclosure provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation (FAS 123) with
respect to its stock options. As permitted by FAS 123, the Company has
elected to continue to account for employee stock options following
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25) and related Interpretations. Under APB 25, because the
exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation
expense is recognized.
The weighted-average fair value of options granted during 2000 and 1999 is
estimated at $6.02 and $9.67 per share, respectively, on the grant date.
These estimates were made using the Black-Scholes option pricing model
with the following weighted-average assumptions for 2000 and 1999:
risk-free interest rate of 5.06% and 6.29%; expected market price
volatility of 0.51 and 0.46; weighted-average expected option life;
estimated forfeitures of 6.0% and 5.6%; and no dividends.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models use highly subjective assumptions, including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees' stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3
years). The Company's pro forma information follows:
2000 1999 1998
------------------------------------------
(In thousands, except per share data)
Net income (loss) available to common
shareholders as reported $ (15,699) $ 47,342 $ 40,081
Net income (loss) available to common
shareholders pro forma (19,527) 41,740 37,209
Diluted income (loss) per share as reported (1.31) 3.51 3.07
Diluted income (loss) per share pro forma (1.63) 3.10 2.85
Options outstanding at December 31, 2000, expire from January 2003 to
August 2010. A total of 2,826,183 shares are reserved for future grants as
of December 31, 2000, under the 1993, 1996 and 2000 Plans. The following
table summarizes information concerning outstanding and exercisable
options at December 31, 2000:
Range of Exercise Prices $7 - 11 $12 - 27
Options outstanding:
Weighted-Average Remaining Contractual Life 6.5 years 7.8 years
Weighted-Average Exercise Price $ 8.72 $ 19.71
Number 1,461,481 1,448,992
Options exercisable:
Weighted-Average Exercise Price $ 8.66 $ 19.87
Number 1,298,589 442,503
9. Redeemable Preferred Stock
On September 20, 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value ("Series B
Preferred"), at a price of $100,000 per share. The purchaser of the Series
B Preferred, International Lease Finance Corporation ("ILFC"), is entitled
to cumulative quarterly dividends at an annual rate of 5% on the
liquidation amount ($100,000 per share) of Series B Preferred.. The Series
B Preferred is convertible into shares of Amtran common stock at a
conversion rate of 6,381.62 shares of common stock per share of Series B
Preferred, at a conversion price of $15.67 per share of common stock,
subject to antidilution adjustments. The Series B Preferred is optionally
redeemable by the Company under certain conditions, but the Company must
redeem the Series B Preferred no later than September 20, 2015. Optional
redemption by the Company may occur at 103.6% of the liquidation amount
beginning September 20, 2003, decreasing 0.3% of the liquidation amount per
year to 100.0% of the liquidation amount at the mandatory redemption date
of September 20, 2015. Shares of Series B Preferred have the right to vote
on or consent to only the following matters (in addition to any voting
rights otherwise required by law): (1) amendments to the Company's Articles
of Incorporation which are adverse to the holders of Series B Preferred,
(2) if six quarterly dividends go unpaid, the owner of Series B Preferred,
together with the owner of Series A Preferred (as defined below) and the
owners of any other preferred stock ranking equal to Series B Preferred,
will be entitled to elect at the next annual shareholders meeting
twenty-five percent of the Company's Board of Directors, but no less than
two directors and (3) increases in the number of authorized shares of
Series B Preferred and authorizations of preferred stock ranking senior to
Series B Preferred. Votes will be allocated among holders of preferred
stock based on the percentage owned by each holder of the total liquidation
amount of all series of preferred stock.
On December 28, 2000, the Company issued and sold 500 shares of Series A
redeemable preferred stock, without par value ("Series A Preferred"), at a
price of $100,000 per share. The purchaser of the Series A Preferred,
Boeing Capital Corporation, Inc. ("BCC") is entitled to cumulative
semiannual dividends at an annual rate of 8.44% on the liquidation amount
($100,000 per share) of Series A Preferred. The Series A Preferred is
optionally redeemable by the Company under certain conditions, but the
Company must redeem the Series A Preferred in equal semiannual payments
beginning December 28, 2010, and ending December 28, 2015. Optional
redemption by the Company may occur at a redemption premium of 50.0% of the
dividend rate beginning December 28, 2003, decreasing 10.0% per year to
20.0% of the dividend rate commencing December 28, 2006, and to 0.0% after
the seventh year after issuance. Prior to the third anniversary of
issuance, the Company may redeem the Series A Preferred with net proceeds
of a public offering of the Company's common stock. Shares of Series A
Preferred have the right to vote on or consent to only the following
matters (in addition to any voting rights otherwise required by law): (1)
amendments to the Company's Articles of Incorporation which are adverse to
the holders of Series A Preferred, (2) if three semiannual dividends go
unpaid, the owner of Series A Preferred, together with the owner of Series
B Preferred and the owners of any other preferred stock ranking equal to
Series A Preferred, will be entitled to elect at the next annual
shareholders meeting, twenty-five percent of the Company's Board of
Directors, but no less than three directors, (3) approval of (a) an
acquisition by the Company or one of its subsidiaries of assets and
liabilities from a third party the net asset value of which equals ten
percent of the Company's net consolidated assets in its most recent
publicly available balance sheet or (b) a merger by the Company or one of
its subsidiaries with a third party involving an acquisition or disposition
of more than ten percent of the Company's consolidated net assets in its
most recent publicly available balance sheet (other than a disposition of
all the Company's L-1011 or Boeing 727 aircraft) that, in either case,
results in a downgrade of the Company's credit rating by Moody's to "C1" or
by Standard & Poor's to "C+", unless the Company offers to redeem the
Series A Preferred prior to that transaction at a price equal to the
liquidation amount plus accrued and unpaid dividends to the redemption date
and (4) increases in the number of authorized shares of Series A Preferred
and authorizations of preferred stock ranking senior to Series A Preferred.
Votes will be allocated among holders of preferred stock based on the
percentage owned by each holder of the total liquidation amount of all
series of preferred stock. The Company has the right on any date on which
dividends are payable to exchange in whole but not in part subordinated
notes for shares of Series A Preferred; the principal amount of any
exchanged subordinated notes will equal the liquidation amount of the
shares of Series A Preferred, plus any accrued and unpaid dividends.
10. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999 1998
-----------------------------------------------
Numerator:
Net income (loss) $(15,324,000) $47,342,000 $ 40,081,000
Preferred stock dividends (375,000) - -
--------
Income (loss) available to common
shareholders $(15,699,000) $47,342,000 $ 40,081,000
============ =========== ============
Denominator:
Denominator for basic earnings per share -
weighted average shares 11,956,532 12,269,474 11,739,106
Effect of dilutive securities:
Employee stock options - 1,200,063 1,327,116
Redeemable preferred stock - - -
Dilutive potential securities - 1,200,063 1,327,116
--------- ---------
Denominator for diluted earnings per share
- adjusted weighted average shares 11,956,532 13,469,537 13,066,222
========== ========== ==========
Basic earnings (loss) per share $ (1.31) $ 3.86 $ 3.41
========= ======== =========
Diluted earnings (loss) per share $ (1.31) $ 3.51 $ 3.07
========= ======== =========
11. Commitments and Contingencies
In 1998, the Company decided to extend the lives of the L-1011-50 and 100
aircraft through 2004 and, as a result, implemented a change in accounting
estimate to reflect December 31, 2004, as the common retirement date for
the entire fleet. With continuously increasing repair costs and the
fuel-inefficiency of this fleet, the Company has begun re-evaluating this
decision. The Company is considering retiring each L1011-50 and 100
aircraft prior to its next scheduled heavy maintenance check. To ensure
the correct economic decision, the Company is performing an extensive
analysis of expected revenue generation and operating cost of each
aircraft in this fleet. As of December 31, 2000, this analysis is not yet
complete. Two aircraft in the fleet are scheduled for heavy maintenance
checks in the first quarter of 2001. These aircraft cannot be operated
past these dates unless the necessary scheduled heavy maintenance is
performed. As of December 31, 2000, the Company is uncertain whether this
required maintenance will be performed or whether these two aircraft will
be retired. The net book value of these two aircraft less anticipated
salvage value was approximately $5.6 million as of December 31, 2000.
As of December 31, 2000, the Company owns 13 of its Boeing 727-200
aircraft and has operating leases on the other 11. Between 1997 and 2000
the Company signed several purchase agreements to acquire eight of the
leased Boeing 727-200 aircraft. The Company purchased three of these
aircraft in the fourth quarter of 2000. The remaining five aircraft are
scheduled to be purchased in the first quarter of 2001.
On May 4, 2000, the Company announced a series of preliminary agreements
to obtain 39 new Boeing 737-800 aircraft and ten new Boeing 757-300
aircraft, as well as the engines to power these new aircraft. The Company
also received purchase rights for an additional 50 aircraft and had
secured various financing commitments for all of the aircraft to be
obtained. During the second half of the year, the Company converted most
of these preliminary agreements into firm commitments. The Boeing 737-800
aircraft will be powered by General Electric CFM56-7B27 engines, and the
Boeing 757-300 aircraft will be powered by Rolls-Royce RB211-535 E4C
engines.
On June 30, 2000, the Company signed a definitive agreement with the
Boeing Company to purchase the ten new Boeing 757-300s and 20 of the new
Boeing 737-800s. These aircraft will be obtained directly from Boeing. The
manufacturer's list price is $73.1 million for each 757-300 and $52.4
million for each 737-800, subject to escalation. The Company's purchase
price for each aircraft is subject to various discounts. As of December
31, 2000, the Company has obtained firm lease financing for 18 of the 30
aircraft and has preliminary commitments for lease financing on the
remaining 12 aircraft. The ten Boeing 757-300s are scheduled for delivery
between July 2001 and May 2002. The 20 Boeing 737-800s are scheduled for
delivery between June 2001 and April 2003.
On September 20, 2000, the Company signed an agreement to lease 14 of the
new Boeing 737-800s from International Lease Finance Corporation ("ILFC").
In conjunction with this agreement, the Company also committed to the
purchase of two spare General Electric aircraft engines, which will also
be funded through lease financing from ILFC. The aircraft under this lease
agreement are scheduled for delivery between May 2001 and May 2004, while
the spare engines are scheduled for delivery in 2001.
On December 6, 2000, the Company signed an agreement to lease five of the
new Boeing 737-800s from GE Capital Aviation Services. The aircraft under
this lease agreement are scheduled for delivery from July 2001 through
July 2002.
On November 2, 2000, the Company signed an agreement for warranty and
ongoing maintenance services applicable to the General Electric engines
which will power all 39 Boeing 737-800 aircraft. Under this agreement, all
significant maintenance and overhauls will be provided in exchange for
fixed payments by the Company per engine flight hour over the life of the
agreement. The Company is currently negotiating a similar agreement with
Rolls Royce to cover the engines, which will power the Boeing 757-300
aircraft.
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.
12. Change in Accounting Estimate
In July 1998, the Company committed to the purchase of five Lockheed
L-1011-500 aircraft that were delivered between August 1998 and September
1999. In conjunction with this fleet expansion, the Company decided to
operate its existing fleet of Lockheed L-1011-50 and 100 aircraft through
December 2004, as opposed to previous retirement dates, which had ranged
from 2000 to 2002. The Company implemented this change in accounting
estimate effective July 1, 1998, which, in addition to extending the
estimated useful lives of the 13 owned aircraft and related engines,
overhauls and spare parts, also reduced the estimated salvage value for
these aircraft as of the common retirement date of December 2004.
This change in accounting estimate resulted in a reduction in depreciation
expense of $4.1 million in both the year ended December 31, 2000 and 1999
and $2.1 million in depreciation and amortization expense for the year
ended December 31, 1998, and resulted in an increase in net income of $3.1
million, $2.5 million and $1.2 million in the same periods. Basic and
diluted earnings per share for the year ended December 31, 2000, were both
increased by $0.26, while basic and diluted earnings per share for the
year ended December 31, 1999, were increased by $0.20 and $0.19,
respectively, and basic and diluted earnings per share for the year ended
December 31, 1998, were increased by $0.10 and $0.09, respectively.
In the first quarter of 1999, the Company purchased eight Boeing 727-200
aircraft, which had previously been financed through leases accounted for
as operating leases. As of the first quarter of 1999, the Company had also
completed the re-negotiation of certain contract terms on its remaining 15
leased Boeing 727-200 aircraft, which generally provided for the purchase
of these aircraft at the end of their initial lease terms, extending from
1999 to 2003. The Company complied with federal Stage 3 noise regulations
by installing hushkits on its entire fleet of 24 Boeing 727-200 aircraft,
which permits the Company to operate these aircraft after that date.
In the first quarter of 1999, the Company implemented a change in
accounting estimate to extend the estimated useful lives of capitalized
Boeing 727-200 airframes, engines, leasehold improvements and rotable
parts from the end of the initial lease terms of the related aircraft to
approximately 2008. This change in accounting estimate resulted in a
reduction of depreciation expense of $4.6 million for both years ended
December 31, 2000 and 1999, which resulted in an increase in net income of
$3.6 million and $2.8 million in 2000 and 1999, respectively. Basic and
diluted earnings per share for the year ended December 31, 2000, were both
increased by $0.30, while basic and diluted earnings per share for the
year ended December 31, 1999, were increased by $0.23 and $0.21,
respectively.
13. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and out-
standing stock of T. G. Shown Associates, Inc., which owns 50% of the
Amber Air Freight partnership. The Company already owned the other 50% of
the partnership.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent
tour operator. ATA had been providing passenger airline services to TCI
for over 14 years. TCI's results of operations, beginning February 1999,
were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area using the brand name of Key
Tours. ATA had been providing passenger airline services to Key Tours for
over 15 years. Beginning May 1999, the results of operations of Key
Tours' brand were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had a code-share agreement with Chicago Express since April 1997. Chicago
Express' results of operations, beginning May 1999, were consolidated
into the Company.
The Company paid approximately $16.1 million in cash and issued $1.3
million in stock for the purchase of all acquisitions discussed above
which were accounted for using the purchase method of accounting. The
Company evaluated the effect of the acquisitions on the financial
statements as if the acquisitions were effective January 1998, noting the
results of operations would not be materially different than reported.
14. Segment Disclosures
During 1999, the Company acquired several independent tour operator
businesses and combined their operations with the Company's existing
vacation package brand, ATA Vacations. (See Note 13.) These companies
comprise the ATA Leisure Corp. ("ATALC").
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the
sale of scheduled service or charter air transportation. ATALC derives
its revenues from the sale of vacation packages, which, in addition to
air transportation, include hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from ATA and other
airlines.
The Company's revenues are derived principally from customers domiciled
in the United States.
The most significant component of the Company's property and equipment is
aircraft and related improvements and parts. All aircraft are registered
in the United States. The Company therefore considers all property and
equipment to be domestic.
The United States government is the only customer that accounted for more
than 10.0% of consolidated revenues. U.S. government revenues accounted
for 14.6%, 11.2% and 13.3% of consolidated revenues for 2000, 1999 and
1998, respectively.
Segment financial data as of and for the years ended December 31, 2000,
1999 and 1998 follows:
For the Year Ended December 31, 2000
Other/
Airline ATALC Eliminations Consolidated
--------------------------------------------------------------------
(in thousands)
Operating revenue (external) $ 1,132,031 $ 95,357 $ 64,165 $1,291,553
Inter-segment revenue 58,140 3,212 (61,352) -
Operating expenses (external) 1,162,084 66,995 59,904 1,288,983
Inter-segment expenses 7,260 43,251 (50,511) -
Operating income (loss) 20,827 (11,677) (6,580) 2,570
Segment assets (at year-end) 1,109,042 180,154 (256,766) 1,032,430
For the Year Ended December 31,1999
Other/
Airline ATALC Eliminations Consolidated
-------------------------------------------------------------------
(in thousands)
Operating revenue (external) $ 972,081 $ 94,840 $ 55,445 $1,122,366
Inter-segment revenue 42,970 4,985 (47,955) -
Operating expenses (external) 919,833 69,925 42,581 1,032,339
Inter-segment expenses 7,045 32,516 (39,561) -
Operating income (loss) 88,173 (2,616) 4,470 90,027
Segment assets (at year-end) 821,373 69,800 (75,892) 815,281
For the Year Ended December 31, 1998
Other/
Airline ATALC Eliminations Consolidated
----------------------------------------------------------------------
(in thousands)
Operating revenue (external) $ 858,702 $ 21,485 $ 39,182 $ 919,369
Inter-segment revenue 24,620 (24,620) -
Operating expenses (external) 807,932 12,261 23,803 843,996
Inter-segment expenses 6,496 9,267 (15,763) -
Operating income (loss) 68,894 (43) 6,522 75,373
Segment assets (at year-end) 637,101 274 (42,826) 594,549
15. Fuel Price Risk Management
During 2000, 1999 and 1998, the Company entered into fuel hedge contracts
to minimize the risk of fuel price fluctuation. The extent to which fuel
has been hedged and the type of hedge instruments has varied. During 1998
and early 1999, the Company hedged fuel using swap agreements, which
establish specific swap prices for designated periods, and fuel cap
agreements, which guarantee a maximum price per gallon for designated
periods. During 2000, the Company again began entering into fuel hedge
contracts, this time exclusively hedging fuel price using heating oil
swaps.
The Company accounts for fuel hedge contracts in accordance with FASB
Statement of Financial Accounting Standards No. 80, Accounting for Futures
Contracts (FAS 80). According to FAS 80, changes in the market value of
the hedge contracts are recognized in income when the effects of related
changes in the price of the hedged item are recognized. Therefore, the
Company records gains or losses on fuel hedge contracts as a component of
fuel expense in the month of settlement. As of December 31, 2000, the
Company had contracts in place to protect approximately 13.6 million
gallons of fuel. The contracts have settlement dates from January 2001
through September 2001 and represent approximately 6.3% of the expected
fuel consumption during that period of time.
In addition to purchasing fuel-hedging contracts, the Company obtains fuel
price fluctuation protection from escalation clauses in certain commercial
charter, military charter, bulk scheduled service and mail contracts. In
June 1998, FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS
133), which is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company will adopt FAS 133 effective January 1,
2001.
FAS 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedge item is
recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
Based on the Company's derivative positions at December 31, 2000, the
adoption of FAS 133 will not have a material effect on the Company's
financial statements.
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
2000 Quarterly Financial Summary
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------------------
Operating revenues $321,366 $333,534 $ 347,301 $ 289,352
Operating expenses 318,802 314,912 332,610 322,659
Operating income 2,564 18,622 14,691 (33,307)
Other expenses (5,635) (6,073) (5,597) (5,196)
Income before income taxes (3,071) 12,549 9,094 (38,503)
Income taxes (credits) (1,117) 6,680 6,112 (16,282)
Net income (loss) (1,954) 5,869 2,982 (22,221)
Income (loss) available to common shareholders $ (1,954) $ 5,869 $ 2,982 $ (22,596)
Net income (loss) per common share - basic $ (0.16) $ 0.48 $ 0.25 $ (1.96)
Net income (loss) per common share - diluted $ (0.16) $ 0.46 $ 0.23 $ (1.96)
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
1999 Quarterly Financial Summary
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------------------
Operating revenues $277,909 $284,714 $ 302,921 $ 256,822
Operating expenses 248,950 254,284 275,851 253,254
Operating income 28,959 30,430 27,070 3,568
Other expenses (1,516) (3,603) (3,886) (3,225)
Income before income taxes 27,443 26,827 23,184 343
Income taxes (credits) 10,903 10,122 9,484 (54)
Income available to common shareholders $ 16,540 $ 16,705 $ 13,700 $ 397
Net income per common share - basic $ 1.36 $ 1.37 $ 1.10 $ 0.03
Net income per common share - diluted $ 1.22 $ 1.24 $ 1.01 $ 0.03
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No change of auditors or disagreements on accounting methods have occurred which
would require disclosure hereunder.
PART III
Item 10. Directors and Officers of the Registrant
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 29, 2001.
Item 11. Executive Compensation
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 29, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 29, 2001.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 29, 2001.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the
Company and its subsidiaries are included in Item 8:
o Consolidated Balance Sheets for years ended
December 31, 2000 and 1999
o Consolidated Statements of Operations for years
ended December 31, 2000, 1999 and 1998
o Consolidated Statements of Changes in Shareholders'
Equity for years ended December 31, 2000, 1999 and
1998
o Consolidated Statements of Cash Flows for years
ended December 31, 2000, 1999 and 1998
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The following consolidated financial information for the years 2000,
1999 and 1998 is included in Item 14(d):
Page
o Schedule II - Valuation and Qualifying Accounts 69
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Exhibits
Exhibits are filed as a separate section of this report
as set forth in the Index to Exhibits attached to this
report.
(b) Reports on Form 8-K
There were no Form 8-Ks filed during the quarter ended
December 31, 2000
(c) Exhibits
See the Index to Exhibits attached to this report.
(d) Financial Statement Schedule
See Schedule II - Valuation and Qualifying Accounts on next page.
Item 14d. Valuation and Qualifying Accounts Schedule II
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------
Additions
---------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts 1,682 1,492 - 2,011(1) 1,163
Allowance for obsolescence - Inventory 7,631 1,905 - 1,095(2) 8,441
Valuation allowance - Assets held for 200 - - 200(3) -
--- ---
Totals $ 9,513 $ 3,397 $ - $ 3,306 $ 9,604
======== ======== ====== ========= ========
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts 1,163 2,318 - 1,970(1) 1,511
Allowance for obsolescence - Inventory 8,441 1,872 - 22(2) 10,291
----- ----- -- ------
Totals $ 9,604 $ 4,190 $ - $ 1,992 $ 11,802
======== ======== ====== ========= =========
Year ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts 1,511 2,431 - 2,751(1) 1,191
Allowance for obsolescence - Inventory 10,291 3,466 - 645(2) 13,112
------ ----- --- ------
Totals $ 11,802 $ 5,897 $ - $ 3,396 $ 14,303
======== ======== ====== ========= =========
(1) Uncollectible accounts written off, net of recoveries
(2) Obsolescence allowance related to inventory items transferred to flight equipment or sold
(3) Valuation allowance related to parts sold
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTRAN, INC.
(Registrant)
Date by /s/ J. George Mikelsons
J. George Mikelsons
Chairman
On behalf of the Registrant and as
Director
Date /s/ John P. Tague
John P. Tague
President and Chief Executive Officer
Director
Date /s/ James W. Hlavacek
James W. Hlavacek
Executive Vice President and
Chief Operating Officer
Director
Date /s/ Kenneth K. Wolff
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer
Director
Date /s/ Robert A. Abel
Robert A. Abel
Director
Date /s/ William P. Rogers, Jr.
William P. Rogers, Jr.
Director
Date /s/ Andrejs P. Stipnieks
Andrejs P. Stipnieks
Director
Date /s/ David M. Wing
David M. Wing
Vice President and Controller
Chief Accounting Officer
Index to Exhibits
Exhibit No.
3.(i)(a) Restated Articles of Incorporation of Amtran, Inc. (incorporated by reference to Exhibit 3(a) to Amtran, Inc.'s
Registration Statement on S-1 dated March 16, 1993, File No. 33-59630).
3.(i)(b) Articles of Amendment to the Restated Articles of Incorporation adopted as of September 19, 2000.
3.(i)(c) Articles of Amendment to the Restated Articles of Incorporation adopted as of December 28, 2000
3(ii) Bylaws of Amtran, Inc., as amended, (incorporated by reference to Exhibit 3(b) to Amtran, Inc.'s Registration
Statement on S-1 dated March 16, 1993, File No. 33-59630).
4.1 Indenture dated as of July 24, 1997, by and among Amtran, Inc., as issuer, American Trans Air, Inc., Ambassadair
Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air Training Corporation, American
Trans Air Execujet, Inc. and Amber Air Freight Corporation, as guarantors, and First Security Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Amtran, Inc.'s Registration Statement on S-4 dated October 6, 1997, File
No. 333-37283).
4.2 Indenture dated as of December 11, 1998, by and among Amtran, Inc., as issuer, American Trans Air, Inc.,
Ambassadair Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air Training Corporation,
American Trans Air Execujet, Inc. and Amber Air Freight Corporation, as guarantors, and First Security Bank,
N.A., as trustee (incorporated by reference to Exhibit 4.4 to Amtran, Inc.'s Registration Statement on S-3 dated
August 26, 1998, File No. 333-52655).
4.3 First Supplemental Indenture dated as of December 11, 1998, by and among Amtran, Inc., as issuer, American
Trans Air, Inc., Ambassadair Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air
Training Corporation, American Trans Air Execujet, Inc. and Amber Air Freight Corporation, as guarantors, and First
Security Bank, N.A., as trustee, to the Indenture dated as of December 11, 1998 (incorporated by reference to
Exhibit 4.4 to Amtran, Inc.'s Registration Statement on S-3 dated August 26, 1998, File No. 333-52655).
4.4 First Supplemental Indenture dated as of December 21, 1999, by and among Amtran, Inc., as issuer, American
Trans Air, Inc., Ambassadair Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air
Training Corporation, American Trans Air Execujet, Inc. and Amber Air Freight Corporation, Chicago Express
Airlines, Inc., as guarantors, and First Security Bank, N.A., as trustee, to the Indenture dated as of
July 24, 1997 (incorporated by reference to Exhibit 4.1 to Amtran, Inc.'s Registration Statement on S-4 dated
January 25, 2000, File No. 333-95371).
4.5 Pass Through Trust Agreement, dated as of February 15, 2000, between American Trans Air, Inc. and Wilmington
Trust Company, as Trustee, made with respect to the formation of American Trans Air 2000-1G-O Pass Through Trust
and the issuance of 8.039% Initial American Trans Air 2000-1G-O Pass Through Trust Certificates and 8.039%
Exchange American Trans Air 2000-1G-O Pass Through Certificates (incorporated by reference to Exhibit
4.5 to Amtran, Inc.'s Registration Statement on S-4 dated August 11, 2000, File No. 333-43606).
4.6 Pass Through Trust Agreement, dated as of February 15, 2000, between American Trans Air, Inc. and Wilmington
Trust Company, as Trustee, made with respect to the formation of American Trans Air 2000-1G-S Pass Through
Trust and the issuance of 8.039% Initial American Trans Air 2000-1G-S Pass Through Certificates and 8.039% Exchange
American Trans Air 2000-1G-S Pass Through Certificates (incorporated by reference to Exhibit 4.6 to Amtran,
Inc.'s Registration Statement on S-4 dated August 11, 2000, File No. 333-43606).
4.7 Pass Through Trust Agreement, dated as of February 15, 2000, between American Trans Air, Inc. and Wilmington
Trust Company, as Trustee, made with respect to the formation of American Trans Air 2000-1C-O Pass Through
Trust and the issuance of 9.644% Initial American Trans Air 2000-1C-O Pass Through Certificates and 9.644% Exchange
American Trans Air 2000-1C-O Pass Through Certificates (incorporated by reference to Exhibit 4.7 to
Amtran, Inc.'s Registration Statement on S-4 dated August 11, 2000, File No. 333-43606).
4.8 Pass Through Trust Agreement, dated as of February 15, 2000, between American Trans Air, Inc. and Wilmington
Trust Company, as Trustee, made with respect to the formation of American Trans Air 2000-1C-S Pass Through
Trust and the issuance of 9.644% Initial American Trans Air 2000-1C-S Pass Through Certificates and 9.644%
Exchange American Trans Air 2000-1C-S Pass Through Certificates (incorporated by reference to Exhibit 4.8
to Amtran, Inc.'s Registration Statement on S-4 dated August 11, 2000, File No. 333-43606).
4.9 Purchase and Investor Rights Agreement dated as of December 13, 2000, between Amtran, Inc. and Boeing Capital
Corporation.
4.10 Purchase and Investor Rights Agreement dated as of September 19, 2000, between Amtran, Inc. and International Lease
Finance Corporation.
4.11 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1996-1A Pass
Through Trust and the issuance of 7.37% American Trans Air 1996-1A Pass Through Trust Certificates.
4.12 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1996-1B Pass
Through Trust and the issuance of 7.64% American Trans Air 1996-1B Pass Through Trust Certificates.
4.13 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1996-1C Pass
Through Trust and the issuance of 7.82% American Trans Air 1996-1C Pass Through Trust Certificates.
4.14 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1A-O Pass
Through Trust and the issuance of 6.99% American Trans Air 1997-1A-O Pass Through Trust Certificates.
4.15 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1A-S Pass
Through Trust and the issuance of 6.99% American Trans Air 1997-1A-S Pass Through Trust Certificates.
4.16 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1B-O Pass
Through Trust and the issuance of 7.19% American Trans Air 1997-1B-O Pass Through Trust Certificates.
4.17 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1B-S Pass
Through Trust and the issuance of 7.19% American Trans Air 1997-1B-S Pass Through Trust Certificates.
4.18 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1C-O Pass
Through Trust and the issuance of 7.46% American Trans Air 1997-1C-O Pass Through Trust Certificates.
4.19 Pass Through Trust Agreement, dated as of December 23, 1997, between Amtran, Inc., American Trans Air, Inc. and
Wilmington Trust Company, as Trustee, made with respect to the formation of American Trans Air 1997-1C-S Pass
Through Trust and the issuance of 7.46% American Trans Air 1997-1C-S Pass Through Trust Certificates.
4.20 Form of Common Stock Certificate of Amtran, Inc. (incorporated by reference to Exhibit 4 to Amtran, Inc.'s
Registration Statement on S-1 dated March 16, 1993, File No. 33-59630).
4.21 Form of Series A1 Preferred Stock Certificate of Amtran, Inc.
4.22 Form of Series B Preferred Stock Certificate of Amtran, Inc.
4.23 Form of 1996 Class A American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.11).
4.24 Form of 1996 Class B American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.12).
4.25 Form of 1996 Class C American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.13).
4.26 Form of 1997 Class A American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.14).
4.27 Form of 1997 Class B American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.16).
4.28 Form of 1997 Class C American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.18).
4.29 Form of 2000 Class G American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.5).
4.30 Form of 2000 Class C American Trans Air, Inc. Pass Through Certificates (included in Exhibit 4.7).
4.31 Amtran, Inc. hereby agrees to furnish to the Commission, upon request, copies of certain additional
instruments relating to long-term debt of the kind described in Item 601(b)(4)(iii)(A) of Regulation S-K.
10.1 1993 Incentive Stock Plan for Key Employees of Amtran, Inc. and its Subsidiaries (incorporated by reference to
Exhibit 10(r)(r) to Amtran, Inc.'s Registration Statement on S-1 dated March 16, 1993, File No. 33-59630).
10.2 1996 Incentive Stock Plan for Key Employees of Amtran, Inc. and its Subsidiaries (incorporated by
reference to Amtran, Inc.'s Registration Statement on S-8 dated June 20, 1997, File No. 333-29715).
10.3 2000 Incentive Stock Plan for Key Employees of Amtran, Inc. and its Subsidiaries (incorporated by
reference to Exhibit A to Amtran, Inc.'s Proxy Statement dated April 5, 2000).
10.4 Stock Option Plan for Non-Employee Directors (incorporated by reference to Appendix A to Amtran, Inc.'s Proxy
Statement dated April 15, 1994).
10.5 Aircraft General Terms Agreement dated as of June 30, 2000, between The Boeing Company ("Boeing") and
American Trans Air, Inc.; Purchase Agreement Number 2285 dated as of June 30, 2000, between
Boeing and American Trans Air, Inc.; Purchase Agreement Number 2262 dated as of June 30, 2000,
between Boeing and American Trans Air, Inc. *
10.6(a) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(b) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(c) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(d) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(e) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(f) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(g) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(h) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(i) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(j) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(k) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(l) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(m) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.6(n) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran, Inc. and International
Lease Finance Corporation. *
10.7 Aircraft Financing Agreement dated as of December 6, 2000, between Amtran, Inc. and General
Electric Capital Corporation. *
21 Subsidiaries of Amtran, Inc.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
*Portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately
with the Securities and Exchange Commission.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-52655) of Amtran, Inc. and its
subsidiaries and in the related Prospectus, in the Registration
Statement (Form S-8 No. 33-65708) pertaining to the 1993 Incentive
Stock Plan for Key Employees of Amtran, Inc. and its subsidiaries
and in the Registration Statement (Form S-3 No. 333-86791) of
Amtran, Inc. and its subsidiaries and in the related Prospectus of
our report dated January 23, 2001, with respect to the
consolidated financial statements and schedule of Amtran, Inc.,
included in the Annual Report (Form 10-K) for the year ended
December 31, 2000.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 28, 2001